von Thadden, Goetz Henning
(1995)
Inflation in the reconstruction of Poland 1918-1927.
PhD thesis, London School of Economics and Political Science.
Abstract
The thesis is concerned with the dynamics of inflation and their effect on production, using the example of the Polish reconstruction process after World War I. In 1918, Poland had to be re-established as a state after 123 years of foreign rule as well as reconstructed due to severe destruction experienced during the war. Nevertheless, the reconstruction process was extremely rapid, and the thesis argues that it was inflation which provided the means to build up the state. Inflation redistributed wealth within the society and imposed a high savings quota on the economy. The printing press inflation carried the economy through to hyperinflation. The positive effects of the process already explain in part why inflation could last so long and why the economy went all the way through to hyperinflation. The thesis then argues that stabilisation was a political problem and was only achieved once the inflationary process ceased to create winners and losers. The positive business climate began to deteriorate when traders no longer used past inflation as an indicator for price setting, but instead used changes in the exchange rate. However, inflation reappeared shortly after fiscal reform, due to the inevitable credit requirements of Polish industry. Inflation had eroded savings and distorted the economy: this was the major short-coming of this peculiar way of mobilising the country's resources. Consequently, a credit inflation emerged still in 1924 as industry tried to adjust to market requirements in the post-inflationary crisis. Stabilisation was only finally achieved when the economy moved out of recession in 1926. Lastly, the thesis sheds new light on the generalisation about the European inflationary experiences of the 1920s. It introduces a distinction between exogenously and endogenously imposed inflation, which suggests a more specific definition of the transition into hyperinflation as well as of the exact requirements for stabilisation. It also reduces these exceptional economic occurrences to reparations, on the one hand, and reconstruction, on the other.
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