Read Online The Eastern Front 1914-1917 by Norman Stone - Free Book Online Page B

one moreover that suited the economics of 1915, i.e. patriotism plus six per cent. But for a variety of reasons, the war-loans not only failed, but may even have added to the stock of circulating paper-money. In an inflationary situation, few propertied Russians would be fool enough to subscribe to fixed-interest, long-dated government bonds. The loans became shorter in term—from forty-nine years to ten—and the true rate of interest rose from five to over six per cent, or even more if they were allowed against tax. Commission alone reduced the value of the loans by almost a thousand million roubles. Even so, the loans hardly worked, and Peter Bark confessed that they did so only through ‘a book-keeping operation’. The State Bank was already advancing money to the private banks against securities, in the usual way. War-loan was allowed to count as such security, so that if a bank acquired war-loan, it could get its money back at once, by using the loan ascollateral. Moreover, there was little difference between the interest that the private bank would be paying for its loan to the State Bank, and the interest that it was itself acquiring from its war-loan; indeed, for the first three months, the rate of interest on war-loan was actually greater, through devices of various sorts, than the rate on bank-loan, so that the banks were often better-off at no expense to themselves. The banks took a nominal 4,000 million roubles’ worth of war-loan, from which their commissions were deducted; they also took 3,700 million roubles of credit from the State Bank. The war-loan operations thus barely dented circulating paper-money, and may even have left the wealthier classes slightly better-off. The governments could rely only on the printing-press: ‘short-term obligations of the State Treasury’, discounted almost exclusively by the State Bank, which held eighty per cent of them, and forced the rest onto clients not in a position to resist. In theory, these obligations accounted for two-fifths of wartime expenditure; but in effect they also covered the third also alleged to have come from war-loan, and the credit-structure, vital to the maintenance of a capitalist economy, began to sag and collapse. The Tsarist government had put up the money-supply to over ten thousand million roubles by January 1917. The Provisional Government doubled it, to almost twenty thousand million by September 1917, until a classic situation of uncontrollable inflation resulted—wage-demands, bank-credits, government money-supply chasing each other until
it is impossible to say which is the cause and which is the effect… The Central Bank is compelled to supply the public sector with a growing volume of funds, while commercial banks are forced to expand loans to the private sector at an accelerated pace, and wages and salaries have to be raised again and again. The three factors originally responsible for the inflationary spiral appear to be simply… passive elements in an uncontrollable process. 11
    Russians might have resisted Bolshevism if there had been a real alternative; but the collapse of capitalism was there for all to see. Wages became meaningless: strikes came, one after another, and caused a fall of fifty per cent in industrial production in the summer of 1917.
    The principal problem in all of this was that wages could not be translated into food. Industry had done well enough from the inflation, at least in its earlier stages, before the autumn of 1916. Agriculture was not in a position to profit nearly as much, and the result of inflation was to drive the bulk of food-producers back into the subsistence-economy from which they had only recently emerged, if at all. Food-deliveries to thetowns ran down after November, 1916; Petrograd had, when the March Revolution occurred, only a few days’ grain-reserves, and the bread-riots that sparked off the revolution continued to detonate revolutionary explosions throughout the summer and