Read Online The Eastern Front 1914-1917 by Norman Stone - Free Book Online
Authors: Norman Stone
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spent $27,800,000 per day in wartime, more even than France or Great Britain. 4 To meet these demands, the government borrowed—partly from the Russian public, through war-loan, partly from its allies, and partly by ‘short-term obligations of the State Treasury’, usually discounted by the State Bank. The result was a very great rise in the amount of circulating mone:
Russian Public Finance 1914–1917
(thousand million roubles, rounded to the nearest hundred million)
Year
Money (all types) in circulation
% rise
price-index
1914: 1st half:
2.4
(100)
(100)
1915: 1st half:
3.5
146
115
1916: 1st half:
6.2
199
141
1916: 2nd half:
8.0
336
398
1917: 1st half:
11.2
473
702
1917: 2nd half:
19.2
819
1,172
In these circumstances, formal maintenance of the gold standard became almost laughable. Russian gold covered less than 2,000 million roubles, and although there was a theoretical loan from Great Britain of a further2,000 million roubles’ worth of gold, the gold itself stayed in the Bank of England—or rather, would have done if the British had had it. Rapidly-expanding money supply, however much men might bewail it, at least secured a much higher level of economic activity than before, was indeed an inevitable concomitant of progress. It generated something of a boom, in which public demand for money came to exceed even the State’s willingness to provide it. *
But whatever the immediate, short-term benefits attached to this new policy, it brought about an inflation that went far beyond the experience of any other country in wartime. Prices, overall, rose almost four times by January 1917, and over ten times before the Bolshevik Revolution. The increase in money-supply was not alone responsible; its effects were greater because the structure of the economy was such as to make inflation considerable once the government abandoned its strict monetary policy. The decline of the rouble on foreign exchanges, the rise in basic costs such as transport, shortages that could be exploited by profiteers, the need for firms to obtain relatively scarce skilled labour by offering higher and higher wages, monopolies’ tendency to go for quick profits in an era of uncertainty, all made for inflation’s being more marked in Russia than in other countries. Finally, the inflation became self-generating, since prices came to include their own counter-inflationary mark-up. The government did attempt to control prices: but the attempt was based on incomprehension of the problem, epitomised by the Governor-General of Turkestan’s Saturday visits to the bazaars, and public horsewhipping of traders found to be exceeding his—unpredictable—price-norms. In industrial matters, government—monopoly combinations came into existence in an effort to stop the great traders from hoarding against inflation; but with food, and millions of peasant households, this system did not work at all, and merely dried up supplies unless the government were prepared to equalise its maximum price with the farmers’ minimum one. Price-control could work, even modestly, only if accompanied by subsidies; and yet the government’s own policy excluded these. Public prices and private prices grew apart, and the background to revolution in 1917 was one of vast queues in the shops, shortages everywhere, and a flourishing black-market.
The government barely understood what was happening, and certainlylacked the statistical apparatus that might have produced a more suitable policy. It fell back on standard remedies: attempts to restore confidence by raising the exchange-value of the rouble; blaming of ‘speculators’ — i.e. Jews or Germans; in summer 1917, blundering attempts to get the trade-unions to restrict their members’ wage-demands—which merely resulted in a loss of confidence in Menshevik trade-union leaders. There was constant talk of somehow absorbing the excess paper-money that was held to be responsible for the
Russian Public Finance 1914–1917
(thousand million roubles, rounded to the nearest hundred million)
Year
Money (all types) in circulation
% rise
price-index
1914: 1st half:
2.4
(100)
(100)
1915: 1st half:
3.5
146
115
1916: 1st half:
6.2
199
141
1916: 2nd half:
8.0
336
398
1917: 1st half:
11.2
473
702
1917: 2nd half:
19.2
819
1,172
In these circumstances, formal maintenance of the gold standard became almost laughable. Russian gold covered less than 2,000 million roubles, and although there was a theoretical loan from Great Britain of a further2,000 million roubles’ worth of gold, the gold itself stayed in the Bank of England—or rather, would have done if the British had had it. Rapidly-expanding money supply, however much men might bewail it, at least secured a much higher level of economic activity than before, was indeed an inevitable concomitant of progress. It generated something of a boom, in which public demand for money came to exceed even the State’s willingness to provide it. *
But whatever the immediate, short-term benefits attached to this new policy, it brought about an inflation that went far beyond the experience of any other country in wartime. Prices, overall, rose almost four times by January 1917, and over ten times before the Bolshevik Revolution. The increase in money-supply was not alone responsible; its effects were greater because the structure of the economy was such as to make inflation considerable once the government abandoned its strict monetary policy. The decline of the rouble on foreign exchanges, the rise in basic costs such as transport, shortages that could be exploited by profiteers, the need for firms to obtain relatively scarce skilled labour by offering higher and higher wages, monopolies’ tendency to go for quick profits in an era of uncertainty, all made for inflation’s being more marked in Russia than in other countries. Finally, the inflation became self-generating, since prices came to include their own counter-inflationary mark-up. The government did attempt to control prices: but the attempt was based on incomprehension of the problem, epitomised by the Governor-General of Turkestan’s Saturday visits to the bazaars, and public horsewhipping of traders found to be exceeding his—unpredictable—price-norms. In industrial matters, government—monopoly combinations came into existence in an effort to stop the great traders from hoarding against inflation; but with food, and millions of peasant households, this system did not work at all, and merely dried up supplies unless the government were prepared to equalise its maximum price with the farmers’ minimum one. Price-control could work, even modestly, only if accompanied by subsidies; and yet the government’s own policy excluded these. Public prices and private prices grew apart, and the background to revolution in 1917 was one of vast queues in the shops, shortages everywhere, and a flourishing black-market.
The government barely understood what was happening, and certainlylacked the statistical apparatus that might have produced a more suitable policy. It fell back on standard remedies: attempts to restore confidence by raising the exchange-value of the rouble; blaming of ‘speculators’ — i.e. Jews or Germans; in summer 1917, blundering attempts to get the trade-unions to restrict their members’ wage-demands—which merely resulted in a loss of confidence in Menshevik trade-union leaders. There was constant talk of somehow absorbing the excess paper-money that was held to be responsible for the
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