Russia's Interest in China

ALTHOUGH Americans at last seem to realize that the economic centre of the world is moving westward, and has already, probably, entered the United States, they incline to dismiss the subject as an abstraction; yet nothing can be more certain than that no such migration of empire has ever yet taken place without prolonged convulsions. Already this generation has had a foretaste of what such a movement may portend. The old social equilibrium reached at Waterloo passed away in 1870 when Germany consolidated after Sedan ; that consolidation led to a reform of the coinage, which in its turn caused an universal derangement of values culminating in the panic of 1893. One of the effects of that panic was a decline in the price of sugar, which ruined the Cuban planters, disorganized labor, and thus brought on the insurrection which ended in the Spanish war.

But the Spanish war is relatively insignificant compared with the fruits of the catastrophe of 1893 which are now becoming visible. That catastrophe took, in the main, the form of a forced liquidation of America’s foreign indebtedness, a liquidation which could not be conducted on the basis of the exportation of farm products at the prices then ruling. This necessity of providing something to meet the claims of creditors ended by stimulating cheap manufacturing, mining, and transportation, until we commanded the European market. Thus we succeeded in creating an enormous balance of trade in our favor, but in so doing we shook the civilization of the eastern continent to its centre. As a result of our economies Europe is steadily sinking into economic inferiority, an inferiority especially marked in minerals, which are the core of modern industry. For the first time in human experience a single nation this year leads in the production of the precious metals, copper, iron, and coal; and this year also, for the first time, the world has done its banking to the west and not to the east of the Atlantic.

Necessarily, as America gains in momentum Europe relatively loses. The precious metals failed her long ago, copper followed, and now iron and coal have reached a price which threatens to hamper competition. Under such circumstances the people of Europe stand at bay, since ruin, more or less complete and immediate, impends over them if they fail to provide themselves with new resources as cheap and abundant as those of America.

Such resources do actually exist in eastern and central China, and it is the attraction of this mass of undeveloped wealth which has incited Western nations to wring successive concessions from the Chinese until the pressure culminated in the present revolt against foreigners, which is only one inevitable step in the reconstruction of the dying empire. Cost what it may, sooner or later the mineral deposits of Shansi and Honan will be seized by Europeans, and he who can successfully develop these immense beds of iron and coal, by means of Chinese labor, may well hope to defy all rivals. Nevertheless, so rich a prize is not to be lightly won ; too many great interests are involved ; and on the decision of the fate of China may, perhaps, hinge the economic supremacy of the next century.

Not only from her geographical position, but from the magnitude of the stake she has at issue, Russia must play a leading part in the future of Asia, and during the past year her movement has been accelerated by the weakening of England. From Waterloo down to 1899 Great Britain acted as a sort of balance wheel to human society ; she operated as the containing force of civilization. With the Boer war this period appears to have terminated, for the United Kingdom is held by many to be unequal to assume heavier burdens than those she now bears. Having failed to display either the military or the financial energy anticipated of her, either by herself or her enemies, England has stood aside, and as she has effaced herself Russia has dilated. The Russians have overflowed Persia, laid hands on Corea, and all signs pointed to their design to occupy Pekin, thus commanding Shansi and Honan, provinces to the west and south of the capital, distant only some two or three hundred miles from ports, and containing the richest mines in the world. The Germans have been equally exacting, and there is some reason to infer that the rapid growth of this influence over the Chinese administration may have been the proximate cause of the outbreak which began in May.

Assuming that Russia, or Russia and Germany, can successfully occupy this region, and that England will not risk a war to stop their progress, unless supported by redoubtable allies, a serious responsibility is cast on the United States. Apparently America must more or less completely assume the place once held by England, for the United States could hardly contemplate with equanimity the successful organization of a hostile industrial system on the shores of the Pacific, based on Chinese labor, nourished by European capital, and supplied by the inexhaustible resources of the valley of the Ho-hang-ho.

In the present juncture, therefore, no problem can be more pressing than to estimate the real energy and capacity of Russia; to attempt to measure the task she can accomplish alone; to ascertain the point at which she may have to seek aid abroad; and lastly, to determine whether the United States can afford to allow that aid to be drawn exclusively from Europe.

Americans are apt to picture Russia as a country somewhat resembling their own ; that is to say, as young and imperfectly developed, but with indefinite resources, and inhabited by a race adapted to the exigencies of modern industrial competition. To be sure, this view is held by many well-informed persons, and yet there is ground for doubting whether Russia, as now organized, ever has held or ever can hold her own against the West.

Far from being young Russia is venerable even judged by Asiatic standards. The Czar traces the source of his semi-divine authority back to the traditions of Byzantium ; his descent from the Greek emperors ; and when London and Paris were clumps of hovels clustered on the banks of the Thames and Seine, Kiev was a rich and splendid city, frequented by merchants from many lands, endowed with famous schools, and adorned with churches whose mosaics rivaled those of Constantinople. In the first half of the eleventh century Russia lay in the line of commerce, and stood, probably, more fully abreast of the movement of the age than she has at any other epoch. When the Eastern trade centred on the Bosphorus, the portion which sought the Baltic ascended the Dnieper to Kiev, then passed to the Lovat, and so by Lake Ladoga to the Gulf of Finland, building up Novgorod the Great upon the way. But wealth, intellectual activity, and art, all withered under the competition of Italy, when Italy awoke to life through the stimulus of the crusades.

During the twelfth century the focus of commercial activity moved toward Lombardy, the routes of travel changed, and as Russia became isolated, her vitality ebbed. By 1150 Venice had begun to supplant Constantinople; in 1169 Kiev suffered its first sack; while in 1224, only twenty years after the overthrow of the Greek Empire by the Franks, the Tartar domination in Russia began with the victory of the Kalka. That domination lasted three hundred years, and when it closed Russia had grown Asiatic. During the interval the country had been severed from the West, the capital had moved to Moscow, egress to the Baltic had been barred by Germans, Poles, and Swedes, and only in 1556 did Ivan the Terrible succeed in opening the Volga as far as Astrakhan, and in navigating the Caspian. Until the eighteenth century no outlet existed on the Black Sea.

Nothing, however, remains stationary, and when the economic capital of Europe, pursuing its migrations, reached Flanders, an unparalleled activity set in upon the shore of the North Sea. Even before Ivan reached Astrakhan, English adventurers had penetrated to Moscow by way of Archangel and the Dwina, Archangel being the only port in the Czar’s dominions.

From this moment date the difficulties of modern Russia, for an archaic and secluded community then fell into the vortex of competition with races more active and highly organized than itself.

To speak plainly Russia relapsed into barbarism, but as a barbarous state she could only survive while completely separated from more advanced enemies, since communication meant equality of armament, with all the cost implied thereby, or subjugation. Therefore Russia armed, organized, and went into insolvency ; but previously, while isolated, her finances had been sound, and her population relatively prosperous.

Even as late as the time of the Czar Alexis, who died in 1676, the monarch lived in splendor, maintained a sufficient army, and amassed a treasure with a revenue of 6,000,000 roubles. Under Peter the Great the tide of competition flowed with resistless force. The Russians were drawn down to the Baltic, and from the hour that Western economic standards were imposed upon them, they recognized their position as hopeless unless they could reach some sort of industrial equality with their rivals.

Hence Peter surrounded himself with Dutchmen, Germans, and English; hence Catherine II. sought to people the valley of the Volga with emigrants from the Palatinate; and hence those efforts of the last ten years, to convert the southern steppes into a sort of Pennsylvania, which have astonished the world.

The task attempted has been prodigious ; the sacrifices exacted from the people have reached the limit of human endurance ; but there is reason to believe that hitherto the effort has failed. Probably the weight of Russia as a factor in modern competition tends at this moment rather to decline than to increase.

To appreciate the crisis which Russia is facing, neither her geographical position nor her past should be forgotten. Russia is expensive to develop, for she is cursed with costly outlets. To the south she is shut in upon an inland sea; to the north her harbors are few, distant from the richest portions of the country, and icebound. Siberia is but a narrow strip between two deserts, a strip so narrow that transportation in bulk, such as is the basis of the American system, seems impossible. For these reasons Russia remains relatively now much what she was in Peter’s time, — an isolated mass with a highly eccentric capital, wretchedly poor, with unsatisfactory communications, schools, and administration. Lastly, to make head against these disadvantages, Russia is peopled by an archaic race; that is to say, a race which operates more slowly, and therefore more wastefully, than its Western rivals. A race, moreover, essentially Asiatic. The Russians have patience, tenacity of life, and, possibly, adaptability to foreign guidance; but they are ignorant, uninventive, indolent, and improvident. As a result the resources of the empire have proved inadequate to the demands made upon them; the revenue has always shown a deficit since Peter the Great’s time, and when the finances have been subjected to a severe strain they have collapsed.

Not only does Russia suffer from her geographical position, but her improvidence makes her even in prosperous times accumulate debt faster than capital. As one of her best financial writers has remarked: “We administer our public fortune with the same heedlessness as our private fortune. However rapidly the resources of the state augment, the expenses augment more rapidly still. In comparison with the revenues, which have quadrupled, our public debt has quintupled,” and this was written before the advent of De Witte, the most lavish of ministers.1

The Russians have never known the solvency indicated by a sound currency and an annual surplus. The present nominal gold standard is only a repetition of former expedients, and consists in the repudiation of one third of preëxisting forced loans. The new gold rouble has been issued in the ratio of two roubles of gold to three of paper, the third paper rouble being canceled. Up to 1768 the government used a debased copper coinage and resorted to a series of desperate expedients to raise funds, but in 1768 Catherine II. believed she had found an exhaustless source of wealth in paper money, which she substituted for the preëxisting tokens. It was then the germs of the subsequent bankruptcy of 1839 were laid. This paper, called assignats, always tended to increase and to depreciate. During the Napoleonic wars, in spite of English subsidies and a share of the French indemnity, it reached 839,000,000 roubles 2 and had fallen in value to less than four to one in relation to silver. By 1839 the burden had grown too heavy, and Count Cancrin issued a new “ credit rouble ” on the basis of one to three and one half, which constituted a repudiation of about seventy-five per cent. Yet these new roubles within ten years had fallen to ten per cent discount.

Probably a complete repudiation of all debts would have supervened had not the Russians about this time discovered that they could borrow abroad, and Gouriew availed himself so liberally of this expedient that, when he retired in 1823, he was accused of “ bringing the state to bankruptcy ” through the instrumentality of the Rothschilds.

The Russians are not a commercial people ; consequently their finances have never been administered by men of business, and have always borne an amateurish stamp. Little serious attempt at economy has ever been made, and though the people may be starving, and the currency in confusion, the court and the administration have always been the most lavish in Europe. Nevertheless, by means of the repudiation of 1839, some semblance of order was restored. That is to say, the deficit was reduced to about 30,000,000 roubles in good years, and through foreign loans a treasure was amassed large enough to lure the Czar Nicholas into attempting the Crimean war. Two campaigns sufficed to exhaust the economic endurance of the empire. In 1855 the deficit reached 262,000,000 roubles, and at the peace the paper currency amounted to 735,000,000, while 321,000,000 roubles had been extorted as a loan from such institutions as had funds. In precisely the same way Russia broke down twenty-two years later under the walls of Constantinople, and surrendered the fruits of victory, because her paper issues had attained the enormous volume of 1,200,000,000 roubles, and her five per cent bonds could hardly be sold in small amounts in Berlin at twenty-six per cent discount.

Whether in peace or war, no minister of finance during this century has ever kept the cost of government within the limits of the revenue. The bonded debt has grown under every administration, but under none so fast as under the last. The list is curious, and even startling.

In 1810 Alexander I. appointed Gouriew, who held office thirteen years ; beside enormous emissions of assignats, he incurred an interest-bearing debt of 185,688,000 roubles. Cancrin, his successor, struggled with hopeless deficits, resorted to the most desperate expedients to raise funds, even selling exemptions from military service, emitted much paper, added 115,000,000 roubles to the debt, and finally, in 1839, wiped out three quarters of the assignats by issuing a new credit rouble at a ratio of one to three and one half. Yet nevertheless, in spite of such sharp contraction, the new rouble fell to three per cent discount in 1843, and to ten per cent in 1848. Cancrin died in 1845, and each of his three successors borrowed, more or less freely, to fill deficits, until Reutern became minister in 1862. In his first six years his loans reached 451,000,000 roubles, and in 1864-66 he emitted 63,000,000 treasury notes. Reutern retired in 1878, and Grieg, who followed, had to provide funds to pay for the Turkish war ; he, Abaza, and Bunge borrowed money abroad when they could, and, when they could not, issued paper at home. Thus, about the time when Vychnégradsky, De Witte’s predecessor, took office, in 1887, affairs reached a crisis. The deficit continuing, severer taxation was resorted to, a panic broke out in 1888, the rouble depreciated fifty per cent, and had it not been for an exceptionally abundant harvest, the ruin might have been more widespread. A change, however, was at hand. The moment had arrived when Russia became mistress of fabulous wealth.

Previous to 1888 Russia had been mainly dependent on Germany for her capital, and this dependence had amounted to a species of subjection, for the German bankers had not scrupled to use their power as creditors to the utmost to impose a policy on the Russian government. In 1888 the full magnitude of the change of social equilibrium wrought in 1870 manifested itself. As central Europe had consolidated, France had been isolated, and her isolation placed her in mortal peril. This peril stimulated her people to strengthen Russia at any cost, since without an ally the republic feared dismemberment. Consequently for several years the savings of France stood at the disposal of Russia, and the results which followed are, perhaps, without a precedent. In time of peace, between 1888 and 1897, Vychnégradsky and De Witte borrowed upwards of $863,000,000, of which vast sum perhaps one half represented investments in railways, or a possibly productive outlay. In the first four years of De Witte’s administration the annual disbursement rose from 900,000,000 to 1,413,000,000 roubles, and for the year 1900 the budget shows a deficit of 160,600,000 roubles, or $128,480,000.

It is true that the recent budgets have been made to indicate a surplus, but this surplus is delusive. De Cyon years ago demonstrated that the apparent surpluses exhibited by M. de Witte are in reality caused by the application of the unexpended balance of old borrowings to the payment of current expenses. For example, the budget for the year 1900 shows an application of 160,000,000 roubles drawn “ from the free balance of the treasury.” Now this “ free balance ” is, in the language of De Cyon, only " the avails of unemployed loans.” 3 That an actual deficit exists is proved by the advance of the debt.

Nor is the state debt the only, or even, perhaps, the heaviest burden which the Russians have assumed in their struggle for industrial development. Not being by nature inventive or mechanical, the community has striven for two centuries to domesticate foreign industries, by importing foreign labor and foreign capital. To provide the necessary inducement the Russians have enacted a nearly prohibitive tariff, and attracted by the great gains which may be realized under this tariff, Germans, Belgians, and French have established plants whose profits are remitted abroad. Thus not only is the price of all the necessaries of life raised for the peasant, but the cost of internal improvement is increased. For example, the government, instead of buying its railway material in the cheapest market, buys it at home at fifty per cent advance ; to pay this price to the foreigners who control the iron works, money is borrowed abroad, which money returns whence it came, and then a new loan must be negotiated in Paris or Berlin to pay the interest on the funds thus drained away.

In 1891 a French syndicate offered the Russian government to build the Siberian railway within six years, at an average cost of 40,000 roubles the verst,4 offering a guarantee that the cost should not exceed the sum indicated. The government declined the offer and undertook the task itself, and this is a sample of what happened. The division from Cheliabinsk offered no particular difficulty, and the syndicate estimated it at 20,000 roubles the verst. It has already cost 53,000 roubles the verst, and the rails which have been laid are generally so light that they will have to be replaced before the road will carry heavy traffic.

Some of this vast excess of outlay may be attributed to the price paid for domestic material, but not all. The chief leakage is due to a weakness in Russian civilization, which vitiates all financial and administrative methods. Russian society is archaic ; the system of agriculture may serve as an illustration. The basis of Russian agriculture is still communal ownership, which represents an intellectual condition perhaps equivalent to that of Europe three centuries ago. Moreover, the Russians are Asiatic, and therefore less vigorous, energetic, and inventive than Western races. Accordingly, Russian peasants are miserably poor.

Estimating by aid of the figures of M. de Witte’s reports, the average annual production per person approximates twenty-nine roubles; of these twenty-nine roubles upwards of twelve are absorbed in taxes, leaving about thirteen dollars as the income of the individual. Such estimates are vague, but they serve to give an idea of the impossibility of a population nearly starving, unable to buy machinery, crippled by infamous roads and insufficient railway transportation, and enervated by the rotating tenure of land incident to communal ownership, competing with the capitalistic methods of the Dakotas. Obviously the value of the Russian agricultural exports must tend to decline.

For precisely similar reasons the Russian railway must be a costly and an inferior railway, because it is the product of a primitive society which generates a defective civil service. The archaic idea is to pay the official by fees; for it requires an advanced economic intelligence to comprehend that it is cheaper for each citizen to be taxed for fixed salaries than for the individual to pay for the service he needs, as he might pay a doctor or a lawyer. Verres, for example, administered Sicily for what he could make out of it, and Verres and his like engendered the empire, under which the salary system prevailed. Colbert undertook to uproot the fee system in France, and failed. The Revolution accomplished his work.

Russian officials are expected to supplement insufficient salaries by fees; hence fees, though not necessarily implying dishonesty, are universal, and entail waste and delay. The most important work, even of a routine character, may be stopped for months because some obscure official has been overlooked who has quietly waited until the sufferer should find and pay him. Hence railways are costly, ill-organized, ill-equipped, and slackly run, and though freight rates may be nominally low, they become high through maladministration. From the palace of the Czar to the hut of the peasant, the same waste, the same inertness, and the same incapacity prevail. The result is that the harder Russia is pressed by Western competition, and the more capital she is driven to borrow to invest in industrial expansion, the heavier is the burden of the nation in proportion to its resources, and the more hopeless its financial outlook.

For example, in 1887, before the negotiation of the French loans, the annual charge on the public debt reached, in round numbers, 186,000,000 gold roubles ; in 1899 this charge had swollen to 270,000,000 gold roubles, in spite of conversions which lowered the rate of interest at least two per cent, and in spite of the suppression of the sinking fund. Now this charge represents mainly a debt due abroad, which must be paid either by exports or by new loans. If the national balance of trade in favor of Russia has grown proportionately to the debt, the empire is paying its way; if it has shrunk, the empire must be losing ground.

Between 1886 and 1890 the exports of Russian merchandise exceeded the imports, on the average, by 173,000,000 gold roubles, a sum doubtless sufficient to meet the foreign disbursements and leave a handsome margin, since at that time a larger portion of the loan was held at home than at present. Between 1891 and 1894 this balance fell to 111,700,000 gold roubles, and in the three years 1896-98 to 98,500,000 gold roubles, and this in spite of the high price of grain in 1897. Therefore since the French inflow of capital began, the interest account has risen forty per cent, while the balance from sales of merchandise has decreased forty per cent, leaving the country with a deficit on its fixed charges. Nor is this the worst. The enormous foreign investments in industries have to obtain a profit from sales at high prices to the peasantry, and the money thus taken from the country is sent abroad as regularly as government interest. Therefore, when M. de Witte fails, as he has failed this year, to negotiate new loans, the specie accumulated in St. Petersburg, which is the result of old borrowing, has to be exported to Paris in default of exchange. It was in all probability a recognition of this fact which led the Czar to call the Peace Conference, in the hope of limiting armaments.

The inference is that Russia, as now organized, is not upon a paying basis, and that Russians are ill adapted to the exigencies of modern competition. This inference is also strengthened by the fact that the commercial interests of the empire, in the chief cities of European Russia, are passing under the control of Germans and Jews, and that German is the language of Russian finance.

Conversely, it seems to be generally conceded, that the condition of the peasantry is deplorable. As the price of grain has fallen, taxes have risen until the margin of profit upon the average crop has dwindled to a bare subsistence, and a bad season means famine, — famine not because bread is dear, but because the population lacks money wherewith to purchase. Hence starvation has become chronic in the empire, and there is seldom a time when people are not dying either from hunger, or from the effects of hunger. Last winter Bessarabia was immolated, a province which had never before known scarcity, and the bitterness of the situation lies in this, that when all has been sold and the cattle have been killed, and nothing is left to seize, the taxes accumulate, and these arrears sweep away any surplus which might remain after the next era of plenty. For this reason the inhabitants of the valley of the Volga are abandoning their farms and wandering toward the wastes of Siberia, where too often an equally miserable fate awaits them.

Such phenomena point to the conclusion that Russia must either undergo a social reorganization which will put her upon a cheaper administrative basis, or she must obtain fresh property which she can mortgage ; that is to say, she must expand.

What a social revolution in Russia would portend transcends human foresight, but probably its effects would be felt throughout the world. The conservative instincts of the race are, however, very strong, and it is likely that they will prevail until the last extremity. Assuming, therefore, that the existing status of society will remain unchanged, an alternative appears to be presented to the people.

Foreign borrowing has, apparently, been carried to something like its limit, unless new securities can be pledged, but such securities are usually the fruit of war. The most brilliant would be the Shansi minerals. The development of those deposits offers the best, and, perhaps, the only chance for that industrial development for which the Russians have striven for two centuries, and hitherto failed. War is costly, but the Russians have a large treasure in gold which they can spend in expansion. If they succeed they will have won the richest prize of modern times. If they fail they will only arrive a few years earlier at the issue of more paper money, a measure which appears inevitable on the present basis ; for, with the balance of trade going against them, and the interest account growing, if the reserve of specie is not used in war, it seems destined to be exhausted in paying the charges on the debt.

Should the military and agrarian party gain the upper hand, as some think it has the upper hand already, an attempt would probably be made to absorb the northern provinces of China. The question is how this would affect the United States. Evidently the United States has nothing to gain by the opening up of Asia. The United States is now mistress of the situation; the United States is fast attaining a commercial supremacy heretofore unrivaled. An industrial movement in the valleys of the Ho-hangho and Yang-tsze could only tend to her embarrassment. The best thing that could happen for her would be for China to remain as she is. But the very success and energy of America make it unlikely that China can stay stationary ; an effort at development is inevitable, and it behooves Americans to consider whether they can safely allow that development to be wholly controlled by others. If Russia should absorb Shansi she cannot organize it alone. She has neither the genius nor the capital. She must mortgage her property, in the future as in the past, and there is a likelihood that the mortgagee will ultimately come into possession. Even supposing a conflict between Japan and Russia, in which Japan should prevail, the situation would remain substantially unchanged, for the Japanese are both from a financial and an administrative standpoint as unequal as Russia to handle such a task. They would have to resort to the same expedients as their adversary.

There remain the English, the Germans, and ourselves. The English may, probably, be dismissed from consideration ; their energies are already over-taxed, and of late, except in South Africa, British capital has shown a tendency rather to contract than to expand its sphere of activity. The Germans, on the contrary, are aggressive, and are taking the present opportunity to extend their influence. Were the Russians and the Germans to coalesce to dominate northern China, and were the country to be administered by Germans with German funds, a strain of a very serious nature might be put upon America.

Evidently this community cannot be excluded from the East; our geographical position, our wealth, and our energy make such an event, unless through coercion, impossible. Laws of nature are immutable ; money will flow where it earns most return, and investments once made will be protected.

Hence Americans must accept the Chinese question as the great problem of the future, a problem from which there is no escape ; and as the solution of these great struggles for supremacy often involves an appeal to force, safety lies in being armed and organized against all emergencies.

Brooks Adams.

NOTE. — I wish to rectify an oversight in my article on Russia which, unfortunately, I noticed too late to correct in the text. The oversight consists in taking the totals given in gold roubles in the Russian reports of different years, and comparing them directly with each other, forgetting, for the moment, the effect of M. de Witte’s currency reform. When M. de Witte reformed the currency he scaled down the old gold rouble thirty-three per cent, to bring it to parity with the depreciated paper rouble. Therefore calculations to-day must be made on the basis of the modern gold and the old paper rouble. This vitiates the estimate of the increase of the charge on the public debt made on page 315. The adverse balance remains, but not on so great a scale. — BROOKS ADAMS.

  1. Les Ministres des Finances de la Russie, Skalkovsky, page 307.
  2. The rouble may be calculated at eighty cents.
  3. Où la Dictature de M. Witte conduit la Russie, F. de Cyon, XVIII.
  4. The verst is seven tenths of a mile.