State Loans

State Loans

 

a credit relation in which the state (or its local institutions) appears as a borrower or lender. As a rule, state loans are issued in monetary form, although sometimes (in case of devaluation of the currency) they are issued in kind and repaid in products.

State loans may be short-term (current) if the term of payment does not exceed one year, intermediate (from one year up to five years), or long-term (over five years). According to their yield, state loans fall into two categories: interest loans (the holders receive a fixed income according to an established rate) and lottery loans (the returns are paid through a lottery drawing at the time of liquidation).

State loans are floated by subscription to the population through banks and savings banks, by sales at the stock exchanges, and by auction. According to where they are floated, state loans may be internal (in national currency) and external, that is, bonds sold in foreign money markets (in the currency of the creditor country, the debtor country, or a third country). The bonds of internal loans may be bought by foreign citizens (corporations) in the country of issue and the bonds of external loans by domestic citizens; the bonds of external loans are often bought up abroad by the issuing state or its citizens and are thus repatriated to the debtor country. The size of the external debt of a given country is established by the value of all the bonds floated abroad.

The social content of the state loan as a means of attracting funds to cover state outlays is determined by the nature and functions of the given state. In precapitalist formations, state loans appeared for the first time in slaveholding societies and were used mainly in extraordinary circumstances. Under capitalism, state loans are a basic form of the functioning of the state credit system. A bourgeois state can raise sizable funds in a comparatively short period of time by means of loans. As a rule, state loans are voluntary; that is, the bourgeois state offers a profitable investment to capitalists. Compulsory loans are floated by capitalist states only in case of a grave disruption of the financial system of the country. Compulsory loans originated during the initial period of the capitalist system in Italy and were often used in the 15th through 18th centuries. They undermine the credit system of the state, and therefore they have gradually lost their importance. After World War I, compulsory loans were issued in a number of Western European countries because of the disruption of state finances. During World War II, compulsory state loans were issued in fascist Germany and Japan. Such loans represent an undisguised exploitation of the working masses by the bourgeois state. One of the newest forms of the compulsory loan is the inflationary issue of paper money. “Everybody admits,” wrote V. I. Lenin in September 1917, “that the issuing of paper money constitutes the worst form of compulsory loan, that it most of all affects the conditions of the workers, of the poorest section of the population, and that it is the chief evil engendered by financial disorder” (Poln. sobr. soch., 5th ed., vol. 34, p. 187).

Under imperialism, especially during the general crisis of capitalism, state loans are used to finance state budget expenditures, which chronically experience deficits because of militarization of the economy, preparation for and waging of war, and maintenance of excessively large military and police apparatus. During World War I, 61 percent of all the state expenditures of the USA were covered by state loans, 68 percent of Great Britain’s, 81 percent of France’s and 84 percent of Germany’s. During World War II, state loans covered 54 percent of all state expenditures in the USA, 50 percent in Great Britain, 61 percent in Germany, and 58 percent in Japan. A bourgeois state that resorts to state loans un-avoidably increases its state debt. External loans contribute to the export and investment abroad of the relative surplus of capital and serve as a means for the creditor country to capture the markets and sources of raw materials in the debtor country. The export of capital by monopolies is due above all to the much higher rate of interest in economically underdeveloped countries compared to the rates of interest in developed countries, as well as to political and military-political goals. With the development of state-monopoly capitalism, the bourgeois state usually takes the role of the lender. The growth of foreign indebtedness leads to a much stronger economic and political dependence of the debtor country on the creditor country; this is especially true of the leading world lender, the USA, particularly in the period following World War II. Foreign loans of American imperialism turned into a direct means of expansion, aggression, and international reaction.

The burden of state loans in capitalist countries is carried by the toiling masses, because the sources for the redemption of loans and paying of interest are funds received from the mass of taxpayers. At the same time, the capitalists receive the overwhelming percentage of guaranteed income in the form of interest. Therefore, the loans as well as the taxes effect a redistribution of national income in the interest of the exploiting classes. V. I. Lenin pointed out that, in the process of enriching these classes by means of the growing income from state loans, finance capital exacts a tribute from the whole society (ibid., vol. 27, pp. 349–50).

In contrast, the state loans of socialist countries mobilize temporarily unused funds for economic and cultural development, based on the labor savings of wide sections of the population. In the USSR before 1963, stable residual deposits in savings banks were also placed in state loans. In socialist countries the characteristic features of state loans are their production function, their mass character, and the use of funds in the interest of the whole nation.

During the first years of Soviet power, state loans existed in two forms: in money and in kind (payments in kind arose out of the insufficiently developed money relations and out of the intention to protect the bondholders from the depreciation of paper money). The first Soviet state loan was issued on May 20, 1922, for 10 million poods (163.8 million kg) of rye grain for an eight-month term. In 1923 two more state loans in kind were issued—grain and sugar (noninterest bearing). The first Soviet money loan was issued on Oct. 31, 1922, for 100 million rubles in gold for a ten-year term. From 1924 to 1928, four guaranteed loans were underwritten for a total amount of 900 million gold rubles; enterprises and organizations purchased the bonds. With the growth of the profitability of production, state and cooperative organizations acquired a large percentage of the bonds of these loans, and funds from the sale of these bonds were used for the development of different sectors of the national economy. During the same years peasant lottery loans were also issued. A new way of floating loans was introduced: placement among the population through subscription payment in installments. The growth in income of the working people has contributed to the greater role of Soviet state loans.

On a large scale the subscription was conducted for the industrialization loan (three issues), for the Five-Year Plan in Four Years Loan, for the loans for the third five-year economic plan (four issues), and others. These issues were one of the sources of funds for socialist industrialization and the development of the national economy in the prewar years. The loan for strengthening defense (1937) and loans during the war (four issues) played an important role in financing the military expenditures of the state in the Great Patriotic War (1941–45). In the postwar years, the funds acquired from floating Soviet state loans (five issues of loans for the rehabilitation and development of the national economy of the USSR, 1946–50, and loans for the development of the national economy of the USSR, 1951–57) contributed to the restoration and development of the Soviet economy.

The budget receipts of the USSR from state loans amounted to approximately 50 billion rubles during the years of the prewar five-year economic plans, to 76 billion rubles during the Great Patriotic War, and to 260 billion rubles from 1946 to 1958 (in terms of the pre-1961 money scale). The number of subscribers to the loans increased from 6 million in 1927 to 60 million by early 1941 and to 70 million by 1946. In 1958 the floating of state loans through subscription among the population was discontinued. In general, approximately 5 percent of the national budget revenue before the Great Patriotic War came from loans; during the war it was not more than 10 percent, and in 1965, because of the discontinuance of issues of loans distributed through subscription among the population, it decreased to 0.2 percent. The Twenty-fourth Congress of the CPSU passed a resolution calling for the early redemption of these loans beginning in 1974, in order to shorten the term of payment of the national debt by six years and to complete the paying off of bonds in 1990. According to this resolution, in the state five-year economic plan of the USSR for 1971–75, 1 billion rubles for 1974 and 1975 were appropriated for these goals. Beginning in 1938, freely circulating loans were issued in the USSR; with these loans the bonds can be freely bought and sold by the savings banks. One of such loans, which was issued for a 20-year term, was the State Three Percent Internal Lottery Loan (1966). The holders of these bonds receive income in the form of lottery prizes.

In other socialist countries the first state loans were issued soon after World War II. The revenues from state loans were originally used for the restoration of the national economy (in Bulgaria, the Freedom Loan [1945]; in Poland, the Restoration Loan [1946]; and in Hungary, the First State Loan [1946]). These loans were floated among production and clerical workers, cooperatives, and other organizations, as well as among a segment of the bourgeois population; later on, to attract funds for industrialization, the loans were floated by subscription among the population (except in Czechoslovakia, Rumania, and the German Democratic Republic). The proceeds from internal state loans represented no more than 2–4 percent of the total revenue of the budgets of socialist countries. By 1956, the European countries abandoned the use of state loans because of the rapid growth of socialist savings. External state loans of the socialist countries are an example of the new type of economic relations— cooperation and mutual aid; they are characterized by favorable terms, low interest rates (2–2.5 percent per year), and long-term credits (ten to 12 years), as well as advantageous conditions of redemption (in commodities or convertible currency at the choice of the debtor country).

I. D. ZLOBIN and T. M. KLAVDIEVA

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