Crises and elections. Financial policy in Hungary and Austria, 1931-1936
The experience of the years of inflation and the principles of the financial reconstruction elaborated in Geneva had a profound effect on the financial politics of Hungary and Austria. Both countries had been in serious economic trouble even before the monetary crisis which unfolded in 1931. In the summer of 1931 both Hungary and Austria had to choose between maintainin the official gold parity and the devaluation of the currency. The financial governments of these two countries, which had gone through a serious inflation, regarded devaluation and abandoning the gold parity as a dangerous and irresponsible measure conductive to the complete depreciation of the currency. The reasons behind the refusal of devaluation and the insistance on official gold parity were first of all fear of inflation and adherence to the principles of the politics of stabilization. The cost of the decision was the introduction of foreign exchange restrictions, and the sacrifice of the converitbility of the currencies. Centralized foreign exchange control did not prove effective enough, the central banks unable to control foreign payments. A significant part of the money avoiding the control was inserted into circulation on the black market in the cafés of Vienna and Budapest, where quotations differed significantly from official rates. The artificial maintenance of the fictitious exchange rate was a serious disadvantage for the export sector and rendered the surmounting of the crisis difficult. Gradually liberalizing its foreign trade from 1932, Austria officially acknowledged the depreciation of the schilling in 1934. The Hungarian government and the leaders of the Hungarian National Bank, however, continued opposing the devaluation of the pengő. Finance Minister Béla Imrédy was seriously considering devaluation from early 1934, and the idea was supported by a member of the Financial Committee of the League of Nations as well as the commissioner of the League of Nation delegated to Budapest. However, with the president of the issue bank opposing it, the measure was never taken. Although at the end of 1935, the reform of the surcharge system pushed the exchange rate of the pengő to its market value, a unified currency exchange rate was not established. The leaders of the central bank were afraid that that a unified devaluation might direct Hungarian exports even more toward Germany and Italy, where due to an inflation greater than that in Hungary internal price levels were higher.
It was a peculiar paradox in the economic politics of Hungary and Austria between the two world wars that it was the adherence to liberal financial principles (maintaining the balance of the budget, protecting the gold parity) and the fear of an inflation once experienced that moved the government to introduce centralized economic measures, such as foreign exchange restrictions, which were originally meant to be provisional emergency steps but proved to be in effect for years. People in Budapest and Vienna were convinced that countries opting for devaluation stepped on the dangerious path of the sate influencing the money market, and that by adminsitrative interference with exchange rates and the purchasing value of the currency would ultimately push their respective economies into an even deeper crisis. Austrian historians have already pointed out the duality of the way the authoritarian government, which did away with the parliament as well, was following a liberal economic policy based on anti-interventionist principles, which could be associated with the names of Friedrich Hayek and Ludwig Mises. It can be claimed that Hungary, at least in the field of monetary and fiscal politics, also tried to follow these liberalist principles, even if it had to leave them at times on account of the emergency born of the crisis.
