What Can We Learn About Late-Imperial Russia from ‘Busted Bonds’?

Anna Jacobs

World
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A bond is a financial instrument used by institutions to raise capital – interest is paid to the bondholder at regular intervals and the initial investment is returned when the bond matures.

Today, Imperial Russian busted bonds are collectors’ items. Each busted bond represents a tragic story of lost investment, as they were never redeemed due to the fall of the Imperial government. Yet, as historical sources, they can illuminate economic, social and political practices and needs.

The economy of late-Imperial Russia

The politics and economics of late-Imperial Russia were deeply rooted in its perception of itself as a great European power. In a series of military and political victories, by the turn of the 19th century Russia had conquered lands from the Baltic to the Black seas, not to mention her territorial gains in the east.

Long after the losses of the Crimean War (1853-56) damaged Russia’s international status, these military glories lingered in the minds of Imperial Russians, acting as inhibitors of necessary social, economic and political development.

The humiliating defeats of Crimea did, however, push the leadership into action. The modernisation of the Russian economic policy began in the late 1850s, when Alexander II and his ministers called for the far-reaching reorganisation of Russian society and economy.

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The adoption of an extensive railway-building programme, a unified budget, lowered tariffs of imported goods, and efforts to restore the convertibility of the rouble were introduced to help Russia achieve the enterprise that had given her enemies superiority. By the early 1870s foreign investments had multiplied by 10.

But while the Tsar and his ministers promoted capitalist attitudes to develop enterprise, build railways, and grow industry, this was contained within their broader ambition to maintain and strengthen the social hierarchy. Private enterprise was only promoted to the point that it did not weaken the state.

These economically contradictory sentiments were echoed within high society. Industrialisation, with its prospect of social and political upheaval, could hardly be inviting to the landed classes.

Bond for Moscow valued at £100 (Credit: Author’s photograph).

The policies of the Minister of Finance from 1892 to 1903, Sergei Witte, echoed those of the post-Crimean reform period. To achieve industrialisation he attempted to attract foreign capital by implementing the gold standard to stabilise the rouble.

Witte was highly successful in placing government bonds abroad. By 1914, roughly 45% of state debt was held overseas. The 1890s subsequently saw the fastest rates of industrial growth in modern history. Production doubled between 1892 and 1900.

However, a lack of internal capitalist spirit, financial mismanagement, and the immense monetary requirements of the Empire ensured that obtaining foreign investment was at the crux of economic policy. The development of the Russian economy, industry and social conditions were highly dependent.

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Kiev and the 1914 bond issue

Like many of its Russian counterparts, 19th century Kiev was characterised by dramatic physical development and stunted industrial and economic growth. Imperial rule and financial obligations, migration, population growth, and cultural and religious differences within its population similarly defined many Russian-European cities during this time.

Among the fastest growing cities and industries in the world, Kiev’s official population rose 5 fold from 1845 to 1897, from around 50,000 inhabitants to 250,000. This rapid growth combined with a backwards economy and political system makes it unsurprising that so much foreign money was needed. Thousands, maybe even tens of thousands of bond series’ were issued nationwide.

Bond for the Russian South-Eastern Railway Company valued at £500 (Credit: Author’s photograph).

From 1869, Kiev was connected to Moscow by a railway line via Kursk, and to Odessa from 1870, funded largely with foreign and internal bonds. Although by the 1850s Kiev produced half of all of Russia’s sugar-beet, these influxes of wealth were insufficient to keep up with growing fiscal demands. To make up for a failure to industrialise on a large-scale and an unimproved economic structure, Kiev issued several bond series’.

In 1914, the city government issued its 22nd bond series, amounting to 6,195,987 roubles. This is one of the only issues still in existence, many of the others having seemingly disappeared.

Although to determine what the capital was ultimately used for would require a trip to Kiev’s municipal archives, we can determine a bond’s intended uses and infer the issues that they were meant to resolve, by examining its reverse side.

The Contract Fair

The Contract Fair, established in 1797, had diminished in importance since the advent of the railways. Yet, the erection of a new building for its use, noted on a bond, demonstrates that it was still an important feature in 1914. Interestingly, the fair frequently acted as a meeting point for political radicals, as it provided the perfect cover.

Between 1822 and 1825, The Secret Southern Society consistently met at the fair to spread their republican programme. The rebel group The Society for the Education of Polish People elected its committee annually at the fair and, in 1861, Gustav Hoffman distributed illicit papers on the liberation of Poland and the emancipation of the Serfs.

Despite these dangers, the Contract Fair was too economically important to shut down. In its heyday during the 1840s, the Moscow Merchants brought 1.8 million roubles worth of merchandise to the fair. Every winter, the Contract Fair was a quick fix to the city economy. It enabled many craftsmen to survive.

A map of the Kiev tram, 1914 (Credit: Public Domain).

City sanitation

The city’s lack of sanitation was also infamous. In 1914 the city council disagreed over whether to cover sewage ditches in highly populated areas. According to the bond a plan to moderate this danger was at least initiated, if not completed.

At this time 40% of Kiev’s residents still lacked running water. The councils had decided to rely entirely upon artesian wells after a Cholera outbreak in 1907. This caused frequent school closures and the state forced the city to act. The municipal government consequently bought the water company in 1914 and, with money from a bond, planned to build more artesian wells.

The city slaughterhouse

The slaughterhouse had been under city management and ownership since 1889 and was one of the first city-run enterprises in Kiev. Capital from a bond was intended to extend the slaughterhouse, increasing Kiev’s income in line with other cities’ city-run enterprises.

In 1913, Kharkiv earned 5 times more than Kiev from city-run enterprises despite being half its size. While Warsaw earned more than 1 million roubles from its tram contract and 2 million roubles from water utility, Kiev earned 55,000 roubles and nothing, respectively. Kiev would have been reliant, therefore, on municipal bonds to raise capital for urban development.

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Bonds were at the heart of the Russian economy from the mid nineteenth to early twentieth centuries. They evidence a struggling economy and a rapidly industrialising nation that could not keep up with its financial requirements and population growth. Foreign investment, including bonds, was vital.

On a more localised scale municipal bonds divulge information about what it was like to live in that time and place. In Kiev in 1914, the Contract Fair remained economically important, and though attempts were being made to improve living conditions, many residents lacked running water and resided near open sewage ditches.

Anna Jacobs