The 1931 financial crisis in Austria and Hungary: a critical reassessment

In this thesis, I re-investigate the 1931 financial crisis in Austria and Hungary with the help of new data compiled from primary sources. Our knowledge about the causes of these calamities is much less extensive than about the German crisis. The aim of my research is to provide for a better understanding of the Central European crises of 1931. Chapter 1 examines the role of international and domestic forces behind the crisis in Austria. Two newly constructed micro-level datasets demonstrate that a domestic factor, exposure to weakly performing industrial enterprises, was essential in accounting for the insolvency and possibly also for the illiquidity of the four universal banks that came under distress between 1925 and 1931. In Chapter 2, the focus shifts to Hungary, where both the national historiography and the international literature documented a currency crisis. A new database on the financial system and macroeconomic indicators reveal that the banking system played a critical role in the calamities and the country experienced a twin crisis in 1931. Chapter 3 zooms in on a particular aspect of the crisis: the political factors behind the weakness of the two countries’ banking systems. Facing social demands but their hands tied by the macroeconomic trilemma, the authorities of both countries had to resort to (ab)using the banking system to provide clandestine economic stimulus. Political interventions into banking encouraged imprudent lending and contributed to the vulnerability of the two banking systems and thereby to the crisis of 1931. Together these findings underscore the economic importance and the political risk of the banking system. They further emphasize the dramatic, and seemingly insurmountable challenges of nation building that Austria and Hungary faced in the interwar years