The “Great Default” on Russian loans

The revolution first “forgives debts”, and then thinks about their recognition.

By Sergey Pakhomov, in Moscow

We will destroy the whole world of violence … and do not recognize debts.

In the history of Russian revolutions, the principle of non-recognition by revolutionaries of tsarist debts was first proclaimed by the Petrograd Soviet in December 1905 in order to discredit the tsarist government’s attempts to attract new loans abroad. In the “financial manifesto” of the Council, it was about the abandonment of both external and internal debt. More than 100 years ago, on February 10, 1918, according to the new style, the Council of People’s Commissars of Soviet Russia issued a decree that cancelled from December 1, 1917 (old style) all state loans of the Russian Empire and the Provisional Government, cities and provinces, all state guarantees for loans from Russian enterprises. Certainly, and without any exceptions, all foreign loans were cancelled. Due to the lack of paper money, short-term bills of the Treasury were abandoned and equated to bank notes. Payment of coupons for them was also cancelled. Small depositors who had investments of up to 10 thousand roubles kept their deposits, which were transferred to a new loan of the RSFSR, which never took place. In the future, all domestic debts were destroyed by inflation.

This decree, along with other decrees that nationalized and confiscated all foreign property in Russia, had far-reaching consequences, both immediate and those that are still manifesting themselves. At the time, it did not cause much excitement in Russia, where the government’s inability to pay the obligations was perceived as an obvious fact, but in the Allied powers the decree caused serious protests. The note, signed by the diplomatic representatives of the Entente countries in Petrograd, said that “their fellow citizens do not recognize the legality of this decree.”

The immediate negative consequences of this decree include provoking the direct participation of the expeditionary forces of the Entente countries, the United States and Japan in the civil war in Russia on the side of the White movement in an attempt to overthrow the Bolshevik regime and secure the rights of foreign owners to industrial and other assets, along with obligations on foreign loans. After the end of the civil war, the refusal of the Soviet government to recognize the legality of foreign loans led to a diplomatic and financial blockade by Western countries, which forced the USSR to finance programs for economic recovery and industrialization almost entirely from “internal sources” – collectivization and expropriation of the individual peasantry and grain exports , compulsory home loans. The dire social and economic consequences of such a mobilization economy are well known, including massive famine among the population.

Who was the author of the idea of ​​the “debt revolution”?

The direct authorship of this decree belonged to Lenin, but the idea of ​​cancelling debts had other “fathers”. “A utopian and a dreamer hovering in abstractions, Lenin is an excellent real politician” (NN Sukhanov). After returning to Russia in April and until October 1917, Lenin in his numerous articles, brochures, statements and appeals containing calls for the nationalization of banks, enterprises, syndicates, foreign property, for an armed uprising and revolution, did not mention a word about the plan’s complete destruction of all loans and debts of Russia. Following Hilferding, he naively believed that the nationalization of banks and the creation of a single state bank would automatically provide a ready-made apparatus for managing the economy. Lenin adhered to the idea of ​​state capitalism as a transitional stage to socialism in the economy. This was a much more moderate program than the one implemented later in the course of the “War Communism” policy. The capitalist sector would remain largely intact, only it would come under state control. This coexistence presupposed an influx of foreign capital, German and American, into the country. This idea had much in common with the NEP principles introduced three years later.

However, Lenin, who repeatedly showed himself as an outstanding politician, was often naive in economic matters since his knowledge of economics was exclusively bookish. The financial concepts of the Bolshevik leaders were extremely vague and dogmatic. Adhering to conservative views on the financial system and repeatedly expressing concern about the state of the state budget, Lenin, nevertheless, entrusted the direct management of the economy and finance to such radical “pure doctrinaires” from Marxism as Bukharin, Larin, Osinsky, Preobrazhensky and others. Something like this happened at the end of October 1917 with the idea of ​​cancelling loans. The journal “Prosveshchenie” publishes an article by the leader of the Bolsheviks “Towards a Revision of the Party Program.” In it, Lenin mentions an article by Yuri Larin published in the Rabochy Put newspaper. Larin – M.A. Lurie, a former Menshevik, “left communist”, one of the leading theorists in the field of economics of “War Communism”, a central crisis, a leader, a gifted and very nice person. ” (N.N.Sukhanov). The same characterization could be boldly given to many other leaders of the Bolshevik Party. Lenin: “…

On the question of the financial and economic part of the program, Comrade Larin writes that “instead of it there is an almost empty space, not even the cancellation of war loans and state debts of tsarism is mentioned “… On the question of cancelling state debts (and, of course, not one tsarism, but also the bourgeoisie) it is necessary to carefully consider the issue of small subscribers … “The idea fell on fertile soil, Larin, having received the task of the leader to finalize the proposals, put forward the idea of ​​cancelling all loans, warmly supported by the group of “left communists”.

Lenin was forced to make concessions on the economic and financial program of the Bolsheviks to the “left communists” in order to preserve the unity of the party in the midst of an acute internal party conflict over the “Brest Peace” with Germany and the imminent civil war. Ideologically, this was easy to do, since the leader himself in the spring and summer of 1917, in Letters from Far Away and at the First Congress of Soviets, rhetorically called for abandoning debts raised for waging the war: “… billions of dollars in debts entered into by bourgeois governments for waging this war, … workers and peasants … do not recognize …. Let the Russian revolutionary class say: … I do not recognize the debts entered into with the French and British capitalists … “. Already at the end of December 1917, Lenin wrote a draft decree on the nationalization of banks, which contains a clause clearly formulated at Larin’s suggestion: “… 3. State loans, external and internal, are cancelled (destroyed). ” This point will become the cornerstone of the Decree on February 10, 1918. Then the concern for “small investors” will disappear.

What did you fight for and what was cancelled?

In the revolutionary fever of the “cavalry attack on capital”, the consequences of the adoption of such decrees could not be fully calculated, especially for radical revolutionaries who were not competent in international finance, in the real economy and in knowledge of the mechanisms of its functioning, who believed in the quick victory of the “world revolution” and strived to completely destroy the old society and start building a “new world”. Lenin himself frankly characterized his attitude to such decisions: “We all agree that the main … should be such measures as the nationalization of banks and syndicates. Let’s first implement them and other similar measures, and then we’ll see. ”

The nationalization of banks did not justify the naive hopes of the theorists of “War Communism” for the automatic creation of an instrument of control and financing of industry. Debt cancellation did not solve the problem of financing public spending. The channel for their financing through loans was closed, and the Bolsheviks had only the emission of money, the active use of which led by 1921 to hyperinflation in the country and the actual destruction of money. Theorists and the practitioners of hyperinflation were the same “group of leftist comrades” – Bukharin, Larin, Osinsky, Preobrazhensky.

What exactly was cancelled in February 1918?

On the eve of the Genoa Conference in 1922, a special commission was created under the Council of People’s Commissars to calculate both the debts of Russia and the damage caused to it during the civil war and intervention. In parallel, calculations of the Russian debt were carried out by the Entente countries. They practically coincided in the area of ​​external debt. According to the calculations of the Soviet side, the total external and internal debt of Russia, including the military debts and debts of the Provisional Government, amounted to 18 billion 496 million gold roubles, and the amount of damage from the civil war and intervention was determined at 39 billion gold roubles. According to the estimates of the western side, Russia’s external debt amounted to 13 billion 823 million gold roubles. Domestic debt was not of interest to the West, and besides, it was destroyed by hyperinflation during the civil war and the first years of the NEP. The external debt included the pre-war public debt of 3 billion 850 million roubles, government-guaranteed loans of 870 million roubles, city loans of 422 million roubles, participation of foreign capital in enterprises nationalized by the Bolsheviks of 2 billion roubles, and war loans in 6 billion 681 million roubles. Foreign lenders, excluding war loans, were located as follows: France (80%), England (14%), industrial bonds and shares were placed in France (32%), England (25%), Germany (16%), Belgium (15%) and the United States (77%). War debts were concentrated in England (70%), France (19%), USA (7%). About 35% of the total internal and external debt of the Russian Empire was associated with financing the construction of state railways. The main creditors of Russia were England, France, the USA and Belgium.

Back to a bright future.

The victory of the Bolsheviks in the civil war, accompanied by a total financial and economic catastrophe, mass famine as a result of the policy of “war communism” forced the transition in 1921 to the New Economic Policy, the abolition of food appropriation, the development of a mixed economy, the encouragement of private initiative and the stabilization of monetary circulation. Trade with European countries and the United States began to revive, which Lenin proudly reported to the IX Congress of Soviets in December 1921. Domestic government loans were also being prepared for revival. The alternative was the loss of political power by the Bolsheviks, a warning of which were massive peasant uprisings and a mutiny of sailors in Kronstadt under the slogan “For Soviets without Communists.” At the same time, Germany’s defeat in the World War, the Versailles Peace, the devastation and economic crisis in Central and Eastern Europe forced the Entente countries to seek ways to normalize relations with Soviet Russia. There was even a theoretical consensus with the Bolsheviks: the restoration of Europe is impossible without the restoration of Russia, Europe needs access to Russian raw materials and the market, Russia – access to the European market, industrial technologies and capital. To do this, it was necessary to resolve the issue of mutual financial claims and political recognition.

At the Brussels conference of the Entente countries in October 1921, which discussed international aid to the starving in Russia, a proposal was put forward to resume lending to Russia on condition that the Russian government “recognizes the existing debts.” Lenin, whose authority in the party was already absolute, was pragmatic about the decrees adopted during the years of the revolutionary fever, including the decree on the cancellation of debts. The “left communists”, together with the “party line”, reconsidered their views and ceased to be “left”. Turning to NEP, taking a course to revive trade with developed capitalist countries, recent participants in the civil war and intervention, Lenin came to the conclusion that there is nothing wrong with recognizing the debts of the tsarist government on certain conditions. In response to the declaration of the Brussels conference on October 28, 1921, the All-Russian Central Executive Committee, with the direct editorial participation of Lenin, adopted the “Declaration on the Recognition of Debts”, which was published the next day. The Soviet government expressed its readiness to negotiate mutual demands, recognition of pre-war debts, subject to the conclusion of peace with Russia, its recognition by other countries and the cessation of hostile actions on their part. “The Russian government declares that it is ready to acknowledge obligations to other states and their citizens on state loans entered into by the tsarist government before 1914, provided it is provided with favourable conditions ensuring the practical possibility of fulfilling these obligations …. The Soviet republic can assume these obligations … if the great powers conclude a final universal peace with it, and if its government is recognized by other powers. ” Particularly positive mention was made of France and its numerous small rentiers who bought Russian bonds. Let us immediately note the principled position of the Bolsheviks: we can only talk about debts before 1914, the military debts of tsarism and the Provisional Government are still not recognized.

On the same day, the People’s Commissar for Foreign Affairs of the RSFSR G.V. Chicherin made a statement, extensively citing the Declaration, and proposed to convene “… an international conference … to discuss the claims of the Allies to Russia and Russia to the Allies and to draw up a certain treaty of peace between them.” Under pressure from England, whose Prime Minister Lloyd George saw a convenient excuse to solve the problems associated with the revolution in Russia, in January 1922 the Supreme Council of the Allied Powers at a conference in Cannes decided to convene an international conference in Genoa on April 8, 1922, with the participation of Soviet Russia … The goal is to address issues of economic reconstruction in Central and Eastern Europe, including the restoration of property rights violated by “confiscation or temporary suspension of property rights.” The path to a potential normalization of relations was open.

Pictures: V.I. Lenin, Yu. Larin, H. Bukharin, E. Preobrazhensky, & G. Chicherin

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