Published by EH.Net (January 2020)

Nathan Marcus, Austrian Reconstruction and the Collapse of Global Finance, 1921-1931. Cambridge, MA: Harvard University Press, 2018. viii + 546 pp. $51.50 (hardcover), ISBN: 978-0-674-08892-4.

Reviewed for EH.Net by Max Harris, independent researcher.

Interwar financial history is replete with events that, at their very mention, provoke a feeling of gloom. Foremost among these is the collapse of Austria’s Credit-Anstalt in 1931. The conventional narrative portrays the bank’s failure as the spark that set off the European financial conflagration that summer, which then dragged the continent — and world — deep into the depression’s abyss. But, as Nathan Marcus argues in Austrian Reconstruction and the Collapse of Global Finance, 1921-1931, the Austrian banking crisis was not the domino that sent everything tumbling down. Authorities managed for the most part to contain it, and the subsequent eruption of the German crisis stemmed from problems in Berlin, not Vienna. Indeed, much of interwar Austria’s financial historiography remains skewed by the biases of contemporaries and the appeals of a neat narrative, distorting our understanding of Austrian reconstruction, international cooperation, and the causes of the Great Depression. Marcus, presently at Ben-Gurion University, sets out to clarify the record and succeeds in doing so, producing a book that is sure to become the standard reference on Austrian reconstruction.

Marcus divides his book into three parts. “Crisis” explores Austria’s hyperinflation in 1921-1922. “Control” provides an authoritative account of the League of Nation’s program to stabilize the country’s currency and budget in 1923-1926. And “Collapse” documents the causes and consequences of Credit-Anstalt’s insolvency in 1931. Marcus emphasizes that Austria’s story matters not just on its own terms, but also because the country has the rather dubious distinction of “chronological preeminence” — first to experience sustained hyperinflation, first to receive League of Nations support, first to confront a banking crisis in 1931 — so that it helps inform later developments in other nations. He also approaches these topics from a variety of angles, expertly analyzing official archives as well as financial data and popular caricatures, resulting in a work that is part political, part financial, and part cultural history.

In “Crisis,” Marcus discusses Austria’s problems in the early years of the postwar period. There was, he writes, a fundamental “discrepancy between the new country’s dimensions and the magnitude of its inherited problems. An empire had created the troubles, but the means left by which to tackle them were those of a small nation-state” (p. 1-2). Chronic budget deficits led to monetary financing, currency depreciation, and, by 1921, hyperinflation, a scourge that warped people’s sense of time and heightened their already considerable prejudices against the presumed culprit — Jews. Getting the problem under control required an international loan, but investors did not want to send money to a country in crisis whose assets had liens on them as security for relief credits and reparations payments to the victorious powers. To induce investors, the international community would need to give up these claims and guarantee any loan to Austria; in return, the powers would require Austria to undertake reforms to right its economy and agree not to attach itself to Germany. After some false starts, such a deal was reached under the auspices of the League in the autumn of 1922, the implementation of which, Marcus shows, rapidly succeeded in adjusting expectations and ending hyperinflation.

“Control” centers on the interactions between League and Austrian officials during the period of oversight, originally set to end in 1924 but ultimately extended to 1926. Despite depictions, then and later, of the League and its Commissioner General, Alfred Rudolph Zimmerman, as tyrants depriving Austria of its sovereignty, Marcus argues that “accusations of financial colonialism or foreign dictatorship in interwar Austria are entirely misplaced” (p. 8). True, Zimmerman controlled the disbursement of the loan’s proceeds and exerted pressure on financial policy. But the fact was that Vienna found the League’s role useful. The League provided “moral and political cover to implement unpopular but necessary changes” (p. 344) including drastic reductions to Austria’s bloated bureaucracy. The “credibility technology” of League oversight nourished a burgeoning confidence in Austrian stability, incentivizing much-needed capital inflows. And the League’s control in practice was not as absolute as it appeared on paper: when it wanted more drastic budget cuts than Austria’s government could stomach, the latter successfully resisted. In the end, Vienna balanced its budget, yet it did so at a higher level of expenditure than Geneva thought prudent. Marcus thus considers the Austrian program a remarkable innovation in international cooperation and a short-term success but a failure in terms of bringing long-term stability.

Finally, in “Collapse,” Marcus narrates how everything went awry after the League’s departure. The political situation deteriorated in the last years of the decade, eroding confidence in the country’s financial stability. In May 1931, Credit-Anstalt, Austria’s largest bank, became insolvent, forcing Vienna to inject massive sums to rescue it and preserve the banking system. Despite the severity of the situation, Credit-Anstalt’s failure did not lead to Germany’s crisis that summer, Britain’s soon thereafter, or the ensuing collapse of the international gold standard. Vienna actually got the problem under control within weeks with the help of credits provided by other central banks, Marcus argues, and his analysis of financial data finds little evidence of contagion spreading outward from Austria. In fact, it was only when the much-larger German crisis infected Austria that Vienna’s own crisis became existential and the government resorted to exchange controls, joining the exodus from the gold standard. Removing Credit-Anstalt as the trigger rightly refocuses attention on Germany and its dual problems of budgetary deficits and reparations as direct causes of the European cataclysm.

Given Marcus’ emphasis on Austria’s “chronological preeminence,” the book would benefit from more exploration of how events in Vienna informed and affected developments elsewhere, particularly in regard to Germany’s hyperinflation and Hungary’s reconstruction program. And at times, technical concepts, such as the relationship between current and capital accounts, are relayed a bit too loosely. But these minor issues do little to detract from an impressive, well-written work that incorporates extensive research across countries and specialties. The narrative is often engrossing, as Marcus guides the reader through the traumas of a country coming apart at its seams and the efforts to hold it together. What results is an invaluable contribution to the interwar literature.

Max Harris holds a doctorate in economics from Harvard University and is currently writing a book (forthcoming from Cambridge University Press) on international monetary cooperation in the 1930s.

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