Nature's Evil [calibre 5.27.0]

The secrets of the Russian economy in the twenty-first century are known to its critics: its dependence on the export of raw materials, its excessive military expenditure, the degradation of human capital. Its passion for turning the state’s revenues into gold is less well understood. The gold reserve of the Russian Federation is disproportionate to its economy. According to the economist Yakov Mirkin, Russian gold reserves have increased threefold in the period 2009–19, although during this time the economy grew only by a quarter. In 2009 the share of gold in the Russian reserves was 5.2 per cent, in 2018, 16.9 per cent. 23 This is very unusual from a global perspective. The budget for education is falling, the pensions deficit is rising, but the weight of gold in the Russian reserves is increasing at unbelievable speed. During this decade, Russia was the major purchaser of gold on the world markets. Great Britain has seven times less gold, although its economy is larger than Russia’s. The population of India today possesses huge stores of personal gold, possibly more than in any other country; but the Indian state has three times less gold than Russia. And even China, whose economy is many times larger than Russia’s, has less gold.

The Russian Empire also accumulated large gold reserves, but they didn’t help it. In 1913, the gold reserve of the Russian state bank was 1,300 tons – the largest reserve in the world. On paper, it remained so until October 1917; but the national debt was also among the largest in the world. The historian Oleg Budnitsky has traced the adventures of Russian gold after the Bolshevik Revolution. 24 In 1915, during the First World War, the state gold reserves were evacuated far behind the lines, to Kazan. By the summer of 1918, bank vaults in Kazan housed more than half of Russian gold. For this and other reasons, the Volga region turned into the epicentre of the civil war. The Bolsheviks attempted to remove the gold reserve but they managed to dispatch from Kazan only a hundred boxes; all the rest were seized by fleeing Czechoslovakian units and their allies in the White Army. In October 1918 the gold was deposited in the middle of Siberia, in the Omsk branch of the state bank. Admiral Alexander Kolchak, self-proclaimed supreme governor of Russia, had at his disposal 490 tons of gold. Most of it disappeared: according to accounts from 1923, the Soviet state’s gold reserve was ten times less than the pre-war reserves of the Russian Empire. The Soviet state had to obtain gold by new means – through the labour of prisoners in the Gulag camps and the system of Torgsin – hard currency pawn shops which exchanged food provisions for the gold of the starving population. 25 After the Second World War, the first Soviet capitalists joined in these experiments. Survivors of the Gulag, they procured gold in the Arctic with unparalleled efficiency. Later, massive exports of Russian oil and gas brought many more tons of gold into the vaults of the central bank.

The conversion of natural riches, extracted by the efforts of many generations, into gold reserves is not an economic but a political phenomenon. Norway invests its profits from oil in shares in American and European companies. Some petro-states, for example Iran, spend their oil revenues on physical survival and armaments. But, in Russia, the exchange of oil for gold played a uniquely important role. Following the Russian model, in 2018 the president of Venezuela promised to create the second greatest gold reserve in the world; he didn’t succeed, and his country is suffering from hyperinflation. In the world of petro-states and sovereign funds, the strategy of the Russian authorities to convert oil revenues into gold is their special invention.

The Russian political economy is reproducing, either consciously or more likely not, the mercantilist policies of classical empires. Exploiting their colonial resources, the mercantilists believed that the main goal of state policy was a positive balance of trade – more exports than imports – which would lead to the accumulation of gold and silver in the treasury. The mercantile state was there not for the glory of the sovereign and not for the happiness of its subjects, but for the sake of gold in the treasury. Modern economic thought began with the criticism of these regimes, so that mercantilism today is considered as something known and obsolete but not quite intelligible. The mercantile system divided the world into ‘us and them’, and the relations between these two were considered along the lines of a zero-sum game or a tug-of-war: someone’s gain is always another’s loss. The mercantilists weren’t socialists; land, factories and commodities remained in private hands. But the state was always imposing new taxes, tariffs and excise duties on the merchants and entrepreneurs. The restraint of public consumption was a key element in this system. Subsistence farmers could consume whatever was locally available, but the import of foodstuffs or luxuries involved the spending of gold, and this had to be checked. Adam Smith’s ideas of free trade and Jeremy Bentham’s utilitarian principles turned mercantilism into an archaic apparition from the era of sugar islands, plantation slavery and the gold standard. In theory, mercantilism could not survive democracy: if people are empowered to pursue happiness, they want their state to spend funds, not to hoard them. In practice, some of the most powerful states in the world still practise – though they do not preach – mercantilism. But it is still true that excessive attention to gold reserves is a sign of imminent disaster.