‘We wanted what’s best, but it turned out as always’ In this very brief history of the ruble,

If money is not just a medium of economic exchange but also a political institution, then how does fiscal policy contribute to the politics of a nation? In an essay first published by Meduza in Russian, Ekaterina Pravilova, a Princeton University professor and author of “The Ruble: A Political History,” explains how the Russian imperial and Soviet governments’ refusal to outsource money supply to private banks unmoored the national currency, eroded the population’s political agency, and put the ruble at the service of the state’s autocratic and imperial ambitions.

Paper money as the monarch’s word

The history of the Russian ruble is a perfect example of the two-way relationship between national currency and political order. The first appearance of the silver ruble in the 18th century marked a Westward turn whose underlying ideology was defined and promoted by the reformist Tsar Peter I. The Petrovian reform equated the Russian ruble with the thaler (then in circulation around Europe), thereby linking the Russian monetary system with the European one.

The most significant change in Russia’s currency system was the introduction of paper assignations by Catherine II. Instead of silver and gold coins, inherently valuable because made of precious metals, the new paper money derived its value from sheer trust in the state’s promise that paper assignations could, if needed, be redeemed for “real money.”

But several years later the state reneged on that promise. Because Russia was constantly embroiled in wars, covering its expenses by printing more paper money, the value of its currency plummeted. In the late 1770s and early 1780s, a group of anonymous writers proposed to reform the Russian Assignations Bank, claiming that its capital was the imperial subjects’ common property, and that the government had no right to interfere in the balance between the national economy and currency supply — which, the writers, argued, had to correspond to the country’s volume of production. Thus Russia arrived at the idea of limiting the state’s control over money even before the French Revolution proclaimed the principle of the people’s sovereignty, rooting the legitimacy of state power in the people as its sole sanctioning source.

The constitutional ruble

In Russian history, heterodox political thought is commonly equated with opposition to state absolutism and with constitutional and parliamentary initiatives. In reality, the ideas of civil liberties and people’s sovereignty were capable of springing up outside of government and legislative contexts. The idea of a “constitutional” or “lawful” ruble, which emerged between the late-18th and early-19th centuries, was one such idea: it emerged in financial context but implied major limitations on the powers of the monarch and the state, if adopted.

What would have been the difference, then, between the constitutional and the monarchist ruble? Proponents of this reform wanted money issuance to be handled by an independent bank, rather than the state itself. They also wanted to restore the policy of freely exchanging assignations for silver. In 1809, the statesman Mikhail Speransky, the closest of advisors to Russia’s Emperor Alexander I, argued these ideas in his own fiscal reform proposal. A conservative court then denounced it as anti-national and, above all, incommensurate with autocracy.

With respect to the latter accusation, Speransky’s critics had been right. Just like any other liberal fiscal proposal of that era, Speransky’s sought to limit the state’s and the sovereign’s right to print money. In the ensuing political struggle, Speransky was pilloried and exiled, but his idea of a constitutional ruble lodged itself firmly in the minds of Russia’s liberal elites, who viewed independent banking and limiting the state’s control over money supply as a financial equivalent of constitutional rule.

From ‘liberté, égalité, fraternité’ to ‘autocracy, Orthodoxy, community’

Russia’s conservatives were themselves trying to develop a political philosophy of money, hoping to oppose it to the Westernizers’ economic ideas they considered to be alien for Russia. The conservatives’ main thesis was the imperative to trust the monarch: “If the sovereign gave us branded wood-chips and ordered them to circulate instead of rubles,” wrote the historian Nikolay Karamzin, “we would have used wood-chips.”

This ardent faith did little to remedy the fiscal situation. Towards the end of the Napoleonic Wars, the paper ruble had lost 75 percent of its original value. Awkward attempts to boost it without substantial reforms only made the problem worse. By the late 1830s, the government conducted a belated reform, devaluing the ruble to less than a third of its original value and ultimately replacing the assignations with a credit-based currency.

Outwardly, Russia’s fiscal system now resembled its European counterparts. The ruble was once again convertible to silver and might have seemed stable. In reality, the new system was a reflection of the statesman Sergey Uvarov’s famous triad, “Autocracy, Orthodoxy, Community,” formulated in opposition to the French Revolution’s motto, “Liberté, égalité, fraternité.” In contrast with the French revolutionary principles, Uvarov’s maxim encapsulated the reactionary political philosophy of Nicholas I. Unlike the bank-controlled European money supply, the credit-based Russian ruble was issued by the Finance Ministry. For the emperor, money issuance was an extension of his power. The ruble, therefore, was used to straitjacket the empire’s rebellious periphery (for instance, the Russian-controlled part of Poland, where the ruble displaced the Polish zloty).

The state’s fiscal policy was wrapped in secrecy. No one knew either the volume of the nation’s currency supply or the size of its gold and silver reserves. Unsurprisingly, after only a short time the silver standard toppled. When the Crimean War started in 1853, the ruble was once again fully de-coupled from silver.

A major cause of the ruble’s instability were wars, since they required constant outlays and undermined the economy. Even more fundamentally, the whole monetary system was geared towards servicing the autocracy rather than market demand for a medium of exchange. While liberal economists argued that only independent banks could maintain the fiscal balance, the Russian state printed money as it saw fit. After the Crimean War, some economic thinkers tried to revive Speransky’s ideas, calling to establish a money-issuing bank that would make the ruble a genuine credit currency. Yet even the so-called “great reforms” of Alexander II failed to realize this idea. In 1860, Russia established a State Bank. The ruble remained an autocratic currency.

Autocracy and war remained Russia’s main impediments to financial stability. Until 1897, the ruble remained convertible, and its unstable exchange rate only encouraged the speculators. On the eve of the Russo-Turkish war of 1877–1878, conservative elites preached patriotism over financial pragmatism, insisting that the empire’s honor depended upon the successes of its army, not the stability of its national currency. Any attempts to limit the supply of paper rubles was bound to be viewed as an attack on the Czar’s prerogative to wage war.

Gold and gold standards

By the 1880s, the gold standard had been adopted in nearly all of Europe as a system that prevents the state from printing money uncontrollably. This system also established a fixed exchange rate for national currencies when used for payments between gold-standard countries.

In this setting, the Russian Minister of Finance Sergey Vitte pushed through a fiscal reform in 1897, setting the ruble on a gold standard. This sparked immediate protest, not only from political elites, but even in business circles: the gold standard, they feared, would compromise Russia’a financial sovereignty. Liberals, meanwhile, criticized Vitte for distorting the political principles underlying the gold standard. Instead of placing an independent money-issuing bank in control of the gold reserve, Vitte’s reform increased the Czar’s and the government’s power over fiscal policy.

Unlike the European and American gold standard systems, the Russian gold standard proved to be a tool of the autocracy. With fiscal policy still in the hands of the finance minister, the emperor was free to issue credit from the State Bank’s reserves without any guarantee of repayment. This contributed to the erosion of the ruble. Countries with either private or parliament-managed central banks did not permit this kind of profligacy.

The expenditures that hit Russia during the First World War plunged the country into a financial crisis. The government proved to have been so blinded by its gold reserve that it paid no attention to the economy or the country’s financial limitations. Because Russia was buying essential goods abroad, the gold reserve was shrinking. The country was flooded with paper money of negligible buying power.

The government responded to the crisis with a campaign to replenish the gold reserves with donations from the population, calling on the Czar’s subjects to turn in their medals and wedding rings to help bolster the ruble. These calls to financial patriotism only encouraged the people to start hoarding gold, melting it down to make trinkets that could be taken out of the country. The campaign failed spectacularly, baring not only the country’s destitution but also the population’s lack of trust in the government.

The population knew full well that the “common ruble” belonged to the Czar and the government, and therefore instantly recognized “supporting the ruble” as empty rhetoric, which covered up the state’s eagerness to guard its fiscal prerogatives from encroachment by people’s representatives in the State…