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Peter the Great founded the Russian Academy in 1724. In his decree, he says the Academy will be supported by an annual grant of 25,000 rubles drawn from the custom tolls of Baltic Sea ports. (source)

As a matter of statecraft, why would Peter have tied particular expenditures to a particular revenue source? The variability of any given revenue source is much higher than the variability of a state's total revenues. With a system of earmarks like this, one year the Academy might be fully funded while another institution has a deficit, and the next year the reverse. That seems like it would wreak havoc on the orderly functions of the state.

Also, as exceptions like these multiply, it becomes that much harder to keep track of the overall health of the economy and the nation's budget. The state becomes "illegible" to Peter and his ministers. Why not have a single centralized treasury and a single centralized budget to avoid this unnecessary confusion?

I imagine Peter wasn't the only early modern monarch/autocrat who managed budgetary affairs like this, so I'm open to answers for other countries if they illustrate the issue at hand well.

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    The Academy could never have a surplus. It got 25000 rubles, unless Baltic Sea tolls were somehow less than that figure. – Oldcat Aug 18 '15 at 20:45
  • True. The potential for deficits is the issue. – two sheds Aug 18 '15 at 20:58
  • I think you will find that the total tolls were comfortably above this margin by a wide factor. It is just telling the officials collecting tolls to chop this off before sending the remainder off to St. Petersburg. – Oldcat Aug 18 '15 at 21:00
  • OK, but why do it this way? The academy is just a citeable instance I found for a general phenomenon that I'm interested in – two sheds Aug 18 '15 at 21:01
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    Probably because it lets the receiver know what office to apply for the money, and has that office be able to disburse the money. Peter the Great didn't have millions of government workers and computers to coordinate massive budgets and programs. Even today, some budget line items are earmarked to come from some income stream. – Oldcat Aug 18 '15 at 21:10
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When people owe more money than have, they have to make specific excuses from where the funds will originate for any new expenditures.

Peter drew money from poll taxes and land taxes, but those monies were heavily claimed by various creditors and entities, such as the army. Since such money comes from the people, they demand satisfaction for its use. The advantage of custom duties is that they remit to the crown alone, so Peter was free to use such money however he pleased on pet projects.

As a general rule of economics, you can only use a centralized treasury when you are in surplus. Even on the personal level this is true. If an American citizen, for example, becomes a tax delinquent and is functionally bankrupt due to an inability to pay taxes, then what happens is the government "garnishes" the tax payer's wages, collecting them directly from the tax payer's employer. So, the taxpayer no longer has a "treasury", but has specific revenue streams directed to specific debts. The same thing happens to bankrupt countries.

  • Interesting answer. Could you say more about why customs remit to the crown alone while a poll/land tax doesn't? Is that just due to practice from time immemorial, or is there an administrative reason? – two sheds Aug 18 '15 at 21:40
  • @twosheds As I said in my answer, it is because personal taxes come from the people, but customs duties and other taxes on commerce, like licensing fees come from unenfranchised people (like merchants). When you collect money from millions of (possibly rebellious) people who have powerful entities like dukes representing them, the money usually comes with strings attached. – Tyler Durden Aug 18 '15 at 21:49
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Basically, it seems strange only at the first look. But this approach is rather reasonable, used by (at least) many countries in the world even today and it is unlikely that it makes a state "illegible".

I cannot provide a proof of how these matters were handled in Russia at the time of Peter right now, so let me provide some examples from today (and I am pretty sure that at Peter's time this was almost the same).

Today this approach does not mean, that money collected from a certain source of income are automatically transferred to the dedicated expenditure. The reason behind this is that when you plan your expenses you need to answer where will the money be taken from. There are numerous examples of this in today's world, here are the examples:

in Finland the government is planing to handle the refugees crisis and, as I understood, is in need to exert some state programs for this. So it has proposed to increase certain taxes. It does not mean, that when these taxes are collected the money will be directly sent to a refugee camp, it simply means that the government needs to provide some sources for any increase in expenses (Finland to raise taxes on the wealthy to cover refugee costs).

A better example. Sorry, I could not find this news in English, so please, depend on my translation. an article in Russian. It is saying in its last paragraph, that the subway in Kharkov will be being constructed at the expense of the city's football stadium sale.

Another example, sorry I could not find a link to this news, so I'll try to describe it in my own words. Recently, the Ukrainian government decided to finish the construction of 2 blocks at the Khmelnitski nuclear power plant. The money should come from electricity sales in Europe from another 2 blocks at the same plant, which are already built. Usually in Ukraine (and as I suppose other countries as well) such things are regulated by the budget law, so if the government at its own whim spends the money from those electricity sales on something else, than those 2 nuclear blocks, responsible officials can be prosecuted.

So I suppose that something like this was taking place at the time of Peter.

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