JÜRGEN NAUTZ
AUSTRIAN EXCHANGE RATE AND INTEREST RATE POLICIES
IN ETHNIC CONFLICTS, 1867-1914
ETHNIC CONFLICTS AND MONETARY INTEGRATION IN AUSTRIA-HUNGARY
(2ND DRAFT VERSION)
PAPER PREPARED FOR
THE POLITICAL ECONOMY OF CURRENCY UNIONS IN A GLOBALIZING WORLD
INTERNATIONAL CONFERENCE
THE LEONARD DAVIS INSTITUTE FOR INTERNATIONAL RELATIONS
HEBREW UNIVERSITY OF JERUSALEM
APRIL 30 – MAY 1, 2006
2
UNIV.-DOZ. DR. JÜRGEN NAUTZ
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AFFILIATIONS:
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3
How did ethnic conflicts in the former Austria-Hungary influence the common monetary regime of
the dual state and the strategy of its central bank during the period 1861-1913? This question is analyzed in this paper. Since the Compromise of 1867, the so called “Ausgleich”, the Monarchy as a
dual state was not only a customs union and a single market with well developed trade, capital and
service relations; it was also a currency union with a joint central bank and a common monetary
policy.
The Compromise of 1867, which had to be renewed every ten years, granted the Hungarian half
of the monarchy a significant degree of autonomy.1 Aside from a few areas that were the responsibility of the monarchy as a whole, there were many more where competence was reserved for the
separate halves of the state. Joint action in these areas required bilateral agreements and corresponding legislation and co-ordination in both the Kingdom of Hungary and the Austrian half of the empire.2 In particular economic policy framing was the autonomous preserve of the halves of the
Monarchy and was based on their individual interests. Austria and Hungary had their own budgetary and fiscal policies despite joint borders and the customs union.3
In the relationship between the two dominant nations within the empire, the temporary compromise
provided an institutional and organizational instrument for achieving a periodically negotiated
agreement between the opposing interests of Hungary and Austria. This instrument covered only the
relations between the two governments in Vienna and Budapest. It did not solve the ethnic tensions
within each part of the monarchy. Both parts were no nation-states. This was the more dangerous
1
2
3
4
“After 1867 Hungary was in effect an independent state in all aspects except foreign policy, defense, and some
limits to its economic sovereignty that were less than those … being imposed on the twelve supposedly still sovereign member states of the European Community under the provisions of the Single European Act of 1986. Even in
these areas the rulers of Hungary enjoyed equality, through the system of delegations mandated by the Compromise.” (Dennison Rusinow, Ethnic Politics in the Habsburg Monarchy and Successor States: Three “Answers” to
the National Question, in: Richard L. Rudolph, David F. Good (eds.), Nationalism and Empire. The Habsburg
Monarchy and the Soviet Union, New York: St. Martins Press 1992, p 243-267, here: p.250.
Helmut Rumpler, Eine Chance für Mitteleuropa. Bürgerliche Emanzipation und Staatsverfall in der Habsburgermonarchie (Österreichische Geschichte 1804-1914, published by Herwig Wolfram), Wien: Ueberreuther 1997.
John Komlos, The Habsburg Monarchy as a Customs Union: Economic Development in Austria-Hungary in the
Nineteenth Century Princeton, N.J.: Princeton UP 1983.
problem. The disparate ethnic interests resulting from the constitutional structure of the two halves
of the state developed greater dynamics than did the divergent interests of the two governments.
The institution of the “Ausgleich” could not prevent that ethnic conflicts hindered the economic
development.4 While the ethnically motivated clashes of interests did not stop the process of economic modernization, they did prevent the Dual Monarchy from modernizing at the same pace as
the West European states. The emphasis on ethnic or nationalist goals led to bad investments, as
parallel structures were built up in areas although there was no market to support them.5
Table 1: The nationalities of Austria-Hungary, 1880 and 1910
Germans
Magyars
Czechs
Slovaks
Serbo-Croatian
Slovenes
Poles
Ukrainians
(Ruthenians)
Rumanians
Italians
Others
Together
1880
Number
9.963.000
6.445.000
5.181.000
1.864.000
2.916.000
1.141.000
3.239.000
Per cent
26,4
17,1
13,7
5,0
7,7
3,0
8,6
1910
Number
Per cent
11.987.000
24,2
10.050.000
20,3
6.436.000
13,0
1.968.000
4,0
3.528.000
7,6
1.253.000
2,5
4.686.000
10,0
3.149.000
8,3
3.991.000
8,1
2.596.000
669.000
623.000
37.786.000
6,0
1,7
1,6
100,0
3.224.000
768.000
1.090.000
49.263.000
6,5
1,6
2,2
100,0
Source: Katalog des Niederösterreichischen Landesmuseums, Neue Folge Nr. 186, Wien 1987, 2nd part: 1980-1916
Glanz und Elend, p 41.
Table 2: Population shares after the nine major languages for the Austrian half of the empire 1900 (total population approx. 25.6 million)
Language
German
Czech
Polish
Ruthenian
4
5
5
Number
Per cent
9.170.939
5.955.397
4.259.152
3.375.576
35.78
23.23
16.62
13.17
David F. Good, The Economic Rise of the Habsburg Empire 1750-1914, University of California Press 1984;
German translation: Der wirtschaftliche Aufstieg des Habsburgerreiches 1750-1914, Wien – Köln – Graz: Böhlau
1986.
David F. Good, The Economic Lag of Central and Eastern Europe: Income Estimates for the Habsburg Successor
States, 1870-1910, in: The Journal of Economic History, 54 (1994), p. 869-891.
Language
Slovenian
Serbian Croatian
Italian -- Ladin
Romanian
Magyar
Number
Per cent
1.192.780
711.380
727.102
230.963
9.516
4,65
2,77
2,84
0,90
0,04
Source: Geschichte der Habsburgermonarchie III/1, table 1.
In business live voluntary associations tried to influence investments and consumer decisions
with positive and negative discriminations, boycotts etc. The ethnically motivated attempts to influence monetary policy ranged from conflicts about the organizational and personnel structure of the
National Bank to questions pertaining to the structure of currency reforms and the role of the central
bank within the political system, the appropriate foreign exchange policy, the interest rates, the
structure of the Bank's operational business, the scope and regional distribution of its branches and
even the design of the bills. On occasions, there were also severe, nationally colored attacks against
the introduction of the gold standard, brought forward by Slavs protesting against the supremacy of
the Magyars and Germans in the political, cultural and economic life of the monarchy. Therefore,
the policy of the central bank was a popular target for criticism by a number of social and ethnic
groups. Thus, the currency union did not function without problems.
6
7
Monetary policy under the Compromise of 1867
The Compromise of 1867 gave the constitutional basis to a monetary union between the Austrian and the Hungarian half of the Habsburg Empire.6 Shortly after signing the Ausgleich, the Hungarian and Austrian government agreed that the privileged Austrian National Bank (privilegierte
Oesterreichische Nationalbank) should remain the common central bank. This institute was established on June 1, 1816 in the course of the reorganization of the monetary system. By analogy with
the English and French central bank, the Austrian bank was founded as a corporation and enjoyed a
special protection by the state.7 On the other side, the Bank should remain independent of the state
by its private character as a corporation. As an institute independent to the state, the central bank
should manage the circulation of banknotes in the entire monarchy.8
The audit on the central bank question remained rather controversial for some years. Claims for
an own central bank where made by an influential fraction of the Hungarian elites at that time. Nevertheless, in the context of the 1867 Ausgleich negotiations, the central bank privilege remained unchanged. In a secret agreement between the governments in the fall 1867, this step was postponed,
as well as the suggestion from the Hungarian liberals to establish a system of competitive issuing
banks instead of a central bank monopoly. However, the pressure on the Austrian partners lasted:
The Hungarian side demanded that the national bank should set up a closer network of branches in
Hungary and the Hungarian credit needs should take into account more strongly.
The 1876 proposal for the renewal of the Ausgleich did not question the common currency.
However, the foundation of two coordinated issuing banks in Vienna and Budapest had to remain
6
7
8
8
Komlos and Flandreau call it a “de facto monetary union“: Marc Flandreau, John Komlos, Core or Periphery? The
credibility of the Austro-Hungarian currency, 1867-1913, Mimeo, Munich – Paris 2001.
This protection was certified in temporary privileges, “Privilegien”.
Vgl. Othmar Bachmayer, Die Geschichte der österreichischen Währungspolitik (Schriftenreihe der Österreichischen Bankwissenschaftlichen Gesellschaft, edited by Hans Krasensky, Heft XII), Vienna: Manzsche Verlags- und
Universitätsbuchhandlung, 1960, p 37f.
on the agenda. This was followed by passionately conducted negotiations in whose course both
governments offered their resignation. The emperor finally intervened. The result was a compromise (the fist charter Privileg, covering a period from July 1, 1878, to December 31, 1887, which
prolonged the sole competence of the privilegierte Oesterreichische Nationalbank.
From now on Hungary was also represented on the executive board. Following the new arrangement, the emperor on initiative of the Hungarian and the Austrian Secretary of the Treasury
must appoint the two vice-governors. The twelve councilors in the Generalrat (roughly the supervisory board of the Bank) were still chosen by the Generalversammlung, the general assembly of the
shareholders, with a minimum of two from each part of the Monarchy. Most of the councilors were
Austrian citizens, because the Austrian banks were the dominant group of shareholders.9
National interest compensation also determined corrections at the profit distribution. The
Bank’s profit exceeding a rate of 7 per cent was devided between Austria and Hungary in a relation
of 7:3. The share of issued notes was divided in a similar way between the Viennese and the Budapest branch. For specific Hungarian needs, 50 million florins were provided for credit transactions
in Hungary. The regulations for the credit transactions had to be formed uniformly for the two empire halves. The bills were provided with Hungarian text on one side and with a German text on the
other. In the bank law of June 27th, 1878 the dualism found expression also in a name change of the
central bank: it changed its name to Oesterreichisch-ungarische Bank, Austrian-Hungarian Bank.10
Demands from other nationalities, especially from the Czech interest groups, had no chance for realization. 11
During the first years, the negotiations between Austria and Hungary concerned primarily the
repartition of the resources and the readjustment of power. However, the two governments had to
9 What did not mean that all directors were Germans.
10 See Bachmayer, Geschichte, 47; Pressburger, Notenbank, 163ff.
11 See Pressburger, Notenbank, pp. 182f and 204; Eduard März and Karl Socher: Währung und Banken in Cisleithanien, in: Habsburgermonarchie I, p 323-368, here p. 245f.
9
face the question whether to stay on the old silver standard or to establish a gold based currency.
The discussion lasted for many years and was marked by specific national economic and fiscal
situations and interests.12
The plans to switch to gold dated back to 1867, when the Habsburg empire changed its political
system by the Compromise. In the same year, the empire withdrew from the currency union with
the members of the German Customs Union and Liechtenstein, which the Austrian Empire had
joined in 1857.13
Under the regulations of the Compromise of 1867, Austria and Hungary had now to implement
a single currency area and joint monetary policy or to find an alternative regime. There was an increasing economic pressure to enter the gold club. Almost all European states and the US had
changed to gold at the end of the 1870s. The retention of the silver standard had become a source of
permanent losses for the economy in Austria-Hungary, so there was an urgent need for the currency
reform. The first major steps toward currency reform were the currency acts of 1892. The official
start of the new money was January 1, 1900.14
12 See Jürgen Nautz, Ethnische Konfliktlagen und monetäre Integration, Vienna: Passagen 1999.
13 The Vienna Coinage Convention was concluded in 1857 by Prussia, Austria and by most of the other German territories. With this convention a currency union was formed with the “Vereinsthaler” as the common currency unit.
See Josef Wisocky, Machtgegensätze in einer Währungsunion. Ein historisches Fallbeispiel, in: Kredit und Kapital
6 (1973), p. 296-321.
14 The old florin of the Austrian silver currency corresponded to 2 crowns; 1 crown was subdivided into 100 hellers.
The old bills kept their validity till 1900.
10
Diagram 1: Development of the price for silver
70
60
50
40
30
20
10
price per ounce of silver in pence
18
97
18
95
18
93
18
91
18
89
18
87
18
85
18
83
18
81
18
79
18
77
18
75
18
73
18
71
18
69
18
67
0
agrio gold/silver
Source: see Nautz 2002.
In June 1891 the Austrian parliament debated for the first time about the currency reform. It is
characteristic that the most intense polemics during the parliamentary debates came from the Young
Czech side and from the leader of the Austrian Christian Socialist Party and Viennese mayor Karl
Lueger.
The Young Czechs in this period started to mobilize the majority of the Czech population by
asking for the Bohemian national rights, anti-government agitation and a social program in parallel
to the national struggle that had become more intense at the time. The negotiations with Hungary
about the currency reform were deferred because of the debate in the Austrian parliament.
They were continued in January 1892 after the Hungarian minister of finance Wekerle had
pressed for it. The currency reform found also public support by the emperor now. In Austria the
public was not particularly enthusiastic about the currency reform. Yet the minister of finance, Emil
11
Steinbach, managed to calm down the skeptics and to gain considerable support for the reform
amongst the political parties.15 The Christian Socialists raised the strongest objections against the
gold standard. The reform also met with opposition from numerous conservatives, who objected to
it for economic reasons.
During the polemic parliamentary debates about the introduction of the gold currency in 1891
and 1892, the Austrian government was criticized for having been too compliant toward the Hungarians: “The Hungarian government is the pilot who directs the ship …, the Austrian finance minister is merely the stoker who feeds the engines with our taxes.” Young Czech members of parliament the accused the Hungarians and Germans of reaching an agreement at the expense of the other
nations. One of the Young Czech spokesmen said: “This absolutist centralism, framed by Germanizing allures has also produced the almost immortal twins, i.e. a chronic deficit and paper economy!” Another example of Czech polemics: “Ask all the peoples of Austria and they will tell you
that it is a capitalist dungeon, but the Slavs consider it a Dantean inferno, at the gates of which all
national hopes wither!”16
In the end, the currency acts passed the parliaments and the gold standard was introduced: In
August 1892, the new currency acts were ratified by the Austrian parliament, and in early 1893 by
the Hungarian one. This legislation formalized the new basis of the Austro-Hungarian currency, and
revised the existing conventions between the bank and the two parts of the monarchy. The gold content of the new gold florin (Goldkrone) was fixed.
The two governments had explained during the debate on the gold currency, that the reintroduction of the convertibility is one of the central goals of the currency reform. It, however, never came
to a legal reintroduction of the Barzahlung because of conflicting interests of the two governments.
15 Gustav Otruba, Die Einführung des Goldstandards in Österreich-Ungarn und seine Auswirkungen auf die Preisund Lohnentwicklungen, in Hermann Kellenbenz (ed.), Weltwirtschaftliche und währungspolitische Probleme seit
dem Ausgang des Mittelalters, Stuttgart, New York: Gustav Fischer Verlag, 1981, pp. 123-162, pp. 135f.
16 Both quotes in: Stenographische Protokolle 1892, XI. Session, Bd. VI, 6998.
12
But the central bank restored the convertibility on a voluntary basis from 1901 onwards. “Though it
could change its policy at any time, the fact that the public was not particularly eager to use this facility meant that the policy remained stable. The stability of the currency was widely recognized by
contemporaries.”17
However, as long as a sufficient gold reserve had not been accumulated by the Bank, it appeared that the completion of the reform, whose cumulation – “final act” – would be the Barzahlung (full convertibility) by the Austrian Hungarian Bank, was to be postponed. The issue of
convertibility remained on the agenda until the very demise of the Monarchy. Yet, between 1896
and 1914, the Austrian Hungarian Bank successfully implemented a shadow (de facto) gold standard, whereby it let the exchange rate fluctuate within informal narrow margins that more or less
coincided with the gold points. From 1901 onwards it essentially accepted its notes in exchange for
gold coins, albeit at its own discretion. “Though it could change its policy at any time, the fact that
the public was not particularly eager to use this facility meant that the policy remained stable. The
stability of the currency was widely recognized by contemporaries.”18 At the same time, the negotiations over the formal introduction of gold convertibility were bogged down in a nexus of complex political agendas, thus explaining the duration and confusion of the debate over the policy of
gold convertibility.
In 1892, as a consequence of the currency reform the central bank which had merely played a
subordinate role during the preparations for the currency reform was charged with moving to gold
standard on January 1, 1900. The central task of the issuing bank was the consolidation of the ex-
17 Marc Flandreau and John Komlos: Core or Periphery? The credibility of the Austro-Hungarian currency, 18671913, Mimeo, Munich – Paris 2001; see although Marc FLANDREAU & John KOMLOS: How to Run a Target
Zone? Age Old Lessons From an Austro-Hungarian Experiment (1896-1914), draft paper, Paris – Munich, August
2001.
18
Marc FLANDREAU & John KOMLOS: Core or Periphery? The credibility of the Austro-Hungarian currency,
1867-1913, Mimeo, Munich – Paris 2001.
13
change rate of the new money. Therefore, the bank immediately started building up gold reserves.19
The management developed an active, independent foreign exchange policy in the following period;
depending on movement in the market, the Bank bought or sold foreign currency. Contrary to the
policy usual within those years, the bank kept a part of its reserves in foreign currency.20
An intense dispute about the conditions under which the central bank had to do exchange rate
policy arose on the occasion of the 1894 incipient new negotiations about the prolongation of the
bank privilege valid until end of 1897.21 In addition, Hungary canceled the Compromise of 1867.
The Hungarian government again demanded an own central bank and required the emission of own
bills. The coverage of the Hungarian bills should correspond to that of the Austrian bills. Meanwhile, lacking of capital in Hungary prevented the foundation of an own Hungarian central bank.22
The disagreement between Austria and Hungary over the future of the bank was one dilemma
of the monetary policy. “Since a fraction of the Hungarian establishment pushed for monetary secession, the problem of the possible liquidation of the common bank could not be overlooked. The
reserves of the bank had been accumulated through transfers made by both governments, and each
part remained legal owner of its share. Had the bank been split up, both governments would have
expected to have their investments returned. However, it was unclear what would happen if the liquidation took place at a time when the reserves were below the level of the two governments’
claims. This was a compelling reason for not committing the bank to use its gold reserves excessively and as a result de jure convertibility was postponed indefinitely.”23 Another fact is that the
19 Robert Zuckerkandl, The Austro-Hungarian Bank, in: U.S. National Monetary Commission, Banking in Russia,
Austro-Hungary, The Netherlands and Japan, Washington D.C.; Government Printing Office 1911, pp. 57-118.
20 See März and Socher, Währung, 354; Kamitz, Geld- und Währungspolitik, p. 155f.
21 Siegfried Pressburger, Österreichische Notenbank 1816-1966. Geschichte des österreichischen Noteninstituts,
Wien: Verlag der Oesterreichischen Nationalbank 1966, p 227. The statutes of the Bank stipulated that the governments had to be asked for prolongation or modification three years before phase down of the bank privilege.
22 Ibid., 1966, p 126ff.; März and Socher, Währung, p 337.
23
Marc FLANDREAU & John KOMLOS: Core or Periphery? The credibility of the Austro-Hungarian currency,
1867-1913, Mimeo, Munich – Paris 2001. Marc FLANDREAU & John KOMLOS: How to Run a Target Zone? Age
Old Lessons From an Austro-Hungarian Experiment (1896-1914), draft paper, Paris – Munich ,August 2001.
14
Hungarian government did not have the capital needed to establish a separate Hungarian national
bank. Moreover, the suggestion from the rows of the Hungarian liberals to give up the Central bank
monopoly in favor of competitive issuing banks did not attain decisive influence.
The two Treasuries wanted to connect the renewal of the central bank privilege with the final
steps of the currency reform. The weight of the government in the leadership of the bank should be
strengthened. Therefore it would not conceivable, so the ministers of finance, “that in future the
bank will be described as a private-sector business by whose patriotic and local fundamental attitude it is made merely dependent how far it is prepared to take the great tasks of our days”.24 In the
new bank statute the tasks of the central bank should therefore fixed: regulation of the circulation of
money and guarantee of the payment transactions in the two national territories; utilization of the
available capital and satisfaction of the commercial, industrial and agricultural credit needs in the
two national territories; cooperation at the currency reform. Last but not least the retention of convertibility, the so-called “Barzahlung”, after implementation of the convertibility by law.25
At first, the management of the Bank attacked the plans for the expansion of the state influence
on the policy of the central bank intensely. There was resistance to the full parity and the new dependence on the state, which, however, remained unsuccessful. The bank executive board finally
gave way in the course of the negotiations that dragged on to 1899.
24 Pressburger 1966, p 127.
25 Pressburger, Noteninstitut, 5.
15
Figure 1: The most important provisions of the statutes of the Austro-Hungarian Bank regulating parity from 1899
The most important provisions of the statutes of the Austro-Hungarian Bank regulating parity from
1899:
1. The duties of the national bank were precisely defined for the first time. Article 1 now states:
"In the exercise of its statutory duties it is incumbent upon the Austro-Hungarian Bank to regulate the money supply, facilitate settlements and to satisfy commercial, industrial, trade and agricultural credit requirements, but especially to maintain cash payments [when advised by law;
at this time it was suspended; J.N.] equally in both territories of the monarchy.“
In Article 1 the newly introduced parity was even acknowledged in the seal of the bank. The
coat of arms of each half of the monarchy were to set next to each but separately.
2. The meetings of the General Assembly (Meeting of Shareholders) were to be held in Vienna or
Budapest, depending on whether the majority of members were Austrian or Hungarian citizens.
3. Of the twelve Directors (Board of Directors) six had to be Austrian citizens and six Hungarian
citizens.
4. Parity had to be maintained in the choice of auditors and their substitutes. Parity also had to be
maintained in the choice of the executive and other committees.
5. The deputy governors were to be appointed by the monarch upon recommendation of the Austrian and Hungarian finance ministers.
6. The head offices in Vienna and Budapest now had the exclusive right to fix bank lending in the
territory concerned, respectively, to determine the limits to which individual companies and individuals were permitted to use bank loans (credit ceiling). They were entitled to open or close
bank branches for discount business at locations they considered suitable, moreover, they also
had the right to grant companies and individuals the right to use bank credit through correspondent banks.
7. The two governments appointed one commissioner each and one deputy: these officers monitored the bank on behalf of the government in order to ensure that it complied with the law and
statutes, and acted in conformity with the interests of the state. They were entitled to attend all
meetings of the permanent committees of the directors, and the head offices in an advisory capacity. They had to be granted all necessary insight into the management of the bank.
In the event of an objection on the grounds of state interests the Imperial ministry concerned had
the right to make the decision.
8. The k.k. court (Landesgericht) in Vienna, respectively the Royal Court in Budapest was to settle
disputes which were not subject to regulation by the government commissioners.
According to the Ministers of Finance, the full parity of Hungarian and Austrian representatives
in the committees of the bank and the distribution of money was established. The Budapest management got moreover the right to decide the size of bank loans and the line of credit for a number
16
of enterprises in Hungary. As a supplement for the privilege renewal, an agreement between the two
Secretaries of the Treasury and the Austrian Hungarian Bank was published, which provided that in
the years 1900 to 1902, in each half of the empire ten new branch offices should be set up in places
which had to be named by the two Treasuries.26
The duties of the national bank were precisely defined for the first time. Article 1 stated: “In the
exercise of its statutory duties it is incumbent upon the Austro-Hungarian Bank to regulate the
money supply, facilitate settlements and to satisfy commercial, industrial, trade and agricultural
credit requirements, but especially to maintain cash payments [when advised by law; at this time it
was suspended] equally in both territories of the monarchy.”27
The last steps to full parity of the Austrian and the Hungarian State in the management and policy of the central bank were set short before the official introduction of the Gold crown as common
legal tender. The new statutes of the Oesterreichisch-ungarische Bank of 1899 contented the following regulations: The newly introduced full parity was acknowledged in the seal of the bank. The
coat of arms of each half of the monarchy was to set next to each but separately. The meetings of
the General Assembly (Meeting of Shareholders) were to be held in Vienna or Budapest, depending
on whether the majority of members were Austrian or Hungarian citizens. Of the twelve Directors
(Board of Directors) six had to be Austrian citizens and six Hungarian citizens. Parity had to be
maintained in the choice of auditors and their substitutes and in the choice of the executive and
other committees. The deputy governors had to be appointed by the monarch upon recommendation
by the Austrian and Hungarian finance ministers.
The head offices in Vienna and Budapest now had the exclusive right to bank lending in the territory concerned, respectively, to determine the limits to which individual companies and individuals were permitted to use bank loans (credit ceiling). They were entitled to open or close bank
26 See Nautz, Ethnische Konfliktlagen.
27 Statuten der Oesterreichisch-ungarischen Bank 1899
17
branches at locations they considered suitable, moreover, they also had the right to grant companies
and individuals the right to use bank credit through correspondent banks.
The two governments appointed one commissioner and one deputy each: these officers monitored the Bank on behalf of the government in order to ensure that it complied with the law and its
statutes, and acted in conformity with the interests of the state. They were entitled to attend all
meetings of the permanent committees of directors and to monitor the head offices in an advisory
capacity. They had to be granted all necessary insight into the management of the Bank. In the
event of an objection on the grounds of state interests, the Imperial ministry concerned had the right
to make the decision. The k.k. court (Landesgericht) in Vienna, respectively the Royal Court in Budapest had to settle disputes that were not subject to regulation by the government commissioners.
Ethnic conflicts and struggle for power within the central bank
Due to the establishment of parity of Hungarian and Austrian representatives, the claims of
other ethnic groups for equal treatment within the committees of the central bank and in the distribution of central bank credits increased again. The claims were articulated in the shareholders'
meetings as well as in the parliament and in the public.28
The group interests motivated ethnically or nationally in the field of monetary policy where
embedded in other nationalistic political and economic strategies like economic boycotts. So in Bohemia a network of organizations and parties developed which were engaged in this field. The
common aims of these organizations were (a) to promote issues of national identity and corresponding strategies in the center of public interest, and (b) to undermine the economic position of com-
28 See Andrej Pančur, “The influence of political parties and ethnical conflicts on the currency reform of 1892 in
Austria-Hungary, with special emphasis on the role of the Slovenes,” paper presented to pre-conference to sec. 39
“Conflict Potentials in Monetary Unions, Kassel and Hofgeismar (Germany), April, 25-28, 2001. Available from:
[email protected].
18
petitors of other ethnic groups.29 A central position of the Czech national development was that the
lag in Czech economic development was caused by German and Habsburg oppression. The goal
was the full economic equality. They wanted to meet the Germans as equal partners. Therefore
Czech nationalism wanted to develop an economic system of its own.30
The consequence of ignoring the voices of the other national elites was a an “infection” of the
shareholder meetings of the central bank with nationalistic rhetoric: The once so extremely distinguished and quiet shareholders' meetings of the Austrian-Hungarian Bank became platforms of passionate ethnic confrontation and national agitation from the end of the 19th century onwards. Political parties, leaders of associations of the discriminated peoples or nations, which hat no efforts with
their aims in the political arenas tried to buy shares as a key, which allowed them to open a new
floor for agitation: the shareholders’ meetings. During the complete third privilege period of the
bank of issue there regularly were discussions mainly between the management, the German, and
Magyar shareholders on the one side and the Czech shareholders and their organizations on the
other side. For example one shareholder tried during the shareholders' meeting on February 3, 1909
to report his talk in Czech. The protocol of the meeting reports of “continuous and rapid contradiction of a very large portion of the assembly. Notwithstanding repeated admonitions of the chairman
to make use of the German as the language understood of everyone, the speaker continued nevertheless his explanations also after withdrawal of the word until end.”31 The Czech shareholders wanted
gain acceptance this way because they never before had any success with their initiatives.
On the other side, German economic associations tried to defend the German position by doing
the same: Resistance to the Czech attempts to strengthen their influence in the central bank increased among the German savings banks. The Zentralbank der deutschen Sparkassen (Central
29 Catherine Albrecht, Economic Nationalism Among German Bohemians, in: Nationalities Papers 24/1 (March
1996), p 17-30.
30 Ibid. Firms in the textile, porcelain and glass industry and coal mining owned by Germans had only little Czech
competitors. There were other big German owned companies in other lines of industry like paper mills, too.
31 Pressburger, Notenbank, p 265.
19
Bank of the German Savings Banks) founded in 1901, and the Reichsverband deutscher Sparkassen
in Österreich (National Association of German Savings Banks in Austria) formed in 1905, named
as one of their tasks the support of their member institutes in prosecuting all national interests and
the preservation of the rights of the Germans. And this meant: Defending the German item opposite
claims and not introducing any further quorum. The Reichsverband called upon all German savings
banks to increase their shares in the national bank to pit a counterbalance against the attempts of
Czech groups to raise their influence on the banks policy.32 – In other words: people who had lost
faith in the political system and which felt frustrated by politics and the central bank’s strategy tried
to transform their claims from stakeholder values into shareholder values.
The conspicuous result of these attempts to politicize the shareholders' meetings of the national
bank was a rapidly growing number of the participants. For the assemblies big halls had to be rented
outside the bank now. Poles, Croatians and Slovenes had not supported the claims of Czech politicians in the past. But now they would not take second place with their claims behind the other nationalities. The governor of the central bank noticed in the course of the general meeting of February 3, 1905 that for some years it has got usual in these assemblies not only to talk about the figures
but also about bank politics and even about politics in general.33
Despite the intense agitation and the use of different strategies, the Czech claims for equality
were not taken into account in the fourth central bank privilege of 1911. Also Hungarian requests
for another status improvement in the Budapest head office were not realized. Up to the outbreak of
the First World War it did not come to any new negotiation about the central bank privilege. Although there was not any structural reform of the central bank either, nevertheless the ethnic conflicts considered many issues, like exchange rate, credit, and branch policy.34
32 Walther Schmidt, Das Sparkassenwesen in Österreich, Vienna 1930, p 141f.
33 For some more details, see Pressburger, Notenbank, p 260f.
34 For credit and exchange rate policy see Marc Flandreau & John Komlos: “How to Run a Target Zone? Age Old
Lessons From an Austro-Hungarian Experiment (1896-1914)“, draft paper, Paris – Munich, August 2001, for the
20
Ethnic conflicts and the central bank policy
An important cause for continuous complaints was the central bank’s lending policy. The predominance of German influence in the central banking apparatus of the Monarchy led to repeated
accusations of discrimination against non-German borrowers and regions.
Often concerns over credit facilities were articulated by delegates of the various Chambers of
Commerce of the non-German hinterland of Austria:
Map 1: The dualism of the Habsburg Empire
branch policy see Jürgen Nautz: „Kommunikationsstruktur und Bankgeschäft der Notenbank der Habsburgermonrachie,“ in: Rainer S. Elkar (ed), Konturen der Bankengeschichte vom 15. zum 20. Jahrhundert, Stuttgart: Steiner,
winter 2005.
21
Map 2: Administrative Divisions and Capitals, 1914
The Pilsen chamber prepared (28 March) 1973 a study of credit conditions on its territory. The
chamber took the conclusion that a branch of the Nation Bank should be established in Pilsen. This
was a very common proposal for this period. Moreover, it was argued that poor credit conditions
were a major factor in the deteriorating situation in the iron industry of this region.
“Open attacks by non-Germans against German financial interest were very pronounced during the
controversy over the renewal of the privilege in 1885.” For instance, a numerous complaints can be
found in the minutes of the meeting of the Prague Chamber of Commerce in Summer 1885:
One member summarized the attitudes of the Czech majority in the camber when he said that adequate credit is “one of the most important conditions for the strengthening of economic forces and
as a consequence for the new creation and indirect enlargement of capital itself. The economic objective … is to a large extent not attained in Bohemia and therefore the general conditions of pro-
22
duction appear relatively more difficult in this province compared to other more fortunate commercial regions.”35 The chamber of Budweis supported this proposal of the Prague chamber for developing the central banking institutions in Bohemia.
Interest Rates for Loans Issued by Savings Banks in 5 Major Nationality
Regions in Ausria: 1872-1910
8
7
6
Interest Rate
5
4
3
2
1
0
1872
1880
1890
1900
1910
I
6,32
5,75
5,12
4,93
4,78
II
6,6
6,06
5,16
5,03
5,02
III
6,75
6,25
5,46
5,34
5,2
IV
7,25
6,42
5,42
5,66
5,78
V
5,79
5,73
5,36
4,87
5,1
Year
I
II
III
IV
V
Source: Good, National Bias, Table 1. Average rate per subregion weighted by the share of each subredion in the total
savings depositzs of the entire region. Region I: German areas HKB Vienna, Linz, Salzburg, Klagenfurt, Innsbruck;
Bozen Feldkirch, Leoben, Eger, German districts of HKB Graz, Reichenberg, Troppau. Region II Chech areas: HKB
Prag, Chech districts of HKB Budweis, Pilsen, Reichenberg, Brünn, Olmütz. Region III, mixed German-Czech population: HKB Budweis, Pilsen, Brünn, Olmütz, Troppau. IV Polish-Ruthenian areas, German minority: HKB Brody, Krakau, Lemberg, Czernowitz. V, southern Slav areas: Solvenian districts of HKB Laibach, provinces of Krain and Dalmacia.
35
23
Verhandlungen Prag, 7. Juli 1885, S. 35.
David Good has concluded that there was indeed a national bias on the capital markets, which
however, lessened after the currency reform. However, this conclusion has not remained undisputed.36 What is crucial for our contexts is that such discrepancies in the terms attached to loans
were noticed and exploited for political purposes by contemporaries.
The opinion among the non-Germans that the capital market was biased in favor of the Germans and to some extend in favor to the Magyar, did not lead directly into violent protests. Yet such
a belief did generate substantial discontent. But in combination with the other diverging interests
the were one major factor for the paralyzation of the political system.
Table 1: Frequency of discount rate changes
Country
UK
Germany
Austria-Hungary
1876-1895
1896-1913
Number
official discount rate changes
221
136
50
23
27
Average number
changes per year
6.70
4.12
1.32
1.5
1.5
Source: Vergleichende Notenbankstatistik: Organisation und Geschäftsverkehr wichtiger europäischer Notenbanken
1876 - 1913statistisch dargestellt. Bearbeitet in der Statistischen Abteilung der Reichsbank, Reichsbank Berlin: Reichsdruckerei, 1925.
Because the discount rate changes were a potential source of conflict both between the Austrian
and the Hungarian parts of the Monarchy and within Cisleithania, the Austro-Hungarian Bank
wanted to minimize their occurrence. The practical solution found to this problem was to stabilize
the currency from 1896 onwards within an informal currency band whose exact size the authorities
never specified. This was achieved through discretionary foreign exchange intervention when the
exchange rate departed too much from the central parity, rather than through gold convertibility, as
some other central banks of the time did. This “shadow” (de facto) gold standard was successfully
implemented by the issuing bank in the period between 1896 and 1914, the outbreak of the First
36 John Komlos: “Discrimination in the Austrian Capital Market?,” in: Explorations in Economic History 17 (1980),
p 421-427; David F. Good, “Discrimination in the Austrian Capital market? A Replay,” in: Explorations in Economic History, 17 (1980), p 428-433.
24
World War. The mechanism was to allow the exchange rate to fluctuate within informal narrow
margins that more or less coincided with the gold points.37 This provisional shadow gold standard
became the permanent modus operandi. The system emerged from the central bank’s decision in
1896 to peg the crown to gold within a narrow margin, and then from its policy, adopted in 1901, to
accept convertibility in principle, without a binding commitment.
Figure 2: The exchange rate in Vienna, 1880-1900
130
128
126
124
122
120
118
116
114
112
110
1881:1 1884:1 1887:1 1890:1 1893:1 1896:1 1899:1
Florins per 10 Pounds Sterling - Source: Flandreau & Komlos 2001b.
On the eve of World War I, the Austro-Hungarian Bank could look back on an extremely successful monetary policy. The transition to the gold currency meant the end of a long period of
monetary uncertainty and firmly anchored the monarchy in the international monetary system.38
The exchange rate of the crown is marked by a remarkable stability in the years between 1896 and
1913. Fluctuations from coin parity were less than 0.5 percent for the rate of exchange, and less
than one percent on the spot exchange rate.39
37 Pressburger, Vol II/2, p. #. Komlos and Flandreau, How to run a Target Zone, 2001a: 0,4% in either direction of
parity.
38 For the development of the gold standard see Barry EICHENGREEN: Globalizing Capital. A History of the International Monetary System, Princeton, N.J.: Princeton University Press, 1996.
39 Compare Tables for Currency Statistics, 3. Edition, Vienna 1903-1906.
25
The governor of the Austrian-Hungarian Bank and later Austrian Minister of Finance, Leon Count
Bilinski was one of its main architects of this policy which was very useful in insulating the currency from foreign shocks, while also providing for exchange rate stability.40 When interest rates
were higher in Berlin than in Vienna, the bank could let the exchange rate depreciate as a substitute
to raising the interest rate. The resulting exchange rate depreciation needed not have been large, because it triggered stabilizing expectations of eventual recovery: „the [resulting depreciation] in the
exchange rate remains relatively small, because the excess demand for foreign exchange [in Vienna] disappears by itself, insofar as the small expected increase in utility to be gained through interest rate arbitrage is compensated by the risks of losses due to [the threat of a future recovery] in
the exchange rate.“41 As a consequence, the economy of the Dual Monarchy “was not completely
hostage to tight monetary policies in distant parts of the globe”.42
The economic development was not hindered by central bank policy but by the effects of the ethnic
and social conflicts of the Dual State:
40
Walther Federn, Moderne Geldtheorie im östereichisch-ungarischen Bankprivilegium, in: Schmollers Jahrbuch
für Gesetzgebung, Verwaltung und Volkswirtschaft 35 (1911), p 1379-1398.
41
Walther Federn, in: Die Zeit, August 23, 1907. See:
http://docs.mises.de/Mises/Mises_Schlusswort_Federn.pdf.
42
Flandeau, Komlos, Target Zone, p. 4.
26
Table 2: GDP per head and growth rates in regions of the Habsburg monarchy, 1870-1910; 1980s International
Dollars
Region
Alpine Lands
Lower Austria
Upper Austria
Salzburg
Styria
Carinthia
Tyrol/Vorarlberg
Northern Karst / Littoral
Carniola
Littoral (includes Trieste)
Dalmatia
Bohemian Lands
Bohemia
Moravia
Silesia
Carpathian Lands
Galicia
Bukowina
Lower Western Hungary
Danube Right Bank
Danube-Tisza
Upper Western Hungary
Danube Left Bank
Tisza Right Bank
Eastern Hungary
Tisza Left Bank
Tisza-Maros
Transylvania
Croatia-Slavonia
IMPERIAL AUSTRIA
IMPERIAL HUNGARY
HABSBURG EMPIRE
1870
1880
1890
1900
1910
Growth
Rate (%)
1,382
716
789
631
641
668
1,496
851
954
737
764
764
1,704
1,004
1,151
857
834
918
2,086
1,157
1,372
1,033
1,007
1,159
2,290
1,243
1,535
1,201
1,267
1,433
1.34
1.41
1.70
1.62
1.64
1.95
486
745
348
571
861
389
658
966
443
728
1,134
493
960
1,476
622
1.61
1.64
1.40
941
787
860
1,050
927
1,064
1,226
1,079
1,218
1,494
1,262
1,416
1,712
1,429
1,646
1.55
1.50
1.58
392
413
440
469
534
538
618
678
707
741
1.52
1.54
444
640
531
821
670
949
818
1,248
1,008
1,506
2.07
2.13
505
483
576
547
721
695
848
864
1,037
1,034
1.83
1.98
404
411
369
312
759
450
642
464
492
448
408
854
549
734
560
590
526
448
978
657
858
687
725
621
514
1,183
806
1,038
845
884
816
697
1,347
1,011
1,218
1.87
1.92
1.92
1.84
1.48
2.00
1.63
Source: David F. Good: The Economic Lag of Central and Eastern Europe: Income Estimates for the Habsburg Successor States, 1870-1910, in: The Journal of Economic History, 54 (1994), S. 877.
27
Table 3: GDP per Capita per country in post-1989-borders, 1870 bis 1910
Land
Great Britain
Belgium
Netherlands
France
Germany
Switzerland
Denmark
Finland
Norway
Sweden
Italy
Portugal
Spain
Old-Austria
Old-Hungary
Habsburg
Monarchy
Austria
Check Republic
Slovakia
Hungary
Italy
Poland
Slovenia
Croatia
Serbia
Ukraine
Rumania
Russia
1870
1880
1890
1900
1910
100,0
77,2
78,2
57,7
47,8
64,9
60,7
35,1
45,2
48,2
45,9
35,3
42,8
38,1
22,6
32,2
100,0
81,1
80,2
60,8
47,6
—
60,7
32,7
46,0
49,1
44,4
—
—
39,3
25,3
33,8
100,0
79,0
77,8
57,0
50,4
65,7
61,2
34,0
44,8
48,3
40,5
—
—
39,2
26,3
34,4
100,0
76,8
76,8
60,7
55,8
64,9
65,3
36,7
43,6
52,9
38,6
—
—
42,4
28,9
37,2
100,0
81,5
78,1
61,0
61,2
72,9
78,1
40,8
49,5
60,0
50,0
27,6
—
47,0
35,3
42,5
Growth Rate
1870-1910
1,00
1,03
0,90
1,09
1,63
1,18
1,55
1,40
1,11
1,49
1,00
0,30
1,37
1,48
2,00
1,63
52,4
40,3
53,4
42,0
53,5
43,2
58,1
46,4
63,2
52,2
1,44
1,59
25,2
26,7
34,8
21,1
29,3
18,9
22,3
19,7
19,2
34,0
26,3
30,4
36,7
22,0
31,4
20,5
24,3
20,4
22,1
—
28,9
31,7
37,5
23,0
31,5
20,3
25,1
21,5
22,4
—
31,0
36,6
41,2
23,8
32,7
21,3
27,3
22,4
23,3
28,5
35,9
43,7
50,5
26,6
39,6
27,4
32,2
25,2
28,8
32,2
1,85
2,15
1,84
1,53
1,62
1,76
1,83
1,56
1,85
0,72
Source: Good
Conclusion
Summing up the monetary policy of the central bank, we can say that it was very successful despite the lasting ethnically motivated frictions in the political system. These frictions did not have a
28
negative effect on the monetary stability. When we notice that the policy of the central bank was
successful and moreover we notice a thoroughly positive performance of the real economy, we must
notice that monetary and economic unions also with a positive development can fail.
Monetary policy and its results affect different social segments and groups of economic subjects
differently and have distributional and social consequences. For this reason, interest groups try to
influence the formulation of the monetary order and the monetary policy. In the Habsburg Monarchy this expressed itself in the competition between the political representatives of the various nationalities for power and mobile resources. To the extent that they possessed their own external institutions (laws, state ordinances etc.), as in the case of the Germans and Hungarians, they also
made use of them. Competition using external institutions was a characteristic feature of the rivalry
between the Austrian and Hungarian lands. A second component, the only one available to the national minorities in the two halves of the empire, was competition using internal institutions (social
mores, morality, language etc.: “Pláč koruny české”). This was done by criticizing real or imagined
political, social and economic discrimination as well as emphasizing values such as national selfdetermination, protection of ethnic, cultural or linguistic identity etc. The ethnically oriented organizations pinned their hopes on a new definition of the citizen that no longer emphasized the position of the individual as a citizen, but his role as a member of an ethnic group, of a language community.
The population supports external institutions such as an economic order when their substance is
in harmony with the society's internal institutions. Only then is their legitimacy and survival guaranteed. The history of Austria-Hungary provides a wealth of illustrations for this theory. Of course,
dualism stood for the tension between the constitutional entities Austria and Hungary. It is also beyond dispute that the construction created by the Compromise also contained retarding elements;
transaction costs on political markets are higher then on economic markets. The compensation had
29
to be got only for the price of high transaction costs. This is comparable with the agricultural market
negotiations in the European Union. The regular re-negotiation of the Compromise eased, at least to
some degree and temporarily, the tensions between Vienna and Budapest caused by the mutual accusations that each party was getting the better of the other. This was because the negotiations permitted new compromises to be found for the economic and monetary union on a regular basis.
The equivalent procedure in the monetary area in form of the time restricted Privilege stabilized
the monetary system. This meant a relative stable basis for the Austro Hungarian Bank on which the
central bank retained its responsibility for the entire monarchy and both halves of the empire became equal partners through parity in the management of the Bank. In this respect, the lack of a
strong central power tended to favor a monetary consensus.
On the one hand, the Dual Monarchy was undergoing a process of economic modernization, on
the other; the antagonisms between the different national groups in the multi-national state were becoming stronger all the time. The ethnic conflicts within each half of the monarchy were a highly
explosive force. Austria formed a kind of political union in which the Germans played a dominant
role, while the other nationalities saw themselves pushed into a subordinate position. Depending on
the connotation of economic and social structure, they emphasized either economic or political discrimination. The accelerating process of economic integration in the second half of the 19th century
was unable to prevent the political disintegration of the empire. The process of economic integration possibly even fuelled the ethnic conflicts, “because most people experienced this integration
process as something negative, the Alpine peasants just as much as the Galician or Hungarian
tradesman, in spite of conscious policy efforts to remedy the economic backwardness in underdeveloped regions.”43 In those regions that lagged behind economically, there was a widespread perception of economic discrimination, eastern regions such as Galicia or Hungary that enjoyed a
43 Roman Sandgruber, Ökonomie und Politik. Österreichische Wirtschaftsgeschichte vom Mittelalter bis zur Gegenwart, Vienna: Ueberreuter 1995, p 311.
30
strong political influence believed they were being economically discriminated against, in spite of
the fact they enjoyed great benefits from the huge economic area. The southernmost regions of the
empire felt most strongly discriminated against although they profited greatly from the Monarchy's
geographical orientation. In turn, those regions that were undergoing rapid modernization felt they
were being politically discriminated against. Thus the Bohemian and Moravian lands could point to
dynamic economic growth but lacked the commensurate political influence. For many German
speakers, “German” became the embodiment of modernity, Austria symbolized stagnation. They
believed the German Reich was enjoying dynamic development in all areas, not least of all economically, while Austria “muddled through.” The inadequate political reception of the economic
changes was one of the major causes for the collapse.44 This supports the argument that political integration can harm the cohesion of a union if the potential for vertical conflicts is too great.
The inability to find a for the non-German language groups acceptable regulation in the central
bank policy was the reason why the political discussion was increasingly delivered out of the parliament. Primarily Czech associations operated with positive and negative discrimination. In the
case of the central bank the inability of the political system brought that national political requests
developed from stakeholder values into shareholder values, and this way the ethnic antagonisms
where washed into the bank.
The national bank's monetary policy provided a solid foundation for the economic progress.
The Dual Monarchy certainly did not collapse as a result of economic failure. Indeed, much of the
evidence about the performance and structure of the monarchy suggests that the political institutions
had great difficulty adapting to the constraints imposed by modern economic growth. This conclusion, which has already been put forward by David Good is that successful integration in the network of a single market or currency can do nothing against disastrous political disintegration. In this
44 Ibid, p 311-313.
31
connection, symbols of state power such as a national bank can be instrumentalized for ethnic goals;
personnel issues or the graphic design of bank notes can become particularly explosive forces. Consequently, economic rationalism has not an far-reaching legitimizing effect.
The widespread position that monetary unions are only feasible for homogenous economic
structures with no political and fiscal integration, and that the greater the heterogeneity, the greater
the need for fiscal or political integration to stabilize the monetary union (Hagen, Cohen, Theurl),
should be modified. The creation of a central power produces new potential for conflicts and this
conflict potential grows with the increasing degree of centralization. The form in which relations
between the Austrian and Hungarian lands of the Habsburg Empire were regulated demonstrates
that flexible bargaining systems can have a stabilizing effect even where there are strong exit options. Together with ideological fossilization, the unwillingness of the German political class in
Austria to take the same road of sustainable compromise with the peoples within their own half of
the empire as they had done with the Hungarians was a major factor behind the collapse of the
“model of a multi-ethnic state.” If one accepts the conclusion from the difficulties and failure of the
Habsburg Monarchy that economic success and successful integration through a single currency and
a common market cannot prevent the disaster of political disintegration, one must – applied to the
Economic and Monetary Union – attach a great deal of importance to the status and development of
the political institutions. A central problem is to integrate the different ethnic, cultural and religious
identities and their representatives in a sufficient way.45 Those most democratic states recognize individual rights equally for each citizen regardless of his ethnic, cultural, or religious background
does not seem to hamper the development of certain collective demands such as quotas for ethnic
representation in the political system or local political autonomy.
45 Arendt Lijphardt,
32
33
Diagram 1: Landmarks of Austro-Hungarian Monetary Union
February 26th,
1861
“Grundgesetz über die Reichsvertretung” = Februar-Patent of Emperor Franz Joseph I. Centralization of the legislation competence
for the whole state; includes legislation on currency and fiscal policy of the central parliament (Reichsrath)
th
December, 27 ,
The Bankakte (bank act analogous English Peel’s Act, July 19th,
1862
1844)
The central bank gets independent of the state again.
May 5th, 1866
Bills become “state bills”.
Injury of the bank act
July 3th, 1866
Austrian defeat in the battle at Königgrätz.
August 23th, 1866 Peace of Prague with Prussia.
The Slav-convention in Vienna demands the federalism of five
countries.
February 27th,
“Ausgleich” (compensation treaty) with Hungary: Transformation
1867
of the monarchy in 2 territories, but one central bank.
June 27th, 1878
New name for the central bank: „Oesterreichisch-ungarische Bank"
instead of "Privilegierte oesterreichische nationalbank"
1891/1892
Discussion about the introduction of the gold standard in the parliament and in the public.
July and August
Consent of the Reichsrath (Austrian parliament) and the upper
1892
chamber (Herrenhaus) to the introduction of the gold standard.
1897
Badeni-Crisis: Trigger was a language ordinance for Bohemia and
Moravia (5.4.1897)
1899
New provisions of the statutes of the Austro-Hungarian Bank
January 1st, 1900 Gold Crown becomes legal tender
34
D AS R E G I E R U N G S S Y S T E M Ö S T E R RE I C H -U N G A R N S
THE
G O V E R NM E N T AL SY ST E M O F
A U S T R I A -H U N G A R Y
Österreich – Austria
Ungarn - Hungary
KRONE — CROWN
Krone
ernennt
crown
dominates
GEMEINSAMES MINISTERIUM
COMMON DEPARTMENT
HEER
ARMY
ÄUSSERE
FINAN-
S
ZEN
F
T
Österreichische
Delegation
Austrian Delegation
Ungarische
Delegation
Hungarian Delegation
wählt
Reichsrat
Austrian
parliament
Österr.
Ministerium
Austrian
Government
elects
Ung.
Ministerium
Hung.
Government
Reichstag
Hungarian
parliament
Volk wählt
people elect
wählt
elects
österreichische
Landtage
Austrian provincial diets
35
kroatische
Landesreg
Croatioan
provincial
goverm
Kroatischer
Sabor
Croatian diet
Diagram 2
The Ausgleich of 1867 (background information)
The Hungarians recognized no union between their country and
the other parts of the monarchy except that which was based on
the Pragmatic Sanction. All recent innovations, all attempts
made during the last hundred years to absorb Hungary in a
greater Austria, were revoked. An agreement was made by
which the emperor was to be crowned at Pest and take the ancient oath to the Golden Bull; Hungary (including Transylvania
and Croatia) was to have its own parliament and its own ministry; Magyar was to be the official language; the emperor was to
rule as king; there was to be complete separation of the finances; not even a common nationality was recognized between the Hungarians and the other subjects of the emperor; a
Hungarian was to be a foreigner in Vienna, an Austrian a foreigner in Budapest. A large party wished indeed that nothing
should be left but a purely personal union similar to that between England and Hanover. Deák and the majority agreed,
however, that there should be certain institutions common to
Hungary and the rest of the monarchy; these where - (1) foreign affairs, including the diplomatic and consular service; (2)
the army and navy; (3) the control of the expenses required for
these branches of the public service.
Recognizing in a declaratory act the legal existence of these
common institutions, they also determined the method by
which they should be administered. In doing so they carried out
with great exactitude the principle of dualism, establishing in
form a complete parity between Hungary on one side and the
other territories of the king on the other. They made it a condition that there should be constitutional government in the rest
of the monarchy as well as in Hungary, and a parliament in
which all the other territories should be represented. From both
the Hungarian and the Austrian parliament there was to be
elected a Delegations, consisting of sixty members; to these
Delegation the common ministers were to be responsible, and
to them the estimates for the joint services were to be submitted. The annual meetings were to be held alternately in Vienna
and in Pest. They were very careful that these Delegations
should not overshadow the parliaments by which they were appointed. The Delegations were not to sit together; each was to
meet separately; they were to communicate by writing, every
document being accompanied by a translation in Magyar or
German, as the case might be; only if after three times exchanging notes they failed to agree was there to be a common
session; in that case there would be no discussion, and they
were to vote in silence; a simple majority was sufficient. There
were to be three ministers for common purposes - (1) for foreign affairs; (2) for war, (3) for finance; these ministers were
responsible to the Delegations, but the Delegations were really
given no legislative power. The minister of war controlled the
common army, but even the laws determining the method by
which the army was to be recruited had to be voted separately
in each of the parliaments. The minister of finance had to lay
before them the common budget, but they could not raise
money or vote taxes, after they had passed the budget the
money required had to be provided by the separate parliaments.
Even the determination of the proportion which each half of the
monarchy was to contribute was not left to the Delegations. It
was to be fixed once every ten years by separate committees
chosen for that purpose from the Austrian Reichsrat and the
Hungarian parliament, the so-called Quota-Deputations. In addition to these "common affairs" the Hungarians, indeed, recognized that there were certain other matters which it was desirable should be managed on identical principles in the two
halves of the monarchy - namely, customs and excise currency;
the army and common railways. For these, however, no common institutions were created; they must be arranged by
agreement, the ministers must confer and then introduce identical acts in the Hungarian and the Austrian parliaments.
36
The main principles of this agreement were decided during the
spring of 1867; but during this period the Austrians were not
really consulted at all. The negotiations on behalf of the court
of Vienna were entrusted to Beust, whom the emperor appointed chancellor of the empire and also minister-president of
Austria. He had no previous experience of Austrian affairs, and
was only anxious at once to bring about a settlement which
would enable the empire to take a strong position in international politics. In the summer of 1867, however (the Austrian
Reichsrat having met), the two parliaments each elected a
deputation of fifteen members to arrange the financial settlement. The first matter was the debt, amounting to over 3.000
million florin, in addition to the floating debt, which had been
contracted during recent years. The Hungarians laid down the
principle that they were in no way responsible for debts contracted during a time when they had been deprived of their constitutional liberties, they consented, however, to pay each year
29½ million florin towards the interest. The whole responsibility for the payment of the remainder of the interest, amounting
annually to over a hundred million florin, and the management
of the debt, was left to the Austrians. The Hungarians wished
that a considerable part of it should be repudiated. It was then
agreed that the two states should form a Customs Union for the
next ten years the customs were to be paid to the common exchequer; all sums required in addition to this to meet the expenses were to be provided as to 30 % by Hungary and as to 70
% by Austria. After the financial question had been thus settled, the whole of these arrangements were then, on the 21st
and the 24th of December 1867, enacted by the two parliaments, and the system of dualism was established.
The acts were accepted in Austria out of necessity but no parties were really satisfied. The Germans, who accepted the principle of dualism, were indignant at the financial arrangements
for Hungary, while gaining more than an equal share of power,
paid less than one- third of the common expenses. On the other
hand, according to British ideas of taxable capacity, Hungary
paid, and still pays, more than her share. The Germans, however, could at least hope that in the future the financial arrangements might be revised; the complaints of the Slav races
were political, and within the constitution there was no means
of remedy, for, while the settlement gave to the Hungarians all
that they demanded, it deprived the Bohemians or Galicians of
any hope that they would be able to obtain similar independence. Politically, the principle underlying the agreement was
that the empire should be divided into two portions; in one of
these the Magyars were to rule, in the other the Germans; in either section the Slav races - the Serbs and Croatians, the
Czechs, Poles and Slovenes - were to be placed in a position of
political inferiority.
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