This chapter documents the restrictive conditions under which rightwing, neoliberal populism managed to destroy democracy in Latin America. Only Alberto Fujimori in Peru (1990–2000) and Nayib Bukele in El Salvador (2019-present) have accomplished this feat because they benefited from institutional weaknesses of their countries’ presidential systems and, at the same time, managed to resolve two acute, severe crises, in the economy as well as in public security; this “miraculous” success earned them overwhelming political support, which they leveraged for dismantling the remaining checks and balances. Whereas Fujimori ended hyperinflation and defeated a countrywide guerrilla insurgency, presidents who resolved only one such crisis; who failed to overcome such a challenge; or who did not face a crisis at all, did not manage to still their power hunger and asphyxiate democracy. And whereas Bukele successfully contained the fallout of the COVID-19 pandemic and greatly lowered rampant gang violence, Brazil’s Jair Bolsonaro (2019–2022), who did not face such challenges, was unable to boost his mass support and therefore lost his reelection bid.

This chapter asks how a new generation of central banks in the interwar period changed their function, away from state financing and financial stability provision, and toward stabilizing prices and avoiding fiscal and financial dominance. The new concept of a central bank as an institutional constraint, imposed from the outside, and movement from a “can do” to a “can’t do” institution, ultimately ended in failure. It made for bad policy and poor outcomes, specifically contributing failure to stem contagion in the 1931 financial crisis. After 1945 a new reinvention of central banking involved the elaboration of a social consensus that bought back ele-ments of the “can do” environment.

Like other developing countries, Poland based its interwar monetary policy on the gold exchange standard. Following a bout of hyperinflation , Władysław Grabski’s 1924 reform led to the establishment of the Bank of Poland. Early efforts to return to the gold standard, however, were not entirely successful. In 1925, an economic crisis weakened the zloty dramatically, before futher monterary reforms were introduced in 1927. Post-war monetary instability made Poland reluctant to abandon the gold standard after 1929 and foreign exchange controls were first introduced as late as 1936. The central banks reluctance to abandon the gold standard contributed to the depth and persistence of the Great Depression in Poland. The chapter thus reveals the challenges faced by a newly-formed country lacking adequate reserves and a financial track record to stabilise its currency; it also points to the path dependent nature of interwar monetary policy: the hyperinflation of 1919-23 and the crisis of 1925 created the belief that any easing of monetary policy would trigger an inflationary spiral. When the Great Depression struck, exchange rate stability trumped all other macroeconomic and financial policy objectives.

The Bank of England and its governor, Montagu Norman, who had a decisive influence on monetary reconstruction after the First World War considered the new Austrian central bank too accommodating of Viennese banks, which clung to a prewar business strategy no longer appropriate to the economic environment. The fraught relationship between the Bank of England and the Austrian National Bank limited Austrian access to the London capital market. Thus, much-needed long-term capital for restructuring and modernizing of the Austrian economy was not available in the quantities needed, only short-term deposits that were not rolled-over after the outbreak of the financial crisis in 1931. Austrian National Bank President Reisch was replaced in 1932 by Viktor Kienböck, a former minister of finance who then masterminded Austrian economic policy until the German invasion in 1938. In accordance with the League of Nations, which guaranteed a second international bond of Austria in 1932, Kienböck adhered to the orthodox economic policy paradigm, rigorously defending the currency in the face of growing overvaluation. As a result, Austria’s economy shrank, and by 1937 its GDP stood 14% below its level of 1929.

The four years after World War I proved disastrous to the grand hotels of Berlin. There were threats from the left in the form of revolution, the January Uprising, and strikes, and there were threats from the right in the form of vandalism, looting, atrocity, and an unsuccessful coup d’état. Then there were the threats that originated neither on the right nor on the left: material and labor shortages, high crime, inflation, hyperinflation, and rising taxes. Between 1918 and 1923, hoteliers began blaming the left and the state for all these misfortunes – a tendency that pushed them into the camp of the anti-republican right, Weimar’s enemies. With the hyperinflation of 1923, an unmitigated disaster for Berlin’s grand hotels, that tendency became the rule. The republic, Berlin’s grand hoteliers had come to believe, was bad for business. Their efforts to manage the crisis of the postwar era, 1918–23, reveal the links between quotidian struggles and political decisions – decisions against the republic in favor of more authoritarian solutions to Germany’s problems.

This book on Berlin’s grand hotels is a cultural and business history of the fate of liberalism in Germany. Board members of the corporations that owned the grand hotels, as well as hotel managers and hotel experts, through their daily efforts to keep the industry afloat amid the vicissitudes of modern German history, ultimately abandoned liberalism and acquiesced to Nazi rule. Their correspondence among each other and with staff, the authorities, and the public, reveal how and why this multi-generational group of German businessmen, many of them involved in heavy industry and finance, too, embraced and then rejected liberal politics and culture in Germany. Weaknesses in the business model, present since the 1870s, had converged with a tendency toward anti-republicanism after the hyperinflation of 1923, resulting in the belief among most hoteliers that democracy was bad for business.

Populism is unlikely to be effective where the masses are already incorporated into well-established programmatic parties. However, this chapter shows that deep socioeconomic crises can disrupt those political linkages, providing an opening for populism. The sudden rise of Hitler’s Nazi Party in the early 1930s provides the main narrative for this chapter. Long frustrated in both his armed and electoral attempts to gain power, the fallout of the Great Depression in 1929 and Germany’s own banking crisis of 1931 shocked many Germans, especially on the right, out of their existing political affiliations. Hitler, the master demagogue, was ready to take advantage through a sophisticated propaganda machine. In most other cases across interwar Europe, the populist strategy was ineffective. Less severe crises left most the populace embedded in their existing ties to bureaucratic and patronage-based parties.

This chapter looks at the two men, T. V. Soong and H. H. Kung, who dominated financial positions from 1928 until the collapse of the Nationalist regime on the mainland. Both had personal ties to Chiang through his wife Madame Chiang Kai-shek (Song Mei-ling). A bitter rivalry developed between them that impacted the entire coterie of financial and banking officials. On a related issue, it examines the prevalence of American education among financial officials and its impact on ties to America, particularly in the Soong family. This chapter uses the papers of Lauchlin Currie, a key aide to Roosevelt, who made several trips to China on his behalf. The chapter closes with an examination of the way in which the two men have been portrayed in writings about the Chiang Kai-shek era, suggesting some reevaluation is needed.

This chapter examines the scandal associated with the American Dollar Bond issue and the resignation of H. H. Kung

In the last days of fabi, T. V. Soong heads south to become provincial governor of Guangdong province. On the introduction of the gold yuan currency in August 1948, Chiang Kai-shek turns to his son Jiang Jingguo (Chiang Ching-kuo) who begins a reign of terror in Shanghai. He alienates major capitalists and bankers and tackles David Kung, Madame Chiang’s favorite nephew, creating a family crisis.

Jiang Jingguo cannot hold the line on commodity prices in Shanghai. Controls are abandoned at the start of November, and hyperinflation explodes. The communist military victories exacerbate the situation. Capitalists begin fleeing China for Hong Kong, America, and elsewhere.

Why did the Nanjing government wait so long to introduce the new currency? Chiang’s focus on military issues had led him to ignore the issue until it was too late. Chiang resigns and T. V. Soong heads to America. Afterward – a bitter exile for the Soongs and Kungs.

This chapter examines the impact of the sudden end of the war, which caught the Chiang Kai-shek government off guard. The Allies had planned an amphibious landing on the coast of China, which would have given Chongqing time to regain control of the east coast and reduce inflation. After Japanese surrender, inflation briefly halted but then rather quickly resumed. Why was there no peace dividend?

Botched liberation: The retaking of occupied areas was done poorly, alienating many of the residents who had endured years under Japanese control. Topics covered include fleecing collaborators and undervaluing the currency of the Wang Jingwei government. There were problems maintaining the exchange rate of fabi with foreign currencies. Shipping and transportation problems were serious and inhibited economic recovery. UNRRA had problems getting aid to China.

The year begins with emergency control policies designed to curb accelerating inflation. The government halts sale of gold. Political attacks on T. V. Soong become strong, especially in the Legislative Yuan. Soong resigned as head of the Executive Yuan in March 1947. Most of the reform policies adopted earlier in the year are then abandoned.

Political attacks on “bureaucratic capitalism” follow, with foreign businessmen joining the attack, as well as criticism of the “holy family” enterprises, those connected to the Soong and Kung families. Attacks on both accuse them of corruption, charges they try to refute.

Getting Chiang Kai-shek’s attention is a problem. Little can be done without an endorsement by Chiang. But he has little knowledge or interest in financial issues. His focus is on military matters. Foreign exchange woes worsen.

Chapter 6: 1948: The Collapse of Fabi and the Gold Yuan Disaster

Keywords: fabi, gold yuan, collapse of fabi, hyperinflation, Guangdong, Jiang Jingguo, reign of terror, collapse of the gold yuan, Soongs in exile

Chapter 4. In a fiat standard, the money is not useful for any non-monetary purpose, or redeemable for any commodity with a non-monetary use. Fiat monies historically emerged not from market forces but from default on gold-redeemable central-bank or Treasury liabilities. The quantity and purchasing power of fiat money obeys the logic of supply and demand in the special form of the Quantity Theory of Money. Central banks control the growth rate of the quantity of money and thereby the rate of inflation. In principle fiat standards could produce lower inflation, but in practice have produced higher inflation than silver or gold standards. Higher inflation imposes real burdens on the public. These burdens, especially when we include the expenditure of labor and capital to produce hedges against inflation, has exceeded the resource burden of a gold standard.

Chapter 3 addresses one of the most fundamental issues in war: how to pay for it. In Southeast Asia, the main Japanese strategy was to print money. That effectively shifted the costs of being occupied onto Southeast Asians. The chapter investigates why rapid monetary expansion caused less inflation than could have been expected and true hyperinflation only near the end of the war.

The Introduction provides a guided tour of the content of the book, highlighting its main themes and historical sequences of crises and slumps. It discusses the frequency and intensity of recessions; the relationship between war and recessions; the impact of hyperinflation on economic activity; the role of currency crashes, debt, and macroeconomic crises on output; and the role played by populist political cycles in producing severe economic contractions.

Chapter 3 studies the impact of World War I and World War II on aggregate economic activity in the countries engaged in these two armed conflicts. The chapter shows a variety of effects (stimulus, slump, economic disintegration) and seeks to explain many contributing factor (including levels of defense spending) in generating these different outcomes. The chapter also examines the causes and consequences of hyperinflation in Austria, Hungary, Germany, Poland, and Soviet Russia in the first half of the 1920s.

Chapter 2 provides an overview of theories and empirics of recession and depression, reviewing Austrian, Keynesian, and monetarist financial theories, and secular stagnation approaches to economic slumps. It looks at international , national, and regional recessions and the different shapes of business cycles (V, U, L and W). The chapter also discusses international dimensions of slumps and the scope and limits for undertaking countercyclical policies.

Chapter 8 studies the record of macroeconomic and financial crises, high inflation episodes, currency collapses, political crises, and collapses of democracy in Latin America and the financial crises and recession episodes in East Asian economies in the period 1970–2015. The chapter focuses on countries – such as Argentina and Venezuela – with high incidence of growth, inflation, and political crises, and also examines the cases of Chile and Mexico. The chapter examines the effects of the East Asian crisis of 1997–98 on Korea, Indonesia, the Philippines, Thailand, and Malaysia (the Asia-5 countries) and compares its impact on China, Vietnam, Singapore, and Hong Kong. The chapter offers a discussion on a wide variety of crisis and stabilization occurrences in a comparative perspective, highlighting economic and political economy factors.

This chapter summarizes the main episodes of output contraction and crises across subsequent decades and relevant sub-periods in the long twentieth century. It interprets the main findings of the book and draws lessons for the design and implementation of policies that can be effective to anticipate and cope with macrocrises and main recessions.