The world economic crisis in the autumn of 1929 put an end to the prosperity that characterised the national economy from the mid-1920s. As the depression was global, advanced industrial economies were also hit severely. The New York Stock Market crash on 24 October 1929, coupled with overproduction, led to a fall in prices; later industrial output also declined significantly. In 1932, while industrial production of the United States and Germany shrank by 46 and 40 per cent, respectively, it plummeted more than 30 per cent in France and 16 per cent in Great Britain. At the same time, the production of consumer goods showed an average decline of around 10 per cent but the output of producer goods was 40 per cent below the 1929 level. Mass unemployment was a concomitant of the economic depression. As the crisis deepened, approximately 22 and 44 per cent of the active workforce in Britain and Germany, respectively, were unemployed.

In March 1933, the number of idle workers reached 30 million in industrial countries. Agriculture faced problems in marketing after World War I. Another major problem in the early 1930s was that world prices of wheat halved on the Liverpool Exchange and world prices of grains fell to one-third by 1934. Meat prices on the world market dropped to 40 per cent of the pre-depression level, and the price of indexed agricultural products touched a nadir of 37 per cent of that of 1929. Recovery thereafter was minimal, and from 1931 to 1937 the index remained between 37 and 54 per cent. The crisis had devastating impacts on the national economies of Central and Eastern Europe, including Hungary. First, the collapse of the international market was accompanied by a downturn in wholesale prices on the domestic market. From 1928 to 1933, prices fell by 54 and 48 per cent, which led to the shrinkage of export potential. Hungarian agricultural exports in 1934 were 27 per cent less than in 1929. Between 1929 and 1934, calculated on constant prices, agricultural exports dropped by 27 per cent, but on a current-price basis, the value of exports shrank by 60 percent.

As a result of the price collapse, Hungary suffered a significant deterioration in its terms of trade. At first, farmers attempted to compensate for the price decline by increasing output and raising the quantities exported. This policy met with only limited success, as external market conditions further deteriorated after 1930 and export volumes declined sharply. Aldcroft and Morewood point out that the massive drop in export earnings entailed a serious loss of international purchasing power and a rising debt burden relative to exchange earnings. Since most international debts remained fixed in foreign currency terms, the debt servicing power of exports fell by one-half in Hungary. The price changes negatively affected peasant holdings. Agrarian incomes decreased by two-thirds in Hungary. The situation was aggravated by the unfavourable gap between agrarian and industrial prices. Whereas the former fell by 50–60 per cent, the price of goods purchased by peasants rarely shrank by more than 30 per cent. Because incomes declined significantly, the debt burden increased as a proportion of income and by 1932, many peasants were on the verge of bankruptcy.

As a result of financial problems, new investments were completely cancelled. In contrast with the 1920s, when the number of tractors rose relatively rapidly, virtually no tractors were bought after the depression. In 1938, the number of tractors was just about the same as the pre-depression peak (6,957). The use of artificial fertilisers per hectare dropped from 4.4 kg to 0.5 kg between 1930 and 1933 and even by 1938 had not reached 2 kg per hectare again. To avoid the bankruptcy of peasant holdings, the government adopted the following measures:

1. Sales by auction were prohibited, and after a reduction in high rates of interest in 1933, a comprehensive decree was issued providing for the protection of farmers. Certain categories of estates were legally protected by the government according to the levels of debt. Both interest and amortisation were substantially reduced and partly
covered by the state itself. From 1933 to 1935, 32.5 million pengô (USD 8.8 million) and between 1935 and 1937, 75.6 million pengő (USD 18.7 million) were paid to creditors by the state. In some cases, the payment of mortgages was suspended. These measures affected 22 per cent of farms under 4 hectares and 62 per cent of estates above 40 hectares and contributed to the alleviation of the agricultural crisis.

2. The state monopoly of agricultural marketing was introduced to raise home prices and widen export markets. Therefore, the boletta system was introduced to counterbalance the fall of domestic prices, which functioned for four years. Under this system, the state subsidised each quintal of grain. The actual subsidy fluctuated from year to year, but the buyer had to pay more than the market price for grain, 1 boletta per quintal, which varied between 3 and 6 pengő in the years of the 1930s; the seller used their bolettas to pay tax.

3. Finally, a new wave of state intervention in economic processes started in 1934. In Hungary, the sale of agricultural products was monopolised by state agencies. The Hangya Cooperative and Futura Rt., 70 and 100 per cent state-owned companies, respectively, monopolised 80–85 per cent of agricultural exports.

 

A szövegrészlet Endre Domonkos: An Economic History of Hungary from 1867 című könyvéből származik.

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