Katus László: Hungary in the Dual Monarchy 1867 - 1914 - East European Monographs 738. Atlantic Studies on Society Change 132. (New York, 2008)

8. The Hungarian Economy in the Era of Dualism - Capital Accumulation and Employment

László Katus 202 Monarchy did not fail to respond: the tariff of 1906 raised industrial customs duties as well as tariffs on agricultural goods. For a quintal of wheat, the import levy was 1.19 crowns in 1882, 3.57 crowns in 1887, and 6.30 crowns in 1906. The effect of the 1906 tariffs on price is shown by the increase in the average annual price of wheat between 1902-1906 and 1907-1911: the increase was 42 percent in Budapest and 39 percent in Vienna, but just 14 percent in London. Between the two periods, the price of flour rose in Budapest by 35 percent. The customs tariff of 1906 had a contradictory effect on Hungary’s economic development. For agriculture and the milling industry, it ensured a market of 50 million consumers within the Monarchy. Agricultural production grew, but so did sales. The milling industry attained a satisfactory capacity utilization rate. But the price of grain, flour and other foodstuffs rose more steeply than anywhere else in Europe. Capital Accumulation and Employment At the time of the Austro-Hungarian Compromise of 1867, the main obstacle to rapid and balanced economic growth was the inadequacy of domestic production factors. The lack of capital and experts became almost a cliche among contemporary Hungarian economic experts. The mechanization of agriculture, the development of a modern infrastructure, and the establishment of modern large­­scale industry necessitated significant investments with slow rates of return. As a rather underdeveloped country, Hungary was in no position to realize such investments using domestic savings alone. For this reason—and similarly to other backward countries in Europe—Hungary was compelled to use foreign capital to develop the economy. All economic experts agreed with this strategy: “The nation is unable, by itself, to establish the major institutions that are necessary in all areas of the economy; all our railways and all our major banks are owned by foreign capitalists, and it is natural, furthermore, that the leading industrial companies have been established by foreigners.”15

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