No. 432.
Mr. Boker to Mr. Evarts.

No. 227.]

Sir: I have the honor to forward herewith an article from the Journal de St. Petersbourg, of the 8–20 October, upon the finances of Russia; also a translation of the same. This article is looked upon here as important, as it is understood that if not written at the ministry of the finances, it at least represents accurately the views of the minister.

You will observe what is said about the credit of Russia, and that to keep this intact, additional taxation will be freely resorted to.

I have, &c.,

[Inclosure in No. 227.—Translation.]

Article from the St. Petersburg Journal of October 20.

We noticed a week ago the statements by which certain foreign journals saw fit to entertain their readers with an account of the financial condition of Russia. Journals less systematically hostile to us have also undertaken the examination of this condition, and the Russian press itself, with patriotic motives, has also undertaken an examination not only of the resources which, the empire disposes of in order to meet the financial necessities of the war, but also of the means to which we must have recourse in order that after the war the equilibrium of the budget, now deranged, may be promptly restored.

Two facts have specially served as a starting-point for these examinations: one is the increase of the notes issued by the Bank of Russia; the other is the depreciation of the means of exchange and circulation, commonly called “fall in exchange.”

On January 1, 1877, the circulation according to the report of the hank was 735 millions of roubles, against a specie reserve of 180½ millions in the vaults, of which 31½ millions was in securities instead of specie.

On September 26, the date of the last report, this circulation was 734¾ millions, and the specie 180 millions; in the latter, however, the securities which represents specie amounted to 32¾ millions.

But it is not here that we must look for accurate information on the issues of notes occasioned by the war. Under the head of “bank-notes issued to the branches,” we find since January 1 a sum of 54 4/5 millions. To-day this sum has risen to 195,900,000 roubles. We do not mean to say that the whole of this sum has been absorbed by the wants of the treasury on account of the war, and it would also he contrary to the truth to suppose that this issue has sufficed for the necessities in question. Under this last head we know that since the month of November, 1876, immediately after the first order for the mobilization of a part of the troops, an issue of 100 millions in bank-notes was made, and that shortly after the declaration of war the oriental loan of 200 millions was decreed and offered for subscription. If it is to be said that the product of the first of these loans must have been nearly all absorbed by military preparations made before the declaration of war, we must also consider it certain that the second loan has not yet yielded all that was expected of it; the subscriptions having been postponed till next year.

The issues, therefore, which the Bank of Russia has made, have served in part to advance to the treasury the funds to come from this loan, and partly to facilitate subscription by keeping the rate at a higher figure. Without entering into details as regards the proportion of this second operation, we see as regards the first, that on the 26th September the “current expenses on account of the treasury” amounted to 139 1/5 millions, i. e., to five-eighths of the supplementary issue.

(According to the statement of October 1, which has reached us this evening, and which may be read above, the issue on account of the branches is 219£ millions, and the expenditures of the bank on account of the treasury 152 7/8 millions.)

This must have exercised an influence on the other fact we referred to at the beginning of this article, the depreciation of exchange. December 30, 1876, quotations on London were at 29 9/16, on Paris 310, on Berlin 251. On the day of the declaration of war, April 12–24, they fell to 26¼, 274, and 226¼; October 1–13 they had reached 22⅜, [Page 750] 234, and 193. This is a fall in nine months of .20 per cent, as compared with the nominal rate, but of nearly 25 per cent, compared with the 30th December; yet in these nine months the circulation was increased only by 139 millions (939 millions against 791 millions), (sic) or by about 17½ per cent.

This relative disproportion ought not to surprise us, first, because the fall, like the rise, is not dependent exclusively and in mathematical proportions on financial considerations—politics and military events have their share in it—and then because speculation, in one direction as in the other, is always ready to anticipate events instead of lagging behind them. Thus the brilliant victory of the army of the Caucasus made exchange rise immediately last Wednesday without inquiry whether, since September 26, there had been any new issue of bank-notes.

But there is an element which has certainly borne its part in the depreciation of the Russian monetary representative (paper rouble); this is the uncertainty in which we are involved about the extension of this issue in case the wants of the treasury shall continue for some time longer in their present proportions. And in this respect no one certainly can fix in advance the limit where we shall stop. What is certain is, that all the great wars of our day have been carried on with the aid of paper money with a fixed circulation. Austria was compelled to have recourse to it in 1859 and in 1866, as well as Prussia and Italy in the latter year, France in 1870, and the United States at the time of the war of the secession. It is because the magnitude of the sacrifices which are required does not permit us to provide for them by means of economies, by foreign loans, or even by the immediate imposition of new taxes.

But a state anxious to re-establish as soon as possible order and equilibrium in its budget deranged by extraordinary military events, will apply itself to restore to its ordinary receipts all that is required to provide for the interest and the payment of the debts contracted during the war, as well as for the operations which the liquidation of the floating debt created at the same time may necessitate. In this respect France, after the war of 1870–’71, has given an example worthy of imitation, in imposing upon herself, immediately after the peace, all charges required for the payment of the debts contracted during and on account of the war, and she did not rest until she saw the equilibrium of the budget restored and the reimbursement of her debt to the bank insured within a short period.

Well, we believe that we are not deceiving ourselves in holding it assured, and even in affirming, that Russia expects to do the same. The contributive resources, thank God, are far from being exhausted. Who does not know, on the contrary, that certain branches of revenue, everywhere else of considerable productiveness, have not yet been even touched in this country; that certain classes of society are not yet subjected to direct taxation; that establishments and institutions of great productiveness contribute nothing to the public treasury?

We believe that we are committing no indiscretion in considering as certain the introduction of a tax on classes (called in Prussia Classensteuer), whose object will be to supply these deficiencies in part, but above all to create for the state a surplus of revenue corresponding, if not at first, at least in time, with the new charges which the war may have imposed, and to those which will necessarily grow out of the consolidation of a part of the floating debt; a task which we must attend to after the establishment of peace.

This is not all; as we may well believe the treasury is firmly resolved to make—as they say—“arrows of all kinds of wood,” if it should be necessary, in order that the credit of Russia should never be put in doubt for a single moment, so, too, notwithstanding the increase of expense which the war has imposed, it has taken measures that when our debts abroad fall due, not only the payment shall not be delayed, but that the funds shall be provided months in advance, in order that slander itself may be disarmed; at the same time it is profoundly impressed with the necessity of maintaining the credit of Russia abroad upon the solid basis which has never failed, and thanks to which, notwithstanding the state of war in which we now are, Russian funds are quoted higher than those of some other states which are not subject to this cause of depreciation.

With this object in view, to maintain intact the credit of Russia by all the means of which a conscientious administration, taxing its ingenuity to find resources, can dispose, the Russian Government knows that it can count on the assistance of all classes of the population, and that the sacrifices which may be required of them will be readily made, with an intelligent appreciation of the objects to be attained, the prosperity as well as the honor of the country.

These sacrifices will be the more easy to make as they will be equitably divided, and as the taxes will be raised on the increase of means which the economical and administrative ameliorations of the last twenty years have created for all classes of the population. Thanks to the development of our railroads, commerce and agriculture have equally participated in this increase. Thus, if we examine the last statements of the receipts of our railroads, we see that, even the present war has not slackened the progress of business. The gross receipts of the seven first months of 1877 show an increase [Page 751] of more than 19 millions of roubles, that is to say, of 17½ per cent, on the previous receipts, and if we compare the returns by versts (two-thirds of a mile), we see that the increase has been constant. From 4,749 roubles in 1873 they reached 5,272 roubles in 1874, to fall to 4,776 in 1875 and to 4,462 in 1876, and finally to rise to 5,243 roubles in 1877; a result the more satisfactory, because from 1874 to 1877 the network of lines has been increased more than 3,200 versts, and we know that new lines tend to diminish the average receipts of the network. From 1873 to 1877, while the network has increased 4,665 versts, or 33 per cent. (18,765 against 14,110 versts), the receipts have increased 52 per cent. (98 1/5 millions of roubles against 64¾ millions) in seven months (January to July). These are facts which require no comment.

It remains for us to add, that if the war has stopped the concession of new railways—and for good reasons, because the issue of bonds at best meet with difficulties at this time—the construction of the lines already conceded has not been, delayed; and notwithstanding the heavy charges the treasury has to meet, it has not hesitated to assume lately a considerable expense (23 millions of roubles, if we are well informed) to enable our companies to increase their rolling-stock in large proportions and with little delay, and so create new facilities for our commerce.

In this manner the commercial activity of the empire, as far as is possible, is placed beyond the perturbations that the war brings with it, and on the day when an appeal shall be made to the contributive resources of the nation it will be in a condition to meet it. However imperfect may be the facts which we have placed before our readers, they are sufficient to prove this.