Monday, January 17, 2011

Further Notes on “Climates”

Prelude to the French Revolution

From “Social Aspects in Interpreting the French Revolution, 1789” by Abha Trivedi, University of Lucknow, available here from the Annual Proceedings of the Florida Conference of Historians, Volume 15, February 2008. The Emphasis is mine.

After a long period of prosperity, France witnessed serious economic depression in the 1770s and 1780s which caused resentment and bitterness as all classes faced a decline in their status. Production declined, unemployment increased and the recession soon reached to the agricultural sector. Severe drought in 1785 worsened the situation as the yields were short. Furthermore, in 1788 the harvest was ruined by an abnormally wet summer and conditions became even worse in 1789. Alexis de Tocqueville disagreed with Carl Marx’s contention that worsening conditions create a situation favorable to revolution. Tocqueville noted: ‘It is not always by going from bad to worse that a country falls into a revolution and that the French Revolution broke out when conditions were improving.’ He further noted, ‘the state of things destroyed by a revolution is almost always somewhat better than that which immediately precedes it.’ [1] In 1962 J. C. Davies supported Tocqueville as he observed, revolutions are most likely to occur when a prolonged period of objective economic and social development is followed by a short period of sharp reversal.[2] This seems to be borne out by the general economic trends of the eighteenth century.

[1] Alexis de Tocqueville, The Ancien Regime (Fontana ed., 1966)

[2] J.C. Davies, Toward a theory of Revolution, in J.C. Davies (ed.), When Men Revolt and Why.
Prelude to the Nazi Era in Germany

From “German Economy in the 1920s” by Daniel Castillo (here); Castillo was a junior in college studying business economics at the time of writing. The text has been edited a tiny bit.

At first Germany tried to recover from the war [World War I] by way of social spending. Germany began creating transportation projects and modernized power plants and gas works. These projects were all used to battle the increasing unemployment rate. Social spending was rising at an unbelievable rate. In 1913 the government was spending approximately 20.5 marks per resident; by 1925 spending had risen to almost 65 marks per resident; in 1929 it reached more than 100 marks per resident. The rising amounts of money used for social spending combined with plummeting revenues that caused continuing deficits. Eventually municipal finances collapsed in 1930. Although it seemed as if the collapse was due to debt, in actuality ordinary budgets were the reason for the initial collapse. Municipal officials and politicians were unable to restore order to the budgets. Further adding to Germany's economic problems, the revenue from income tax began to fall. In 1913, more than 53% of all tax revenues came from income, but in 1925, it had dropped to 28%. As the returns from income tax decreased, the government began to depend much more on state trade and property taxes. The government also became highly dependent on the profits made from municipal utilities, such as electric power plants.

Even with all of Germanys economic shortcomings, it could have still been possible to make reparation payments if foreign countries had not placed protective tariffs on Germany’s goods. With the income Germany could have gained by selling goods in foreign countries, for relatively low prices, reparation payments could have become feasible. The protective tariffs made this idea impossible and further depressed the German economy. Faced with reparation payments they could not afford, Germany began printing exaggerated amounts of money. This threw Germany into a state of super inflation. Inflation reached the point where millions of marks were worthless. Cartoons of the time depicted people with wheelbarrows full of money who could not buy a loaf of bread. “With the approach of world crisis foreign lenders withdrew capital and markets further closed against German imports” (Sweezy 8 [not in source]). The United States was an extremely significant example of this. When the U.S. was hit by the great depression they immediately sought to get the loans, which they had made to Germany, paid back. This, in addition to all of Germanys other problems, practically caused the German economy to collapse.
To this I would add a number or two. In April of 1919, the exchange rate was 17 marks for the dollar. In April 1923 the rate was 24,000. In December of that same year, the rate was 4,200,000,000,000!

Is it not difficult, in retrospect, to imagine the prevalent climate of opinion in France in the 1770s and 1780s and in Germany in the 1920s and the 1930s…

3 comments:

  1. A great review of historical facts. But
    I am also glad that you left unstated the logical conclusion to the examples from history. After all, one does not want to be accused of politicizing our current national debates about deficits, etc.

    ReplyDelete
  2. A most interesting and insightful post... and, of course, very sobering!

    And Brigitte, in the current climate, it is difficult to discuss these things without being accused of politicizing the debate. But, one must try and seek the truth, to keep things in perspective, and to understand the forces at work nonetheless, as you do.

    ReplyDelete
  3. It also occurs to me that an understanding of exactly these forces was probably part of what motivated the excited actions of our legislators in late 2008... setting up TARP and the like.

    ReplyDelete