Credibility, Confidence and Capital: Austrian reconstruction and the collapse of global finance, 1921--1931

Austria, in spite and due to its small size, played a pivotal role in the financial and diplomatic history of inter-war Europe. The three basic principles of post-war reconstruction---credibility, confidence and capital---were first established in Austria, but not followed upon wholeheartedly, so that European reconstruction collapsed in 1931. Austria had regained credibility in the eyes of its citizens and investors through the help of the League of Nations. Following the League's intervention in late 1922 hyperinflation in Austria was terminated and confidence in the country's future improved, not least because the League assumed control over Austria's fiscal policies. For political reasons, however, control was terminated prematurely and before Viennese banks had obtained sufficient levels of long-term capital. The League's departure removed the vital credibility bestowed through its control and at the same time political conflict in Austria grew fiercer. In 1929, fears of civil war led to a decline of confidence and the withdrawal of foreign capital and savings by concerned depositors, bringing down the second largest bank in Vienna. Confidence was ultimately shattered in 1931, when the Credit-Anstalt had to be bailed out by the Austrian government. The Austrian National Bank, however, managed to contain the crisis within less than a month. Only after much larger problems surfaced in Germany and Britain did an attack on the Austrian currency ensue, which contributed to the collapse of the gold-standard. Rather than claim that the Credit-Anstalt rescue was a failure and that the bank's collapse was the first in a series of events leading to the Great Depression, I argue that international efforts to save Austria in 1931 were promising and that only larger developments, particularly the unfolding crisis in Germany and Britain, brought about the demise of global finance.