1921-1931 - Bethlen Government
Horthy appointed Pal Teleki prime minister in July 1920. His right-wing government set quotas effectively limiting admission of Jews to universities, legalized corporal punishment, and, to quiet rural discontent, took initial steps toward fulfilling a promise of major land reform by dividing about 385,000 hectares from the largest estates into smallholdings. Teleki's government resigned, however, after the former emperor, Karl IV, unsuccessfully attempted to retake Hungary's throne in March 1921. King Karl's return split parties between conservatives who favored a Habsburg restoration and nationalist right-wing radicals who supported election of a Hungarian king. Bethlen, a nonaffiliated, right-wing member of the parliament, took advantage of this rift by convincing members of the Christian National Union who opposed Karl's reenthronement to merge with the Smallholders' Party and form a new Party of Unity with Bethlen as its leader. Horthy then appointed Bethlen prime minister.
As prime minister, Bethlen dominated Hungarian politics between 1921 and 1931. He fashioned a political machine by amending the electoral law, eliminating peasants from the Party of Unity, providing jobs in the bureaucracy to his supporters, and manipulating elections in rural areas. Bethlen restored order to the country by giving the radical counterrevolutionaries payoffs and government jobs in exchange for ceasing their campaign of terror against Jews and leftists. In 1921 Bethlen made a deal with the Social Democrats and trade unions, agreeing, among other things, to legalize their activities and free political prisoners in return for their pledge to refrain from spreading anti-Hungarian propaganda, calling political strikes, and organizing the peasantry.
In May 1922, the Party of Unity captured a large parliamentary majority. Karl IV's death, soon after he failed a second time to reclaim the throne in October 1921, allowed the revision of the Treaty of Trianon to rise to the top of Hungary's political agenda. Bethlen's strategy to win the treaty's revision was first to strengthen his country's economy and then to build relations with stronger nations that could further Hungary's goals. Revision of the treaty had such a broad backing in Hungary that Bethlen used it, at least in part, to deflect criticism of his economic, social, and political policies. However, Bethlen's only foreign policy success was a treaty of friendship with Italy in 1927, which had little immediate impact.
When Bethlen took office, the government was bankrupt. Tax revenues were so paltry that he turned to domestic gold and foreign-currency reserves to meet about half of the 1921-22 budget and almost 80 percent of the 1922-23 budget. To improve his country's economic circumstances, Bethlen undertook development of industry. He imposed tariffs on finished goods and earmarked the revenues to subsidize new industries. Bethlen squeezed the agricultural sector to increase cereal exports, which generated foreign currency to pay for imports critical to the industrial sector. In 1924, after the white terror had waned and Hungary had gained admission to the League of Nations (1922), the Bethlen government secured a US$50 million reconstruction loan from the league, which restored the confidence of foreign creditors. Foreign loans and domestic capital that had been removed from Hungary during the communist revolution flowed back into the country, further fueling industrial development.
By the late 1920s, Bethlen's policies had brought order to the economy. The number of factories increased by about 66 percent, inflation subsided, and the national income climbed 20 percent. However, the apparent stability was supported by a rickety framework of constantly revolving foreign credits and high world grain prices; therefore, Hungary remained undeveloped in comparison with the wealthier western European countries.
Despite economic progress, the workers' standard of living remained poor, and consequently the working class never gave Bethlen its political support. The peasants fared worse than the working class. In the 1920s, about 60 percent of the peasants were either landless or were cultivating plots too small to provide a decent living. Real wages for agricultural workers remained below prewar levels, and the peasants had practically no political voice. Moreover, once Bethlen had consolidated his power, he ignored calls for land reform. The industrial sector failed to expand fast enough to provide jobs for all the peasants and university graduates seeking work. Most peasants lingered in the villages, and in the 1930s Hungarians in rural areas were extremely dissatisfied. Hungary's foreign debt ballooned as Bethlen expanded the bureaucracy to absorb the university graduates who, if left idle, might have threatened civil order.
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