Front Page Titles (by Subject) CHAPTER III.: BANKING VICISSITUDES FROM 1862 TO 1875. - A History of Banking in all the Leading Nations, vol. 2 (Great Britain, Russian Empire, Savings-Banks in the U.S.)
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CHAPTER III.: BANKING VICISSITUDES FROM 1862 TO 1875. - Editor of the Journal of Commerce and Commercial Bulletin, A History of Banking in all the Leading Nations, vol. 2 (Great Britain, Russian Empire, Savings-Banks in the U.S.) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 2 A History of Banking in Great Britain, the Russian Empire, and Savings-Banks in the U.S.
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BANKING VICISSITUDES FROM 1862 TO 1875.
Attempts at Currency Reform in 1862—A Loan of £15,000,000 to Strengthen the Reserve against “Bills of Credit”—The Polish Insurrection Intervenes—Failure of Resumption of Specie Payments; Causes of that Failure; Its Disastrous Effects—Prostration of Commerce and Credit—Creation of Joint-Stock Banks—Communal Banks—Banking on the Mutual Principle—Railroad Construction Financed for the Benefit of the Bank; Metallic Reserve thereby Increased.
IN 1862 the Bank was called upon to conduct the very serious undertaking of putting an end to the legal-tender power of bills of credit and re-establishing a metallic currency consisting of gold and silver. It should be noted at this point that the trebling of the circulation between 1854 and 1857 had not adversely affected the value of paper money. In April, 1857, the paper rouble was quoted at 403 centimes, even above the par value, which was 4 francs. But such a situation could not last. We have seen that on January 1, 1861, the Bank had in its possession a fund of R. 92,900,000, of which R. 8,500,000 was in State securities, against a note circulation of R. 713,000,000. The value of the rouble was bound to be affected by this state of affairs; and it is interesting to notice that the depreciation had been comparatively small, very small indeed, relative to what it has been at various times since (as, e. g., in 1866, 1879, and 1887), to which reference will be made later on. Evidently, the financial world had great confidence in the economic situation of Russia and in the sincerity of her desire for progress in every direction. And such a desire did exist; it was real and sincere, though somewhat naïve and inexperienced, as is shown by the history of the reform undertaken in 1862. The first conception of this reform undoubtedly originated in the fertile imagination of Eugene Ivanovitch Lamanski. As proof of this, the author may cite a pamphlet which appeared anonymously in 1860, and of which only fifty copies were then issued, and those without authority of the censors—that is to say, in manuscript. “The Causes of the Depreciation of Our Circulating Medium and the Means of Remedying It”—such is the title of this tract, the authorship of which there can be now no reason to conceal. After summing up the various steps taken between 1857 and 1859 to retire a large part of the floating debt, M. Lamanski treats of the reform of the Bank, as he understands it, and of the resumption of specie payments. He thus sets forth and sums up his conclusions upon the subject:
“1. Let his Majesty graciously declare that his government renounces forever the privilege of issuing circulating notes to meet the needs of the Treasury. Extraordinary demands can be met by means of loans in regular form and by the issue of exchequer bills with no legal-tender quality and for short terms.
“2. The bills of credit now in circulation should be replaced by bank notes not bearing interest, and exchangeable for specie on demand.
“3. The right to issue such notes for the whole of Russia, except Poland and Finland, should be granted to the State Bank for twenty-eight years, or until 1890. The Bank should be empowered to issue notes to the full extent of all the circulation retired, whether in the form of bills of credit, outstanding bank notes, or four per cent. specie bills; and in exchange for gold or silver bars or specie, it should be allowed to issue notes to an unlimited extent.
“4. In order that the Bank may have the means of redeeming its bills, let the State turn over to it all the metallic funds now held in its vaults. The other R. 600,000,000 needful to this end should be guaranteed in the following manner: (a) One-third (R. 200,000,000) should be supplied to the Bank in the form of R. 10,000,000 of five per cent. State rentes, in denominations of R. 5 of rente (representing a capital of R. 100) and upwards. That sum should be immediately placed at the disposition of the Bank; the Bank should receive: (b) an irrevocable credit against the State of R. 200,000,000, which should bear no interest, but be repaid at the rate of one per cent. per year for a hundred years, and the yearly sum of R. 2,000,000 should be annually employed in the redemption of bills of credit; the remaining third should be guaranteed (c) by all the public lands, forests, factories, and railroads belonging to the State; the latter should continue to collect the revenue from these sources; but, in case of need, the Bank should be allowed to sell any of the pledged property with the consent of the proper minister, who should in turn be empowered to repurchase the property so sold at the price for which it was pledged. Armed with these guaranties, let the Bank begin immediately the redemption of bills of credit in specie, gold, or silver, and that in the following manner:
“As a starting-point should be taken, not the legal value of the demi-impériale (R. 5.15), but the actual exchange value as measured in paper money. During the whole of 1802, the Bank should exchange the demi-impériale for R. 5.70 in paper; during the first six months of 1803, for R. 5.50, and for R. 5.35 during the last six months; let the exchange value be R. 5.25 for the whole of 1864, and from the beginning of 1865 let the demi-impériale be paid out at its legal value of R. 5.15. During this transition period, which may be abridged if necessary, the Bank should have the right to buy the precious metals at the prices named above.
“5. The Bank should be authorized to sell the R. 200,000,000 of five per cent. rentes to be turned over to it, but only after notifying the Finance Minister of its intention.
“6. The Bank should be separated from the Finance Department, and should be amenable only to the Commission of Credit Institutions, which should be increased by new members named by the Government, the nobility, and commerce. At any time after 1865, the Bank should be allowed to establish a share capital of R. 20,000,000 and have stockholders to that extent. As fast as the capital is paid in, an equal amount of the property pledged by the State should be released. The profits would thus be shared by the State and the stockholders, and that part belonging to the Government would be used to redeem its guaranty given to the Bank. The latter should be compelled to increase the number of its branches to forty within the next fifteen years.
“7. The acceptance of deposits payable on demand should cease immediately; deposits for a definite term should continue to be accepted until 1865, but only from individuals and charitable institutions, not from the State. From July 1, 1862, interest at the rate of one per cent. only should be paid upon outstanding bank bills, and from the beginning of 1863 all interest upon them should cease. To this rule there should be no exception, save in cases where the owner of the bills has parted with them temporarily and is not in a position to present them for redemption. Time deposits should be used for the purchase of mortgage bonds, but only by order and on the responsibility of the Finance Department.
“8. If it should become necessary to increase the circulating medium, the Bank should have a right, six months after the beginning of redemption in specie, to issue R. 20,000,000 of new bills against deposits of short-time bills of exchange.
“9. Inasmuch as the Bank is no longer to accept deposits, savings-banks should be opened in all places where there may be need of them.
“10. Bourses for dealing in public securities should be established in St. Petersburg, Moscow, Odessa, and Riga.”
We come now to the conditions under which the return to specie payments was to be accomplished. In pursuance of a ukase of April 14 (26), 1862, a loan of £15,000,000 sterling was placed with the London house of Rothschild, the intention being that the proceeds should be used exclusively to build up the fund reserved for the redemption of bills of credit. On the 25th of the same month, a second ukase ordered that the proceeds of the loan should be devoted to the strengthening of the metallic reserve and to the gradual resumption of specie payments. It was provided in the first of those ukases that “the printing and issuing of the bills of credit shall be done by the State Bank and under its authority, and under no circumstances shall they be issued except in exchange for gold or silver.” The outstanding bills were to be redeemed at a gradually increasing valuation, and a notice issued by the Bank, on April 29th, contained the information that, on and after the first of May, the exchange value of the demi-impériale, gold (intrinsic value, R. 5.15), should be R. 5.70, and that of the silver rouble, 110½ copecks; and that, after August 1st, the values should be, respectively, R. 5.60 and 108½ copecks. Thereafter, the valuation was to be as follows:
When the redemption began, the Bank had in its coffers R. 79,000,000, and the circulation aggregated R. 722,000,000, of which the Bank held R. 15,000,000. At first, the demand for redemption was small, amounting to only R. 10,037,000 between May 1 and December 31, 1862. This latter date was just on the eve of the Polish insurrection. In April, 1863, the chief European powers intervened by diplomatic notes, and it was well known that Napoleon III. was eager to interfere by force of arms, provided England and Austria should offer him other than mere paper support. Then the metallic resources of the Bank melted like snow. From January to the end of July R. 45,000,000 of gold were withdrawn; and between the 1st and 3d of August the demands amounted to R. 4,405,000. A loan was impossible. The Bank, therefore, resolved to stop paying gold and to continue the redemption only with silver. At the same time, however, it was selling to the public drafts on foreign countries at the same rate at which it had undertaken to redeem its bills. In this way, the proceeds of the Rothschild loan were soon exhausted, though still at the Bank’s disposal abroad. On November 1 (13), 1863, the rouble was almost at par (397c.); but it was upon this date that the Bank was forced to suspend the redemption of its paper. It continued the sale of foreign drafts for a few days longer, but this did not prevent the rouble from losing eight per cent. of its value by November 19th; and when on this date the sale of drafts ceased in turn there was a further fall of four per cent., and the rouble was quoted at 350 centimes.
The experiment had failed; and its most obvious result may be summed up thus: On December 1, 1863, the note circulation amounted to R. 642,800,000, of which the Bank held R. 8,000,000 in addition to R. 68,000,000 of specie. Since May 1, 1862, therefore, the note circulation had decreased by R. 79,300,000 and the specie holdings of the Bank by R. 11,000,000. If we take account of the Rothschild loan of R. 96,000,000, the experiment had cost R. 107,000,000 of metal; and as only R. 45,400,000 of the redeemed bills had been destroyed (on June 11, 1863), the net result of the undertaking was an actual loss of R. 62,000,000, not counting the numerous and severe indirect losses attending the failure.
Did this failure arise solely from the Polish insurrection, the public fear of renewed hostilities, and the impossibility of replenishing the metallic reserve by the method outlined in the imperial ukase and M. Lamanski’s pamphlet? Such was the official explanation; but the impartial student cannot accept it. One needed simply to be on the ground in order to witness the extreme eagerness with which paper money was presented to the Bank for redemption. The true explanation is that the circulation had been increased almost threefold within less than ten years, and that this increase was not demanded by any commercial or industrial need, but simply by the necessities of the Treasury. Then, again, the Russian Government had made the mistake of issuing in the form of a floating debt what was simply a substitute for note circulation, a proceeding that had been of considerable service to it at times, but which had now become a great burden. Thus, there had been issued in denominations of R. 100 nearly R. 100,000,000 of so-called “metallic bills” drawing interest at four per cent. Exchequer bills had also been issued, of R. 50 each, bearing interest at 4.32 per cent.—that is to say, 18 copecks per month—and redeemable in eight years. These, in view of their small denominations, were simply bills of credit, except that they bore interest. In ordinary times, the capitalist kept them in his safe and the merchant took them readily because the Treasury would accept them in payment of certain taxes. But the moment specie grew scarce these bills circulated just like bank notes, and the only concession made to the taker was that he had the benefit of the one or two months’ interest due upon them. Thus the public had ample opportunity to exhaust the metallic reserve of the Bank. Not to have thought of this before issuing the ukase of April, 1862, was one of the most serious mistakes made by the authorities, but it was by no means the only one. Thus the attempt to resume specie payments was a failure in 1863, and no other effort has been made since. It will be our duty hereafter to examine the causes which have made all further efforts in this direction impossible up to the present moment. But first we shall make some further examination of the past, for the history of the Bank of Russia cannot be written except in connection with the financial transactions of the Empire, so close is the connection between them.
It is not merely the ukase of April 14, 1862, decreeing a return to specie payments, that makes that year memorable in the annals of the Russian Bank. The same year signalizes another very important reform. M. de Reutern had been only a few days at the head of the Finance Department when he published the first budget of the Empire. Up to that time nothing of the kind had been known in Russia, and the figures the Author was able to quote in the earlier part of this work, bearing upon the expenses of the years 1823 to 1827, were taken from the memoirs of Count Cancrine. Without casting any reflection upon the memory of M. Reutern (obit 1890), we may say that his first budget did not furnish a full account of the situation; it did not even include all of the national receipts and expenditures. In fact, it was several years before the budget became what it ought to be. A central auditing office for the accounts of the Empire had, it is true, long been in existence, but in a condition calling loudly for reform. This reform was accomplished by Tartarinow* (obit 1871); and since his time the annual publications of that institution are of real value and very helpful to all students of Russian finance. The same may be said of the reports of the Finance Ministers, accompanying the provisory budget at the first of January of each year. But at the time of which we speak there was no publication of this kind, and no information was to be had regarding the state of Russian finance except from the annual report of the Commission of Credit Institutions, and there is no reason now to conceal the fact that that information was very meager in its details. It is hardly more instructive to-day; but then it has been a long time since anybody has thought of paying any attention to the tiresome document crammed with figures with which that Commission annually honors the official files. The very precise and accurate reports of which we have just spoken render it altogether superfluous now. But, at the time of which we write, it was the only document giving any information concerning the management of Russian finances, and it could have been made of great value.
The Author has a very distinct recollection of the eagerness with which he pored over the first report of that Commission which fell under his eyes, now thirty-three years ago. It was the “Address of the Finance Minister to the Commission of Credit Institutions, presenting the report of those institutions for the fiscal year 1861.” I studied it with the greater ardor because it was part of my duty at that time to write the Russian chapter for the “Annuaire des Finances Publiques,” published at Paris by M. J. E. Horn. The more we sought to sound the depths of that document the more signal was our failure. All we could be certain of was that the chapters did not agree with one another and that the report was not true to its title, because it did not show even the whole of the public debt. Russia had a press censorship even at that time; but as the administration seemed desirous of illuminating those places that were in need of light, we made known our difficulties in an article sent to the “Journal de St. Petersburg,” of which we were financial correspondent. The Commission condescended to reply in a note which we have preserved, and a translation of which we here present. There can certainly be no indiscretion in publishing it at this late day; and no one will accuse me of egotism, for clearly it caused the Commission no pangs to snub an intermeddler who had dared to call in question the value of an official report read by a minister. But the reader may possibly conclude that as early as 1862 the Commission of Credit Institutions had outlived its usefulness, if, indeed, it ever had any. Here is the official document:
“Observations.—The statement does not pretend to set forth the general financial situation, as M. Horn appears to think, but it is a mere introduction to the very voluminous reports of the credit institutions—reports which are annually printed as soon as the committee appointed by the Council for the purpose has verified their correctness.
“1. The sum of R. 716,000,000 makes up the total of the deposits particularly described at the end of the report. As to the sum of R. 712,000,000, it consists of the following items:
“The sums named under Nos. 1-5 are to be found under corresponding headings in the report. As to the particulars of the sums under Nos. 6-9, which belong to the business of the State Bank, it was not supposed to be necessary to repeat them, the more especially as all the figures relating to them may be found in the monthly statements of the Bank, and in view of the further fact that the report of all these transactions, which was presented to the Commission of Credit Institutions in May, 1862, is to be published very soon.
“2. In order to estimate the comparison made by the author at its proper value, it should be noted, first of all, that the address delivered by the head of the Finance Department in submitting to the Commission of Credit Institutions the reports of those institutions should not be a mere bookkeeper’s statement, and that it does not set forth any figures or facts except those of the first importance relating to the business of the fiscal year. It is for this reason that the foreign publications named by the author cannot serve as a model for the address in question, and are to be compared only with the reports of the Sinking Fund Commission and other credit institutions.
“3. It is not proper to place in the same category the loans which go to make up the State debt and the liabilities of credit institutions arising out of interest-bearing deposits. State loans, properly so called, differ widely from deposits with the Bank, both as to their origin and as to the manner of repayment. Being contracted to meet Government needs, the loans are repaid in annual installments which are a charge upon the State budget; whereas the liabilities merely guaranteed by the Treasury are covered by enforceable obligations, and the guaranty is altogether nominal, because the income of the credit institutions is sufficient, and more than sufficient, to pay their debts, principal and interest, and no part of them is charged against the budget. It should be evident, therefore, that the fusion of these two accounts, so totally different, while it might be of some statistical interest, could produce no result of any practical value.
“4. The total of the bills of credit in circulation is not omitted from the report. It appears therein stated at R. 713,000,000. It should be observed that in citing the bills in circulation as a State debt our author ought to have taken account of the reserve fund, amounting on January 1, 1862, to about R. 98,000,000.
“5. That part of the circulation which consists of exchequer bills has no proper place in the document in question, because the aim of the report is simply to set forth the transactions of the credit institutions, and not those of the Treasury. Moreover, the introduction to the report (sections 1 and 2) does state the amount of exchequer bills recently issued, in order to bring to the attention of the Commission of Credit Institutions the fact of their issue.
“6. The amount of so-called metallic 4 per cent. bank bills issued in 1861 is R. 36,000,000, as appears from a résumé of the report of the State Bank recently issued. Besides, the issue of these bills to the extent named had already been announced in a report of the Finance Minister made in October, 1861.
“7. The public must not expect to find complete and detailed information as to the financial situation of the whole Empire in a document which is simply a succinct abridgment of the reports of the credit institutions alone; and the whole financial situation is not to be thoroughly grasped except by a conscientious study of the full reports of those institutions and of the State budget as well.”
As we have said, the reports of the Commission and the Commission itself have now merely an archæological value. The State Bank is the only institution that interests us at this time, and it has learned to put its reports in a form which is not only intelligible but has almost the precision of a mercantile balance-sheet. This it has succeeded in doing in spite of the complicated network, interweaving its own operations with those of the State and detracting greatly from the simplicity of its accounts. But, in 1862, the Commission might have made its reports of great value if it had not, as its note shows, considered it beneath its dignity to satisfy the curiosity of the public and its desire to know the truth about Russian finance.
It is true that, at the time we are now considering, publicity as to the Bank’s transactions had not been attended with flattering success; and the failure that crowned the work of 1862 almost seemed to justify the secretive policy of the Public Debt Commission. Rarely has there been a more disastrous failure or keener disappointment than was involved in the closing of the Bank’s wickets on November 3, 1863. It was followed not only by a steady depreciation of the rouble, but by a permanent Treasury deficit, so that several loans became necessary between 1863 and 1866. In 1864, a loan was floated in Holland of 70,000,000 florins, or £6,000,000 sterling; and in 1864 and 1866 domestic loans of R. 100,000,000 each, on lottery and premium bonds. Meanwhile, exchequer bills were increased by R. 99,000,000, issued in thirty-three series of R. 3,000,000 each. The credit of the Empire did not improve, and the reader can get some idea of the opinion foreignes had of the situation by glancing over these few lines from an article which appeared in the “Berliner Reform” of September 24, 1865: “Anyone who examines the situation in this country (Russia) must be forcibly struck with its financial and economic condition. That condition is immeasurably sad, not to say hopeless. Paper money is depreciated by one-fifth, despite its legal-tender value; gold and silver have disappeared; there is practically no credit; discount rates are high; there is an annual deficit; trade is nearly at a standstill, and capital is exhausted almost to the last penny; prices are immoderately high; the nobility is ruined, the capital city and trade centers are in visible decay.”
Meanwhile, the State Bank had ceased to be the sole credit institution of the vast Empire. In 1865, a group of capitalists had obtained permission to establish at St. Petersburg the joint-stock “Bank of Commerce” (such is its title still), with a capital of R. 5,000,000 in shares of R. 250 each. The people were so unaccustomed to rashness of this kind that the State was compelled to encourage the enterprise by taking shares for R. 1,000,000, agreeing not to sell them for ten years. But very soon the public became more courageous, and in a few years St. Petersburg and other cities had a large number of these share banks. In fact, that class of banks became so numerous that, in 1873, the State considered it to be its duty to check the movement; it refused to charter any more banks for the capital, the result being simply that, in order to get around this obstacle, banks were set up in the little towns nearby, such as Viborg and Cronstadt, with branches in St. Petersburg.
But, two other palliatives had been found for the State Bank’s inability to satisfy the needs of credit. One of these had been, if not exactly created, at least actively promoted by the State. M. de Reutern had hardly been installed in his office before he had a law enacted for the establishment of communal banks. Any commune furnishing a capital of R. 10,000 could found a bank, with ample powers in all directions, except as to the issue of notes. The great partiality that Russia has always had for the Mir (municipal autonomy), and the hostility in certain quarters to enterprises in which shareholders pocket all the profits, made this ukase very popular. It was useless to point out the fact that a commune or city is, of all corporate bodies, the one least fitted for banking affairs, that its responsibility is illusory, and fraud inevitable; in spite of conservative protest and warning, these banks sprang up on all sides. A fair sample of them was that at Skopine. To the bank in that little city of the province of Riasan, deposits flowed in from all parts of the Empire, the inducement being a promise of interest at the rate of six or seven per cent. The Mayor (Golova), M. Rykow, had become an extremely popular man. He devoted a liberal share of the bank’s profits to public improvements and works of charity. His annual reports and his appeals to the public were perfect gems of puffery. Rykow knew how to realize upon his merits, and his breast was soon covered with decorations. When at last the Government awoke to the danger and amended the law so that a communal bank could not accept deposits exceeding ten times its capital and reserve fund, the bank of Skopine went right ahead with its business and its public appeals, declaring ingeniously that a law could have no retroactive effect and that the new restriction affected only such banks as should be thereafter established. One day, however, about 1875, the bubble burst; Skopine could not pay its deposits, then amounting to about R. 7,000,000. There were disgraceful revelations as to the way in which the money had been spent, and Rykow was condemned to Siberian exile. Government agents were appointed to investigate the business of communal banks, and since then their transactions have been merely local. Further on will be found their balance-sheet for 1893.
Another new form of institution was to some extent a result of the great conflagration which, in the spring of 1862, had destroyed the greater part of the Tchoukine-Dvor of St. Petersburg, which may be called the little bazaar, as distinguished from the Gostinoi-Dvor, or great bazaar. The merchants affected by that disaster had need of credit, and the State Bank, the only banking institution then in existence, could not supply it, because its regulations required three signatures on all paper. In this juncture of affairs, M. Lamanski, then vice-president of the Bank, conceived the idea of founding, upon the model of the Société Général of Belguim, an association in which mutuality should be the controlling principle. It took him more than a year to find two men willing to subscribe an amount which should represent the maximum of their credit at the proposed bank, and to pay in ten per cent. of it. Evidently this was to be an association of very small importance; it was, in fact, so unassuming that its offices were established in one room of the State Bank, where M. Lamanski managed its affairs with the purest disinterestedness. Yet, five years later, that association controlled the fluctuations of the St. Petersburg Bourse, and indirectly, those of all Russia. Instead of confining itself to the discounting of its clients’ paper, it had begun to loan upon public funds, and as it was always able to rediscount its paper at the State Bank, thanks to the common management of the two institutions, this financial conspiracy had promptly led to an excess of speculation, resulting in 1869 in a serious crisis upon the Bourse, of which the independent bank, the only one then in existence, had to bear its part. Both institutions escaped from the crisis in safety, but there was a serious run upon both of them as a result of it—one upon the Bank in 1872, which imperiled its existence and which for nearly twenty years, or until 1890, kept its stock among the lowest of those quoted on the Bourse; and another upon the Mutual Association in 1875, which compelled it to levy an assessment upon its members, then numbering more than seven thousand. Many of the members retired from membership; nevertheless, the association survived the disaster it had brought upon itself, and returned the assessment to its members; but it never recovered the commanding position it had previously held. We shall see later on that the association is still in existence and that it has had a number of imitators in the provinces. But the enthusiasm for that form of association was exhausted after a short trial.
The attempt of the State Bank to resume specie payments having failed once (in 1863), no further effort in that direction had been made; but it must not be inferred that the Bank had altogether abandoned the idea of final resumption. Beginning with 1867, railroad charters, with or without a State guaranty of interest on the bonds, were granted with considerable frequency. At that time, a guaranty of interest was regarded as a purely formal matter, tending to further the enterprise, but not likely to become a burden on the public treasury, and the State was not niggardly in such patronage. Generally its guaranty covered only the bonds, which formed two-thirds of the nominal capital, and which were made payable in specie that they might meet with a readier sale abroad. As to the capital represented by stock, it usually served some other purpose than construction of the road or the purchase of materials. The fewer the calls upon the stock for aid in building the line, the more urgent the necessity for selling the bonds at whatever price they would bring, and a foreign market was found for them, especially in Germany. Finally, the Finance Minister took alarm at this state of things. Five per cent. bonds guaranteed by the State were as good as Russian rentes, and the sale of the latter was greatly impaired by the competition arising from the sale by the railroad companies of guaranteed bonds. For this reason it was determined that the State itself should issue the bonds and pay the proceeds to the companies; and, as the major part of the sums borrowed was to be used in Russia for construction and materials, the Government paid the companies in paper money at prevailing rates and used the specie for its own purposes. Part of it was used in making foreign purchases and in payment of interest on the public debt abroad, and part of it went to swell the metallic hoards in the vaults of the fortress of Peter and Paul in St. Petersburg. This is the explanation of the seven consolidated railroad loans, each of £15,000,000 sterling, made between 1868 and 1875; and it was by this means that the metallic reserve, which we found to be only R. 69,000,000 at the close of 1863, had reached R. 229,400,000 in 1875, of which R. 28,300,000 were in silver, the gold having amounted to R. 126,900,000 at the close of 1869, to R. 128,500,000 at the close of 1870, and to R. 175,600,000 at the close of 1872. The value of the paper rouble (the rate of exchange), which in 1866 had gone as low as 270 centimes, had advanced again to 370, notwithstanding the fact that the circulation during the whole of 1875 had been R. 797,300,000, or nearly three and a half times the metallic reserve. Confidence had returned. The budget no longer showed a deficit, and M. de Reutern, at the end of twelve years of power, was on the point of bringing exchange once more to par and resuming specie payments. The State Bank was already selling silver and gold at current rates. During the years 1873-5, when the first effects of silver depreciation following Germany’s adoption of the gold standard were felt, the Bank was even compelled to defend itself against attempts that were made to deliver silver to it at the value hitherto officially maintained.
[* ] Tartarinow had as successors in office several men of great ability, such for example, as Greig and Abasa, who afterward became Ministers of Finance.