So also did Russia’s foreign debt. Russia had run a mounting deficit throughout
the century, but could not borrow internationally until the 1760s because Euro-
pean creditors did not trust its creditworthiness. Doing well in the Seven Years War
reassured lenders, and Catherine II made ample use of foreign funds. She accepted
over a million rubles in loan from Prussia for the Turkish war in 1768, and
1769 – 73 she borrowed another 5 million rubles for the Turkish war from Dutch
and other lenders. She repaid most of this debt with indemnity forced on the Turks,
but in the 1780s costs of expansion, bureaucratic reform, administration of new
territories, and her second Turkish war required more loans. Asfixed taxes lost their
value and poll tax arrears mounted, foreign debt climbed precipitously and ser-
vicing it took about four-fifths of all customs income.
By 1794fiscally Russia was in a“monstrous crisis,”in John LeDonne’s term.
The cause was not merely looming war with revolutionary France. More deeply, it
was rooted in a continued lack of budgetary accountability, a crisis of foreign debt
and sharp inflation, visible in rising grain prices despite steadily increasing supply.
From the late years of Catherine II through the reign of Paul I the state took
numerous measures to raise income. Most were familiar expedients, some of which
we have reviewed: indirect taxes were raised with higher fees on all sorts of minor
services; a census was ordered to identify new taxpayers; a one-time levy was
imposed on merchants; the price of alcohol was raised and the alcohol monopoly
system reorganized; quitrent on state peasants was raised, as was the poll tax (to one
ruble, in 1794).Taxes on merchants’declared capital and on Jews were doubled;
new inheritance and production taxes were introduced. But inflation and the
weakness of paper and copper money meant that real income hardly rose, while
expenses continued to soar.
Paul I responded with good policy, but had little success. His proposal for a levy
on the nobility to pay for local government (in which they were directly involved)
was too unpopular to be implemented. He attempted to reduce the number of
assignats in circulation but failed; he tried to consolidate the foreign debt; he
founded a new Noble Bank but its capital was expended in a few years. Further-
more, Paul’s spending on the army and court matched his mother’s expenditures on
the court. Chronic deficits faced the state as it looked into the nineteenth century.
By the end of the eighteenth century Russia had moved from being primarily a
source of luxury furs and forest products on the periphery of Europe and Eurasia to
being an essential partner in global trade. The Dutch rose to their seventeenth-
century zenith of international shipping in part because of their engagement in
Russian trade; by the eighteenth century Great Britain owed its naval supremacy to
Russian imports. The Russian state benefited from effective protection of domestic
production and trade. Serfdom kept labor cheap; state policy promoted production
of export products; tariff policies protected domestic industry and exacted specie
whenever possible. Profits from export trade paid for an expanding army that in
turn won huge territorial gains, where the state developed agriculture, industry, and
infrastructure such as ports and canals.
The weaknesses of Russia’sfiscal situation, however, are obvious. Not until
Catherine II’s time were systematic efforts made to identify a state budget, but
Fiscal Policy and Trade 333