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of Russia’s overall backwardness. The lessons of defeat forced the government of Alexander II to embark on radical changes in Russia’s economic and financial systems.

The era of Great Reforms

In the summer of 1859 advocates of radical change in the Finance Ministry prepared a monetary and credit reform. The decision was made to abolish state treasury banks. In that same year, Jewish merchants of the first guild were allowed to settle outside the Jewish Pale and the practice of accepting serfs, or ‘living collateral’, for credit to landowners was ended. On 26 December 1859 the Loan Bank no longer accepted deposits. The Commercial Bank accepted deposits until 1 July 1860. The supporters of financial and economic reforms in the Ministry of Finance were influenced by Western European economic theories, in particular, by the ideas of Saint-Simon on the all-powerful role of credit in industrial development. Relying on this theory, the famous bankers Isaac and Emile Pereire founded the major joint-stock bank Societ´e´ Gen´erale´ de Credit´ Mobilier in 1852, which was closely connected with the government of Napoleon III. This new-generation financial enterprise actively engaged in railroad construction in France, Austria, Hungary, Switzerland, Spain and Russia. The extraordinary sweep of its operations drew attention, and the bank served as a model for similar institutions across Europe. The idea of credit’s omnipotence conquered Russia as well and helped drive the development of private commercial credit, and later joint-stock credit.

On 31 May 1860 the State Bank was established, marking the beginning of a new banking system in Russia. The State Bank was located in St Petersburg, in the building of the old Paper Money Bank. The State Bank became a distinctive symbol of the empire’s financial strength. Its basements housed Russia’s gold reserves. From the moment of its creation, the State Bank was under the authority of the Ministry of Finance. Its resources were used for important state needs. It was supposed to promote the development of trade and monetary circulation. It was allowed to discount promissory notes and other obligations, to buy and sell gold, silver and state bonds, to accept deposits and give out loans. The State Bank quickly became the ‘bank of banks’, and allowed the government to influence the economy and banking. The State Bank was commercial, and not a bank of issue: new bank-notes were released only at the order of the Finance Ministry. The main source of income for the State Bank was deposits at a 4 per cent interest rate. The first director of the State Bank was Alexander Stieglitz, the last court banker.

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The Stieglitz banking house grew up in the 1830s and early 1840s. In 1840 the Russian Finance Ministry took out a series of 4 per cent loans. The intermediary between the Russian government and the bankers of Amsterdam, London and Berlin was Ludwig Stieglitz, and after his death in 1843, Alexander Stieglitz. Alexander did much to make his banking house prosper. He established relations with the London banking house Baring Brothers and Co. and through them in 1849 a loan was secured to complete a railway from St Petersburg to Moscow. The most important loans during the Crimean War were also secured by Alexander Stieglitz.

Before the beginning of railway construction in Russia, foreign loans mainly were used to cover military expenditures and to support monetary circulation. Railway construction gave birth to a new category of loans. Railway companies’ loans often were guaranteed by the state. In 1857 Alexander Stieglitz helped to found the Main Society of Russian Railways, which was formed to build and operate a planned 4,000 versts of railroad lines. These railway lines were supposed to connect Russia’s farmlands with Petersburg, Moscow, Warsaw and the coasts of the Baltic and Black seas. Bankers from Warsaw, London, Amsterdam and Paris also helped to found the company.

The international financial crisis of 1858–9 disrupted monetary circulation in Russia. The Main Society of Railways was also affected. This, in turn, diminished the authority of Stieglitz. The banking and financial reforms of 1860 led to the liquidation of the Stieglitz banking house. But his appointment as head of the State Bank was, despite the criticisms against him in the press and the Ministry of Finance, a perfectly logical occurrence. Stieglitz continued to control all the threads of the empire’s financial management. His transfer to the State Bank meant that many of the functions of the old court bankers now moved to the new financial structures. The State Bank was charged with managing Russia’s international financial dealings. The bank kept this responsibility until 1866, as long as Stieglitz remained the head of the State Bank.

In his short time at the State Bank, Stieglitz brokered several foreign loans. In 1862 he helped to secure a loan of £15 million at 5 per cent interest for monetary reforms from the Londonand Paris-based Rothschilds. In May 1862 it was announced that henceforth the State Bank would exchange gold and silver coins and bullion for paper money. However, the State Bank was forced to cease this practice by November 1863. The reform failed because of the Polish rebellion of January 1863. The rebellion led to a sharp budget deficit and panic on the Petersburg stock exchange. The free exchange of paper money into silver and gold had to be halted. A long period of paper money circulation

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began. Resources were needed to support the budget, and in 1864 and 1866 Stieglitz concluded two large loans at 5 per cent interest rates with the English and Dutch. These bailouts, brokered by Hope and Co. (Amsterdam) and Baring Brothers (London) were intended to stabilise Russia’s financial situation. Other measures were taken as well, but this was not enough to overcome the fall of the exchange rate for the paper rouble. The State Bank raised its discount rate to 8.5 per cent, and Stieglitz was forced to resign. After his resignation, the Foreign Department of the Special Credit Chancellery of the Finance Ministry took control over concluding foreign loans.25

In the 1860–80s, a system of joint-stock banks of commercial credit emerged in Russia, as did mutual credit societies. St Petersburg and Moscow became large banking centres.

In 1864 in St Petersburg, the first joint-stock bank was founded, the Petersburg Private Bank. Soon after, several more banks opened in the capital: the Petersburg International Commercial Bank in 1869; the Volga-Kama Commercial Bank in 1870; and the Russian Bank for Foreign Trade in 1871. In 1899 the Siberian Bank transferred its board of directors from Ekaterinburg to St Petersburg and at the beginning of the twentieth century the Azov-Don Bank moved its headquarters from Taganrog to the Russian capital. This group of Petersburg banks began to play the leading role in the financial life of the empire.26

In contrast to the Petersburg banks, private banks in Moscow were connected to the government, foreign capital and European banking to a lesser degree. In Moscow capital was controlled largely by Old Believers, who were to a certain extent even anti-government. In 1866 the Merchant Bank was founded in Moscow; in 1869 the Moscow Merchant Society of Mutual Credit; and in 1870 the Moscow Discount (Uchotnyi) Bank and Moscow Commercial Bank. A number of other banks were founded in the 1870s but many of them quickly collapsed. Around the beginning of the twentieth century new influential banks appeared in Moscow, linked to L. S. Poliakov’s banking house. Poliakov moved the headquarters of the Moscow-Riazan Bank from Riazan

25For more on Stieglitz, see B. V. Anan’ich, ‘Stiglitzty – Poslednie pridvornie bankiry v Rossii’, in ‘Bol’shoe budushchee’. Nemtsy v ekonomicheskoi zhizni Rossii (Berlin, Bonn, Hessen and Moscow: Mercedes Druk, Berlin, 2000), pp. 196–201.

26Anan’ich et al. (eds.), Petersburg. Istoriia bankov, pp. 120–207; Iu. A. Petrov, Kommercheskie banky Moskvy. Konets XIX veka – 1 91 4 (Moscow: Rosspen, 1998). Iu. A. Petrov, Moskovskaia burzhuaziia v nachale XX veka: Predprinimatel’stvo i politika (Moscow: Mosgorarchiv, 2002). For the Moscow bourgeoisie see also T. Owen, Capitalism and Politics in Russia: A Social History of the Moscow Merchants 1 85 5 –1 905 (Cambridge: Cambridge University Press, 1981); A. Rieber, Merchants and Entrepreneurs in Imperial Russia (Chapel Hill: University of North Carolina Press, 1982).

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to Moscow, and later the bank became known as the Moscow International Commercial Bank. He also transferred the South-Russian Industrial Bank’s main offices from Kiev to Moscow.

In the beginning of the 1860s a new system of mortgage credit was formed in Russia. In addition, societies of mutual land credit and several joint-stock land banks opened. Also, two state banks for mortgage credit were founded in the capital: the State Peasant Land Bank in 1883, and the State Noble Land Bank in 1885. The creation of state banks for mortgage credit further strengthened the Ministry of Finance’s control over banking.

Banks in the capital and banking houses were closely connected to the government and many of them acted as conduits of state policy abroad. Among such banks at the end of the nineteenth and the very beginning of the twentieth century was the Saint Petersburg International Commercial Bank. In 1894 it acted jointly with a group of French banks to found the Russo-Chinese Bank. By the beginning of the Russo-Japanese War this bank became the main channel for moving capital from Russia to the Far East. The Discount-Loan Bank of Persia was created in Persia to benefit Russian investment and trade. In contrast to the Russo-Chinese Bank, the Discount-Loan Bank of Persia was not linked to foreign capital but instead issued credit at the expense of the State Bank and State Treasury. Hoping to break into markets in the Far East and Central Asia, the Finance Ministry also helped to create the short-lived Russo-Korean Bank.27

The Great Reforms of the late 1850s to early 1860s, especially the banking reform and emancipation of serfs, allowed the government to set a course for faster development of Russian industry. Beginning in the 1860s, the commercial-industrial policy of the tsarist government acquired a systematic character. The Russian government in the second half of the nineteenth century was often an imperfect machine. However the Ministry of Finance was a noteworthy exception. It was headed by distinguished statesmen: M. Kh. Reutern, N. Kh. Bunge, I. A. Vyshnegradskii and finally S. Iu. Witte were ministers of finance for long periods and key figures in government. Bunge and Vyshnegradsky were also scholars recognised worldwide.28

In his first years as finance minister, between 1866 and 1870, Reutern advocated encouraging private enterprise. With European countries increasingly

27See B. V. Anan’ich, Rossiiskoe samoderzhavie i vyzov kapitalov, 1895 –1 91 4 (Leningrad: Nauka,

1957); C. Dokkyu, Rossiia v Koree, 1 893 –1 905 (St Petersburg: Zero, 1996); S. K. Lebedev,

S-Peterburgskii mezhdunarodnii kommercheskii bank vo vtoroi polovine XIX veka (Moscow: Rosspen, 2003).

28P. A. Zaionchkovskii, Pravitel’stvennyi aparat samoderzhavnoi Rossii v XIX veke (Moscow: Mysl’, 1978); L. E. Shepelev, Tsarizm i burzhuaziia vo vtoroi polovine XIX veka. Problemy torgovo-promyshlennoi politiki (Leningrad: Nauka, 1981).

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allowing private enterprises to form without explicit government permission, Russian leaders understood that new legislation was needed to give more room for private initiative in the founding of joint-stock companies.29 However, this idea remained unrealised. Possibly influenced by the 1873 stock-market crisis, Reutern ordered that work cease on the proposed legislation in 1874 and began to support restricting the foundation of joint-stock public enterprises.30 In 1877 Reutern argued that the government should use its resources to combat speculation on the stock market, regulate the exchange rate of the rouble and bonds, and discourage free competition. It was this logic that started the practice of the government supporting, according to its own judgement, individual enterprises and banks by providing them special loans from the State Bank.31 As a result, in the 1870s the state developed several methods to influence the country’s economy.

In the 1870s the Russian government floated a series of railway bonds on European markets. From 1870 to 1884 the tsarist government produced seven issues of consolidated railroad bonds to replenish the special government fund for supporting railway companies. The first four bond issues, as well as the seventh, carried an interest rate of 5 per cent; the fifth issue offered 4.5 per cent, and the sixth issue – 4 per cent. The first five issues (two at £12 million, and the rest at £15 millions each) were sold through the Paris and London Rothschilds. The total sum of £15 million of the fourth bond issue was partly floated through the Rothschilds, the State Bank, and also through Hope and Co. as well as the Paris banking house Vernier. The active participation of German banks in Berlin, Hamburg and Frankfurt was significant in the sixth and seventh bond issues.

In the second half of the 1870s, because of the deterioration in Anglo-Russian relations due to competition in Central Asia, Russia’s main creditor became Germany rather than England. By the beginning of the 1880s major German banks (Diskonto-Gesellschaft, Bleichroder, M. A. Rothschild, Mendelssohn, Warschauer, Berliner Handelsgesellschaft) formed the so-called Russian Syndicate for floating Russian loans. The Amsterdam banking house Lippmann and Rosenthal also closely worked with this syndicate.

Reutern’s successors as finance minister generally shared his overall views on the government’s role in economic policy. But this does not mean that Russia’s economic policy after Reutern was unchanged. In many ways, economic

29I. F. Gindin, Gosudarstvennyi bank i aktsionernaia politika tsarskogo pravitel’stva (1 861 –1 892)

(Moscow: Gosfinizdat, 1960), p. 45.

30L. E. Shepelev, Aktsionernye kompanii v Rossii (Leningrad: Nauka, 1973), pp. 112, 116.

31Gindin, Gosudarstvennyi bank, pp. 46–9.

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policy depended on the general direction of politics and the personality of the minister. In this regard, the views and activities of N. Kh. Bunge as finance minister are quite revealing. Bunge was a distinguished professor and rector of the University of Saint Vladimir in Kiev and the author of numerous works on the history of finance and monetary circulation, trade and credit. He headed the Finance Ministry from February 1881. The appointment of a university professor to such a prestigious governmental post was very unusual. In part it can be explained by the fact that Bunge was well known to the Romanovs. In the beginning of the 1860s he taught financial law to Grand Duke Nicholas, the eldest son of Tsar Alexander II, and in the 1880s he taught the future Tsar Nicholas II. Bunge was very familiar with contemporary Western economic theory and could evaluate the experience of industrial development in Europe and the United States. In his academic writings Bunge devoted much effort to studying the relationship between private enterprise and state involvement in Russia’s economic development.

As a teacher, Bunge tried to persuade the future emperor Nicholas II that he should avoid the extreme characteristics of Nicholas I’s policies of state intervention in the economy. Bunge believed that the state should aid private initiative only when the state’s interests made this truly necessary.32 He was worried by the state’s increasing role in the economic life of the empire. In the second half of the 1890s, in his famous ‘Notes from the Afterlife’, Bunge wrote that on the eve of the Crimean War, ‘the private hand’ in ‘spiritual and material life’ had been far too restricted.

The disappointment felt by everyone during the Crimean War led to a domestic policy . . . which expected everything from private initiative, but this policy revealed itself sometimes in such deplorable forms that reasonable people began once again to cry out for governmental oversight and control, and even for replacing private with state activity. We are continuing in this direction even now, when people want the government to take over the grain trade and supply a population of a hundred million. It seems impossible to continue on in this direction unless you assume that the government should plow, sow and reap, and then publish all the newspapers and magazines, write stories and novels and make progress in the fields of art and science.33

Bunge believed that Russia lagged behind Western Europe in industrial development by a half-century. He argued that one reason for this was that

32See N. I. Anan’ich, ‘Materialy lektsionnykh kursov N. X. Bunge 60–80x godov XIX veka’,

Arkheograficheskii Ezhegodnik za 1 97 7 god. (Moscow: Nauka, 1978), pp. 304–6.

33A letter found in N. Kh. Bunge’s papers, 1881–1894. RGIA, Fond 1622, op. I, d. 721, l. 52.

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