Short Waves in Hungary, 1923 and 1946: Persistence, Chaos, and (Lack of) Control

Abstract

Monetary policies follow a complex and chaotic process, one that is enhanced when monetary growth is taken to the extreme, as in hyperinflation. While we have a basic understanding of the complex dynamics of hyperinflation, a less-explored phenomenon accompanying hyperinflationary episodes is the effect that they have on institutional development. Building on recent advances in economic history examining monetary policy and institutions, this analysis uses more explicit recourse to complexity theory and in particular complex adaptive systems to examine two separate hyperinflationary episodes in Hungary, 1923 and1946. Delving into the institutional and cultural roots of the inflationary policies of the Hungarian government and detailing the institutional effects which succeeded hyperinflation, this paper shows that the twin experiences of Hungary were both chaotic and created a chaotic and complex aftermath, the results of which are still being felt. Indeed, Hungary's 1923 and especially its 1946 hyperinflation shows that some economic chaos cannot be restrained by political institutions and in fact the institutions themselves were changed. When staring into the abyss, Hungary also found that the abyss stared back.

Complexity, Uncertainty, and Monetary Policy: Can the ECB Avoid the Unconventional Becoming the ‘New Normal’?

“…Finally, assuming that the ECB is able to overcome the hurdles of institutional constraints, endogeneity of expectations, and the inherent complexity of money by utilising ever more unconventional instruments, there are additional effects to consider which have only begun to be explored in economic research (Hartwell 2019). The experience of the past ten years has shown that unconventional monetary policy has taken a circuitous route towards economic recovery while not addressing the underlying causes of the euro area crisis, which are themselves institutional.…”

“…More importantly from a complexity economics standpoint, the medium-term effects of the ECB's actions cannot be foreseen. In examples from history, such as Poland and Germany, the weakening of internal institutions effected by monetary policy led to external conflict and destruction; in other cases, such as Hungary's hyperinflation of 1946, monetary instability led not only to takeover by an external aggressor, but also development of political institutions based on a more populist worldview (Hartwell 2019). The worry is that additional monetary interventions by the ECB would change the path of the euro area's institutional development in negative ways which cannot be predicted.…”

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“…An educational policy indeed can influence a shift in institutional path -from a stagnation to growth an such a change is manifested by policy decisions that influence individuals' choice. Recent research has shown that economic policies contribute directly to a shift in institutional paths (Hartwell, 2019).…”