The Eastern Front 1914-1917 (53 page)

Taxation,
⁷
for instance, was barely increased. Before 1914, it had been mainly indirect, and, despite legends to the contrary, relatively trivial. One-fifth of the budget revenue had come from indirect taxes before the war, less than one tenth from direct taxes (mainly on land and property); most of the rest had come from State monopoly enterprises—spirits on the one side, railways on the other. The war brought havoc to the system, since expenses were in ludicrous disproportion to receipts. Yet the government had itself abolished the trade in spirits, which gave it one-third of its revenue before the war; and shrank from imposing taxes on matches, sugar, kerosine to make up. It was only towards the end of 1915 that a variety of such indirect taxes came to make up the loss caused by abandonment of the trade in spirits; and it is thought that the agricultural community gained roughly 1,000 million roubles from prohibition.

It was clearly desirable to substitute a direct tax on income for these indirect taxes. But the government shrank from operating such taxes. An income-tax would hit the section of the community that would invest its savings in industry, or government loan; and would thus merely ensure that the money would reach the government by a roundabout bureaucratic route instead of the simple route through the banking system. In any case, in a country where most people, being peasants, kept their own books and so could not be properly reviewed for purposes of direct taxation, the operation of direct taxes would demand a vast bureaucratic machine that could only be very expensive, and possibly counter-productive.
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These arguments were deployed, with effect, by the liberal economists and the propertied classes generally. Much the same arguments were used against the introduction of a tax on excess profits, such as was being gradually introduced in other countries. It was no doubt true that some businesses were making large profits. But it was also true that the government required
considerable enterprise on its suppliers’ behalf, and should therefore be prepared to reward them. Moreover, excess-profits had to cover conversion of industry to war-work, whether directly or through investment in the Stock Exchange; and they would also have to cover the post-war reconversion of industry, and the period of excess-loss that would automatically follow the collapse of the boom. In other words, whatever the demagogic advantages of excess-profits-taxes, they could be damaging to business. It is true that the British operated an ostensibly effective wartime excess-profits-duty. But they had to do so with an allowance for post-war excess-losses; and when these duly came, after 1920, many of the excess-profits-taxes had to be reimbursed. Sir Josiah Stamp, who had been responsible for their operation, regarded the whole enterprise as little more than a forced loan from business to government, and felt that it had quite possibly made a loss.
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These considerations counted for much in Russia, and direct taxation was never more than a gesture. An income tax was introduced in 1916. It took ten per cent of incomes greater than 400,000 roubles per annum. An excess-profits-duty was also brought in at the same time, again with generous allowances. The income tax gave 130 million roubles, the excess-profits-due, 56 million: together, less than enough to pay for a week-end of war.
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In the circumstances, the only way of connecting wartime expenditure with the nation’s wealth appeared to be loan.
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The Tsarist régime launched six war-loans, with a nominal value of 8,000 million roubles, and the Provisional Government launched a seventh, the Liberty Loan, for 4,000 million: in theory, as effective a way of sucking back excess paper-money as taxation, and 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 as
collateral. 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.
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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 the
towns 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 autumn.

In theory, agriculture, which supplied the most necessary produce of all, should have profited from inflation, and been able to charge what it liked. No doubt, too, had the various legends about Russian agriculture been true, this would have occurred: that is, if the country’s agriculture had been controlled by capitalist farmers and great estates fully integrated in the buying-and-selling network. But it is a legend that Russia was dominated by great estates. Only about a tenth of the land sown in Russia belonged to such estates, and even then some of that was peasant land in disguise, farmed on ancient manorial principles.
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Some of the nobles had made something of a living from exploiting their estates—the Yusupovs in Poltava gained a return of eight per cent per annum on their capital—but many of them, in the face of transport-problems and peasant recalcitrance either sold off the land to banks and peasants, or rented out their huge tracts at tiny sums: the Counts Orlov-Davydov, for instance, renting out 250,000 acres on long leases at three roubles per acre per annum.
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The quantity of grain coming onto the market from such sources was not great: even taking into account the rôle of land-owners as middle-men for their peasants’ produce, it amounted to only thirteen per cent of army purchases in 1914–15, and declined thereafter. Independent small-holders formed a comparable case. They were of course better-placed to exploit their land than the great estates. But there were not many such small-holders, and they hardly supplied more than the great estates: fifteen per cent of army grain in 1914–15.

Both sets of private land-owners suffered from wartime disabilities that made it impossible for them to increase their production. There was, first of all, the question of labour. It was said that conscription had bitten into the stock of labour, but conscription alone was not the answer, for even the absence of eleven million young peasants in wartime could scarcely dent a rural population known to have a surplus of at least twice this. No doubt conscription, by removing a proportion of the able-bodied young workers, caused more damage than the numbers in question warranted; but the heart of this problem was not conscription alone, but the general drift of the rural population towards the towns, where they could sometimes assemble enough money to return to their communes without having to work again for the land-lord or small-holder. Moreover, neither set could expand production by other means, machinery or fertiliser. Resources had been placed, inevitably, in heavy industry; and imports, whether of machinery or fertiliser, had had to be curtailed for similar
reasons. In 1916, only thirteen million roubles’ worth of agricultural machinery was sold, as against 110 million roubles’ worth in 1913, and agricultural machinery as a whole formed about a tenth of all machinery produced in Russia. The stock of machinery on the land aged, and was not replaced. Fertiliser came mainly from abroad, and was reduced, partly because the transport-system had other priorities, partly because foreign exchange could not be made available for it. In 1916, 5,600 tons were used (mainly phosphate) as against ten times as much before the war; the Trans-Siberian railway could accommodate only six waggons of it per day in 1915, and less thereafter.
¹⁴
There was even a lack of such items as sacks, allegedly because of speculators, in reality because cottage-industry production had declined. Faced with lack of labour (which half of Russia’s provinces complained was ‘acute’ in 1916), with a three-fold rise in agricultural wages, and a general inability to expand their production by other means, land-owners and small-holders alike found it impossible to produce as much as before. Many nobles faced real hardship, as inflation bit into the rents they collected; a Congress of the United Gentry in November 1916 was only narrowly prevented from passing a revolutionary resolution and the nobles of the south seceded in protest.
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Production, both on noble and small-holder land, declined. In 1916, less than two-thirds of noble land sown in 1914 was sown with rye and wheat; and some of the most prosperous regions of small-holding farming cut back their output even more. Stavropol, for instance, one of the most fertile regions of Russia, produced only a fifth of the grain in 1916–17 that it had produced in 1913-14.16 More and more, the nobles rented out their often useless land. In Tula, for example, 105 of 138 estates were renting out two-fifths of their land, and would no doubt have sold it if a universal conviction that land would soon go the peasants had not deprived them of buyers.
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Food-supply therefore came to depend on the peasant plot. In 1914–15, it had supplied sixty per cent of the army’s grain, and the proportion rose thereafter: sometimes bought directly by military authorities, but usually purchased through middle-men, and latterly banks. The Russian agrarian question is more encrusted with legend than any other subject in the country’s history; and much of the legendry attaches to the question of food-supply in 1916–17. It was suggested that deliveries to the towns and the army were running down because less grain was being produced. This was not at all true. Peasant Russia was not affected by the same factors that affected private land-lords. The peasants were less dependent on sophisticated
machinery, and they had seldom used fertiliser before 1914—if only because, in Russian circumstances, it blew away. In general, the productive peasant plots did not suffer from a shortage of labour anywhere nearly comparable to that suffered by the private estates. This occurred for reasons that were, by 1914, almost peculiar to Russia.
¹⁸
Most of the country’s twenty million peasant households lived in communes, either formal or informal. It was the commune that owned the land; peasant families took it over, usually for a dozen years or so, according to their needs. A large family had mouths to feed, and hands to work the land. It would be assigned a much larger number of strips of land than a smaller household. Natural catastrophe—for instance, famine, destruction of the family house by fire, or pestilence—could literally wipe out a peasant family; and in any case, the father of the family would, one day, have to contemplate the day when his children would grow up, have families of their own, and demand their due share of the communal lands. After a dozen years as substantial farmer, he might find the communal assembly re-partitioning his lands; and in a great many communes throughout Russia, men who had farmed sufficient land for them to be known as ‘prosperous’ peasants
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would find themselves reduced to the status of ‘middle’ or even ‘poor’ peasant within a few years. A dimension was thus added, in Russia, to the standard peasant problem of sub-division by inheritance; and although reputable economists rubbed their eyes in disbelief, the system suited Russian conditions surprisingly well. The Tsarist régime supported the system for most of the time, because it made administration easier once emancipation of the, serfs had been proclaimed. The peasants, or most of them, welcomed it as ensuring some kind of equalisation of chances, and most of them stoutly resisted attempts to abolish it: indeed, according to Professor Shanin, even quite wealthy independent small-holders were sometimes anxious to join communes, because they could get even more land that way than they already had.