The financial problem assumed menacing proportions for the government. In July and August the war devoured the tremendous sum of 66,600,000 roubles daily. According to the calculations of the capitalist Bublikov, at the beginning of July anticipated expenditures of from 12,000,000,000 to 14,000,000,000 roubles had no “definite cover.”(1) The exchange value of the rouble rapidly declined. During Kerensky’s administration the rouble fell twice as rapidly as in 1916. It depreciated 25 per cent in five months. Bank deposits diminished by over 1,000,000,000 roubles. Beginning with April the influx of deposits practically ceased. Amounting to 3,050,000,000 roubles on March 1, they dropped to 1,630,000,000 roubles on October 1. Whereas in 1916 paper money had been issued to the amount of 1,500,000,000 roubles, during five months of existence of the Provisional Government paper money was issued to an amount of 4,500,000,000 roubles. The country was swamped by a flood of currency notes—“Kerenkies”—as they were called. The financial system was being rent and shattered like a ship caught in the ice. The financial policy of the government, which sought salvation in printing paper money, aroused the indignation even of Ryabushinsky. He regarded it—and quite rightly—as a continuation of the policy of the old régime and declared that it would “win favour” with nobody.
The falling rouble was driving industry, and economic life generally, into the abyss of a new crisis. The government sought to avert financial collapse, but could think of nothing better to do than to speed up the printing presses. In a fit of desperation, the bourgeois professor, Tugan-Baranovsky, proposed levying a compulsory loan on the capitalists. Professor Ganzel calculated that the loan might yield 10,000,000,000 roubles. But the bourgeois press came down on these reckless daredevils and compelled them to hold their peace. A conference summoned by the Ministry of Finance expressed hostility to such a loan on the grounds that “existing direct taxation was heavy enough.” Having defeated the attempt at taxing the bourgeoisie indirectly by means of a loan, the bourgeois press proposed that indirect taxation on the working population be increased. On August 3, the Torgovo-Promyshlennaya Gazeta—the organ of the manufacturers and mill-owners—declared that the important thing in the new stage was not direct but indirect taxation.
“A new stage in fiscal reform is beginning: energetic efforts must be devoted to excise and monopoly. One may be opposed to indirect taxation in principle, but the inevitability of an increase in indirect taxation must be admitted.”(2)
Pointing to the queues in front of the shops, the author of the article declared that the population was prepared to pay, “because it had plenty of money to spare.”(3) As a matter of fact, the population had no money to spare—there was simply a shortage of foodstuffs and goods and the workers were driven to sell everything they had to avoid starvation.
The Torgovo-Promyshlennaya Gazeta bluntly declared on August 3:
“The increase in the scales of indirect taxation by no means corresponds to the increased nominal purchasing power of the population, especially of the working class.”(4)
And the newspaper demanded of the government that:
“The attention of the Ministry of Finance must be directed to the necessity of increasing excise duties and instituting new fiscal monopolies.”(5)
The government immediately responded to this demand of the bourgeoisie. On August 6 Rech published an interview with N. V. Nekrasov, the Minister of Finance, in which the latter declared:
“In view of the huge expenditures it will prove necessary to increase indirect taxation. Furthermore the institution of new State monopolies, on sugar, matches and tea, is unavoidable.”(6)
In a report he made to the Council of State, Nekrasov broadly developed his proposals. In reference to direct taxes he said that “they must leave the economic apparatus of industry intact,”(7) that is to say, that if anything they ought to be reduced; but as regards indirect taxation, the Minister had something entirely different to say:
“Without an increase—a serious and considerable increase—in indirect taxation we shall at present get nowhere.”(8)
Furthermore, the Minister made it clear to the bourgeoisie that in respect to the sugar and other monopolies:
“We regard these measures as definitely fiscal and deem it necessary to adopt them for the purpose of a better and more complete procurement of revenues, and we by no means regard them as a systematic endeavour to resist private business initiative.”(9)
Nekrasov explicitly stated that the monopolies on articles of general consumption were intended to regulate the incomes of the toilers and not those of the capitalists. This was a regular programme of Kornilovism in the sphere of financial policy. The representatives of the “revolutionary democracy” on the Council of State, in the person of the “Socialist” Chkheidze, endorsed the Minister’s arguments on indirect taxation.
An appeal issued by the Soviets of Workers’ and Soldiers’ Deputies also declared that it was necessary for the whole population to make serious sacrifices in order to avert financial disaster.
Every promise of the Minister of Finance was faithfully observed by the government. In September, the Ministry of Finance submitted a bill postponing the levy to 1918 and reducing income tax. These measures met with the full approval of the government. In addition, the Special Council of Defence moved to issue advances to the capitalists in anticipation of a future increase of prices. In September a sugar monopoly was instituted and railway freight rates were increased many times over. A government declaration of September 25 stressed the importance of indirect taxes and the necessity of increasing them. In the middle of October the Ministry of Finance submitted proposals for the introduction of several other monopolies: on matches, cheap tobacco (makhorka), coffee and tea. Thus it was articles of general consumption which were selected for these monopolies. The intention being to plunder the working population. The tea monopoly used to net a profit of 150,000,000 or 160,000,000 roubles, but now the government planned to secure 740,000,000 roubles from it. The government expected to squeeze a net 207,000,000 roubles from the working people on matches alone.
The increase of prices made at the instance of the capitalists had another consequence—a steady increase in the issue of paper money. Paper money to an amount of 476,000,000 roubles was issued in April and to an amount of 1,954,400,000 roubles in September, an increase of over 300 per cent. In October, paper currency in circulation increased by another 1,933,500,000 roubles. The very appearance of the notes issued by the Provisional Government, the “Kerenkies,” was an eloquent commentary on the financial policy of the bourgeoisie. They were small oblongs of paper with the inscription “20 rubles” or “40 rubles” and bore no signature, date, or number. As a result of the feverish activity of the printing press, the rouble lost 37 per cent of its value in the period August-October, or half as much again as during the first five months of the revolution. The workers were paid wages in “falling roubles”—money that simply melted away in their hands. By October the dollar exchange of the rouble had dropped 53 per cent. The depreciation of the currency went into a “tail spin,” dragging the rouble down at headlong speed. The purchasing power of the rouble barely amounted to ten pre-war copecks. The steady issue of paper money encouraged profiteering and enabled the capitalists to earn huge profits. From month to month, the real value of wages was forced down by this flood of paper money, while indirect taxation consumed what was left. The fiscal policy of the Provisional Government left the bourgeoisie unscathed, but sapped the last ounce of strength out of the masses. The government tried to localize the financial crisis by a stream of paper money. But just as you cannot extinguish a burning house by pouring oil on it, so the financial collapse could not be averted by the printing press. The financial crisis accelerated the economic collapse. The government was leading the country to disaster.
[1] The Bourgeoisie and the Landlords in 1917. Private Conferences of Members of the State Duma, Moscow, 1932, p. 138.
[2] Editorial article in Torgovo-Promyshlennaya Gazeta, No. 166, August 3, 1917.
[3] Ibid.
[4] Ibid.
[5] Ibid.
[6] “A Financial Plan,” Rech, No. 183, August 6, 1917.
[7] Central Archives, The Council of State, Moscow, 1930, p. 40.
[8] Ibid., p. 40.
[9] Ibid., p. 41.
Previous: Capitalist Sabotage
Next: Transport Disorganisation