194. The new age is coming
“Give a person confidence in the future for at least an hour, and he will immediately take something on credit.”
Intermission. Back to the OTL (for a while).
In general, in the second half of the XVIII century there was a significant growth of large industrial enterprises. By the end of the century, various industries were formed, so that Russia itself was able to almost fully meet its basic needs.
“It's not true that it's hard to part with money. It's much harder to meet them!”
“The bank is a place where you will get a loan if you prove that you do not need these money.”
General thoughts about usefulness of the banking system
Technical thought was very well developed in Russia. The Russian inventors created a universal steam engine, lathe machine, rolling mills and shafts. But these inventions have not been widely used in production because so far things were going just fine without big capital investments and the major industrialists (like Demidovs) preferred to spend money on the luxurious life style allowing them to be the accepted members of a high society. The lack of interest of the state in the use of technical innovations and the general routine of the economy led to the fact that by the end of the XVIII century. Russia began to lag behind European countries that have already completed the industrial revolution. For a while this was compensated by the fast growing domestic consumption market both of the agricultural and manufactured products but, with the growing technological gap, this was doomed to become a problem within few decades.
The trade, both domestic and international, kept growing but the exports had been limited to the source materials rather than manufactured products and, as such vulnerable to the changing international markets. In its practices the government was supporting and encouraging the merchants but mostly as an extension of the interests of the landowners. Later, during the reign of NI Kankrin, the Minister of Finances, did a lot trying to balance the Russian budget and stabilize finances but he also, by putting forward the interests of the big capital, was strangling the small-scale traders by eliminating some of the country fairs and creating other obstacles.
Throughout the XVIII century, the state budget experienced a constant deficit caused by endless military campaigns, the growth of the state apparatus, high waste of members of the imperial family. Taxes were collected with large arrears, besides, the nobles practically did not pay taxes. Further strengthening of the tax burden was impossible and the government decided to issue paper money to replenish the budget. Catherine II decided to proceed to the issuance of paper money - appropriations. But their value soon depreciated due to the termination of the free exchange of appropriations for silver money. Almost uncontrolled printing of the paper money (Paul I stopped this practice but AI restored it and kept printing until later in his reign) resulted in their devaluation: by 1805 a paper ruble cost 20 silver kopeks and eventually AI had to take a big part of them out of circulation and destroy converting the rest into the credit papers. Did not help too much because during the reign of NI combination of the wars and sinking economy resulted in a ballooning deficit which at the start of the reign of AII reached 1 billion rubles and by the end of his reign tripled.
Another source of replenishment of the treasury was government loans. By the end of the XVIII century, Russia's external debt amounted to 41.1 million rubles. The total public debt, taking into account ransoms, issuance of paper money, etc., amounted to 216 million rubles. The banks had been created but only the state-owned ones: no private banks were allowed.
Add to this losses during the Napoleonic wars. It seems that only the budget annual expanses in 1812-14 were at least over 200,000,000 rubles and the total human losses over that period were anywhere between 600,000 and 1,000,000 and for the whole reign of AI over 800,000 (out of the population of 41-42,000,000). Then go the property losses, which never were fully evaluated but presumably were in the range of one or few billions. All manufacturing in Moscow and surrounding region had been destroyed, the trade slowed down and the rural population was suffering from a combination of the raised taxes, extensive recruitment and a direct destruction (both by the invaders and defenders). What Russia got? As per Alexander, “We saved the Fatherland, liberated Europe, overthrew the monster, destroyed its poison, established peace and quietness on earth, gave the rightful King the throne taken away from him, returned his former bliss and being to the moral and natural Light.” Not too much, taking into an account that a need to “save the Fatherland” was a byproduct of Alexander’s own policies.
In general, the OTL Russia suffered from a number of major problems heavily weighting upon the industrial development:
Add to this never-ending expensive wars that were producing very little in the terms of future income and the expensive chaotic reforms.
- shortage of a capital available for investment - the private banks started appearing only at the time of AII.
- overly-intrusive government, which was restricting private initiative
- shortage of the educated technical cadres: the Russian universities had been heavily into the humanitarian professions, less into the science (chemistry, medicine, etc.) and even less into the engineering.
- shortage of the labor force cadres - they become available in the big numbers only as a byproduct of a failed Emancipation reform of AII.
Most of these factors are removed ITTL.
The Anti-Partition War was over and Alexander I, “the Blessed One” , could get back to the domestic issues the most pressing of which was dealing with the monetary mess that, to a noticeable degree, was his own creation. Unlike his predecessor, AI started with the massive emission of the paper money, which he used to finance a war. As a result, the paper ruble now fall down to 25 silver kopecks creating two monetary systems. On advice of his new Minister of Finances, Kankrin, considerable part of the paper money (596 millions out of 826) had been taken out of the circulation and destroyed and the rest converted into the credit obligations.
The budgets of the ministries had (once more, this was a disease reappearing periodically) streamlined with the state budget published to assure the public that everything is just fine. The goal was to return to a single currency based upon the gold ruble. In a reality, using the gold was permitted only in the international trade. Formally, the paper ruble was called a credit paper (that is, a banknote exchanged for a coin) and was considered silver, and its rate to gold was fixed, that is, the monetary system was legally bimetallic.
In fact, the full-weight silver coins eventually went out of circulation. The paper ruble was supplemented by an auxiliary non-weight silver coin and a copper coin. Credit papers were theoretically issued in denominations of 1, 3, 5, 10, 25, 50, 100 rubles; there was no 50-ruble banknote in real turnover.
The Treasury had an obligation to mint gold and a full-fledged silver coin made of metal brought by individuals (the so-called free minting of the coin). The gold coin was minted at the request of individuals for 0.96 % of the nominal price of gold (136 rubles per pood of pure gold), the silver coin - for 6.59% of the nominal price of silver (60 rubles per pood of pure silver); not including the technical costs of gold cleaning. The ratio of gold to silver at the rate of minting into a coin was 1:16.43.
The exchange coin was made of silver (semi-weight coin) and copper. The exchange silver coin was minted in denominations of 20, 15, 10 and 5 kopecks. The coin consisted of 50% silver and 50% copper by weight. The content of pure silver in the exchange coin was twice as low as in a full-fledged (bank) coin.
The state did not undertake to keep a change metal fund against issued credit cards and did not limit their issuance by any pre-announced rules; each individual issue of credit money was approved by a special legislative act to be published. The issuance of gold money, thanks to the existence of an institution of free coinage at the request of individuals, did not require legislative approval.
Theoretical cost of the gold ruble was:
- 4 rubles for British pound
- 25 kopecks for franc
- 26 kopecks for Austrian crown
- 25 kopecks for Dutch gulden
The first commercial banks had been open in Russia during the reign of Alexey II and kept growing in number and size but still were somewhat behind in the terms of sophistication and capital of the biggest banking institutions of France and Britain. Some useful lessons, however, had been learned both by the baking community and the government.
For example, the history of Caisse d'Escompte
demonstrated that to be of real service to commerce if it had not allowed itself to become the State's banker, lending money to the State without sufficient security, and receiving nothing in return but privileges which could not fail to be disastrous to it: commercial banks engaging only in discount operations, collections, and running accounts (comptescourants), had quietly and steadily kept on in spite of the Reign of Terror, the ordeal of the wars, and the dangerous and ruinous flood of assignats. Many of these bankers had learned the art of credit and the handling of capital in Switzerland, chiefly at Geneva, where banks had always been prosperous. As soon as the revolutionary dust settled, they boosted their operations and there were new “banks of the bankers” like Caisse des Comptes Courants
handling collections and other operations for a group of the bankers and “banks of the merchants” like Caisse d'Escompte du Commerc
e (Its board of directors was made up of merchants of all kinds, grocers, haberdashers, cloth merchants, silk merchants, etc.) or the Comptoir Comm
ercial better known as Caisse Jabach,
carrying on a discounting business,the only one, of course,which justifies the issue of bank notes redeemable at sight. None of these banks had any connection to the government and the French financial industry had been flourished .
With the Russian financial market being far from not saturated but just filled up to a desirable level, it looked prudent to invite the foreign “entrepreneurs” to start the new banks in Russia and to induce the prominent European banks to open their businesses there. The Generalissimo used his connections in France to make the useful connections and the very attractive
offers (full rights, freedom of operations throughout the empire and state protection) had been also made to the Jewish bankers in the PLC (who were not doing too well there due to the communal liability system) and those operating in various German states. Of course, there was no immediate miracle but quite a few private bankers, above all from the German-speaking realm, settled in Russia. The brothers Nikolai (d. 1827; converted ca. 1812) and Ludwig Stieglitz (1777–1843), natives of the Duchy of Waldeck and provisioners to the Russian army, were appointed court bankers but most had been busy in a private sector.
There were also unofficial systems of a commercial credit created by the various sects of the Old Believers for the members of their communities. Due to the fact that they were officially non-existing, they were not subject to any regulations but one of the traditional foundations of the Old Believers’ business code was an absolute honesty. Business (at least between the sect members) could be conducted simply by giving a word and a merchant could pass a big sum of cash to another through a third person whom he hardly knew without any paper work because dishonesty meant that nobody would conduct business with such a person.
The Age of Steam coming.
Of course by 1807, the Age of Steam was more than a century old, the first practical steam engine being built in 1705 to be used for pumping water out of the mines. In Russia the first steam engine had been built by Polzunov in 1766. Unlike the model of 1705, it had two cylinders, could work in an uninterrupted regime and could be used not only for pumping the water but also for blowing air into a furnace.
In all previously known "fire" machines, balancers were used as a transmission mechanism. In this area, the original decision of I. I. Polzunov was their replacement with pulleys, with the help of which continuous working force was transferred from pistons to the handles of blower bellows. Blower bladed bellows were used as a working tool. Unfortunately, the inventor died before the engine had been installed in the state-owned Barnaul Silver Plant and after it got out of order, nobody bothered to repair it. But the British one-cylinder Newcomen’s steam engine was known and Watt’s as well. To one degree or another they had been used in the Russian mining and metallurgical industries.
The new thing was to use steam engine for transportation.
Robert Fulton proposed plans of a steam ship to the British and US governments in 1793 but these plans did not generate any interest. In 1797, Fulton moved to France and, among other things, started experimenting with a steam engine. In 1803 a steam vessel 20 m long and 2.4 m wide was tested on the Seine River, reaching a speed of 3 knots against the current. This experiment was witnessed by the Russian diplomatic agent and duly reported to Moscow. In 1807, Fulton, who by that time moved to NewYork, sailed on his new steam ship from New York to Albany.
Through Russian diplomats in the United States - A. I. Dashkova and P. P. Swinina - Fulton offered to the Russian Empire his projects for the construction of steam ships and the idea of creating torpedoes, which received wide support in the Russian Empire. A contract which would give him an exclusive right to build and operate the steam ships in Russia for 15 years did not work out because he could not move there and the first Russian steam ship had been built by Charles Baird, a Scottish engineer and manufacturer who moved to Russia in 1786.
In 1792 he founded a metallurgical plant near St-Peterburg. Over time, the plant has become one of the best foundry and mechanical enterprises. The nomenclature of the plant included furnaces for sugar factories, crankshafts, blades and steam engines. During the first thirty years of the XIX century, about 200 steam engines were manufactured at the plant, 11 of which were steamships.
The first Russian steam ship, “Elizabeth”, was built in 1809 . There were some quite original details in his construction. A steamer with a wooden hull made of a Tikhvin barque with a length of 18.3 meters, a width of 4.57 meters and a sediment of 0.61 meters. The steamer was equipped with a balanced steam engine with a capacity of 4 nominal horsepower, which allowed the ship to reach speeds of up to 5.8 knots. 2 side propellers with a diameter of 2.4 meters, equipped with 6 blades each, were used as engines on the steamer. An iron pipe installed on the steamer with a height of 7.62 meters and a diameter of about 0.305 meters, which in a fair wind could serve as a mast for sailing on it
. The lower part of the pipe was made of brick
. A simple steering wheel was installed on the ship, which provided quite easy control. The steam engine and single-burning steam boiler, for which firewood was used as fuel, were located in the hold in the middle part of the ship. A pump was also installed there that supplied outboard water to feed the boiler. At the stern of the steamer there were benches for passengers over which the roof of canvas was stretched.
The ship was initially making the daily trips by the Neva carrying cargo and the passengers and sometimes being used as a tug boat but then was sailing between St-Petersburg and Kronstadt with a speed between 3 and 5 knots.
Value of this development was not lost on a broader public: the rivers had been extremely important transportation arteries of the Russian Empire and soon enough the first steam ships had been built in the Volga-Kama region with the Amur to follow. While the steam traffic on Volga was predominantly commercial, one on the Amur was initially fully state-owned due to the obvious strategic considerations. Only later the public-held “Amur company” was created followed by the privately-owned steamers.
The ships were mostly built locally but sometimes the engines had been ordered abroad. Competition on Volga was quite strong: within a decade there were three major companies and numerous private owners of one - few ships competing for the cargo and passengers. Sometimes this competition was resulting in the ships races, which could (and sometimes did) ended badly with over-stressed engine blowing and killing pretty much everybody abroad.
The seagoing steamships had been lagging behind but the first facilities for making the more powerful steam engines had been already under construction in St-Petersburg and Nikolaev.
 Surely, more reason to give that nickname ITTL than in OTL after all experienced disasters.
 Without Napoleon the Bank of France may not be founded in 1800. As was admitted later by Baron Pelet, “The rate of interest on money was then 3 per cent a month. It was determined to lower this rate, and especially to have an establishment which would take the government's paper and help its operations.
” In other words, Napoleon needed a compliant financial institution because the private banks did not trust (with a good reason) the government-issued obligations. As soon as in 1804 Nappy already had a disputation with the Bank of France on that account … and won an argument.
 In OTL in 1815.