On the eve of World War I, the Tsar of all the Russias decided to institute a ban on alcohol. The stereotypical Russian love of alcohol wasn’t comparatively bad; in fact, it was a mere 1/3 of the per capita alcohol consumption of the turn of the 21st century Russian citizen. However, it still had an enormously deleterious effect on discipline and efficiency in all sectors.
In the military, rampant alcoholism caused a plethora of issues. Throughout the 19th century, military officials believed that vodka rations were invaluable in keeping morale up, and moreover, they believed vodka provided health benefits to soldiers. Despite learning that many of the ailments and deaths in the military were somehow related to alcohol overconsumption, they continued to provide and encourage vodka rationing and turned a blind eye to the 50% of their soldiers that drank considerably more than their weekly rations.
It wasn’t until the enormous debacle of the 1904-5 Russo-Japanese War that commanders realized the depth of their mistake. Contemporary records state that during the war, an average of 25 pounds of vodka was provided per soldier, for a grand total of 19 million pounds. The amount of happiness this provided was related by thousands of chroniclers, who left accounts of drunken Russian soldiers who were haplessly bayoneted by the Japanese without even the semblance of fighting back. The ones that weren’t bayoneted could barely operate their weapons (…if they had any. In 1914, there was one machine gun per 1000 men). And even if there were weapons, many of them would be destroyed due to incompetence (…a problem that still extends to the modern Russian army, as of internal military review from the 90s). And if those men eventually made it back to the canteen, the quartermaster would provide them with even more vodka; perhaps their dead comrades were happily giving up their shares of the dole to their old friends. One wonders what would have happened had the vodka supply chain been disrupted.
It wasn’t just the soldiers who lived vodka as a way of life – it was everywhere. Indeed, the government had directed national efforts to increasing vodka production for more than 100 years. In the 19th century, a tax-farm system existed in which the nobles managed vodka production and were forced to sell 100% of their product to the government at a fixed price. The government, in turn, sold for massive profit to regional vodka monopolies who were granted short-term licenses and had to continually bid for further licenses. Thus the government won at all turns: they kept the nobility in check, brought itself massive revenues due to taxes and “commissions,” and induced bribery from both sides providing the monopolies and turning a blind eye to attempts to circumvent some of the more onerous tax regulations. Interestingly enough, the government started offering detailed census reports (including numbers on vodka drinkers and amount drank per head) of all areas of the country to encourage bidding on the monopolies from interested tax farmers. Undoubtedly, number-crunching for the purpose of organizing social services for these areas were lower priorities for the Census-takers.
Much of the governmental insistence on vodka was not only economic but political. It was much easier to control a populace that could be held insensible with free public giveaways of hooch: if there was unrest, declare it a public holiday and have a free orgy in the public square. The church helped out by declaring that every drink was honoring God; thus, spending 1/3 of the calendar on feast days meant that people were at least honoring God for 1/3 of the year. The appeal of vodka increased to such a point that it was of considerable appeal in the form of peer pressure to accept wages (for regular folk) or bonuses (for army folk) in vodka rather than cash.
The cost system itself for vodka was rather nonsensical and completely open to corruption. To purchase booze from the government, a vodka tax farmer would have to buy the 40% strength vodka from the government at 2.41 rubles a bucket from the government and then pay another 2 rubles in taxes. Following that, they sold a) 50 to 80% of their stock of the 40% strength vodka at the government-mandated loss-incurring 3 rubles per bucket price (AKA “no profit,” though this was more like giving it away) and b) the remainder as is, or via improvements (aka sand filtering, honey additions, double distillation). Naturally, when they could, the 40% strength vodka was sold at 7 rubles or more – economically, they really couldn’t do otherwise.
If the official sale price was 3 rubles and the real sale price was 7 rubles, one could safely assume that at any given point at least 50% of vodka revenue was generated illegally. Indeed, since the official vodka tax revenues from the mid-19th century to the beginning of WWI roughly came out to 500 million rubles a year, that meant that another 500 million rubles, at minimum, were lying around every year. A good portion of this loot went to use as direct bribery of governmental officials, who had to be persuaded to not institute onerous and random fines, provide them with insider information or steer licensing auctions their way, and to protect their shipments and farms from interference from other governmental officials. When the rate for bribery was 4-5x the annual salary of any official, up and down the line, it would be hard to find someone who hadn’t taken the money. Indeed, in 1856, the first Russian governmental inquiry into official corruption concluded that “bribes under 500 rubles should not be counted as bribes at all.”
Because of the overwhelming nature of the bribery, the government was increasingly getting itself stuck under the thumb of the mafioso tax farmers. Any centralized decisions ended up being paralyzed at the local levels due to the interference of tax farmers, who argued that they should lower their own production if certain policies went through. The government could not stomach the loss of that kind of tax revenue, so in almost all cases, the imperial mandates were rescinded. A rather poignant set of statistics: in 1859, vodka accounted for 20% of all internal trade, and taxes on vodka sales accounted for 40% of national revenues. In 1861, the government had been pushed around enough. The tax-farm system was abolished and price controls for sales of alcohol to the government were loosened. This, however, didn’t stop up the illegal revenues being generated; it just stopped the necessity of enormous bribes to officials. Instead, the extra money went to entrepreneurial ventures that made some of these former tax farmers into railroad, mining and banking magnates. On a macro level, the decision was better for the Russian economy in that it rerouted money from unproductive investments into productive areas that helped build national infrastructure. Unfortunately, many of the control issues would still remain.
Fast forward 50 years. In 1913, the Russian annual expenditure was 3.094 billion rubles; in 1914, the taxes on vodka sales netted 1 billion rubles. So many decades later, and still vodka was paying for a third of the governmental budget – and this in a year in which military expenditures were increasing exponentially to mobilize for World War I. Taken over the previous 60 years, vodka was paying for at least 25% of the annual budget and so constituted a spectacular loss of revenue if it were to be removed – which is just what happened. After Nicholas II’s ban on alcohol, the state saved peasants upwards of 1 billion rubles per year, while at the same time markedly decreasing its own revenue intake and greatly destabilizing the grain market. Wheat producers began illegally making vodka, depriving the market of a large amount of grain that would have gone to the army or on sale to the populace. To make up for the shortfall, the government was obliged to provide some free food to the public but was unable to afford doing so; they had to also feed the army and provide the soldiers with weapons, the latter of which was a spectacular failure and a major reason (aside from incompetence and drunkenness) the death toll in WWI was so high. The great budgetary deficits that resulted forced the Russian treasury to obtain foreign loans, and the repayment of these loans encouraged large inflation. This hit the populace in force by the end of the war, when a double whammy of inflated prices and low grain availability made starvation a palpable event for returning soldiers. Those that were out of work and starving began to protest: the first riots of the Revolution were sparked by women complaining about the non-affordable price of flour.
Under Lenin, the Bolsheviks were aware of the role that vodka played and had to slowly phase out the prohibition. With so much grain tied up in bootleg distilleries, the Bolsheviks needed to find a way to return that grain to better uses, like feeding people. They also needed to regain the revenues that alcohol provided. If it was going to be made regardless of legality, why not profit off of it? So rather than choose economic enslavement to Western countries, the Bolsheviks turned to a hypocritical, tsarist throwback: the vodka monopoly. In 1919, the legal distilleries got back to work, and the great experiments in socialist farming began. In 1925, Stalin remarked that “one cannot build socialism in white gloves.”