¹ A survey in English of the various positions taken can be found in Hanak, Peter, “Hungary in the Austro-Hungarian Monarchy: Preponderancy or Dependency?,” Austrian History Yearbook, 3 (1967), esp. 260–69CrossRefGoogle Scholar. The Dual Monarchy was inaugurated by the “Compromise of 1867” and continued until the breakup of Austria-Hungary as a result of World War I.

² Ibid., pp. 266–69.

³ While contemporary protagonists in this debate had to content themselves with fragmentary or impressionistic data, there now exist some more comprehensive quantitative studies of industrial growth in Austria and Hungary. For Austria, the principal sources are Gross, Nachum T., “Industrialization in Austria in the Nineteenth Century” (Ph.D. diss., University of California, Berkeley, 1966)Google Scholar and Rudolph, Richard L., Banking and Industrialization in Austria-Hungary (Cambridge, 1976)CrossRefGoogle Scholar. For the period 1865–1911, Gross estimates industrial growth at a rate of 3.46 percent per annum. His estimate of a rate of 3.42 percent per annum for 1880–1911 agrees quite closely with Rudolph's for 1880–1913 of 3.6 percent per annum. László Katus, in his “Economic Growth in Hungary During the Age of Dualism (1867–1913): A Quantitative Analysis,” in Social-Economic Researches on the History of East-Central Europe, ed. E. Pamlényi, “Studia Historica Academiae Scientiarum Hungaricae,” no. 62 (Budapest, 1970), puts Hungarian industrial growth at a 4.2 percent per annum rate from 1867 to 1913, finding a spurt of 6–7 percent growth between 1887 and 1899, after which the rate settled down to 3–4 percent until the war. Katus also tantalizes us with a table (p. 113) in which the growth of gross domestic material product in Austria is shown to have proceeded at a yearly average rate of 2.3 percent from 1860/70 to 1913 (compared to his estimate of 2.4 percent in Hungary). The Austrian estimate is apparently based (according to p. 66n) on the work of Ernst Waizner (“Das Volkseinkommen Alt-Oesterreichs und seine Verteilung auf die Nachfolgestaaten, Metron, 7 [1928], 97–183), yet Waizner has no estimates of income in the 1860s, but only for the years 1911–1913. Since Katus does not present his raw estimates, we cannot compute the growth rates of GDMP or of industrial output over the time period covered by the trade data. Hungarian industry appears to have grown faster than its Austrian counterpart from the 1880s on but, given the relative size of the industrial sectors in the two countries, the absolute gap between them likely was not reduced.

⁴ This tendency is by no means confined strictly to the United States. See Gross, Nachum, “The Triumph of Quantitative Economic History in Budapest,” The Journal of European Economic History, 1 (Spring 1972), 155–61Google Scholar.

⁵ Hanák, “Hungary in the Austro-Hungarian Monarchy,” p. 268, points out that even when statistical arguments are made the different sides produce very different “facts,” even from the same data. He then falls into a data trap himself, using extremely questionable price indices to show the relative trends in agricultural and industrial prices within the Dual Monarchy. The serious deficiencies of these indices are discussed in my “Cui Bono? Magyarország és a monarchia védövámpolitik´ja [Cut bono?; Hungary and protectionism in the Dual Monarchy], Történelmi Szemle [Historical Review], nos. 1–2 (1976), esp. 156–57Google Scholar.

⁸ Eddie, S. M., “The Terms of Trade as a Tax on Agriculture: Hungary's Trade with Austria, 1883–1913,” this Journal, 32 (March 1972), 298–315Google Scholar.

⁷ See Offergeld, Wilhelm, Grundlagen und Ursachen der industriellen Entwicklung Ungarns (Probleme der Weltwirtshaft, vol. 17; Jena, 1914), esp. pp. 178–92Google Scholar. See also the discussion in part I below.

⁸ Gross, Nachum T., “The Industrial Revolution in the Habsburg Monarchy, 1750–1914,” in The Fontana Economic History of Europe, ed. Carlo M. Cipolla, vol. 4, pt. 1 (1973), pp. 240–41Google Scholar. Some quantitative evidence of early specialization has been recently provided by John Komlos, who shows that the nearly constant per capita cereal grain production in the Austro-Hungarian monarchy in the century before about 1870 is the result of a positive rate of growth in cereal output per capita in Hungary and a negative rate of growth in Austria. This difference becomes quite pronounced after the beginnings of industrialization in Austria in the 1820s. See John Komlos, “Agricultural Growth in Hungary During the- Nineteenth Century,” paper presented to the Conference on the Peasantry of Eastern Europe, Lincoln, Nebr., 18 Nov. 1976, pp. 5–6.

⁹ Berend, Iván T. and Szuhay, Miklós, A tökés gazdaság története Magyarorszàgon, 1848–1944 [History of the capitalist economy in Hungary, 1848–1944], (2nd ed.; Budapest, 1975), p. 86Google Scholar.

¹⁰ Fink, Krisztina Maria, Die oesterreichisch-ungarische Monarchic als Wirtschaftsgemeinsclwfte, Sudosteuropa-Schriften, vol. 9 (Munich, 1968), p. 19Google Scholar.

¹¹ Láng, Ludwig, Hundert Jahre Zollpolitik (Vienna and Leipzig, 1906), p. 184Google Scholar.

¹² Matis, Herbert, Oeslerreichs Wirtschaft, 1848–1913 (Berlin, 1972), p. 27Google Scholar.

¹³ Gross, “Habsburg Monarchy,” p. 254. In his essay “Die Stellung der Habsburger Monarchie in der Weltwirtschaft” in Die Habsburgermonarchie, 1848–1918, ed. Wandruschka, Adam and Urbanitsch, Peter, vol. 1 (Vienna, 1973)Google Scholar, Gross sees in this period “more progress in the direction of liberalism in the area of economics (including foreign trade) than under any other system before or since” (p. 11; my translation).

¹⁴ Matlekovits, Sándor, Magyarország közgazdasági és közmüvelödési állapota ezeréves fennállásakor [Hungary's economic and educational situation at the millenium of her existence], pt. 2 (Budapest, 1898), p. 600Google Scholar.

¹⁵ Herbert Matis, “Leitlinien der oesterreichischen Wirtschaftspolitik,” in Wandruschka and Urbanitsch, Habsburgermonarchie, p. 40. Helleiner, Karl, in his Free Trade and Frustration (Toronto, 1973)Google Scholar, describes in the first three chapters how partial and grudging the movement toward free trade really was. The period is perhaps better described as one with an “aspiration” toward free trade. See Matjekovits, Sandor, Vám és hereskedelmi politika [Tariff and trade policy], (Budapest, 1914), p. 5Google Scholar.

¹⁶ Grátz, Gusztav, A dualizmus kora [The era of dualism], vol. 1 (Budapest, 1934), p. 267Google Scholar.

¹⁷ Láng, Zollpolitik, p. 204.

¹⁸ Matis, “Leitlinien,” p. 51. See also Bernát, Gyula, Az új Magyarország agrárpolitikája, 1867–1914 [Agrarian policy of the new Hungary, 1867–1914], (Budapest, 1938), p. 175Google Scholar.

¹⁹ As in Germany, the “abandonment of the opposition of the landed interests” to high tariffs was a crucial factor in the success of protectionism. C. P. Kindleberger, “The Rise of Free Trade in Western Europe, 1820–1875,” this Journal, 35 (March 1975), 46.

²⁰ Milhoffer, Sándor, Magyarország közgazdasága [The economy of Hungary], vol. 2 (Budapest, 1904), p. 315Google Scholar.

²¹ Matlekovits, Sándor, A vámpolitika mai helyzete [The situation of tariff policy today], “Közgazdasági Füzetek” [Economic notebooks], vol. 1, no. 1 (Budapest, Politzer, 1905), pp. 8–15Google Scholar.

²² Komlos, “Agricultural Growth,” p. 8.

²³ Ferdinand Tremel, “Der Binnenhandel und seine Organisation: Der Fremdenverkehr,” in Wandruschka and Urbanitsch, Habsburgermonarchie, p. 386.

²⁴ A double check against Austrian data has not been made, both because of cost and, in any case, because Austria started to collect data on its trade with Hungary only in 1900. Fink, Wirtschaftsgemeinschaft, p. 54.

²⁵ This rate is derived from a base-weighted (Laspeyres) index using 1913 as the base year. A current-weighted (Paasche) index produces a growth rate over the same period of nearly 3.3 percent per annum. The rather dramatic change in composition of the export bundle implied by the differences in the two indices is one of the principal foci of the discussion of Part III of this paper.

²⁶ Katus, “Economic Growth,” p. 112, table 48. Katus identifies the period 1887–1899 as a “great spurt” in Hungarian industrial growth (6–7 percent annual growth rate), and implies that the period 1887–1913 showed faster growth in GDMP than the average for 1867–1913. Unfortunately it is impossible to derive from the data presented in his paper any other subperiod growth rates.

²⁷ The word “competition” must be understood in a relative sense, given the rising tariff walls around the Dual Monarchy and around other countries, as well as the growth and effectiveness of cartelization both within the Monarchy and internationally.

²⁸ Average for 1911–1913. Katus, “Economic Growth,” p. 62. No estimate for the shares in the 1880s is available.

²⁹ Fellner, Frigyes, A nemzetközi fizetési mérleg és alakulása Magyarországon [The international balance of payments and its trend in Hungary], “Magyar Közgazdasági Könyvtár” [Hungarian economics library], vol. 5 (Budapest, 1908)Google Scholar.

³⁰ Fellner, Balance of Payments, pp. 169–71.

³¹ Katus, “Economic Growth,” p. 81.

³² Eckstein, Alexander, “National Income and Capital Formation in Hungary, 1900–1950,” in International Association for Research in Income and Wealth, Income and Wealth, Series 5 (London, 1955), p. 175Google Scholar.

³³ László Katus, “Magyarország gazdasági fejlödese, 1890–1914” [Hungary's economic development, 1890–1914], forthcoming in Magyar Tudomänyos Akadémia [Hungarian Academy of Sciences], Magyarbrszág története [History of Hungary], vol. 7, MS p. 120.

³⁴ Katus, “Economic Growth,” p. 78.

³⁵ Without having to resort to the citation of extreme positions, we may contrast Herbert Matis' assessment that state policy was primarily responsible for the rapid growth of Hungarian industry, especially 1898–1913 (“Leitlinien,” p. 45), to József Szterényi's that the 1881, 1890, and 1899 laws really did not serve more rapid industrial development because (a) they were restricted to offering help to enumerated industries only, and (b) they failed to protect existing industry because they did not assist in its expansion. Kereskedelemügyi Ministerium [Ministry of Commerce], Emlékirata hazai kis- és gyáripar fejlesztéséröl [Memoir on the promotion of domestic small and factory industry], intro. József Szteréngi (Budapest, 1909), pp. 21–22.

³⁶ Berend and Szuhay, Capitalist Economy, p. 96. Their own figures show a steadily decreasing proportion of foreign capital in total investment in Hungary, from an estimated 60 percent in 1867–73 to about 40 percent in the 1873–1900 period and to approximately 25 percent between 1900 and 1913. Ibid., p. 37.

³⁷ Akos Paulinyi, “Die sogenannte gemeinsame Wirtschaftspolitik Oesterreich-Ungarns,” in Wandruschka and Urbanitsch, Habsburgermonarchie, p. 594.

³⁸ Originally set at 100 kg. of duty-free wheat for every 70 kg. of flour exported, the benefit was reduced in 1896 by requiring 100 kg. of flour exports per 100 kg. of wheat imports, and finally eliminated altogether in 1900 at the insistence of Hungarian landowners and Austrian millers. Berend, Iván T. and Ránki, György, Magyarország gyáripara az imperializmus elsb világháború elötti idöszakában, 1900–1914 [Hungary's factory industry in the period of imperialism before the First World War, 1900–1914], (Budapest, 1955), pp. 250–51Google Scholar.

³⁹ Those products that received direct export premia were overwhelmingly Austrian export commodities (sugar, beer, spirits). In addition, the domestic consumption tax on quantities of these goods exported was rebated, but out of tariff revenue (rebates were so large in 1881 that net tarift revenue was negative). Since tariff revenue was applied toward the common expenses of the monarchy, and any shortfall of this revenue was made up according to the agreed quota for common expenses (never less than 30 percent for Hungary), in effect Hungary paid 30 percent of the rebates but produced far less than 30 percent of the exports of these goods. This point of contention between the two partners led to changes in 1878 (rebates shared as each partner's share in gross revenue of the excise tax) and in 1899, when finally each partner gave the rebate directly for exports from its own territory. Paulinyi, “Gemeinsame Wirtschaftspolitik,” pp. 594–95.

⁴⁰ Eddie, “Cui Bono?” p. 162. See also part III of this paper.

⁴¹ “One viewed this difficult problem only from the standpoint whether the agreement brought more gain or more loss to the Austrian or to the Hungarian half of the Empire. On account of this narrow theme the overall economic situation was nearly always overlooked.” Brusatti, Alois, “Die wirtschaftlichen Folgen des Ausgleichs von 1867,” Oesterreich in Geschichte und Literatur, vol. 11 (1967), p. 309 (my translation)Google Scholar.

⁴² In all cases Hungarian quantity weights have been used in computing the various price indices Inherent in the use of British prices to represent free-market prices is a number of very sejious conceptual and methodological problems; for a discussion of these problems, see Eddie, “Terms,” app. B, pp. 314–15. British unit values were taken from the annual volumes of the Statistical Abstract for the United Kingdom and converted to Austro-Hungarian crowns at the market rate of exchange reported in the Economist for the business day closest to July 1 for each given year. English-metric equivalents used in converting the quantity data were, insofar as possible, those published in the Annual Statement of the Trade of the United Kingdom, 1935, vol. 1 (London, 1937)Google Scholar. Standard equivalence tables and UN and FAO weight equivalents for commodities in international trade provided those few conversion factors unavailable in the cited volume.

⁴³ For example, consider a country with one import and one export good. Suppose that the world market price of the import good is 2 and that of the export good 1 in the initial period, while inside the country these goods sell for 3 and 1, respectively, because of a 50 percent ad valorem tariff on the import good. As time passes and prices rise, we find in a later year that the price of the import good has tripled, that of the export good has doubled, and the tariff has remained at 50 percent ad valorem. Whether measured in domestic or world prices, the country's terms of trade have deteriorated to 66–2/3, if the initial year price ratios are set equal to 100, yet the ratios themselves are different: in world terms, 1/2 in the initial year and 2/6 in the final year, whereas the domestic price ratios.are 1/3 and 2/9, respectively.

⁴⁴ United Kingdom, Germany, France, Italy, Netherlands, Belgium, Sweden, and Switzerland. Definition taken from Kindleberger, Charles P., The Terms of Trade: A European Case Study (New York, 1958), p. 11Google Scholar. Of course, an index using “domestic quantity weights and “world” prices is a doubly artificial concept. Not only was it not possible to trade at world prices but, had it been possible, the commodity structure of trade, and hence the quantity weights, would have been different from that which actually occurred in response to the structure of prices in the Dual Monarchy. Conceptually, at least, the adjustment to the quantity weights could have been made by estimating demand and supply elasticities for each product, and then computing what would have been the commodity weights if shadow prices prevailed. Such a procedure was beyond the scope of this paper.

⁴⁵ This idea was set forth in Eddie, “Terms,” p. 310, and is developed more fully in Eddie, “Cui Bono?” pp. 162–64. For the purposes of the present paper a calculation of net barter terms of trade in “domestic” prices, using “world” prices as the base (1913 = 100), produces the following result:

⁴⁶ During the years 1882–86, major grains and flour together accounted for nearly identical shares—32.9 percent and 33.0 percent, respectively—of exports to Austria and to the rest of the world. By 1909–13 their share had grown to 37.0 percent of exports to Austria, but had fallen to 7.1 percent of exports to the outside world. Part of the diversion was, of course, the result of increased tariffs elsewhere in Europe, most particularly in Germany.

⁴⁷ That the 1909–13 average stands considerably in excess of 100 for non-Austrian trade is also a direct result of the trade diversion. Exports outside the monarchy became increasingly concentrated in the highest quality grades (high-gluten wheat, superfine cake flour, etc.) which commanded premium prices and could, at least to a certain extent, still leap other countries' tariff walls. The greater weight on these premium prices in the non-Austrian trade thus pushes up the average “domestic” unit value of exports, compared to the “world” price which represents an average grade of goods.

⁴⁸ These major changes in the level and structure of Hungarian sugar exports cannot be explained by either a new treaty with the British Empire (the 1876 treaty remained in effect) or by the opening of a route to the sea (the Fiume railroad had long since been in operation). It appears rather that the growth in the level of exports was a result of a great worldwide expansion in the sugar trade, along with the assertion of Hungarian comparative advantage following (a) a change in the system of internal excise taxation of sugar in the monarchy in 1880, and (b) the Brussels Convention of 1902 which forbade the direct and hidden export premia by means of which many producers had forced exports. These changes also affected the structure of exports, as did the formation of the first really effective Austro-Hungarian sugar cartel in 1896, which included both refiners and producers of raw sugar in a market-sharing agreement. (Later this agreement was used to avoid paying the surtax-really an internal tariff-charged on sugar exports in excess of the 1905–1907 average from one partner in the customs union to the other.) Some cartel members, under the aegis of two major banks, formed a further syndicate to handle the export trade to Japan, with which a new trade treaty had been signed in December 1897. See Baumgarten, Nándor and Meszlény, Arthur, Kartellek és trustök [Cartels and trusts], (Budapest, 1906). p. 113Google Scholar; Kaufmann, Wilhelm, Welt-Zuckerindustrie (Berlin, 1904), pp. 98–102, 109–13Google Scholar; Sándor, Vilmos, Nagyipari fejlödés Magijarországon, 1867–1900 [Development of large industry in Hungary, 1867–1900], (Budapest, 1954), pp. 450–56Google Scholar; also Láng, Zollpolitik, pp. 123–27, 463, 603–05; and Paulinyi, “Gemeinsame Wirtschaftspolitik,” pp. 596–97.

⁴⁹ The principal imports in this category were rice from India; wheat and other grains from the Balkans for milling and livestock feed; and livestock for fattening, mainly from Serbia. It is probable, since Hungary is traversed by the Danube, that some of these imports—as, indeed, imports and exports in every category—represented through traffic. Since there are no data on reexports, the only goods that can be positively identified as reexports are those, such as tropical fruit, which Hungary did not produce at all.

⁵⁰ At about the same time cattle and pig imports from Serbia were cut off, the export of cattle to Germany dwindled somewhat; but exports to Italy and later to Austria expanded, so that total export of cattle recovered its 1905 level in 1908. Pig exports to Germany, Hungary's main customer after Austria, had disappeared within three years after 1894, but this was a supply phenomenon: an epidemic of hog cholera, beginning in 1895, killed over 1 1/3 million pigs in the next three years in Hungary. See von Matlekovits, Alexander, Das Königreich Ungarn, vol. 1 (Leipzig, 1900), pp. 362–63Google Scholar. Thus it is difficult to see on the export side any solid evidence for reexports, although neither cattle nor pig imports recovered their previous level after the dispute with Serbia began. In the absence of more detailed information, the ambiguity must unfortunately remain.

⁵¹ Gerschenkron, Alexander, Bread and Democracy in Germany (Berkeley, 1943), esp. ch. 1Google Scholar.

⁵² Eckstein, “National Income,” p. 175. The “administrative protection” included such benefits as tax holidays, preferential railroad rates, state purchases, and interest guarantees for railroads and industrial enterprises, as well as direct state entrepreneurship, cash subsidies, and even government purchases of some of the shares of stock of new industrial enterprises.

⁵³ The system was changed and significantly more money allocated to industrial promotion after 1899, which then stands as the turning point after which a genuine factory industry promotion program began. (Under the 1881 law, for example, of the 280 enterprises receiving benefits, 227 were agricultural distilleries.) Offergeld, Grundlagen und Ursachen, p. 241; József Szterényi, “A magyar iparfejlesztés 25. esztendéje” [The twenty-fifth year of Hungarian industrial promotion], in A Magyar Gyáriparosok Országos Szövetsége XXV. évi jelentése az 1927. éevi rendes közgyüléshez [Twenty-fifth annual report of the Hungarian National Association of Manufacturers to the 1927 annual general meeting], (Budapest, 1927), p. 45Google Scholar. It should perhaps be noted, to keep the program in perspective, that the total amount of direct expenditure on industrial promotion in Hungary during the entire 1867–1913 period was less than $16 million (calculated from data appearing in Katus, “Economic Growth,” p. 78).

⁵⁴ Manufactured goods imports grew at 3.80 percent and 2.93 percent per annum in the two successive periods, while total imports grew at 4.60 percent and 2.82 percent, for ratios of 0.83 and 1.04 respectively. Exports of manufactured goods grew at a 5.25 percent annual rate, 1887–1899, and at 2.90 percent, 1899–1912. Dividing these by the overall export growth rates of 3.13 percent and 1.93 percent results in ratios of 1.68 and 1.50 respectively.

⁵⁵ The numbers for Austrian trade are (in each case the period 1887–1899 followed by 1899–1912): (1) manufactured imports, 3.61 percent and 2.41 percent; all imports, 3.80 percent and 2.59 percent; ratios, 0.95 and 0.93; (2) manufactured exports, 5.38 percent and 2.55 percent; all exports, 3.16 percent and 2.05 percent; ratios, 1.70 and 1.24.

⁵⁶ Zelovich, Kornél, “A magyar vasutak története,” [History of the Hungarian railways], in A magyar közlekedésügy monográfiája [Monograph of Hungarian public transport], (Budapest, 1925), pp. 43, 53Google Scholar.

⁵⁷ Deutsch, Anton, 25 Jahre ungarischer Finanz-und Volkswirtschaft (1867–1892) (Berlin, 1892), p. 70Google Scholar.

⁵⁸ Europe's share of world trade declined from 68 percent in 1870 to 57 percent in 1913, while Austria-Hungary's share in total European exports dropped from 7 percent in 1880 to less than 6 percent by 1910; Bairoch, Paul, “European Foreign Trade in the XIX Century: The Development of the Value and Volume of Exports (Preliminary Results),” Journal of European Economic History, 2 (Spring 1973), 13–14Google Scholar.

⁵⁹ Since Austria only collected data on its trade with Hungary from 1900 (see n. 26), we must rely on the indirect evidence that Hungary's share of the monarchy's total imports rose, while the share of Hungary's exports purchased by Austria remained nearly constant.

⁶⁰ Fink, Wirtschaftsgemeinschaft, p. 66 (my translation).

⁶¹ Ibid., p. 59.

⁶² Paulinyi, “Gemeinsame Wirtschaftspolitik,” p. 593.