Occupy and Conquer: Why the Government Abandoned the Idea of ​​”Patriotic” Bonds

We are talking, in particular, about the so-called investment accounts of the third type, about the system of long-term savings and about the program of shared life insurance. The mechanisms are very different from each other, but the essence of all ideas – both stillborn and those that have been given a go – is approximately similar. The essence is revealed by the words of a fresh presidential message: “Everywhere in the world, long-term savings of citizens are an important source of investment resources, and we also need to stimulate their flow into the investment sector.”

Translated from the state-political: the state and the economy – which is almost identical today – urgently need money. And not just money, but “long” money, that is, money that can be used not for months, but for many years. And the most promising creditor, as follows from what has been said, the government considers you and me, the population. Such a high trust, on the one hand, fills with pride, and on the other hand, causes some wariness. The roots of which stretch from the distant past.

Yes, people’s memory of the affairs of bygone days, no matter how hard some “criers-leaders” try to prove the opposite, nevertheless weakens as generations change, gives way to more recent impressions. But there is such a thing as “genetic memory” – maybe not quite scientific, but quite working for itself.

Therefore, the rejection of the “patriotic loan” project – the issuance of “thematic” government bonds in order to replenish the budget – is certainly a wise decision. Perhaps even science will agree that a financially safe and profitable business for the people will not be called that.

The Russian authorities resorted to large-scale borrowings from the population, as a rule, at critical moments in the country’s history. The first internal loan was carried out in 1809 – in the interval between the wars with Napoleonic France and at the height of the wars with Sweden and the Ottoman Empire, which the Russian Empire managed to wage simultaneously. The purpose of the event, as you might guess, was to improve public finances upset by numerous military enterprises.

As a result, the treasury received 3 million rubles – quite a considerable amount for those times. However, the population from such assistance to the state did not remain in the loser. The loan was issued for only a year at 7 percent per annum, and was repaid to a penny at the end of the term. Immediately after this, of course, another loan was issued – it was necessary to somehow repay the previous debts. Then – again and again … And off we go.

Domestic loans were different, more and less profitable for bondholders. But on the whole, the state adhered to its obligations rather rigidly, and did not leave its creditors completely with a nose. The turning point in credit history came after the outbreak of the First World War, which in Russia at that time was usually called the Second Patriotic War.

During the war years, the government of the empire placed six domestic bonded loans totaling eight billion rubles. With their help, about 30 percent of all military spending was covered. If during the issuance of the first three loans nothing was said about their military purpose – a loan and a loan – then the third one, held in April 1915, was directly called military and was accompanied by a fairly powerful propaganda campaign. The posters printed within it called for: “Patriotic and profitable! Buy a military 5’/2% loan.”

The fifth military-credit campaign, which was carried out from March to June 1916 and received the semi-official name “Victory Loan”, was especially large-scale – both from a financial, and from a state-organizational, and from a propaganda point of view. Cinematographers, clergymen, politicians, public figures, and military leaders were involved in agitation and explanatory work with the population.

“In this terrible hour, all of Great Russia must come to the aid of the Sovereign Treasury, we must all carry our savings to it, invest them in the War Loan,” said, for example, in an appeal to the people of the commander of the Southwestern Front, General Brusilov. a guarantee of victory, a guarantee of that happy time that awaits us ahead, when the hated enemy is broken and destroyed … “

It was planned to repay the money borrowed from the population through annual draws until … 1996. True, in the event of refusal from the percentage gain, the authorities promised to return the borrowed faster: it was assumed that from 1921 the bonds could be exchanged for money at face value. In general, even by pre-revolutionary standards, the event was patriotic, but not very profitable for investors. That is why, in fact, so many propaganda efforts had to be made to place bonds.

The last major pre-Soviet military loan was the Freedom Loan issued by the Provisional Government. “Let’s lend money to the State by placing it in a new loan, and in this way we will save our freedom and property from destruction,” the text posted on the bond read.

The loan was issued for 49 years, repayment was to begin in December 1922. The subscription continued until the October Revolution. According to available data, about a million people signed in total, the total amount of funds raised by the treasury amounted to about four billion rubles.

The Bolsheviks who overthrew the Provisional Government, oddly enough, recognized the internal debts of the former authorities – not to be confused with external debts, which the Soviet government “forgave” foreign creditors forever and in full. True, they partially recognized it in the style that the first chairman of the Council of People’s Commissars later formulated as follows: “Formally correct, but in essence a mockery.”

The decree of the All-Russian Central Executive Committee of January 21, 1918 “On the annulment of state loans” announced, among other things, the following: “Poor citizens who own canceled state papers of internal loans in the amount of not more than 10,000 rubles (at face value) receive in return nominal certificates of a new loan of the Russian Socialist Federative of the Soviet Republic for an amount not exceeding 10,000 rubles. Loan conditions will be specified separately.”

In a word, the new, proletarian government showed the holders of “patriotic” bonds a big proletarian muzzle. Svoboda Loan subscribers were a little more fortunate: on February 16, 1918, the Council of People’s Commissars legalized the use of loan bonds with denominations of 20, 40, 50 and 100 rubles in circulation along with credit notes.

So investors were able to return part of the investment. But in any case, a small one: the rapidly unwinding hyperinflation quickly depreciated this unexpected gift from the Soviet government. In 1921, the purchasing power of the 50,000th bill was equal to the pre-war coin of one kopeck. And in 1922, old bonds and other monetary ersatz were generally withdrawn from circulation.

However, the Soviet government treated its creditors with no greater respect. Although at first the Bolsheviks “stealed” rather gently. The first Soviet internal loans, of course, had many differences from pre-revolutionary ones (one can recall, for example, grain loan bonds of 1922, denominated in poods of grain), but they coincided with the old regime in the main – they were voluntary.

However, then more and more often the placement of bonds began to be carried out by the state forcibly, and in the second half of the 1920s this principle finally triumphed. At the same time, the state’s obligations on loans were constantly reviewed: the yield decreased, and the repayment periods were pushed back.

In the war and post-war years, loans became, in fact, a form of tax. It was considered the norm when a Soviet worker spent his monthly salary per year on the purchase of bonds of the next loan. But often people were forced to subscribe for much larger amounts – for two or even three salaries. By 1957, the total amount of government debt to the population on loans reached about 300 billion rubles.

Much is said about the significance of these borrowings for the country’s economy in the resolution of the Central Committee of the CPSU and the Council of Ministers of the USSR “On state loans placed by subscription among the working people of the Soviet Union” dated April 19, 1957:

“During the years of the first five-year plans, loans helped the Soviet state to build the Magnitogorsk Metallurgical Combine and the DneproGES, the Stalingrad and Kharkov Tractor Plants, the Moscow and Gorky Automobile Plants, Uralmashzavod, Rostselmash and many other large enterprises, new cities, railways, machine and tractor stations, state farms. During the Great Patriotic War, the funds received by the state from loans covered about 15 percent of all military expenditures of the country.In the postwar period, loans contributed to the rapid restoration and development of the national economy of the USSR … Suffice it to say that during the fifth five-year plan, the people lent the state an amount equal to the cost of fifteen such gigantic hydroelectric power plants as the Kuibyshev hydroelectric power station.

There was no question of any coercion, the leaders of the party and government insisted. They explained the unusually easy parting of the working people with their hard-earned people by their unusually high political consciousness: “The capitalists will never understand the soul of a Soviet person who grew up in the conditions of Soviet reality, for whom the goal of life is not personal enrichment, but the common good, the rise of the economy of the whole country …”

But the most cynical thing is that it was not the return of funds borrowed from the people that was so beautifully and magnificently furnished, but the exact opposite – a default. No, there was no such word in the decision, of course. Firstly, it was not at all in the then political and economic lexicon, and, secondly, the refusal of obligations occurred, as stated, with the consent of the creditors themselves: “The proposals put up for discussion by the working people met with full understanding and unanimous support everywhere.”

The repayment of previously issued loans, placed by subscription among the population, was postponed, according to the decree, for 20 years, and in full – for 40: payments were to be resumed in 1977 and made for 20 years, in equal installments annually. However, the issuance of new “subscription”, read “compulsory” loans was suspended.

Such a “zero” option, the Central Committee and the Council of Ministers assured, benefited both the state and citizens: “Loans cannot exist forever. If you continue to issue them in larger amounts than, for example, in 1956, then this will already be burdensome for the population … By stopping the issuance of new loans and at the same time continuing to pay the population in circulation of winnings and circulations of repayment of previously issued loans, the state would be forced to reduce appropriations for the needs of the national economy and for improving the well-being of the working people.

In the end, this debt was still repaid. Payments began even a little earlier than the indicated date, in 1974 (such a decision was made at the XXIV Congress of the CPSU), and continued until 1991. But it is difficult to call it a full-fledged compensation: the money was returned without interest accrued over decades of delay, in fact at face value – taking into account the denomination carried out in 1961.

Considering the scale of prices that has changed greatly over the years, the financial transaction ultimately turned out to be extremely profitable for the state and extremely ruinous for its creditors. The most recent Soviet internal loan – 1982 – was no more beneficial for the population. Here the history of redemption is even more confusing and is still not completely finished. Well, there is nothing to say about the history of the 1998 default – and so, I think, everyone remembers.

In short, the credit reputation of the Russian state is very badly tarnished and will not dry out very soon. It will be a long time before calls with the words “patriotic and profitable” cease to be perceived as persuasions of a cat and a fox from the famous movie fairy tale: “Do not hide your money in banks and corners. Carry your money, otherwise there will be trouble …”. Provided, of course, that no new wet spots appear.