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MORE than five years have elapsed since Mr. Jeremiah Smith of Boston wrote his Twenty-fifth Report which terminated his tenure of office as Commissioner-General of the League of Nations at Budapest. That marked the completion of the League's second experiment with monetary reconstruction. The League initiated its activity in this field in 1922 with the preparation of a plan for the financial reconstruction of Austria. At that time the method was untried. When, eighteen months later, Hungary was subjected to the same experiment, the risks were considerably less. The League had evidence to show that inflation could be stopped abruptly without more serious dislocation than already existed, and that it would be possible to persuade the people to submit themselves to heavy fiscal charges as well as to submit the administration of their government to complete reorganization. The experience derived from the Austrian case was especially helpful in the later problem since the ailments in the case of Hungary were similar to those of Austria, both being largely a result of the same process of deterioration.
The League's plan called for a final settlement of the reparation charges; the stoppage of inflation and the return to the gold standard; the creation of a national bank and the flotation of an international loan; the preparation of a national budget for the next two years, and the appointment of a Commissioner-General to execute and supervise the program; and finally, the creation of a well organized centralized system for the collection of revenues and the distribution of expenditures. The reconstruction period lasted two years and at its completion Mr. Smith's report struck a particularly high note of optimism. League adherents hailed the Hungarian experiment as concrete evidence of the organization's serviceability. Nor was this enthusiasm unfounded. By June 1926 Hungary had a clean slate: a balanced budget and a stable currency. A present survey, needless to say, warrants less optimism. Everywhere in Hungary today an observer encounters popular dissatisfaction, complaint and pessimism. Conditions are especially deplorable among the merchant class and the peasant farming class. Statistical trends are discouraging. The improvement which was in evidence during the reconstruction period and the year immediately following has ceased.
Many are of the opinion that Hungary's present plight is but a logical consequence of the international situation. That view is not a surprising one if we recall that Hungary is essentially an agricultural country, with 55 percent of the population engaged in that field of activity, contributing 47 percent of the national income. But that agriculture does not tell the whole story is revealed if we attempt a little forecasting, if we ask whether Hungary's problem will disappear when once the world agricultural depression has become a thing of the past. To this question the present writer's answer is decidedly in the negative, for reasons which will now be developed.
Hungary's present state of affairs is a result of pre-war evolution. By terms of the Ausgleich (1867), Hungary and Austria formed a customs union. The two were complementary states, Hungary growing agricultural products and exchanging them for Austria's manufactures. Hungary was responsible for 80 percent of Austria's imports, and in turn received a similar part of Austria's exports. Tariff walls were maintained high enough to keep foreign goods out of the Empire. But with the dissolution of the Empire in 1918 the duality was extinguished. Hungary lost her Austrian markets. The situation was rendered more precarious by the Treaty of Trianon, which deprived Hungary of two-thirds of her territory and population. The division was so arranged that Hungary retained most of her agricultural areas but lost her mineral resources -- especially coal, iron and oil -- and her lumber. The Succession States -- Czechoslovakia, Rumania and Jugoslavia -- were of course unwilling to give Hungary more favored terms than they gave other agrarian countries. In fact, because of the tense political situation there were temptations for them to discriminate against Hungary. Witness, for instance, the recent friction with Czechoslovakia over tariff agreements, which to this day remains unsettled. The result is that Hungary is producing, or at least has facilities to produce, as much wheat as she did in the pre-war days while her market is about one-seventh of its former size -- present-day Hungary being one-seventh the size of the old Austro-Hungarian Empire. The situation was well described to the writer recently by a fellow Hungarian, who wrote: "Poor Hungary is experiencing the saddest phase of her economic crisis: she is in the absurd condition of drowning in her own grease." For illustration he enclosed the following newspaper advertisement, indicative of hundreds appearing daily in the local Hungarian journals: "Tomatoes to be had free for the picking on the Szatmary estate near the Sodrony factory." The proprietors invite anyone to pick the produce in order to avoid the expense of having it done themselves, and are even willing to go to the additional expense of paying for advertisements. That is the state of affairs in Hungarian agriculture, and agriculture accounts for the major part of the country's activity. Obviously a depression in agriculture involves the whole country in a depression.
As already implied, Hungary's problem is not a temporary and cyclical one, which after making its periodic appearance is due to make its exit with the upward swing of the agricultural curve. Hungary's problem is further to seek. Much of the country's fertility is devoted to wheat and corn, commodities in the marketing of which she is competing with the United States, Australia, Canada and Soviet Russia. In such competition Hungary must inevitably be the loser. She is fighting a twentieth-century battle with the weapons of the Middle Ages. She lacks modern agricultural machinery, and the lack of capital makes it impossible to remedy the situation. What is more important, all enterprise proceeds on a small scale -- individual farms and estates are small -- and the coöperative idea is contrary to the Hungarian's eastern spirit. The entire country has a population of eight million; consequently its marketing facilities, in comparison with those of its competitors, are somewhat like a country general store in comparison with a nation-wide system of chain stores. Those who are acquainted with the situation cannot avoid concluding that Hungary's wheat and corn enterprise is not promising, and that a remedy must be sought elsewhere. This is in accordance with the writer's view that the amelioration of the world agricultural crisis will not bring in its trail the disappearance of Hungary's difficulty. But the problem is not without solution. Hungary must turn her production facilities in other directions. She must produce goods at a price attractive to other countries. The buyer goes to the man who sells at the lowest prices.
If Hungarian wine is not wanted -- it is at present selling at a few cents the liter -- Hungary will have to learn what every merchant has long learned by experience, that when the inventory contains articles for which there is no demand, these articles must be disposed of very quickly, at a sacrifice if necessary, and replaced with stock that can be sold. The Hungarians must divert their wheat fields and vineyards to vegetable gardens and grazing fields. Hungary is a country with approximately the population of the state of Illinois. She could easily devote herself to a few agricultural specialties which would find a ready market in the neighboring countries. Let her produce vegetables, fruits, poultry, eggs and cattle. These she can produce on equal terms with others. Hungary cannot abandon agriculture, since her natural resources are in that field. Only 6.4 percent of the total area is classified as waste land. She no longer has coal, iron, oil and lumber, which means that she cannot resort extensively to manufacture. Nor does she have water power of any importance.
The solution of the Hungarian problem is not so simple as we are wont to think it. The portion of the Hungarian population engaged in agriculture is predominantly static and unwilling to make a change. To do so would involve abandoning the profession of their grandfathers, abandoning tradition, and abandoning their store of machinery, chaotic as it may be. Tradition is almost as characteristic of the Hungarian as it is of the English. Furthermore, it would involve additional outlay for new tools, machinery and seeds, for which no funds are to be had. Those Hungarians who can analyze the difficulty and know where the solution lies, are the merchants and generally literate people, who are comparatively few in number and have little contact with and influence on the peasant farmer. The writer had a discussion recently with a member of the pre-war landowning class, a member of the Hungarian aristocracy, whose experience may cast some light on the present problem. Before the war he was one of the large landowners in the Empire. Two-thirds of his land was confiscated during the Revolution. Previously he had been devoting all his energies to wheat and wine. Eight years ago he initiated a change by selling the larger part of the land he still possessed, and with the receipts he purchased chickens, cows and machinery. Today he has abandoned wheat entirely and is producing horse-radish, sugar beets, milk and eggs, and is one of few prosperous Hungarians. It is an individual case, and a rare one. If that transformation could be applied to Hungary in general the problem would be solved.
The situation at present is similar to that in 1861. At that time the government believed that the future of the country depended upon the development of modern industry and proceeded to make itself responsible for the process. Consequently laws were passed in 1861, 1890, 1903 and 1907 providing for a variety of tax exemptions, subventions, cash grants, subsidies, bounties, low railway rates, the construction of workmen's dwellings, and, finally, directing that all contracts, in so far as possible, be assigned to citizens of the Empire. One need only compare figures for the 'nineties with those of 1913 to get an idea of how successful was this process of industrialization. Today the same sort of treatment should be applied to special phases of agriculture, the purpose at present being not so much to bring about an increased production as to divert activity into proper channels.
Take the case of the above-mentioned Hungarian wines which cannot be marketed at any price. Many will testify that Hungarian wines are among the best. Why, then, the lack of demand? The answer is readily found. Wines in Hungary are made by the individual owners of the vineyards, whose operations are small and unstandardized. The result is that no two barrels ever taste alike, and the buyer takes "a pig in a poke." Much the same situation exists with regard to Hungarian fruits, which are among the best grown in Europe. Yet Vienna, Berlin, and even Budapest buy fruits from overseas because Hungarian farmers have not acquired skill in packing, have not standardized their products, and have no refrigeration facilities for their shipments. Eggs furnish still another example. When one buys a dozen Hungarian eggs, some of them will be white, others brown, some small and others large, some round and others oblong, and, finally, some fresh and others old.
The possibility for profitable enterprise is not confined to farm products. Tourist trade is a point at hand. Opportunities for the development of the manufacturing industry are also encouraging, although it is at a disadvantage so long as nearly sixty percent of the population, the agriculturalists, have little or no consuming power. There has recently been a decided tendency to concentrate on the manufacture of those products for which the country is really adapted. Hungary has an advantage in cheap labor. This, however, is outweighed by several disadvantages, among them lack of capital, the high tariff walls of her neighbors, and a certain lack of what we colloquially term business sense.
In this situation some responsibility rests with the government, which has several spheres of useful action open to it. It may encourage and in some cases actually bring about the diversion of interests outlined above. It ought to show the way for the multitude to follow. The government possesses large tracts of land which are at present lying idle or operating at a net loss. It may convert these into model vegetable gardens and cattle ranches and invite the farmers to inspect them. It ought to experiment to discover those products for which the fertile Hungarian soil is best adapted, and it should then inaugurate publicity campaigns to spread this information to as large a portion of the populace as possible. It may extend loans, give favorable terms of short-time credit, give bounties, make railway rate discriminations, and even set discriminatory tax reductions, in order to encourage the transformation. The government should coöperate with capitalistic enterprise, Hungarian and foreign, and leave no stone unturned to reach its vital goal: to endow the Hungarian with western ideas, and to rout out his eastern feudalism and his prejudice against what he is accustomed to call "mercenary exploitation."
A development such as is here outlined faces several obstacles. The Hungarians have not resigned themselves to the terms of the Treaty of Trianon. They are hoping for its revision, which would return to Hungary some of its former markets. The sooner they accept the present situation as permanent, the sooner can their economic development be on its way. There are frequent political controversies with the other Succession States -- especially Czechoslovakia and Rumania -- the very countries with which coöperation is important. Consequently the tariff walls of the Succession States are higher than those of others. This opens a new field for activity by the League of Nations, which should try to induce these Danubian countries to attend conferences and make mutual concessions.
To sum up. Those who foresee an improvement in the Hungarian situation when world agricultural conditions improve neglect to consider Hungary's position in the world agricultural sphere. They fail to recognize that Hungary is fighting a losing battle. Hungarian wheat and corn cannot compete with the products of the great agrarian countries on the world markets. Playing a small rôle on a hippodrome stage, she can never advance beyond the status of an "extra-hand." No degree of world agricultural prosperity can alter the situation. Hungary must turn her energies to the specialized production of those commodities in which she has a comparative advantage. A few random possibilities have been pointed out. The transformation can be fostered by government assistance and coöperation. Although at present the government's activity in this field is decidedly retarded by political factors, domestic and foreign, these can be overcome. We shall then be in a position to adopt a more optimistic view regarding the future of Hungary's economic life.