Post by nathanael on May 14, 2008 6:30:05 GMT -7
The article you are going to read is not scientific by any means. I am not an economist and my time is limited. But neither is this article completely amateurish since I do have some analytical background. My plan is simple and straightforward: to focus on the sole protagonist of the Polish economic miracle of the 30's, and to do it in the situational context of the economic axioms in vogue, in Germany and in Poland. First Germany, the "Plan of Lautenbach." This noteworthy economic debate took place just before Hitler ascended to power, in 1931. The protagonists of the debate were the members of the Society of Fryderyk List, a German economist of the XIX century, educated in the U.S. and credited "with transplanting the principles of the American economy to Europe." The secret report of this "debate" was first published in 1991, not long ago (my source is Yahoo, "polska ekonomia lat trzydziestych," Instytut Schillera, 'Nowa Solidarnoœc,' Nr 20, November 2000)." The theme of the debate was: "How to create a program of economic revitalization during the period of [global] Great Depression." The 30 participating members were the leading economists and bankers of Germany, including Dr. Luther, the President of Reichsbank (The National Bank). From the outset, Dr. Wilhelm Lautenbach advanced the following bold plan, titled "The Possibilities of Reviving the Economic Activity With the Help of Investments and Through Expanding Credit." The main thesis in his "memorandum" was novel and revolutionary, "that the most natural way to emerge from an economic and financial crisis caused by the U.S. Great Depression is not by limiting economic activity, but by expanding it." L. noted that there are two broad kinds of economic crisis scenarios: the one caused by war, earthquakes, and/or other natural disasters; the other caused by a failing economy, often with global ramifications. In both instances, L. insisted, "only an expansion of production can be a remedy." However, in the second instance - tellingly so - "the sought expansion cannot be achieved with the framework of free market, since paradoxically, despite sudden drop in production, the demand remains lower than the supply, and this in turn leads to a further lowering of production." Under such circumstances, says L., "the worst thing a government can do, is to realize the politics of deflation, which aims at cutting the deficit through limiting government spending, credit, pension plans, etc." Moreover, under these conditions, "the reduction of taxation is impossible hence the number of elligible taxpayers drops." What is more, the deflative measures lead to new massive capital reductions for commerce and production, as a result of which the companies lose effectiveness and further fall in debt, being forced to limit employment for its workers. This situation, invariably, leads to banking system problems.
According to L., the politics of deflation lead to "inevitable social and economic catastrophe." The only way out, he says, "consists in solving the paradox that the deepening depression brings with itself a growing degree of unused economic assets and labor force." Here L. introduces his first "solution" (I can almost see Hitler pricking up his ears), which he insists is straightforward: "the state must intervene and must do so by quantifying the demand on a national scale, on the following condition: that the demand be for those things useful for the economy, spurring growth of those areas which were supposed to have been growing anyhow, were it not for the crisis."
The "memorandum" then shifts to the question of financing investments at a time when international markets, or national, no longer possess adequate means of credit facilitation. Here L. advances his second "solution: "the answer (Antwort) is [no other than] the national bank (Reichsbank), since the creation of monetary liquidity is something purely technical, requiring nothing other than good organization." Such financing mechanism, says L. "can be created instantly, if only the authority of the state is behind it, coupled with a sound investment plan, which does not lead to inflation, since it corresponds to elements guaranteeing growth and formation of permanent capital." The plan of this sort, L. sums up, "has a multiplying effect, meaning that the rate of production grows faster than the growth of credit expansion." If implemented, "such economic policy [will] increase supply and demand on the national market. If however we do not realize such policy, the economic catastrophe will only get worse, leading to a total national economy collapse." This in turn, "will force us to drastically increase the short-term government credits, not for production [as it should be], but for consumption. If however we do realize such policy while we still can, we will take advantage of such credits for productive enterprises."
Here enters Poland and our hero, Eugeniusz Kwiatkowski. Whether he had heard the theory of Lautenbach it's not for me to say, but he probably did (he was a great scholar "with many trips to Germany"). It should be recalled that the rumors of the Great Depression began to be heard already when Gen. Józef Pi³sudski formed his first "Sanitization Government" (Sanacja), and all Europe was seeking solutions. But the real problems began when Poland began to feel the effects of the Great Depression in 1930. The immediate effect was the radicalization of national politics, which prompted Pi³sudski to form his second government, by dissolving the parliament and imprisoning scores of deputies. At that precise moment, the man of whom Andrzej Romanowski has said that, "in the thousand-year history of Polish economy no one ever realized so much and so wisely in a time so short," comes to the scene as vice-Premier of Pi³sudski's second government and as minister of commerce and industry. Considered a "romantic-pragmatist" in his economic policies, Kwiatkowski becomes a hero of the 30's, developing Poland's Coal-Basin in Silesia, and creating the largest and most modern sea-port in Europe, in Gdynia. The Polish economic miracle was unprecedented in scope, only comparable to what is now happening in China. Poland was surpassing Germany in many fields, and were it not for the Second World War, the country would have become a regional economic superpower. I venture to say that K., being a great scholar, understood the validity of Lautenbach's economic theory, and applied it to the letter in the development of infrastructure economy in Poland. When the war broke down, all fell apart, but even then K. managed to take tons of gold outside of Poland, to safety. Not being an economist, I cannot precisely describe K's economic policies, but you can read about it on Yahoo, under "Eugeniusz Kwiatkowski, "romantic pragmatist."
According to L., the politics of deflation lead to "inevitable social and economic catastrophe." The only way out, he says, "consists in solving the paradox that the deepening depression brings with itself a growing degree of unused economic assets and labor force." Here L. introduces his first "solution" (I can almost see Hitler pricking up his ears), which he insists is straightforward: "the state must intervene and must do so by quantifying the demand on a national scale, on the following condition: that the demand be for those things useful for the economy, spurring growth of those areas which were supposed to have been growing anyhow, were it not for the crisis."
The "memorandum" then shifts to the question of financing investments at a time when international markets, or national, no longer possess adequate means of credit facilitation. Here L. advances his second "solution: "the answer (Antwort) is [no other than] the national bank (Reichsbank), since the creation of monetary liquidity is something purely technical, requiring nothing other than good organization." Such financing mechanism, says L. "can be created instantly, if only the authority of the state is behind it, coupled with a sound investment plan, which does not lead to inflation, since it corresponds to elements guaranteeing growth and formation of permanent capital." The plan of this sort, L. sums up, "has a multiplying effect, meaning that the rate of production grows faster than the growth of credit expansion." If implemented, "such economic policy [will] increase supply and demand on the national market. If however we do not realize such policy, the economic catastrophe will only get worse, leading to a total national economy collapse." This in turn, "will force us to drastically increase the short-term government credits, not for production [as it should be], but for consumption. If however we do realize such policy while we still can, we will take advantage of such credits for productive enterprises."
Here enters Poland and our hero, Eugeniusz Kwiatkowski. Whether he had heard the theory of Lautenbach it's not for me to say, but he probably did (he was a great scholar "with many trips to Germany"). It should be recalled that the rumors of the Great Depression began to be heard already when Gen. Józef Pi³sudski formed his first "Sanitization Government" (Sanacja), and all Europe was seeking solutions. But the real problems began when Poland began to feel the effects of the Great Depression in 1930. The immediate effect was the radicalization of national politics, which prompted Pi³sudski to form his second government, by dissolving the parliament and imprisoning scores of deputies. At that precise moment, the man of whom Andrzej Romanowski has said that, "in the thousand-year history of Polish economy no one ever realized so much and so wisely in a time so short," comes to the scene as vice-Premier of Pi³sudski's second government and as minister of commerce and industry. Considered a "romantic-pragmatist" in his economic policies, Kwiatkowski becomes a hero of the 30's, developing Poland's Coal-Basin in Silesia, and creating the largest and most modern sea-port in Europe, in Gdynia. The Polish economic miracle was unprecedented in scope, only comparable to what is now happening in China. Poland was surpassing Germany in many fields, and were it not for the Second World War, the country would have become a regional economic superpower. I venture to say that K., being a great scholar, understood the validity of Lautenbach's economic theory, and applied it to the letter in the development of infrastructure economy in Poland. When the war broke down, all fell apart, but even then K. managed to take tons of gold outside of Poland, to safety. Not being an economist, I cannot precisely describe K's economic policies, but you can read about it on Yahoo, under "Eugeniusz Kwiatkowski, "romantic pragmatist."
