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Russian lacked modern legislation regulating factories.34 In the beginning of the 1880s, Bunge introduced new factory legislation. On 1 June 1882, a law was passed forbidding the employment of minors in factories. For adolescents aged 12–15 an eight-hour work day was established. In 1882 a Factory Inspectorate was established under the Ministry of Finance. On 3 June 1886 a law was published which regulated relations between factory owners and workers. The new Factory Inspectorate was charged with enforcing this law. Bunge also thought that workers should receive a share of an enterprise’s profits, as this would relieve some social tensions. Bunge formulated his opinions on the workers question by relying on Western models: the Swiss government, for example, had built special workers quarters in Bern, and he often used the dye plants of Leclarke in England as an example of a model enterprise.35

Bunge developed and implemented a range of other economic reforms. One of his most important tax reforms was the elimination of the poll tax in 1886. This became an important step on the path to replacing estate-based taxation with property-based taxation. In the beginning of 1885 Bunge introduced an additional 3 per cent duty to the trade tax (promyslovyi nalog) and three years later a 5 per cent tax levy was added to incomes from monetary capital.36 On 12 June 1886 the emperor authorised a law changing state peasants’ obrok into payments towards purchasing their land. Thus, the opportunity arose for these peasants to become full landowners.37 Bunge was a staunch opponent of the existing system of collective responsibility (krugovaia poruka) and of the passport system, because they hindered the free movement of the peasants.38 At his initiative a passport reform was developed. However, following Bunge’s resignation in December 1886, the reform got caught in bureaucratic red tape until the beginning of the 1890s.

The policy of forced industrial development

The poor harvests of 1883 and 1885 worsened an already unstable economic situation. Bunge’s attempts to fix the budget deficit were unsuccessful. Advocates of a new course of state policy took advantage of this failure: The chief

34L. E. Shepelev, Tsarizm i burzhuaziia vo vtoroi polovine XIX veka (Leningrad: Nauka 1981), pp. 138–9.

35A letter found in N. Kh. Bunge’s papers, l. 58 ob–59.

36PSZ, 3rd series, vol. 5. no. 2961.

37N. I. Anan’ich, ‘K istorii otmeny podushnoi podati v Rossii’, Istoricheskie zapiski, 94 (1974):

201.

38For the connection between these two phenomena in the government policy of the 1880s–90s, see M. S. Simonova, ‘Otmena krugovoi poruki’, IZ, 83 (1969): 159–95.

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procurator of the Synod K. P. Pobedonostsev, the editor of the newspaper Moskovskie vedomosti M. N. Katkov, and their supporters spoke out against the liberal reforms. They argued that ‘a People’s Autocracy’ was a distinctive, natural form of rule for Russia. In their view, the Russian nobility should be the connecting link between the tsar and the people. Katkov’s influence on Alexander III and state policy in the 1880s was so significant that in bureaucratic circles he and Pobedonostsev were seen as a second government alongside the legal one.39 The central aim of Katkov and Pobedonostsev’s economic programme was to strengthen autocratic power by developing domestic industry. They favoured protectionism, maintaining paper-money circulation, tight control over the stock market and private enterprise, using state monopolies (wine and tobacco) as a resource for taxation, and economic support for large landowners. The development of domestic industry was supposed to go together with the strengthening of communal landownership in the villages.

Pobedonostsev and Katkov began to campaign against Bunge in the press as early as autumn 1885. In January 1887 Bunge left the post of finance minister and was appointed to the prestigious but less influential position of chairman of the Committee of Ministers. I. A. Vyshnegradskii, who was close to Katkov, became the minister of finance. Vyshnegradskii was a former professor of mechanics, director of the Petersburg Technological Institute and also well known in the entrepreneurial world as a leading figure in the Petersburg Water Company and vice-chairman of the South-western Railways. But Katkov sought not only Bunge’s resignation, but also that of the foreign affairs minister, N. K. Giers, and he hoped to replace the two ‘Germans’ with his own proteg´es,´ I. A. Vyshnegradskii and I. A. Zinovev respectively. But Katkov was not able to realise his plans fully: in the summer of 1887 the influential editor of Moskovskie vedomosti died.

I. A. Vyshnegradskii aligned himself with the Moskovskie vedomosti group long before his appointment to a ministerial post, and he actively supported Katkov’s attacks on Bunge. In the middle of 1885, S. Iu. Witte, the young manager of the South-western Railways, joined the group. Vyshnegradskii set a goal – to eliminate the budget deficit. He quickly came to the conclusion that introducing a monopoly on tobacco was unrealistic and also decided against starting a monopoly on wine.

In March 1889 a Department of Railways was formed within the Ministry of Finance. It was headed by S. Iu. Witte. As a result of Vyshnegradskii’s

39V. A. Tvardovskaia, Ideologiia poreformennogo samoderzhaviia (M.N. Katkov i ego izdaniia)

(Moscow: Nauka, 1978), pp. 225, 230, 235.

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reforms, the state began buying up railways whereupon the income of the state railways rose, while expenditures on their upkeep declined.40 Vyshnegradskii also believed that it was wise to develop large and profitable private railways.41 In 1889 and 1890 import duties were raised and a new customs tariff was introduced. This was a severe protectionist measure and influenced the development of domestic industry.42 Customs revenues steadily increased.43 Beginning in 1889, despite resistance from landowners in central and western regions, Vyshnegradskii created a system of state regulation of bread prices. The tariff legislation of 1889 was further developed in 1893–7. During these years the state’s role in the development of the grain trade increased. Vyshnegradskii also re-examined Bunge’s legislation on workers. He removed officials from the Factory Inspectorate who were strongly disliked by the business community. The Factory Inspectorate now allowed minors to work on Sundays and holidays, and provincial factory inspectorates and governors could allow night employment for women and teenagers. As a result of these changes, the Factory Inspectorate, created by Bunge to enforce factory laws, lost its influence to a certain extent.

Vyshnegradskii’s attempt to adapt Russia’s economic policy to the general political doctrine of Alexander III was reflected not only in the increase of state intervention in the economy and the tightening of worker’s legislation, but also in his support for a conservative agrarian policy. In 1886 a law was passed restricting the right of communal peasants to divide their land, and in 1889 the institution of the Land Captain (zemskii nachal’nik) was introduced. The ‘Land Captain’ assumed many functions of judges in the mir system. They appointed office-holders in villages and volost’ administrations, as well as volost’ judges.44

However, Vyshnegradskii did not blindly follow the economic programme of Katkov and Pobedonostsev. He rejected their idea of promoting papermoney circulation and continued with Bunge’s course of trying to set Russia on the gold standard. In 1889 Vyshnegradskii tried to realise Bunge’s plan of reconfiguring Russia’s bond offers abroad. He sought to exchange current 5 and 6 per cent Russian bonds on European markets for new bonds that offered lower interest rates and longer maturation times. After the first group of new

40P. P. Migulin, Nasha noveishaia zheleznodorozhnaia politika i zheleznodorozhnie zaimy (1 893 – 1 902) (Kharkov: Tipolitografiia ‘Pechatnoe Delo’ K. Gagarina, 1903), p. 17.

41K. Akinori, ‘Ekonomicheskaia programma dvoryanksoi reaktsii i politika I. A. Vyshegradskogo’, Journal of Asahikawa University 5 (March 1977): 209.

42PSZ, 3rd series, vol. 11. no. 7811.

43Shepelev, Tsarizm i burzhuaziia (1981), p. 160.

44P. A. Zaionchkovskii, Rossiiskoe samoderzhavie v kontse XIX stoletiia (Moscow: Mysl’, 1970), p. 257.

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Russian bonds were sold in 1889 Vyshnegradskii offered several more series in France. As a result, a significant part of Russian securities moved from German to French markets.

Vyshnegradskii’s tenure as finance minister was marked by a sharp increase in exports. If under Bunge from 1882–6 the average yearly value of Russian exports was 574 million roubles, and imports were worth 508 million roubles, then under Vyshnegradskii from 1886–91 the numbers were 710.6 million roubles and 403.3 million roubles respectively. Grain represented the lion’s share of Russian export. Bread exports rose from an annual average of 312 million roubles from 1882–6 to 441 million roubles from 1887–91. After abolishing the poll tax, Bunge had decided to forgive peasants’ debt for unpaid poll-tax arrears from previous years. Vyshnegradskii believed otherwise, and from 1887 to 1888 was able to collect more than 16 million roubles in back taxes. Thanks to Vyshnegradskii’s policies, the budget surplus between 1888 and 1891 reached the impressive figure of 209.4 million roubles. However, in the famine years of 1891 and 1892 the government was forced to spend 162.5 million roubles to aid the starving population.45 These famine years and their destructive consequences proved to be a high price for Vyshnegradskii’s aim to eliminate the budget deficit at any cost. Twenty-nine of Russia’s ninety-seven provinces and oblasts suffered from the poor harvest, and more than 500,000 people died from famine and cholera.46 Under these conditions, the failures of the ‘Vyshnegradskii system’ became obvious. In 1892 Vyshnegradskii became very ill and was forced to leave his post. S. Iu. Witte became the new finance minister. The famine of 1891–2 once again reminded the world of Russia’s backwardness and of the necessity for radical changes not only in the economy, but also in the political system.

Alexander III died in 1894. The new emperor was Nicholas II. In his first public speech on 17 January 1894 at the Winter Palace, meeting with representatives of the zemstvos (elected district and provincial councils), Nicholas announced that he did not intend to change Russia’s political system in any way. But this did not rule out economic reforms. They were needed to promote the autocracy and calm liberal elements of society. Consequently, Witte led a series of important economic reforms at the end of the 1890s.

45See: Vitchevskii, Torgovaia, p. 128; P. A. Shvanebakh, Nashe podatnoe delo (St Petersburg: Tip. M. M. Stassiulevicha, 1903), p. 14.

46See A. M. Anfimov, ‘Prodovol’stvennye dolgi kak pokazatel’ ekonomicheskogo polozheniia krest’ian dorevolutsionnoi Rossii (konets XIX – nachalo XX veka)’,

Materialy po istorii sel’skogo khoziaistva i krest’ianstva SSSR (Moscow: Nauka, 1960), p. 294.

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Russian society, law and economy

As finance minister, Witte tried to continue the economic course of Katkov and Pobedonostsev. However, Witte soon began to move away from their ideas for reasons of pragmatism, and between 1896 and 1898, when Witte’s policies began to be seen as a ‘system’, they were actually a compromise between the ideologists of the 1880s and the advocates of economic changes of the 1860s and 1870s. The year 1896 became a turning point for Witte’s own ideology: formerly a staunch defender of communal landownership, he suddenly declared himself an ardent opponent of the idea. At the heart of Witte’s strategy was speeding up the development of domestic industry. Until the mid-1880s, Witte was influenced by Slavophile ideology.47 However at the end of the 1880s, his idol became the famous German economist and advocate of protectionism, Friedrich List. In 1889 Witte published a small brochure ‘The National Economy and Friedrich List’. In it, Witte argued for rejecting cosmopolitan views and instead following the teachings of List, the prophet ‘of Germany’s greatness, which was created by Bismark on the basis of his [List’s] theories’.48

It would seem that the tragedy of the 1892–3 famine should have had a sobering effect on the proponents of higher taxes. Nevertheless, Witte, like Vyshnegradskii, continued to use indirect taxation as an important source of replenishing the budget. From 1892 to 1901, revenues from indirect taxation increased by 50 per cent.49 The spirits monopoly proved to be one of the most effective methods of raising capital. In 1894 Witte introduced the monopoly in four provinces (Perm, Orenburg, Ufa and Samara); later it was expanded throughout the country. Distilling remained in private hands, however the state gained control over sales. Purifying the spirit and producing vodka occurred in private factories but only to fill state orders and under the supervision of excise regulators. The sale of spirits, wine and vodka was under the sole purview of the state.

In the autumn of 1892 Witte tried to increase the amount of paper money in circulation by introducing a special ‘Siberian’ rouble to cover the costs of the Trans-Siberian railway. Evidently, Vyshnegradskii did not tell Witte about the Ministry of Finance’s long preparations to introduce gold coinage in Russia. N. Kh. Bunge brought Witte’s attention to the dangers of inflationary policy, and within a year the finance minister set about monetary reform in earnest. He

47For Witte’s economic views, see: Laue, Sergei Witte; A Korelin and S. Stepanov, S. Iu. Vitte – Finansist, politik, diplomat (Moscow: Terra, 1998); B. V. Anan’ich and P. Sh. Ganelin, Serge Iulevich Vitte i ego vremiia (St Petersburg: Dmitrii Bulanin, 2000).

48Quoted in Korelin, S. Iu. Vitte, p. 314.

49Shepelev, Tsarizm i burzhuaziia (1981), pp. 204–10; Shvanebakh, Nashe podatnoe, p. 16.

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concluded the conversion operations begun by Vyshnegradskii and conducted a series of measures aimed at stabilising the rouble in a reform announced by the decree of 29 August 1897.50 The amount of gold backing the rouble was reduced by one-third. Thus one paper rouble was worth 66.6 kopecks of gold. As a result of the reform the State Bank became an issuing institution and was given the right to issue bank-notes. All paper money in circulation, which totalled more than 300 million roubles, should have been backed in gold entirely. The introduction of the gold standard, on the one hand, opened new opportunities to obtain credit on European markets, but on the other hand, it required that the government constantly ensure that the rouble was backed by gold. Henceforth, the empire’s loans were often needed not only for military expenditures, but to maintain the gold standard.

Foreign loans became one of the most important sources of finance for Witte’s economic policies. He reorganised the system of commercial foreign agents within the Finance Ministry and by the beginning of 1894 he had opened agencies in Paris, London, Berlin and Washington, and later in Constantinople, Brussels, Yokohama and many other cities. In 1898 commercial agents were renamed agents of the Ministry of Finance and added to the ranks of Russian embassies and missions. As a result of this reform Witte was able to receive regular information about markets in Europe and other countries.

By the end of the 1890s, Witte began to advocate that Russia attract as much foreign investment as possible. This policy faced serious opposition, led by the Grand Duke Alexander Mikhailovich, who favoured limiting foreign capital investment in Russia, in particular in the oil industry.

Witte’s programme of encouraging foreign investment accompanied protectionism, increasing indirect taxation and the raising of the commerce tax. This tax increase consisted of two parts: a main tax and an additional one. Businessmen paid the main tax by purchasing permits to operate their business. The tax burden was determined not by which guild the owners belonged to, as had been the case under previous legislation, but by the size of their business. The supplementary tax for joint-stock companies was divided into a tax on capital and a tax on a percentage of profit. It was levied only if profits exceeded 3 per cent of the fixed capital. The supplementary tax for non-public companies was divided into an arbitrary tax and a percentage tax on profits. The tax burden was determined by calculating the average profits of various enterprises.51 Thus, a significant part of the commerce tax was based on an

50PSZ, 3rd series, vol. 17, no. 14504.

51PSZ, 3rd series, vol. 18, no. 15601.

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archaic and primitive principle of apportioning taxation. Despite its imperfections, the new commerce tax increased state revenues. In 1898 collections from trade and commerce were 48.2 million roubles, and in 1899 – after the new commerce tax – 61.1 million roubles.52

By the end of the 1890s, Witte’s economic programme had gained distinctive characteristics. The Finance Ministry’s influence went far beyond its normal sphere of activity, and Witte had much influence on overall domestic politics. Witte linked Russia’s economic development with a determined effort to gain access to markets in the East. In the second half of the 1890s, the Finance Ministry attempted the so-called peaceful economic penetration of Manchuria, Korea, Persia and Mongolia with the goal of preparing future markets for Russian industry. Banks played a central role in this policy: the Discount-Loan Bank of Persia, which was essentially a branch of the State Bank, and also the Russo-Chinese Bank, which dealt with both Russian and foreign capital. Aided by state and ‘neutral’ foreign capital, and through generous expenditures, the government planned on doing what the weak Russian private initiative still was incapable of undertaking. Witte hoped that within several years Russian industry would reach a rather high level of development. Russian goods would become competitive on the markets of Central Asia and the Far East, and this would allow ‘the surplus from exports in Asia to pay the interest on capital obtained in Europe’.53 From the very beginning of his tenure as Finance Minster, Witte regularly consulted with scholars. His assistants in important economics problems were D. I. Mendeleev and also the well-known economist I. I. Kaufman. Witte, perhaps more than any other minister, understood the value of science in developing the productive power of the country. This explains, in particular, his decision to create a network of polytechnic institutes in Russia.

Witte’s programme to speed up the development of Russia’s industry bore fruit. Industry grew particularly quickly in the mid-1890s. In the last forty years of the nineteenth century the volume of industrial production in Russia increased more than 700 per cent, while Germany’s increased 500 per cent, France’s 250 per cent and England’s more than 200 per cent.54 This great increase in the pace of industrial production is partially explained by Russia’s relatively weak level of industrial development at the beginning of the 1860s. This was accompanied by relatively low productivity and low production of

52S. Iu. Witte, Konspekt lektsii o narodnom i gosudarstvennom khoziaistve (St Petersburg: Fond ‘Nachala’, 1912), p. 485.

53Materialy po istorii SSSR, vol. VI (Moskow: Nauka, 1959), pp. 167–8.

54P. A. Khromov, Ekonomicheskoe razvitie Rossii (Moscow: Nauka, 1967), p. 283.

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goods per capita as well. According to the Ministry of Finance’s statistics, in 1898 cast-iron production per capita in Great Britain was 13.1 pood (old measurement in Russia = 16 kg), 9.8 pood in the United States, 9.0 pood in Belgium, 8.1 pood in Germany, 3.96 pood in France and 1.04 pood in Russia. Great Britain extracted 311.7 pood of coal, Belgium – 204, the United States – 162.4, Germany – 143.8, France – 50.7, and only 5.8 pood in Russia. This lag in production affected consumption and trade too. Russia’s trade turnover, 1,286 million roubles in 1897, was less than a third of that in Germany and the United States, one-fifth of that in Great Britain, and was only equal to the turnover of Belgium.

In terms of capital, Russia was also poor. The total amount of capital in public companies, trade and industry, and also city and village credit was 11 billion roubles. About half of this amount came from abroad. At the same time, Germany’s capital worth was 30 billion roubles, and England’s was 60 billion.55

The development of industry promoted the growth of the working class and its consolidation. Data based on factory records, zemstvo documents and the 1897 census indicate that by the beginning of the twentieth century there were 14.5 million workers.56 The development of industry also led to the growth of cities and urban populations. According to the 1897 census the population of both Moscow and St Petersburg was over one million. Cities gained an industrial feel and image as well. Petersburg turned into a capital for machine building. New areas of industry were being developed there: chemical and electrical industry. The Moscow industrial region remained the strongest in Russia. Besides old areas (the Central Industrial Region and the Urals) new areas arose: the coal-metallurgical district in the south and the oil district in Baku. The metallurgical factories in the south were built with foreign capital. They were equipped with the newest technologies and became noted for their high productivity. By the beginning of the 1890s, domestic production satisfied 93.7 per cent of the country’s demand for cast-iron, 91.7 per cent of demand for iron and 97.1 per cent of demand for steel.57 By the beginning of the twentieth century Russia became the world’s leading extractor of oil. However, it was not able to keep this title and was overtaken by the United States.

55‘Vsepoddaneishii doklad S. Iu. Vitte “O polozhenii nashei promyshlennosti” Fevral’ 1900’,

Istorik-marksist, 2/3 (1925).

56L. M. Ivanov (ed.), Istoriia rabochego klassa Rossii (Moscow: Nauka, 1972), p. 18.

57D. I. Mendeleev, ‘Fabrichno-zavodskaia promyshlennost’ i torgovlia Rossii’, in D. I. Mendeleev, Sochineniia (Moscow: Izd. AN SSSR, 1952), vol. XXI, p. 190.

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In post-1861 Russia there was an intensive railway-building campaign, especially between 1895 and 1899. Russia entered the twentieth century with the second longest track in the world, and 40 per cent of it had been laid in the 1890s.58 At the end of the 1890s and beginning of the 1900s, Russian was one of the world’s leading grain suppliers, competing with the United States. Russian grain exports in these years were nearly 500 million pood a year, about 20 per cent of its total grain harvest.59

A key financial characteristic of turn-of-the-century Russia was the extremely fast growth of the state budget. In 1867 revenues numbered only 415 million roubles. Thirty years later, they had increased to one billion roubles and by 1908 to two billion roubles. Five years later the budget reached 3 billion roubles. Over this whole period, however, the budget grew 2.4 times quicker than national revenue. Increased budgetary expenditure greatly depended on the income from the spirits monopoly.60 As a result of the economic growth of the 1890s, Russia came closer to the level of industrially developed states, but did not reach it as Witte had planned.

By the 1880s the process of imperial expansion had ended. The expansion was noteworthy in its asymmetry from an economic point of view. Poland and Finland, Central Asia and Bukhara and the Caucasus clearly differed in their levels of economic development and business culture. Poland and Finland served as a bridge between Russian and European business culture. The economy of Poland and especially Finland enjoyed a certain degree of autonomy. For instance, Finland possessed its own customs system and currency. Finland also introduced gold money (zolotaia marka) twenty years before the gold standard was started in the empire. Finland independently concluded foreign loans, and during the First World War even acted as a creditor to the imperial government.61 Areas where Islam was prevalent represented yet another level of economic development. Muslim entrepreneurship had its specific features. In these regions of the empire, even on the eve of the First World War, deals were concluded on the basis of sharia. The multinational and multi-confessional character of the empire affected the makeup of the Russian bourgeoisie and its disunity. For example, representatives of influential financial circles in Moscow,

58A. N. Solov’eva, Zheleznodorozhnii transport Rossii vo vtoroi polovine XIX veka (Moscow: Nauka, 1975), p. 271.

59T. M. Kitanina, Khlebnaia torgovlia Rossii (Moscow: Nauka, 1978), p. 275.

60Iu. N. Shebaldin, ‘Gosudarstvennii biudzhet tsarskoi Rossii v nachale XX veka (do pervoi mirovoi voiny)’, IZ, 56 (1959): 165.

61See K. Pravilova, ‘Finliandiia i rossiiskaia imperia: politika i finansy’, IZ, 124, 6 (2003): 180–240; B. V. Anan’ich, ‘Zolotoi standart Finliandii i Rossii: finansovii aspect imperskoi politiki’ in Rossiia na rubezhe XIX–XX vekov. Materialy nauchnykh chtenii pamiati professora V.I. Bovykina, Moscow, 20 Jan. 1 999 (Moscow: Nauka, 1999), pp. 115–24.

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