The biggest single problem was the collapsing value of the paper ruble, which by 1811 was almost the only currency in use in the empire’s Russian heartlands. In June 1804 the paper ruble had been worth more than three-quarters of its silver equivalent: by June 1811 it was valued at less than one-quarter. This had two key causes. In the first place, the only way the state could pay for its enormous military expenditures in 1805–10 was by printing more and more paper money. Secondly, the Continental System, added to general economic and political uncertainties, had resulted in a collapse in business confidence. Even the silver ruble lost one-fifth of its value against the pound sterling in 1807–12. The value of the paper ruble on the foreign exchanges plummeted. This had a dramatic effect on the cost of sustaining Russian armies fighting in Finland, Moldavia, the Caucasus and Poland: Caulaincourt reckoned that the campaign against the Swedes was costing Alexander the equivalent of fifteen French silver francs per man per day, commenting that ‘the Swedish war is ruining Russia’. By 1809 state income was less than half of expenditure and crisis was looming. The real value of the government’s tax income that year was 73 per cent of what it had been five years before. At a time when Russia needed to prepare for war against Napoleon’s empire this was nothing short of a potential catastrophe.29
The government’s response to this crisis took a number of forms. A resounding statement was issued pledging that the paper rubles were seen as a state debt and would be redeemed. No more printing of paper money was to be permitted. All unnecessary expenditures were to be cut and taxes raised. Above all, the import of all luxury or inessential items was to be banned outright or charged prohibitive duties. Meanwhile encouragement and protection would be given to neutral ships docking at Russian ports and carrying Russian exports. The emergency taxes brought in little cash and when war broke out again in 1812 the pledge on new printing of paper money had to be forgotten. But the ban on imports and the encouragement of neutral shipping did make an immediate impact on Russian trade and finance.
Unfortunately, they also made a big impact on Napoleon. He claimed – in fact falsely – that French imports to Russia were being targeted. With more truth he argued that neutral ships were being used as a cover for trade with Britain. Since he himself at this very time was annexing much of north Germany in order to tighten controls on trade, Russian and French policy was diametrically opposed. Alexander refused to back down in the face of French protests, however. He argued that necessity forced these changes and that it was his right as a sovereign ruler to determine tariffs and trade rules so long as these did not contravene his treaty obligations.
Dire financial crisis as well as Russian pride was involved in his stubbornness. Both the emperor and Rumiantsev might have been more inclined to compromise had they not come to the correct conclusion that the Continental System had largely been transformed from a measure of economic war against Britain into a policy whereby France bled the rest of Europe white in order to boost its own trade and revenues. At a time when Napoleon was demanding the virtual elimination of Russian foreign trade, he was issuing more and more licences for French merchants to trade with Britain. To rub salt into Russian wounds, the occasional French vessel armed with such licences even tried to sell British goods in Russia. As Caulaincourt told Napoleon, the Russians could hardly be expected to accept the costs of France’s economic war with Britain when France itself was increasingly evading them. The Continental System’s effects had long since been denounced by many Russian statesmen. By early 1812, however, even Rumiantsev admitted that Napoleon’s policy lacked any honesty or coherence, telling John Quincy Adams that ‘the system of licences is founded upon falsehood and immorality’.30
