The industrial development launched by Peter, though new in spirit was entirely traditional in execution. The state owned the means of production, set the prices and absorbed nearly all the output; the management was on good behaviour; the working force was enserfed. Assured of bonded labour and a market, the state-appointed or state-licensed entrepreneurs had no incentive to rationalize production. In short, though there was industry under Peter, there was no industrial capitalism. The greatest break in the economic policies of Russia prior to the industrial drive of the 1880S-90S, occurred in 1762 during the brief reign of Peter in and the first few months which followed Catherine's accession. Inspired by Physiocratic ideas, the new administration dismantled the old, elaborate structure of state-run commerce and manufacture,with its network of concessions and licences, and threw both open to free public participation. The first step in this direction had been taken a decade earlier, in 1753, with the abolition of all internal tolls and tariffs in Russia. On 23 March 1762, Peter m did away with many of the royal monopolies and opened to general commerce all but a few commodities; cereals, traditionally one of the regalia, were among the items in which free trade was allowed. Catherine, who in an expansive mood once claimed commerce as 'her child', confirmed this edict upon her accession. By virtue of these laws, merchants retained the exclusive right to trade and manufacture granted them by the 1649 Code; dvoriane and peasants were permitted to sell only that which they themselves produced in the villages. But since the bulk of merchandise traded in Russia had always consisted of agricultural produce and items of household industry, the distinction had little practical significance. It meant, in effect, the introduction of freedom of trade in Russia. Even more consequential in the long-run were two edicts issued that same year concerning manufacture. On 29 March 1762, Peter m revoked the decree of his grandfather, Peter the Great, which authorized merchants to purchase serfs for use as labourers; henceforth, they could hire labour only for wages. The ownership of serfs from now on was restricted to dvoriane.* On 23 October 1762, Catherine gave permission to all the estates to found manufactures anywhere except in Moscow and St Petersburg; a Manifesto of 17 March 1775 gave Russians the right to establish every kind of manufacturing facility.
The cumulative effect of this legislation, designed to stimulate the economy, was to deliver the coup de grace to Russia's ailing middle class. With one hand, the government deprived merchants of access to serfs, the principal source of labour then available in Russia and certainly the
* Paul I in 1798 temporarily returned to merchants the right to own serfs, but his son, Alexander I, abolished it permanently.
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cheapest; with the other, it opened up to others the opportunity to do openly and legally what until then they had been doing surreptitiously, namely to compete with the merchants as traders and manufacturers. The legislation ensured that its major beneficiary would be dvoriane and peasants. Trade and manufacture were reunited with agriculture, and the centre of economic activity shifted to the village. The crown's withdrawal from direct participation in economic activity (it retained control only of the major defence industries) not only did nothing to help die middle class, but confronted it with the competition of the rural classes, more ubiquitous and formidable even than royal monopolies.
The consequemces made themselves felt soon enough. Peasants throughout Russia began now to trade on an unprecedented scale, cornering much of tlhe market in foodstuffs (cereals, garden produce and cattle) and implements for the home and farm. Already at Catherine's Legislative Commission (1767-8), the merchants loudly complained of peasant competition. By the beginning of the nineteenth century the bulk of the trade iin Russia was controlled by peasants who could trade openly without paiying the onerous annual certificate fee imposed by the government on merchants belonging to the urban guilds, and without bearing the variouis responsibilities which the merchants had to shoulder on behalf of the state.
In industry, too, the new laws produced dramatic results. Dvoriane now proceeded to take away from the merchants some of the most profitable branches of manufacture and mining in which the latter had established a strong presence between 1730 and 1762. Alcohol distilling had become a dvoriaitie monopoly in the eighteenth century: a privilege which allowed thejm to make profitable use of surplus grain. After 1762, many of the Ural; mines and metallurgical industries fell under the control of wealthy lanided families like the Stroganovs (merchants by origin, enobled early in tthe eighteenth century) and Vorontsovs, who had at their disposal unliimited servile labour. These gentlemen-industrialists of the eighteenth cemtury edged out merchants from a number of industries. Already in n 773 a fifth of the factories belonged to dvoriane, the turnover of which was equal to nearly one-third of the turnover of all die Russian manufactures.16 In the decades that followed, dvoriane extended their hold "on manufacture. Statistics compiled in 1813-14 indicate that, in additiion to all the distilleries, they owned 64 per cent of the mines, 78 per centt of the woollen mills, 60 per cent of the paper mills, 66 per cent of the glass and crystal manufactures, and 80 per cent of die potash works.16 Tlhe merchants now had to watch helplessly as some of the most profitablle branches of industry were taken over by classes based in the counttryside and rooted in agriculture. The posad population remained stagnant in the course of the eighteenth century, barely exceeding 3 per cent or 4 per cent of the total; of this number nearly half were concentrated in Moscow and adjoining areas to the north and nortii-east.
No less serious competition came from peasants. A remarkable byproduct of Catherine's economic legislation was the emergence of large-scale serf industry. Although not unique to Russia - a similar phenomenon has been observed in eighteentii-century Silesia - in no other country has it attained comparative economic importance. It is among the obrok-paying peasants of the central provinces, especially from the Moscow region, that the capitalist spirit first made its appearance in Russia. When between 1767 and 1777, in order further to stimulate rural enterprise, Catherine passed laws allowing the establishment of textile manufactures without registration, both state and proprietary peasants began to expand their household looms into large mills employing hundreds of hands. A high proportion of such entrepreneurs were Old Believers, a religious minority which compensated for the disabilities inflicted on it (such as double soul tax) by developing a strong economic drive and a sense of social discipline. Especially active were state peasants and serfs of very rich landlords, rural groups which traditionally enjoyed the greatest freedom. On the estates of Count Shere-metev, Russia's wealthiest landed proprietor, several villages developed into major industrial centres, the entire adult population of which engaged in manufacture.