In Poland, the equivalent etatist economic success was scored in the late 1930s without German assistance, through enforced local savings and investments. Czechoslovakia, on the other hand—or, more precisely, its western provinces of Bohemia and Moravia-Silesia—had already reached a substantial industrial plateau and made no analogous economic leap.
Though promising and perhaps indispensable, these etatist investment successes of the late 1930s were too little and too late to absorb more than a puny fraction of the surplus rural population into industrial employment or to spark self-sustaining economic growth. Hence they failed to transform the general economic physiognomy of interwar East Central Europe as an area of low industrialization, poor urban-rural imbalances, acute shortages of capital, and chronic agricultural poverty. Furthermore, as these etatist policies were generally predicated on attitudes of economic nationalism, they also aggravated the understandable but nevertheless irrational craving for state-autarky and thus contributed to the further fading of the fragile flower of intra-area cooperation, already withered by the arid winds of ethnic and irredentist enmity.
The searing trauma of the depression had, of course, been the catalyst of the twin decisions to industrialize and to pursue “beggar-my-neighbor” economic policies. It is difficult, even in retrospect, to appreciate and impossible to exaggerate the tremendous impact of this experience on the peoples and governments of interwar East Central Europe. As the world prices of agricultural commodities fell earlier, more steeply, and remained longer at deeper troughs than the prices of industrial products, the depression taught the dire lesson of the economic impotence of agricultural-exporting countries relative to industrial ones. Particularly hard hit were those extensive regions of East Central Europe that practiced an exclusive cultivation of grain for export, for grains are a commodity for which demand is notoriously inelastic while its supply is highly variable. Hence, as prices dropped, the peasants desperately sought to compensate by increasing production, thereby merely further depressing prices to their own impoverishment. In combination with governmental protection of infant native industries, with absurdly deflationary fiscal and monetary policies, and with exorbitant indirect taxes on necessities such as salt, matches, and kerosene, purchasable only from state monopolies, this price trend put virtually all industrial commodities—plows for production as well as textiles for consumption—out of the reach of the peasants and pushed them into bare subsistance and often into outright starvation. Economic despair then prompted political radicalization which, in interaction with the judiciously orchestrated German drive for hegemony in the area, reopened the whole question of East Central Europe’s international, domestic, political, and economic order. Apropos the author’s earlier judgment of the futility of the Green International, one may note that on no occasion did the area’s agrarian countries negotiate as a bloc with any industrial grain-importing country.
The agricultural price disaster was paralleled and compounded by the West’s abrupt, and probably unnecessary, withdrawal of all its capital credits to East Central Europe in the midst of the depression. Unnecessary—because, while the sums involved were critical for the area’s stability (even though they had often been applied unwisely), they were a relatively small fraction of the Western creditors’ total international investments. Industrial output, capital formation, and employment now all fell precipitously, with calamitous political repercussions. This politico-economic myopia of the West, which had already been foreshadowed by France’s earlier and persistent refusal to support her alliances in the area with adequate trade relations, virtually invited Nazi German penetration. Germany, in turn, did not intend to integrate East Central Europe into the world economy, but the reverse: she wished to tie it to her own and thus create a large and autarkic Grossraumwirtschaft supplementing and facilitating her projected political and military conquest of Europe.
A particularly powerful instrument of this economic strategy was the blocked currency device, whereby the high prices paid by Germany for her huge purchases of agricultural goods and raw materials from East Central European countries were held in blocked accounts at the Reichsbank and could only be “cleared” by East Central European purchases of German commodities. Though sometimes the local governments grumbled at being obliged to take German equipment when they would have preferred being paid in convertible currencies, on balance they appreciated being rescued by Berlin from the economic and political disaster of otherwise unsaleable agricultural surpluses. Nazi Germany thus acquired control over the area’s economy by first dominating its exports, then through these its imports, and finally rendering it utterly dependent on continuing German purchases, supplies, spare parts, and infrastructure. In this way she achieved a position approaching both monopsony and monopoly. By 1939, on the eve of World War II, Germany’s economic hegemony over East Central Europe was more categorical than it had been in 1913, demonstrating that the political advantages that accrued to her from the replacement of the Habsburg Empire by several smaller states were paralleled by economic opportunities.
Thus, the combination of Nazi Germany’s ideological, diplomatic, political, and economic drives paved the way for her military conquests. In one form or another all the states of the area eventually succumbed to her offensives, either as resisting victims (Poland, Yugoslavia), or as passive victims (Austria, Czechoslovakia, Albania), or as calculating satellites (Hungary, Romania, Bulgaria), or as ephemerally “independent” dependencies (Slovakia, Croatia).
9
If the preceding discussion has emphasized interwar East Central Europe’s internal weaknesses and external vulnerabilities, and hence appears to signal a negative judgment, this would be an erroneous impression of the author’s intention and ultimate conclusion. That impression arises partly from the fact that the most positive political achievement of the area’s states during this interwar era is so obvious as easily to pass notice: they legitimated their sovereign existence in the world’s eyes beyond Nazi or Stalinist capacity to obliterate. (The three Baltic states are here an exception, but even they are granted distinct republican status within the Soviet Union.) Thus, contemporary Communist historians, otherwise highly critical of their countries’ interwar social and economic policies, join the “bourgeois” émigré scholars and politicians in valuing highly the sheer fact of interwar state-independence and judging it a historic advance over the area’s pre-World War I political status. (Here, again, the Baltic states are treated as a negative exception.) No Communist, Soviet or local, would any longer indulge in Molotov’s contemptuous dismissal of interwar Poland as “this ugly offspring of the Versailles Treaty” (speech of October 31, 1939). Nor do respectable German writers repeat their interwar predecessors’ persistent derision of the alleged Polish “Saisonstaat” or the Czechoslovak “staatliches Missgebilde.” Thus, despite major and avoidable failings (too little area-wide solidarity, too much over-politicization of human relations, too little strategic government intervention in the economy, too much petty government interference with the society), thanks to the political performance of the interwar era it is impossible today to conceive of East Central Europe without its at least formally independent states. In retrospect, one must assign greater responsibility for the catastrophes of 1939-41 to the malevolence, indifference, or incompetence of the Great Powers than to the admittedly costly mistakes of these states.
Furthermore, any reader’s mistaken impression of an overall negative judgment on the part of this author will hopefully be rectified by a perusal of the chapters on individual countries that follow. Finally, to the extent that political and economic history, being the least happy phases of the interwar East Central European experience, tend to leave a sorry impression, the survey of cultural achievements in Chapter 10 should serve as a felicitous corrective.
1. See, for