'We'll give up our blood but not our gold': money, debt, and the balance of payments in Poland's Great Depression
The Great Depression was the pre-eminent macroeconomic event of the 20th Century, yet our understanding of it remains highly uneven. Very little has been written since the advent of modern quantitative research methods about the Depression in Eastern Europe. The case of Poland presents a particular puzzle for the literature, which since the mid-1980s has stressed the international gold standard as the main channel through which the Depression was propagated internationally. Seen from one
... tive, Poland fits this 'Golden Fetters' thesis neatly: it was one of the last countries to abandon the gold standard, remaining in the "Gold Bloc" through April 1936, and suffered correspondingly, with a 25% fall in real GDP during the crisis. The puzzle, rather, is how Poland, a heavily indebted, poor, largely agrarian economy was able to maintain its commitment to gold for seven years—and, given the economic cost of doing so, why it was willing to. This dissertation examines Poland's long tenure on gold from three angles: the genesis of the Polish Złoty in the hyperinflation of the 1920s; a comparative study of Polish, German, Austrian and Hungarian sovereign bond yields during the Depression to establish why the latter three countries defaulted and Poland did not; and, finally, a detailed examination of the balance sheets and internal documents of the Bank of Poland to uncover how it managed to defend the Złoty's gold parity through 1936. I find that the common thread running through Poland's monetary history throughout the interwar period is geopolitical: the monetary policy followed the needs of national security, particularly the shifting alliance with France, at once Poland's closest strategic partner and the leading gold-standard economy. The failure of this alliance to prevent Hitler's remilitarisation of the Rhineland provided the direct impetus for Poland's decision to shed its 'golden fetters'.