The economic consequences of the Treaty of Trianon

  • 2024. October 27.
  • Tomka Béla

15 December 2018.

Béla Tomka

 

Béla Tomka has a view of the economic impact of Trianon different to that of the preceding literature.

The following article is an abridged version of a longer article he wrote in the Studies section*.

 

Why are the previous approaches incorrect?

The traditional Hungarian economic history of the Trianon peace treaty focuses on the huge losses suffered by Hungary: its territory was reduced to a third and its population to less than a half; the vast majority of some natural resources (84% of forests, 89% of iron ore production, a third of lignite production, all copper and salt mining) were transferred to neighbouring countries; the economic unity of the country and the Austro-Hungarian Empire was broken up, and the resulting economic chaos was exacerbated by the impact of war and revolutions. According to this view, the peace treaty placed extensive obstacles in the way of Hungary’s economic development. In fact, however, the view that raw materials and other natural resources are the main drivers of economic growth was outdated as early as the interwar period and is even more outdated today. The traditional interpretation simply ignores the fact that particularly modern, higher value-adding industries (e.g. machinery) and other activities (e.g. financial services), as well as a more skilled workforce, ended up in Hungary in greater proportion of the population. Nor can it explain why, between the two world wars, Hungary’s economic development was no worse in international comparison than in the decades before World War I.

The question and the methods of analysis

If we want to understand the real economic impact of Trianon, our task is to go beyond the mere enumeration of the economic provisions of the peace treaty, and to try to find out how the actual economic performance of post-Trianon Hungary developed.

The most reliable method for assessing economic performance is the international comparison of economic output. Gross domestic product is a widely accepted indicator of economic output. By comparing its evolution in Hungary with that of other countries, we can assess the economic impact of the Trianon Peace Treaty, separately from the consequences of the war. Other European countries were also affected by the war and were also affected by the  changed international economic environment, but these countries did not, of course, suffer the economic consequences of the Treaty of Trianon. Thus, the comparison can provide at least an approximate measure of the extent to which Hungary’s economic performance after World War I was determined by the consequences of the war and to what extent by the Treaty of Trianon.

Economic growth in Hungary after Trianon

The economic performance of the dualist period and the post-Trianon period – the period between the two world wars – are generally judged as contrasting ones by both the professional and the general public. The former is usually seen as a period of highly dynamic economic transformation that brought Hungary significantly closer to Western Europe. In contrast, the economic development of the Horthy regime is often portrayed in historical works as a period of inflation, the Great Depression and, finally, the integration into the German sphere of interest, i.e. relative economic decline. In the light of systematic comparisons, however, this picture needs to be modified, and this also affects the question of the economic impact of Trianon.

A comparison of the economic development of Western Europe and Hungary in the 19th and 20th centuries reveals that the economic growth of the years of dualism seems significant only if we compare it with the period including the years of World War I, but even then the difference cannot be called dramatic: between 1890 and 1913 the average annual growth rate of GDP per capita was 1.6%, while between 1913 and 1939 it was 1.2%. If we look at the period 1920-1939, the growth rate is much higher, averaging 2.7% per annum. It is true, however, that in 1920 production levels had not yet reached the pre-war level, and this is a potential source of distortion. It is precisely in the case of such methodological problems, which are difficult to solve with a single-country analysis, that international comparisons offer a way out. In what follows, we compare the development of Hungary with the trajectory of a 13-country sample from Western Europe, because, on the one hand, this sample is not influenced by the contingencies of the development of a single country, and, on the other hand, Western Europe is the region from which the most important growth effects for the Hungarian economy came in the period, and it was also largely the region that transmitted the leading edge of American technology.

At the end of the 19th century, GDP per capita in Hungary – based on the Trianon area – was just over half the Western European average, lagging behind all the Western European countries in our sample. At the beginning of the 20th century, Hungary moved slightly closer to Western Europe, peaking in the years before World War I, when the Hungarian level was 60.4% of the Western European average (see table at the end of the text).

World War I, and especially the years that followed, had more serious economic consequences for Hungary than for most Western European countries, and this was reflected in the economic output ratios. However, after Trianon, the recovery in Hungary started quite quickly and strongly, and by the eve of the Great Depression (1929), GDP per capita in Hungary had already reached 57.1% of the Western European average, very close to the relative economic development before World War I. Hungary even slightly surpassed this level before the World War II: in 1939, with 58.3% of the then Western European average, it had essentially reached the relative economic development of the period before World War I.

Based on the above, we can conclude that Hungary’s economic growth after Trianon was barely below the performance of the dualism period, and also compares favourably with the economies of Western Europe in the interwar period. Reconstruction after World War I was relatively quick in Hungary, and we do not see the much-mentioned strong negative impact of the peace treaty and territorial changes.

The somewhat lower growth rates observed compared to the previous period were also observed elsewhere in Europe, in countries where there was no Trianon-like loss of territory, i.e. where the growth rate was largely independent of territorial changes. This provides at least indirect evidence that the economic difficulties were not primarily a consequence of Trianon, but rather due to factors that were more general in Europe, in particular World War I and the disruption of international economic relations. The Trianon Peace Treaty itself contributed to the disruption of economic relations in Central and Eastern Europe, but this was not unique to the continent at the time. Economic nationalisms affected the whole of Central and Eastern Europe.

In principle, of course, it is possible that the rate of economic growth in Hungary after Trianon did not deviate significantly from international trends because – although the impact of Trianon was severely negative – it was offset by some other favourable factor in Hungary that did not prevail in other countries. However, there is no evidence that  such an effect existed. In our view, two factors are most likely to have been involved: relatively moderate direct war damage and foreign capital imports. These undeniably had a positive impact on growth, but they were not unique to Hungary and do not alter the conclusion drawn from the above comparison.

The factors of economic growth after World War I

Between the two world wars, the rate of economic growth in Hungary slowed down somewhat compared to previous decades, but this slowdown also occurred elsewhere in Europe, so it cannot be seen as a consequence of Trianon. Rather it was caused by factors affecting the whole continent, such as disorganisation and other damage caused by the world war, economic nationalisms, and the disintegration of the international financial and trading system, even if the Trianon Peace Treaty itself contributed to the latter. It is therefore reasonable to argue that the Hungarian economy was relatively successful after Trianon by international standards because, although the peace treaty had negative economic effects, these did not have a significant impact on the overall performance of the Hungarian economy, especially in the longer term. Hungary had lost natural resources as a result of Trianon. Between the two world wars, however, the development potential of European economies – and thus of the Hungarian economy – was not determined by the size of natural resources. Companies in Trianon Hungary were able to buy the raw materials and other products they needed just as they had been able to buy them in the previous period, even if now partly from abroad. The extra costs that might have been incurred for foreign purchases were no greater than in other European countries. Other growth factors were far more important than natural resources and were little affected by the peace treaty. These include technological development, structural changes and human capital.

Table

Gross domestic product per capita in Hungary and Western Europe, 1890-1950

(1990 Geary-Khamis International Dollar)

1890 1900 1910 1913 1920 1929 1930 1938 1939 1950
Hungary 1473 1682 2000 2098 1709 2476 2404 2655 2838 2480
Western European average 2535 2910 3269 3474 3247 4336 4301 4667 4867 5467
Hungary as a percentage of WE av. 58,1 57,8 61,2 60,4 52,6 57,1 55,9 56,9 58,3 45,4

 

Notes: Western Europe: the United Kingdom, France, the Netherlands, Belgium, Ireland, Germany, Austria, Switzerland, Sweden, Denmark, Norway, Finland, Italy; Different dates: Ireland 1910 instead of 1913, 1921; Hungary 1890-1950: within the Trianon borders.

*The original version of the study will be published this month in the volume From War to Peace: Hungarian Society after 1918 (edited by Zsombor Bódy, Trianon 100 MTA-Lendület Research Group, MTABTK Institute of History).

Tungram poster from 1933