GreekEconomy 1830-1940

Version : 18/3/2003

GROWTH AND STAGNATION IN THE GREEK

ECONOMY, 1830-1940

– First Draft –

Not to be quoted without prior authorization

Constantine P. KOSTIS & Socrates D. PETMEZAS

Introduction

The purpose of this paper is to assess the long-term development of Greek

Economy, delineate its major turning points and underline some of its structural

characteristics. Our research covers the period during which Greece1 was still a net

exporter of agricultural products, when the majority of Greeks lived in the

countryside and when the agricultural output was the major component of the

Nation’s GDP. Rapid economic growth, industrialization and relative convergence

with the more advanced European Economies was only achieved well after the

Second World War and falls out of our present scope.

As we shall demonstrate, the long-term development of the Greek Economy

can be divided into 4 periods :

• The brief (1830s-early 1840s) and rapid recovery from the losses of the War

of Independence followed a long period of slow growth which ended in

stagnation in the late 1880s.

• This stagnation was followed by financial and income crises of the early

1890s.

1 In the next pages when we will speak of Greece it is always to the Greek

state (in its contingent geographical configuration) that we will refer. When necessary

we will clearly indicate that we are referring to the area and populations covered by

the present-day Greek State. For details on the expansion of the Greek State see

Appendix 2.

Constantine P. KOSTIS and Socrates D. PETMEZAS

2

• The imposition of International Financial Control (IFC) and the new

impetus of the World Economy in the early years of the 20th century coincided

in Greece with unprecedented high rates of growth that were not discontinued

during the Wars of the 1910s.

• In the early 1920s, territorial expansion in the relatively under-developed

Northern Greece, military defeat in the Greek-Turkish War, high rates of

inflation caused by continuous sizeable public deficits and massive population

exchange (with a net influx of one million destitute refugees) put high strains

on the economy. The immediate effects of land reform, land re-settlement and

land amendment, and the positive repercussions of the financial

rationalization of the late 1920s were mitigated by the subsequent World

Economic Crisis (1929-1932) ; it is only after 1932 that high rates of

economic and industrial development were registered.

This last period of growth was discontinued by the long war years that

destroyed again the accumulated progress. It is only in 1957 – incidentally the year of

our birth – that Greek per capita GDP reached and surpassed the highest level of the

pre-war years (1937). Since then the country had experienced high rates of growth

and rapid economic transformations.

We made extensive use of the official aggregate data (for international trade,

the public Debt and budget) and of the recent estimates of the aggregate output

(GDP) of the economy calculated by KOSTELENOS’ (1995)2. It should be underlined

that due to the inherent fragility of the aggregate data, some assessments (especially

those concerning the pre-1914 real GDP3) are open to debate and any conclusion is

premature and liable to change as data collection advances and the construction of

relevant macro-economic variables becomes more secure. The long term

characteristics of the pre-1940 Greek economy can be partly reflected on the

development and interaction of these tentative macro-economic variables, but we

2 This is only a tentative estimation. The major findings of KOSTELENOS’

(1995) study constitute, as we believe, a valuable contribution to the understanding of

the Modern Greek Economic History. Nevertheless the GDP estimation can only be

considered as a first major step towards more secure estimates. George KOSTELENOS

and a group of economists and historians are actually working on a more secure

evaluation of the Greek GDP and of its deflator. See Appendix 1 for a more detailed

description of the problem of the pre-1914 deflator of the nominal GDP.

3 See Appendix 1


3

have decided to make use of the accumulated results of solid research (as presented in

recent detailed studies of particular subjects of the Modern Greek Economic History),

which can be put in perspective and give a more convincing and secure view of the

long term development of the Greek Economy. The tentative estimates of Kostelenos

and the other official aggregate data are used additionally in order to verify and give

quantitative expression to our research.

Slow growth and financial fragility

Demographic Growth and labor-intensive agricultural

expansion in the 19th century : an overview

Independent Greece in the 19th century was almost unique among European

countries in showing such a rapid demographic growth. The country’s population

grew steadily (1850-1900) at the record high annual level of 1,3%-1,5%4, which was

almost exclusively due to the excess of births over deaths. The originally very low

general population density certainly helped the perpetuation of high rates of

population growth without initially causing any remarkable change in the agrarian

structure. It is only during the last decades of the 19th century that the prevailing

agrarian structure proved to be incompatible with the perpetuation of the

demographic rates.

4 The Greek annual rate of population growth is much higher than the

comparable Portuguese (0,9% in 1864-1911), Spanish (0,4% in 1858-1900, PEREZ

MOREDA 1987, 18) or Italian (0,6% in 1851-1911, DEL PANTA 1984, 13) population

growth of the time and higher of course of the population growth of contemporary

Western European population (ANDERSON 1988, 23-26) or of European populations

in a comparable state of demographic transition : the so-called first stage of

demographic transition was characterized by 1) the stabilization of the mortality rates

(absence of mortality crises), 2) high fertility and mortality rates and 3) large excess

of births over deaths and, as a consequence, high rates of population growth. Only the

other Balkan lands, to the extend that we have trustworthy and comparable data,

showed a similar demographic development (JACKSON 1985, 228).


4

Table 1 The demographic data (1830-1950)

source : VALAORAS (1960, 132-135), SIAMPOS & VALAORAS(1970, 604-605),

SIAMPOS (1973 19-25), SERELEA (197848).

birth rate

(b)

death rate

(d)

natural

growth

infant

mortality

% rural

(<2.000

inh.)

% urban

(>10.000

inh.)

General

fertility

(If)

Marital

fertility

(Ig)

Extra-

marital

fertility (ih)

Nuptiality

Index

(Im)

1820 0,408 0,490 -0,082

1830 0,520 0,393 0,127

1840 0,523 0,381 0,142

1850 0,499 0,368 0,131

1860 0,501 0,342 0,159 0,198 74,50% 7,20%

1870 0,468 0,317 0,151 0,196 75,50% 8,70% 0,435 0,731 0,013 0,588

1880 0,436 0,30 0,136 0,191 72,50% 10,60% 0,402 0,705 0,010 0,568

1890 0,419 0,284 0,135 0,183 70,10% 14,00%

1900 0,398 0,263 0,135 0,173 0,440 0,688 0,015 0,632

1907 67,30% 16,60%

1910 0,307 0,229 0,078

1920 0,310 0,201 0,109 0,148 63,90% 21,80%

1928 57,50% 28,30% 0,307 0,535 0,009 0,566

1930 0,282 0,157 0,125 0,122

1940 0,205 0,134 0,071 55,20% 29,20%

1950 0,201 0,080 0,121 0,053 50,20% 33,90% 0,203 0,399 0,005 0,502

1960 0,180 0,082 0,098 0,037 45,40% 40,20% 0,191 0,327 0,006 0,576

Volume of Production and Exprorts of Currants and % on the Value of Greek Exports

0

50.000

100.000

150.000

200.000

250.000

1851 1856 1861 1866 1871 1876 1881 1886 1891 1896 1901 1906 1911 1916 1921 1926 1931 1936

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

Currants Export

Currants Production

% of Value on Exports

Figure 1 Currants production and exports, 1830-1938

We know very little on the Greek Economy during the first post-Independence

decade, but we can say with certainty that it presented momentarily high rates of

growth since it covered the heavy human and economic losses of the War of

Independence and put unemployed resources in work (PETROPOULOS 1981). In the


5

late 1840s cereal cultivation covered most of the lost ground and, in the next decade,

cereal production (as measured indirectly from tithe receipts) reached a peak. The

same was true for the livestock husbandry, which was largely dependent on the

disposability of winter pastures and was not, until after the Second World War,

integrated with the cereal cultivation system5. Cereal cultivation in Greece was using

archaic methods and was largely dependent on the classical Mediterranean two-field

rotation system6. Until the early 1860s, amelioration was restricted to the systematic

adoption of the two- and three-field (locally when the rainfall level or the

hydrological environment made it possible) rotation system with fallow in the

formerly sparsely populated plains where more extensive systems were in use

(PETMEZAS 1993).

5 Animal husbandry, on a large scale, was an extensive activity exercised by

specialized pastoral populations who where able to integrate and use the large

mountainous summer pastures and the more scarce winter pastures in the plains. The

farmers themselves were only marginally involved in animal farming ; they only

provided for their local consumption and inadequately reproduced their laboring

animal stock. Independent Greece has always been forced to import a part of its

consumption in livestock products and a large number of its laboring animals.

Transhumant animal husbandry was the rule until the Interwar period. In Northern

Greece the entire pastoral population seasonally migrated with the shepherds and

their flocks ; the “mobile capital” of large human communities moved from its

mountain village to its winter camps (inverse transhumant semi-nomadism). In any

case, the sparsely populated plains of the Ottoman dominions provided, in the 19th

century, abundant winter pastures. The situation changed abruptly in the 20th century,

when the “unity of the mountain and the plain” suffered both from overcrowding

(itself a result of demographic growth and of the land reform) and of the fracture of

the Southern Balkans in different State formations.

6 The wooden “Hesiodic” plow with its simple iron blade was cheap, light,

easy to build and well adapted to the light Mediterranean soil. It could be

economically used with the limited traction power which Greek farms

disposed. Usually two oxen or even one mule could be used and in many cases

peasant families, always short of pastures and animal feed, used to keep only one

animal and alternatively share it with one of a kin or neighbor family.


6

Volume of production and exports of Tobacco and % on total value of Greek exports

0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

90.000

1851 1856 1861 1866 1871 1876 1881 1886 1891 1896 1901 1906 1911 1916 1921 1926 1931 1936

-20,00%

-10,00%

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

Tobacco ExportsTobacco Production% of Value on Exports

Figure 2 Production and Exports of Tobacco, 1881-1938

Until then (1860s), the largely agrarian economy used its growing

demographic surplus to rapidly colonize the empty and marshy plains of North-

eastern Continental Greece and put them under cereal culture. Growing international

demand for currants had also stimulated the colonization of Western Peloponnesian

foothills and coastal plains by peasants coming from the surrounding plateaus and

mountainous provinces (FRANGHIADIS, 1990, KALAPHATIS 1990-1992)7. Peasants

borrowed money from the land-owners and, using their labor and meager capital

savings, constituted the new currant vineyards. Once constituted, the vineyard was

split in two and thus peasants were transformed into small-owners, while merchants

and provincial notables were able to mobilize the unemployed but expensive8 rural

labor force in order to plant currant vineyards in their waste lands.

7 This colonization and the constitution of the extensive Western

Peloponnesian currant vineyard were made possible thanks to the following combined

reasons : i) merchant and notable families with access to both capital and land which

ii) could be put in use by the unemployed peasant’ surplus labor force and, finally iii)

a growing demand for currants in North-Western Europe that could sustain high

prices and expectations.

8 The almost complete predomination of small-ownership in rural Southern

Greece led to a relatively high wage level in the countryside and possibly raised the

wage level in the cities as well. One should keep in mind that only very tentative (and


7

Table 2 Land and labor productivity in Greek agriculture (1860-1930)

Southern

Greek

provinces

SAU /

RALE

(T/L)

UC /

SAU

(Y/T)

UC /

RALE

(Y/L)

average

rates

D (UC) D (SAU) D (RALE) D (SAU /

RALE)

D (UC /

SAU)

D (UC /

RALE)

1860 32,08 0,94 30,14

1875 28,31 1,09 30,91 1860-1875 1,73% 0,56% 1,52% -0,78% 1,08% 0,17%

1887 24,17 1,67 40,45 1887-1875 4,44% 0,00% 1,43% -1,22% 4,44% 2,57%

1911 22,35 1,68 37,60 1911-1887 0,07% 0,05% 0,39% -0,31% 0,02% -0,29%

1929/1930 19,33 1,43 27,64 1930-1911 -1,01% -0,27% 0,56% -0,75% 0,42% -1,39%

whole

country

SAU /

RALE

UC /

SAU

UC /

RALE

D (UC) D (SAU) D (RALE) D (SAU /

RALE)

D (UC /

SAU)

D (UC /

RALE)

1860 32,08 0,94 30,14

1875 25,65 1,17 29,89 1860-1875 3,00% 1,13% 3,09% -1,34% 1,60% -0,05%

1887 23,16 1,73 40,14 1887-1875 7,08% 2,03% 3,15% -0,81% 4,06% 2,86%

1911 24,30 1,57 38,20 1911-1887 0,16% 0,60% 0,38% 0,21% -0,39% -0,20%

1929/1930 19,28 1,28 24,60 1930-1911 2,27% 4,09% 6,59% -1,15% -1,05% -1,98%

UC : Conventional Unit (=100 kg) of Wheat equivalent, estimated according to the method of KOSTROWICKI (1990)

RALE : the equivalent of an active adult male laborer, estimated as a percentage of the rural population – those

living in villages and townships with less than 2.000 inh. – according to specific coefficients for the each age and sex

group (PEPELASIS & YOTOPOULOS 1962). For the age-sex structure data were taken from VALAORAS (1960 138-139)

SAU : Land in use (planted, tilled, artificial pastures and meadows, labored fallow, land under intermittent use) in

stremmes (=1/10 of hectare).

Commercial, labor-intensive plantations9, combined with subsistence farming,

were the main stimulus for economic growth in rural Greece until well into the 1880s.

The importance of these agricultural products can be simply illustrated by observing

the growth of currant exports, whose value covered almost half the total value of

Greek exports until the beginning of the 20th century (See Figure 1). In the Interwar

period tobacco, mainly grown in the Northern provinces, succeeded to the currants as

Greece’s most valuable export (See Figure 2). Labor-intensive commercial

agriculture, combined with subsistence farming, had the cumulative advantage of

producing the supplementary income necessary for the simple (social and economic)

reproduction of the peasant population and provide additional (and seasonally spread)

work demand for the peasant labor force. The average farm size declined without

causing severe income stress on the peasant population and thus the agrarian system

was able to withhold the largest part of the rural demographic surplus, and reduce the

highly controversial) estimations are available concerning the wages in 19th century

Greece.

9 This concerns mainly the Southern Greek provinces (exporting currants,

tobacco, cocoons, olive oil, wine, fresh and dried fruits) and the Ionian islands

(exporting currants, wine and olive oil), which were characterized by small-ownership

and the integration of labor-intensive commercial plantations with the small-scale

subsistence polyculture.


8

flow of rural emigration to the towns. This pattern of growth was founded on heavy

use of cheap labor per unit of land and the subsequent rise of land (and much less of

labor) productivity10 (see Table 2 and Figure 6). In the long run the rate of latent

under-employment of the rural population was soaring. An estimation of the level of

slack labor in the agricultural sector shows that the “chronic”11 unemployment rose

rapidly once the extensive growth of Greek agriculture had reached its zenith in the

early 1860 (see Table 3).

Table 3 Chronic latent unemployment in Greek Agriculture (1860-1960)

source : PETMEZAS (2000) and PEPELASIS & YOTOPOULOS (1962) for the post WorldWar II data and for the methodology.

average labor surplus chronic (seasonal) labor surplusARL as % of

rural population minimum maximum minimum maximum

1860 32,14 % 7.2 % 12,8 % -19,1 % -0,7 % 1832 bordres

1875 31,82 % 20,4 % 46,4 % 4,8 % 28,6 % whole country

1887 31,57 % 20,6 % 46,5 % 4,8 % 28,3 % whole country

1911 31,75 % 15,1 % 40,0 % 0,1 % 22,8 % 1832 bordres

1911 31,75 % 10,8 % 34,7 % -3,6 % 18,2 % whole country

1929 34,20 % 41,7 % 72,2 % 23,2 % 51,19 % 1832 bordres

1929 34.20 % 29,8 % 57,8 % 13,0 % 38,6 % whole country

1954 34,97 % 15,2 % 2,3 % whole country

1955 35,14 % 10,6 % -3,0 % whole country

The fragile linkages between the rural and urban

economies : uncompleted industrialization

The small-owner12 land tenure system was responsible for the low flows of

rural demographic surplus to the towns. In spite of the fact that new cities were

10 For the calculation of these indexes see (PETMEZAS 2000)

11 For the notions of average and chronic labor unemployment in agriculture,

see PEPELASIS & YOTOPOULOS (1962)

12 Until the 1871 “Law for the distribution of National Estates”, Greek

peasants were only partly owners of their lands. Since the War of Independence a

large part (the most fertile one) of the arable lands, that were formerly possessed by

the expelled Ottoman Muslims, were transformed into National property. Christian

cultivators were soon to acquire de facto inalienable rights of use over the National

Estates they occupied, paying an additional tithe (15% of the gross produce in nature)

as a ground rent to the Greek treasury. Many such peasants were already full owners

of a part of the lands they used and they simply added new parcels of National Estates

to their patrimony. Such rights of use on National Estates were thought of as a form

of property rights and could be alienated or even used as collateral in mortgages. But


9

created after the Independence (Athens, Piraeus, Hermoupolis, Laurium, Agrinion

and later Volos and Karditsa), only a minority of the new urban dwellers migrated

from the surrounding countryside. On the contrary, during the 19th century, many

urban migrants were coming from other urban and maritime centers that declined

after the transformation of the old eastern Mediterranean commercial and urban

network of the late 18th and early 19th centuries. The percentage of rural population in

19th century Greece shows a constant but relatively slow rate of decline (see Table 1),

which certainly underestimates the profound structural transformations of the urban

network, but correctly stresses that, in spite of those urban transformations, the rural

demographic surplus was abandoning the countryside with slow rhythms.

Imports of Wheat, the % of its Value on Imports and on the Value of Exports of Currants and Tobacco

0

100.000

200.000

300.000

400.000

500.000

600.000

700.000

1851 1856 1861 1866 1871 1876 1881 1886 1891 1896 1901 1906 1911 1916 1921 1926 1931 1936

tons

-10%

10%

30%

50%

70%

90%

110%

130%

150%

Imports Wheat

% Value on Imports

% Value Wheat on (Currant &Tobacco)

Figure 3 The import of Wheat and its part in the total value of Imports

This relative lack of integration between the urban and rural areas will be

observed in other examples as well. The most obvious one to point out was the fact

that, until after the second World War, Greece was deficient in cereal and livestock

production and was thus obliged to import a large part of its consumption (See Figure

it is obvious that the land market was seriously inhibited by the fact that in most

cases such rights of inalienable tenancy were conflicting with other overlapping rights

(e.g. rights of seasonal pasture, emphyteoses, etc.), while many petty disputes among

villagers, communities and local authorities over the exact nature of the rights of use

and the borders of the parcels rendered any effort to concentrate land extremely

tedious and legally burdensome.


10

3)13. The very high percentage of International Trade (Exports and Imports

combined), relatively to the estimated GDP, (around 40%, see Table 14) does not

reflect a high degree of commercial exchanges and deep integration of the local

economy to the world economy. Currants, exported directly from their original locus

of production covered 50% of the value of exports, while the value of imported wheat

(providing for the consumption of major urban centers) covered 30%-35% of the

value of imports.

The agricultural sector had not been able to stimulate, support and sustain the

industrial growth that spurted in the 1860s :

• The small-owner peasant economy had only marginally provided the

necessary raw materials to the growing Greek industry14.

• The rural population had not been able to provide a vigorous market for the

domestic industry or to amass savings that could be directed towards the

industrial and commercial sectors15.

• Furthermore, until the Interwar period, the agricultural sector had not

provided a growing market for capital (machines, fertilizers, etc.)16 or

13 Cities, coastal areas and many poor wheat-deficient mountainous areas were

more easily and cheaply provisioned with imported wheat and corn than with surplus

cereal production of the Greek hinterland. The almost complete absence of a reliable

terrestrial transportation network until the 1880s made any hope for a unified internal

market vain.

14 Only when International demand, which had provided the stimulus for the

rise of a particular agricultural production (cotton during the cotton famine, currants

and grapes as raw materials for wine and alcohol during the phyloxera decease of

French vineyards) had abruptly ceased, the surplus production was devaluated and

oriented towards domestic industrial demand. But even in this case, as the domestic

cotton production (which had initially provided a cheap input for the rise of the Greek

cotton yarn and cloth industry) proves, later industrial expansion was assured by

continuous imports of cheap imported raw materials (ottoman cotton).

15 THOMADAKIS (1981) has pointed out that until the end of the 19th century

there was no indication that savings were deposited in the provincial branches of the

National Bank of Greece (NGB) and transferred to the central office or invested

locally.

16 It is noteworthy that the domestic Greek production of chemical fertilizers

(that begun production in 1910) was initially exported mainly to the neighboring


11

consumer goods (with the exception of cotton yarn and some alimentary

products – macaroni, flour etc.).

• Finally, the countryside has been able to keep its demographic surplus ; the

Greek cities and industry never really attracted cheap rural surplus labor

before the Interwar period17.

The linkages between the small-owner peasant societies and the Greek cities

and urban economy were thus relatively weak and here lies indubitably one of the

particularities of the Greek model18.

The first spurts of an industrial take-off are observed in the late 1860s. In less

than 7 years, more than 100 new industries were established. Unfortunately, from

1875 onwards, the rate of growth slowed down and since 1885 industry was

stagnating. Any expansion was purely extensive ; the index of motor power per

worker stayed invariable until the early 1900s (see Table 6). The recovery started

sometimes between the end of the 1880s or the beginnings of the 1890s, and a new

period of accelerated growth followed at the turn of the century. This new phase of

“industrialization” was prolonged during the first decade of our century, but it was

characterized by a “lack of internal cohesion” (weak inter-sectoral linkages), while

the new industries profited from the regime of a protective policy (AGRIANTONI 1986,

113 sq.). However, we should not forget that the share of industry in the Greek GDP

probably never outweighed 10%, at least not until the First World War.

countries (Egypt, Turkey and the Balkans). It is only in the 1930s, supported by a

strong public policy aiming at cereal autarchy, that chemical fertilizers (expensive

inputs in cash) were finally used by Greek cereal producers.

17 Until the end of the 19th century Greek net migration was almost nil. This is

not to deny that in some provinces hearths of emigration (usually agriculturally poor

villages and small towns) existed and continuously provided the necessary manpower

to the Greek Diaspora of the Eastern Mediterranean basin. It is noteworthy that the

populations involved in the massive transatlantic emigration of the early 20th century

were not originating from these traditional hearths of emigration. In the first quarter

of the 20th century the rural surplus emigrated massively to its transatlantic

destination without making a first stop into the Greek cities. Greek urban labor

market had never been an attraction for these populations.

18 One should ask whether this phenomenon was also shared by other

Southern European societies as a tentative comparison of the Greek with the Italian

case might suggest (O’BRIEN and TONIOLO 1991)


12

Table 4 Distribution of Greek industries per sector, 1874/75-1900

Source: CH. AGRIANTONI, (1986, 209 ; 341)Sector Industries % Horsepower % Workers %

1874/75 1900 1874/75 1900 1874/75 1900

Food-

processing

46,7 52,0 39,9 43,3 21,7 21,5

Textile 29,4 16,6 36,4 33,1 43,8 45,9

Metal 6,1 12,1 5,9 9,6 7,8 14,7

Leather 2,8 2,2 2,0 1,1 11,2 2,5

Chemical 5,6 9,9 8,7 6,0 3,7 5,7

Other 9,4 7,2 7,1 6,9 11,8 9,7

Total 100,0 100,0 100,0 100,0 100,0 100,0

The Greek industrial development in the 19th century is very well depicted by

Christina AGRIANTONI (1986), who spoke of “an industrial revolution which was

initiated but was never completed”. From what has already been said about the

agricultural sector in Greece, it is easily understandable that the problems to be

overcome by an industry in its infancy were from the structural point serious. We

should never forget the additional problems created by the structural weaknesses of

the trade balance, to which we should add the dependence of the Greek economy on

fuel imports and the lack of manpower, especially during the 19th and the early 20th

century. Besides that, the small and sparsely populated Greek State did not offer

opportunities for large scale industrialization until well into the Interwar period, when

population growth and territorial extension enlarged the domestic market and made

industrial investments attractive to entrepreneurs.

Table 5 Distribution of the Greek industries according to their size

Source : CH. AGRIANTONI (1986, 211 ; 342)Number of

workers

Industries % Workers % Average size (workers per

industry)

1874/75 1900 1874/75 1900 1874/75 1900

1-5 5,6 1,4 0,5 0,1 3-4 5

6-25 43,0 40,5 15,0 9,8 15-16 16-18

26-100 43,0 42,8 54,5 32,0 56-57 51-54

100 + 8,4 15,3 30,0 58,1 157-162 264-270

Total 100,0 100,0 100,0 100,0

The first Greek industries were concentrated in sectors which were

characterized by low value added and a high contribution of raw materials to the

production cost : such were the cases of food-processing, leather and yarn industries.

The only notable exception is the textile industry, which also experienced an

important development during the same years (see Table 4). This first stage of

development coincided with the last years of a favorable economic conjuncture

which, in its turn, was enforced by the high liquidity of the economy, declining


13

interest rates and easier accessibility of banking credit. But from the middle of the

1870s, the international economy entered the so-called Great Depression with the

continuing fall of prices and the deceleration of the GDP (see Table 10). The

domestic market could no longer sustain the development of the industrial sector.

Table 6 Power use proxy for the Greek Industry

source : AGRIANTONI (1988, 141)

HP per 100 workers HP per 100 workers

1874-1875 39 1890-1891 57

1882-1883 58 1899-1900 57.5

Under such circumstances, the Greek industry failed to maintain its small

share in the Middle East markets and it was forced, by the hard competition that it

could not face, on the one hand to turn towards the production of goods with a

relatively high contribution of labor-cost (so as to resist better the fall of prices) and

on the other hand to invest in sectors where the production was not fully

mechanized19. The main objective was the “hiding” of the enterprise in sectors where

it could survive in conditions of relatively low productivity.

Thus the Greek industry did not, as it happened elsewhere, profit from

specialization in the production of particular goods. Its development was more or less

accidental and industries where created whenever and wherever some comparative

advantage was revealed. Furthermore, Greek industries were characterized by a

multipurpose use of their installations as a response of these enterprises to the

impossibility of a vertical development : steam mills were alternatively used for oil-

pressing, for sulfur-pressing, for the treatment of tanning materials etc. This tendency

began to change only during the Interwar period ; and it was finally discontinued in

the Second World War. A final characteristic of Greek industry (which had no past in

the country) was its dependence on trade with which its relations were, from the very

beginning, extremely close. Thus in the sectors in which the value added was low, the

19 An example of this change is i) the metallurgy, which turned more and

more to the assemblage of final products and ii) the mechanic industry, which

abandoned, towards the end of the century, any other specialization in order to

concentrate on shipbuilding, under the impulsion it received from the development of

the merchant marine (HADJIOSSIF 1993). Much the same happened in the textile

industry, which abandoned yarn production and reoriented its activities to textiles ; or

in the paper industry, where production of paper was abandoned in favor of products

of paper.


14

productive process never became independent from trade but always remained a part

of a raw materials-related commercial activity (AGRIANTONI 1986, 149-158).

Crises, Bankruptcy and rationalization, 1893-1905

The delicate equilibria of the agricultural sector in the

1880s

Once the internal colonization was completed in the 1860s, the rapidly

increasing rural population was sustained thanks to the growth of agricultural output

and to the soaring demand for some major Greek (Mediterranean) labor-intensive

agricultural products (like the currants, tobacco, wine, olive oil, fruit, vegetables and

other productions), in spite of the noted depression of agricultural prices which,

incidentally, might have been beneficial to the Greek Foreign Trade since the rapidly

falling price of wheat probably allowed for an amelioration of the terms of trade. As

long as prices, for such products as the currants, were advantageous in the

international market, the reproduction of the agrarian economy was assured.

In the 1880s the growing currant output could still fetch satisfactory prices in

the International markets because of unexpected French demand for low-quality

currants, a substitute to grapes for the ailing French wine industry. Southern Greek

provinces (especially the Peloponnesian South-East) were as a consequence able to

sustain their growth and even ameliorate their overall productivity (see Figure 1 and

Table 2). The new agricultural fiscal system, which was founded on the taxation of

the laboring animals, was lighter and promoted the substitution of the oxen by the

more productive horses. It is thus probable that the observed limited amelioration of

corn yields (PETMEZAS 2000) is partly explained by this benign effect of the fiscal

legislation. But it is clear that by this time all arable lands that could be put into use

were already occupied.

Nevertheless, the 1880s was a period of optimism, bold choices in the

economic policy and important decisions both in the field of public investment and in

the institutional level. Unfortunately the Distribution of National estates to the

peasants, the fiscal reforms and the ambitious projects of Public Works did not have

the expected results. Since the 1870s the fiscal policy had constantly aimed in

lowering peasant tax burden, substituting direct taxation (mainly tithe on land

produce)20 with indirect consumption taxes (which were mainly imposed on urban

20 The tithe (10% of the gross product in nature) on agricultural products was

rented out to tax-farmers who were usually members of the local notable families.


15

consumers)21. Lower taxation had certainly increased the disposable taxation on the

Greek peasant household, but it is unlikely that the peasants exhibited the same

consumption propensity and the same taste and needs as the urban strata22. The rural

hinterland seems to be immune of such stimuli. The reason perhaps is the fact that

since the late 1870s most peasants were heavily indebted in order to acquire the

national estates that were finally distributed to them under relatively benign

conditions23. The unitary price of land was locally fixed at relatively low levels and

payment was to be effectuated in 26 annual installments, charging a relatively low

interest rate24. But the fact is that for more than 30 years almost half of all Greek

Tax-farmers were not (until 1878) capitalists and they did not advance any money to

the Treasury. They had only the charge to evaluate the tax impost on each peasant

family. The collection and commercialization of the tithe (until 1864, when the tithe

was paid in cash) was in the hands of state authorities. Tax-farmers were thus nothing

more than local notables capable of evaluating local taxable production and

politically so influential as to impose the respect of their evaluation. They usually

cooperated with local state officials (and even with the peasants themselves) in order

to conceal and capture a part of the fiscal receipts.

21 Since 1880 the tithe was abandoned and a tax on yoke animals was

imposed. The receipts from this tax equaled only to a third of the former tithe receipts

and they were imposed upon the owners of working animals and not upon land-

owners. In spite of the possible distorting effects of this tax in the rural class structure

it is clear that, as an aggregate, direct tax on the peasantry was reduced to the expense

of the urban consumers, (DERTILIS 1993).

22 Cf. DERTILIS (1993, 40-52) and c.v. HADJIIOSSIF (1994, 182-184).

23 It was not really a Land Reform since peasants simply bought the National

Estates they already occupied and used. Only minor and negligible changes in land

use and the land settlement patterns were initiated.

24 Finally, 260.000 hectares were distributed to their peasant small-owners in

360.000 individual acts at the average price of 250 drachmas per hectare of arable

land (and twice that much for planted lands). Peasants paid in cash a low down-

payment (15-30 drachmas per hectare) when they “declared” the lands they occupied

and wished to buy and later paid out the total sum in 26 annuities. Each installment

was equal to 5% of the estimated value of the land (interest is computed at 1,25%).

One can estimate that since 1881, when the distribution of the National Estates was

materialized, a sum of 3,5 million drachmas was due annually in cash by the peasants

of Southern Greece. The sum largely exceeded the receipts form the “usufruct rent”


16

peasants ìn Southern Greece had been indebted to buy almost a third of the arable

land and almost a quarter of the land in use. The installments were absorbed by the

Greek government, which gave away its right as “propriétaire éminent” of the

national estates and its ground rent (15% of the produce). It is thus evident that to a

large extend a part of the peasant monetary income was captured by the treasury.

The annexation on Thessaly (1881) gave additional impetus to this optimism,

since it was largely believed that its fertile plains would very soon provide the wheat

that would be necessary to nourish the country and thus greatly reduce Greek cereal

imports. The socioeconomic character of the land tenure in Thessaly (and in Northern

Greece annexed in 1912-1913), which was dominated by large absentee land-

ownership and small-scale sharecropping agriculture, turned out to be fundamentally

different from the one in the “Southern provinces” where, as a result of the Greek

War of Independence, small-owner peasantry was the norm25. The governments

formed by Trikoupis were actively supporting the preservation of large estates hoping

that the rich capitalists of the Greek Diaspora, who had bought most of them, would

introduce modern agriculture and boost wheat production. The Greek government

had even raised the tariff on imported wheat26 precisely to protect the interests of the

(maybe as high as 2,7 million drachmas) paid by the same peasants earlier, in nature,

to the Treasury as a ground rent for the use of the National Estates. Nevertheless, one

should note than in the first years peasants were reluctant to pay in money for the

arable land they rightfully considered theirs and which was mainly used to produce

subsistence crops. The Greek State was cautious not to encourage default of payment.

But the chronic income crisis the peasants suffered since the early 1890s forced the

hand of the Administration. In 1911, of the total of 90 million drachmas owed by the

peasants only 45% was effectively paid (ANASTASIADIS 1911, 38).

25 Only in the plains of North-eastern Continental Greece (provinces of Attica,

Phthiotis, Thebes and Istiaia) some privately owned large estates (tchiftliks) were

constituted already in the early 1830s.

26 There was a debate whether these tariffs had a protective purpose or

whether they were simply meant to provide revenues for the Treasury (DERTILIS 1977,

85-92). Those who opt for the first opinion (VERGOPOULOS 1976, 141-146) think that

the Trikoupis governments had willingly favored Diaspora capitalists (who bought

the ottoman tchiftliks and became landlords) and neglected the interests of domestic

industry since tariffs rose the price for bread and the cost of industrial labor in the

cities.


17

large landowners and to help compete the low-cost imported wheat27. Instead, the

shrinking of its labor force (departure of the majority of Muslim small-cultivators), a

long series of disappointingly low harvests, the absence of any notable amelioration

of yields, the reduction of tilled surface, the perpetuation of the archaic land tenure

system (sharecropping)28, had shattered these hopes and convinced (the commercial

middle classes in Thessaly) of the necessity of a radical Land Reform that would

transform the sharecroppers into landowners, raise their disposable income and the

agricultural output and, finally, boost demand for industrial goods and commercial

services29. Thessaly in the 1880s and 1890s proved to be more a liability than an asset

27 Greek tariff was much lower than those imposed by other Southern

European governments (Italy, Spain and France). In Greece imported wheat paid 14

drachmas per ton since 1860 and the tariff was substantially raised by Trikoupis and

by the subsequent conservative governments to 17 drachmas in 1878, 21 drachmas

in 1885, 32 in 1892 ; finally in 1906 the tariff reached a maximum of 47,5

(MITROFANIS 1991, 135-136). The Greek paper Drachma fluctuated below parity to

the golden Drachma (or Franc). The equivalent Italian tariff was 14 lire per ton in

1880-86, 50 in 1888-1894 and, finally, 75 since 1896 (POROSINI 1971, 41-42, 117).

28 The terms “perpetuation” and “archaic” are misleading. It would be more

precise to say that the Trikoupis governments had tolerated the transformation of the

various landholding rights of Ottoman landlords (and tax-farmers) into full property

rights and, concomitantly, the transformation of the inalienable and inheritable

tenurial rights of the share-croppers into simple short-term contractual tenures. Most

of these large landholdings, usually covering whole villages and small townships,

were sold to rich capitalists of the Greek Diaspora just before the annexation of the

province to Greece. The dispossessed sharecroppers, who were nourishing the hope

that the union of their province with Independent Greece would automatically mean

land reform, bitterly resisted this development. The class struggle between rich

absentee landlords and sharecroppers had marked the social history of late 19th

century Greece.

29 An expansion of the plowed surface is registered in Thessaly only in the

beginning of the 20th century. During the 1890s, the area under tillage just covered

the surface lost after the annexation of the province in 1881. In 1879/1881 93.170

hectares were tilled with wheat, barley and maize against 97.071 in 1887 and 102.943

in 1893/95. It is only in 1911 that the respective area makes a significant progress :

159.550 hectares.


18

to the Greek economy (AGRIANTONI 1986, 281-288) and the source of growing social

instability.

In sum, the growing agricultural population could only pool the necessary

income thanks to the combination of various agricultural activities and, to a large

extend, only because the growing exports of currants could find a “solvent demand”

and provide the necessary profits and income. A large part of the revenue distributed

among small-owner peasants was effectively produced by seasonal by-employment in

the currant plantations (sometimes situated in distant provinces). To a large extend

the income equilibrium of a large part of Greek peasant families was dependent on

the volume and value of currant exports. At the same time currant exports (from

August to October) provided the necessary exchange for the payment of wheat

imports (from November to spring). Any failure of the currant trade would mean a

contraction of the profits of currant merchants, of the income of producers, of the

extra-regional seasonal workforce and of the State revenues. It would also be

transformed into an abrupt shortage of exchange and lead to the rapid fall the Greek

exchange rate.

State modernization, irredentism and public spending in

the 1880s : a recipe for Default

As in all cases of latecomers in industrial development, the Greek State played

an important but ambiguous role in modernizing the economy. In order to understand

its role better, a few preliminary remarks about the nature of the Greek state are

necessary.

The Greek War of Independence gave birth to a societal and institutional order

that constituted a radical discontinuity with the pre-existent Ottoman reality, yet this

does not entail a complete and absolute rupture with the structures of power of

Ottoman Greece30. In spite of what many scholars think, it is doubtful whether we are

justified in speaking of Greece as a Modern National State at least until the 1870s.

Traditional pre-modern states focus principally on managing the conflicts within the

elite, and not on the systematic administration of all the territories which the state

claims as its own – as “Modern States” do –. The Greek State seemed to abide by this

traditional pattern, although a host of European institutional innovations were

purposefully adopted until the 1870s in order to legitimize (and secure) its integration

in the World Inter-State System. But no real effort was made to penetrate and

30 This becomes obvious, for example, if we take into account the system of

taxation, see the remarks made by ANDREADES (1939, ii:301-302)


19

homogenize local societies, to extend the road system31, to suppress banditry and to

assure internal security32. State possession of the National Estates (until the 1870s)

was the most efficient means for the integration of the rural populations and the

neutralization of the local elite. By its effective policy the Greek State succeeded in

eliminating the separatist movements and agrarian revolts, creating nevertheless at

the same time an impediment to the economic development of the country. Such a

situation, which obstructs the development of trade activities and the integration of

the regional and sectoral markets, was incongruous with the standards of a Modern

State and Economy.

The important efforts of modernization in the last quarter of the 19th century

were closely linked to the new risks and opportunities the Greek State faced because

of the mutations in the international environment. The successive Greek governments

begun to exercise a comprehensive foreign policy, siding primarily with Great

Britain, and tried to weight actively upon the diplomatic and military developments

of the Eastern Question. As a consequence, efforts were made during these years

towards the rationalization of civil administration and the formation of a real army

organized to fight against other armies and not simply against bandits. Finally, the

Greek state tried for the first time to build a communication and transports network :

in this way the state expressed its will to penetrate into its territory and to control the

populations in ways and by means very different to the previous ones. Although its

success in achieving these targets is a matter of debate, we must stress the fact that

the first efforts of a real institutional modernization observed during these years had

far reaching consequences for the entire Greek economy.

31 The road system of the country was almost nonexistent in the 1860s,

showing, among other things, the apathy of the state toward direct intervention in the

affairs of the local societies and its insensitivity in facilitating the formation of a

market (SYNARELLI 1989). Until as late as 1872 there were only 620 km of roads in

Greece.

32 Banditry remained an important element of the Greek political and social

life until the late 19th century (KOLIOPOULOS 1997, 177 sq.).


20

-100,00

-50,00

0,00

50,00

100,00

150,00

200,00

250,00

300,00

350,00

1833 1838 1843 1848 1853 1858 1863 1868 1873 1878 1883 1888 1893 1898 1903 1908

mill

ions

ofne

wD

rs.

revenue

expenditure

deficit

Figure 4 Budgetary Deficits

The era of balanced budgets and relative financial stability (e.g. 1830s-

1860’s) had given way to a long era of budgetary deficits (see Figure 4),

characterized by the growth of public spending and taxation and, consequently, by

the expansion of the State apparatus and the increase of its budget (as a proportion of

the GDP), which in its turn depended decisively on the military spending and

operations undertaken since the 1860s33. These developments explain the increase of

the standing Public Debt. After the Berlin conference (June 1878) the Greek State

was urged to accelerate the organization of its military machine, which was called to

play a new role in the Balkans34. This is a decisive date for later fiscal developments

in Greece (PALAMAS 1930, 36).

33 Greece did not actually fight against any other country in the period

between 1867-1893, but it had repeatedly aided financially or militarily the Cretan

insurgents (1867-1869) and mobilized its expanding army (1879-1881, 1885-1886).

34 The influence exercised by the international environment, which played an

important role in the formation of the Economy and State of all the Balkan countries,

must always be emphasized. In the 1860s the internationalization of the World

economy coincided, after the Crimean War, with the end of the post-Napoleonic


21

Until that time Greece had no access to the International capital market

because the country had repeatedly been unable (or unwilling) to service its external

debt, which was incurred during the period of the War of Independence35. The

international capital markets refused to enter into any new commitments before the

outstanding arrears had been settled. The situation during this period (1844-1879)

was not particularly painful for the Greek State because the international situation did

not call for huge Defense spending36. After 1879, and following an agreement with its

main creditors (UK, France and Germany), Greece began to borrow extensively in the

International Capital Markets. In contrast to what had happened in the previous

period, the international financial community lent freely to the Greek government.

But the disposability of foreign capital is not a sufficient precondition for the

modernization of a traditional economy. The heavy terms under which the public

loans were contracted (ANGELOPOULOS 1937, 23-31), the inefficiency of the Greek

Administration to orient the product of the loans towards productive use37 and the

economic conjuncture of the Great Depression, which turned to be unfavorable for

“European Concert”. This fact transformed the interstate relations in such a way that

small states gained more importance in the diplomatic and military arenas. All these

changes affected, in their turn, the whole process of state building, especially by the

influence they exercised on the public budget.

35 It should be noted that this debt provided an ideal means of influence and

coercion used by all Three Protecting Powers (UK, France and Russia) in the 1826-

1844 period.

36 Until the late 1870s the Greek Treasury met its modest financial needs

thanks to the credit offered by its long-time partner, the NBG, and the other Greek-

owned financial Houses of the Levantine Economy.

37 According to one estimate, from 1879 to 1893, when Greece went bankrupt,

the country had borrowed 755,7 million francs which were approximately spent in the

following way : 389 million (51%) for servicing the public debt, 121,7 million (16%)

to pay-off past debts, 100 million (13%) for defense spending, 120 million (16%) for

Public Works and 25 (3%) million for commissions, currency exchange differences

etc. (GEORGIADÈS 1893).


22

the Greek Economy38, led the State to bankruptcy just fourteen years after it had

contracted its first loan.

P U B L I C F I N A N C E S R A T I O S , 1 8 6 3 - 1 9 1 4

0 , 0 0

1 0 , 0 0

2 0 , 0 0

3 0 , 0 0

4 0 , 0 0

5 0 , 0 0

6 0 , 0 0

7 0 , 0 0

8 0 , 0 0

1863

1866

1869

1872

1875

1878

1881

1884

1887

1890

1893

1896

1899

1902

1905

1908

1911

1914

t a x e s / p u b l i c o rd in a r y r e ve n u e s d i r e c t / t o t a l t a x e s t o t a l t a x e s / G . D . P .

Figure 5 Public finance ratios

The inability of the Greek State to profit from foreign capital inflows showed

the incapacity of its structures to respond to the challenges of the international

environment. Thus, the efforts of the Greek State for modernization failed, at least

during the 19th century. But one should use this concept of “economic

modernization” in the case of countries like Greece with due precautions. The

stimulus to change the economic and social status quo is not inherent in these

societies and this seems to go in parallel with the observed low rate of capital

38 This change was very well expressed by the permanent devaluation

(depreciation) of the drachma, which in its turn made the servicing of the public debt

more and more difficult. For more details (VALAORITIS 1902).


23

formation. Finally, in such cases modernization is related to mutations in the Inter-

state system and particularly to the transformation of the balance of power in the

Balkan peninsula, especially during the 1870s, when new states appeared threatening

the very existence of the Greek State. To conclude, “modernization” of the Greek

economy and society became a real issue only in the last quarter of the 19th century,

when Greece was transformed both into an active member of the international state-

system and into a more integrated part of the World Economy. But these

transformations did not lead to an economic take-off but to economic stagnation39.

Table 7Greek Public Debt figures, 1863-1914 (yearly average per period)

Source: According our own estimation and KOSTELENOS (1995)(1) (2) (3) (4) (5) (6) (7)

Period G.D.P. Annuities of the

public debt

(2)/(1)% Ordinary public

revenues

(2)/(4)% Revenues from

loans

(2)/(6)

1863-64 183.200.000 5.223.610 2,85 18.370.530 28,43 6.280.728 83,17

1865-69 232.320.000 7.633.071 3,29 27.600.510 27,66 9.144.902 83,47

1870-74 258.180.000 10.307.989 3,99 32.166.145 32,05 8.865.364 116,27

1875-79 328.500.000 8.970.040 2,73 34.930.576 25,68 9.503.412 94,39

1880-84 394.640.000 19.355.225 4,90 48.469.810 39,93 28.397.554 68,16

1885-89 533.160.000 32.206.469 6,04 59.834.002 53,83 45.983.114 70,04

1890-94 554.960.000 31.124.290 5,61 84.333.790 36,91 14.074.677 221,14

1895-99 586.500.000 64.963.799 11,08 92.959.508 69,88 33.670.254 192,94

1900-04 614.320.000 34.429.078 5,60 107.275.553 32,09 20.668.189 166,58

1905-09 703.800.000 32.841.219 4,67 117.997.789 27,83 4.244.243 773,78

1910-14 1.210.900.000 85.702.518 7,08 145.420.810 58,93 132.021.997 64,92

total 5,94 43,25 106,36

The “currant overproduction crisis” and its

repercussions

When the French vineyard was reconstituted in the early 1890s, the French

government imposed a high tariff on the imports of substitutes to grapes and the

Greek currant producers were suddenly faced with a severe over-production crisis40.

39 Which seems to be parallel to the evolution of other Balkan economies

(PALAIRET 1997).

40 Currant markets showed low elasticity of demand. A small drop in the

quantity produced an abrupt and severe fall in prices. The producers of low-quality

currants (formerly exported to France as raw material for cheap wine production)

were offering their produce at very low prices competing with the medium-quality

produce that was previously consumed by the lower social classes in the UK and

Northwestern Europe. High quality produce (a small fraction of the overall quantity)

was relatively sheltered and it was the medium quality producers who suffered most


24

As a rule producers tried to cut down cost by limiting the use of seasonal labor

comprised usually from small-owners of the internal plateaus and mountains of

Peloponnese and Western Continental Greece (PETMEZAS 1995, 1998)41. The so-

called “currant crisis” coincided with the default of the Greek State and acquired a

chronic character which heavily depressed rural incomes for the next 15 years. Many

peasant farms were now crippled with mortgages. Small-owners, who were already

indebted to support the high costs of commercial plantations and the purchase of land

and National Estates, were unable to meet their financial obligations a fact that was

reflected in the credit system42. These crises were aggravated by the fact that the

commercialization system was based on the rapid flow of the produce into the market

and did not provide for any kind of storage infrastructure that could have regulated

the supplied volume. A large number of commercial houses foundered, while others

severely restricted the capital engaged into the financing of the currant production.

Thus the overproduction crisis was combined with a general commercial crisis.

Transatlantic Emigration and the ease of agricultural under-

employment

This severe and chronic crisis of the agrarian income in the 1890s soon led to

an almost complete de-stabilization of the Greek demographic system (See Table 1).

High rates of population growth and low rates of outflow of the rural demographic

surplus were now untenable. Since the domestic urban economy was unable to attract

and retain this outflow, the rural demographic surplus was evacuated towards the

from the currant crisis. The small-scale agriculture of the Peloponnesian coastal area

had no viable medium-term commercial option other than the currant plantations and

thus it was reluctant to adopt the call for a extirpation of the plants. The democratic

political institutions based on universal male suffrage gave to peasant small-owners

an additional leverage in their struggle to achieve active public support.

41 These provinces had a relatively dense agricultural population (mostly

small-owners) that was surviving thanks to the income earned by seasonal labor.

42 The peasant economy had for the first time faced an acute chronic deficit of

money supply and the organization of agricultural credit became an absolute priority.

Until the 1890s the agricultural small- and long-term credit had never been an acute

problem that would call for a state sponsored Agricultural Credit Institution. Greece

was the last Balkan country to institute a special credit institution for financing the

agricultural production (the Agrarian Bank, in 1927, which was succeeded by the

Agricultural Bank in 1929) (KOSTIS 1987).


25

transatlantic labor markets. In 25 years more than 500.000 Greeks emigrated, half of

them originating from Independent Greece (PETMEZAS 1995). Emigration proved to

be the most adequate response to the income crisis ; population growth was held

down to less than 0,8% annually in the period (1898-1924)43. Southern Greece was

particularly hit, but the migration movement soon spread to other provinces as well.

Migration, which had begun as an act of despair, soon proved to be a rational

means for the rapid accumulation of funds many small-owner families needed to meet

their small- or long-term obligations. Many (later) migrants did migrate out of choice

rather than out of necessity and, in spite of the human cost and personal suffering,

emigration coincided in Greece with a period of rapid economic growth, partly

financed from the savings of migrant workers. Slack labor in agriculture was also

partly absorbed (see Table 3) ; the general indexes of land and labor productivity in

agriculture (see Table 2 and Figure 6) show a mild regression, while otherwise they

would most probably have been rapidly regressing as they did later, in the Interwar

period, when transatlantic emigration had ceased to be an option.

43 Since the last years of the 19th century the demographic system of the

country has changed into one compatible with the so-called 2nd phase of the

demographic transition : the steady decrease of the infant mortality resulted in the

initiation of a long term decline of mortality rates, followed by a substantial fall of the

general fertility. Greek population growth was now combined with a clear tendency

towards a more “mature” sex-age structure of population. The fact that most

emigrants were young unmarried male adults concurred to the fall of the fertility

rates. The war casualties of the 1912-1922 period also raised mortality and reduced

the birth rate.


26

Land and labor productivity in Greek agriculture, 1860-1930

15,00

20,00

25,00

30,00

35,00

40,00

45,00

0,80 0,90 1,00 1,10 1,20 1,30 1,40 1,50 1,60 1,70 1,80

Conventional Units per Active Rural Labor (Y/L)

Co

nve

nti

on

alU

nit

sp

er's

trem

ma'

un

its

of

lan

d(Y

/T)

1860 1875

1887

1911

1929/30

Figure 6 Development of land and labor productivity in Greece

Creation of an interventionist public policy rationale and

imposition of oligopolistic financial control over the leading

export sectors

Two other very significant developments, closely associated with the currant

crisis were, first, the elaboration, for the first time in Greece, of a rationale for a

system of public intervention into the agricultural market in order to protect

production and producers and, second, a general transformation of the finance and

commercialization system of the currants which was soon (1905-1924) to be

dominated by one of the two leading banking-financial cartels of the country

(PETMEZAS 1998).

The first effort of the Greek government to intervene into the currant market –

by itself a complete abandonment of its liberal principles – was imposed upon it by

the merchants and peasants of the “medium-quality” currant producing provinces.

The overall effort proved fruitless, but the different policy options (from volume-

regulating mechanisms to specialized public credit institutions and minimal

guaranteed prices) were tested and an interventionist rationale and experience were

created. The politicians and civil servants of the Interwar period were, in their

majority, active and confident proponents of public intervention and market

regulation, while the previous generation were convinced followers of economic

liberalism.


27

The failure of the governmental policy to raise the price of the currants and to

substitute itself to the ailing commercial class in order to finance the currant

producers permitted a group of ambitious domestic and foreign capitalists, clustered

around the Bank of Athens (BA), to form a “Privileged Society for the Protection

and the Commercialization of the Currants” (Eniaia), which for the next 20 years

cheaply absorbed the excess production of currants, providing as a compensation a

complicated system of protection and minimal price guarantees for the producers.

The Eniaia grew up to become part of a powerful financial, industrial and commercial

group, controlled by the BA. This group held under its influence a substantial part of

the Greek export sectors (currants, wine and spirits extracted from currants etc.).

Greek Banking Capital was rapidly extending its influence over the most vigorous

branches of the National economy44.

Rapid Growth and territorial expansion : 1900-1920

The expanding economy 1905-1922

The IFC and the rationalization of the Greek Finances, 1898-1905

During the first and more depressing years of the currant crisis, the Greek

State was unable to contract more loans in order to continue servicing the public debt,

while any reform of public finances was almost impossible because of the economic

depression. The last public loan was contracted in 1890 and from this point on the

service of the public debt was absolutely dependent on the exchange gained from

currant exports or from the decrease of wheat imports. In 1893 currant exports failed ;

the service of the debt become impossible and the government tried to contract a

funding loan in order to postpone the payments. But even this operation failed and in

December 1893, Prime Minister Charilaos Trikoupis was obliged to admit that the

44 This reminds us of the Ottoman case. The Régie cointéressé des tabacs

ottoman was a comparable European Capitalist group controlling all non-exported

ottoman tobacco production. It offered cheap credit and guaranteed minimal prices to

all ottoman producers. I think the most important differences between the two cases

are 1) that Greek capitalists were the dominant financial group in the Greek case 2)

that the non-exported currants were not consumed locally but were a low-cost raw

material for the exporting Wine and Spirits industry owned by the BA 3) that small-

owners producers in Greece had considerable political power as voters and 4) that the

currant sector was much more important for the small Greek Economy than tobacco

was in the Ottoman case.


28

Treasury was bankrupt. The political situation of the country did not offer the

successive governments sufficient authority and enough flexibility to negotiate the

settlement of the debt with the foreign bondholders. Finally, the military defeat in the

ill-advised Greek-Ottoman War of 1897 forced the country to accept the

establishment of a very constraining International Financial Control (ANDREADES

1939, ii:453-532).

The imposition of the International Financial Control coincided with a

dramatic favorable change of the World economic conjuncture. The development of

the Greek merchant steam fleet coincided with (and was partly feed of) the increase

of transatlantic emigration. The remittances of emigrants and the income created by

merchant marine activities soon became very important factors for the balance of

payments. The magnitude and the importance of these two kinds of capital transfer

were reflected in the accumulation of significant deposits in the Greek Banks. If we

take bank deposits as an indicator of the saving propensity of the Greek Economy, we

realize that the era which followed the period of the Great Depression, characterized

by a rapid growth of the Bank deposits, is one of a growing possibility for the

Banking system to enlarge its financing activities. It is important here to add that

these savings were not created domestically, but originated from the enterprising

Greek Levantine Diaspora, from emigrants in the United States and from those

employed in the merchant marine. It is not a coincidence that the Bank of Athens,

which was created in the late 19th century, was the first deposit bank in the country

and was extensively involved in the Levantine markets.

Since 1898 the Greek economy was obliged to function under the tutelage of

the International Financial Control Committee. The latter tried to assure, as expected,

convenient yields for the bondholders. In order to succeed in its effort, the IFC

Committee transformed the whole institutional framework of public finances,

imposing a fiscal discipline - if we want to use a term in fashion today - and a very

strict control of the banking system and especially of monetary circulation. The

combined consequences of the favorable balance of payments and the fiscal and

monetary discipline imposed by the I.F.C. resulted in the spectacular reevaluation of

the drachma, which in very few years reached its gold parity (see Figure 8).


29

Table 8 Average foreign exchange prices on Paris, 1876-1914

Source: (ZOLOTAS 1927, 217)

Year price per 100

gold francs

Year price per 100

gold francs

Year price per 100

gold francs

Year price per 100

gold francs

1876 103,20 1886 123,25 1896 173,89 1907 108,65

1877 102,97 1887 126,33 1897 167,57 1908 108,12

1878 110,71 1888 127,33 1898 147,41 1909 103,00

1879 104,76 1889 123,00 1899 156,50 1910 99,90

1880 102,54 1890 123,50 1900 164,39 1911 99,90

1881 104,76 1891 129,83 1901 165,80 1912 99,90

1882 109,71 1892 143,63 1903 156,50 1913 99,90

1883 114,06 1893 160,77 1904 137,82 1914 99,90

1884 104,75 1894 174,92 1905 123,12

1885 105,80 1895 180,21 1906 110,00

Extroverted growth and its limits, 1900-1922

Nevertheless, no spectacular structural transformations are observed in the

Greek economy during the few years preceding the First World War. If it is a fact that

a few important industries were created, it is also a fact that the Greek entrepreneurial

interests were orientated towards the Middle East and the Ottoman Empire, where the

existence of Orthodox populations offered significant opportunities for profits. This

becomes quite clear when we observe the development of the branch network of

Greek Banks, which was developed in the Middle East rather than in Greece,

illustrating thus the flow of banking capital from Greece towards those areas where

the profit possibilities were much higher. The same fact explains a novel

phenomenon : the new strategy of European Capital not to penetrate anymore the

Greek economy exclusively through participation in the public debt but also through

joint ventures with Greek Capital. French and German capital was invested in the

Greek economy in the banking sector and in public enterprises (KOSTIS &

TSOKOPOULOS 1988).

The recovery of the economy after the imposition of the International

Financial Control in combination with a more sound budgetary policy, offered the

Greek state the chance to be well prepared for the coming Balkan wars and to profit

from the heritage of the Ottoman Empire (ANDREADES 1939, ii:533 sq.). Between

1910 and 1918, despite the chronic trade deficit, the balance of payments seems to

have behaved rather smoothly, supported by invisible inflows, mainly from shipping

and emigrants’ remittances, and from income of capital invested abroad (KOSTIS

1984). In addition, the accession of Venizelos’ Liberal party to power in 1910 offered

to the country, for the first time, governments which had economic development as

one of their avowed major goals. In 1910 the Ministry of National Economy was

founded and, seven years later, the Liberals, who were designing a major Land


30

Reform after the open conflict with the Royalists, created the Ministry of

Agriculture45.

The Balkan wars and the First World War yielded wealth, territories,

confidence and high expectations. Deposits increased substantially and the Greek

economy seemed invulnerable as the drachma remained solidly at par with the gold

franc until 1919, although inflation in Greece was much higher than in the UK and

in France. Greece had participated in the gold exchange standard since 1910, but due

to the handicaps that the war imposed upon trade, as well as to the exchange pegging

imposed by the Allies, the system was not allowed to function properly and the Greek

currency was kept stable rather than being allowed to depreciate.

Conditions changed abruptly in 1918-1919 and the situation continued to get

worse until 1926. Inflation had set in already in 1915; it was fueled by war and the

blockade (see Figure 7). The country’s foreign exchange reserves were soon

exhausted and the government abandoned the gold-exchange standard de facto in the

summer of 1919 and de jure the next year.

The Interwar economy : Social crisis, Depression and

Economic recovery

The difficult first postwar decade

The Asia Minor campaign began under such adverse financial conditions. As

the war was mainly financed by fiduciary note issue, monetary growth led to inflation

(see Figure 7). The war ended in 1922 with the military debacle, which left Greece

impoverished and its population increased by a net inflow of one million refugees. At

the same time emigrant’s remittances had begun to fall after the implementation in

the USA of restrictions on immigration. In 1922, the Government was obliged to levy

45 Let us add that the Constitution of 1911, imposed by the Liberals, had

already created the necessary legal context for the Land Reform, although the first

laws were only voted in 1917 and were implemented, with a lot of modifications,

after the Asia Minor defeat (EVELPIDIS 1926 ; ALIVISATOS 1939, 32-34). The

Venizelos’ Liberals had used the Land Reform as a means to secure popular support

in Thessaly, the Ionian islands and Northern Greece and to counter the Royalist camp,

which had sided with the landowners and the conservative small-owner peasantry of

the Southern Provinces. Civil strife was endemic since 1915 and ended in open

conflagration in 1917.


31

a peculiar form of forced loan46. The political and social situation of the country were

explosive as the Greek state was obliged to borrow heavily in order to assist

financially the refugees in their new lives in cities or in the rural districts.

Price indexes in Greece (from the official statistical annuary)

1931

0

500

1.000

1.500

2.000

2.500

1914

1915

1916

1917

1918

1919

1920

1921

1922

1923

1924

1925

1926

1927

1928

1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

General PI Consumer PI

Wholesale PI domestic goods PI

imported goods PI

Figure 7 Inflation as seen in the PI 1914-1938

Population exchange had transformed radically the ethnological composition

of Northern Greece and this transformation, combined with the sweeping Land

Reform, was accompanied by serious changes in the land settlement pattern47.

Villages on the mountain slopes were abandoned by their formal populations in favor

of new villages in the plains, where a large number of refugees were also installed.

Former malaria-infested plains in Northern Greece that were sparsely populated with

sharecroppers and exploited mainly as pastures were now put into more intensive use

and were densely colonized with refugees and with “sedentarized” pastoral

populations. The land use in the plains changed radically, large stripes of land that

were formerly held undivided through land-owner control or collective communal

46 All banknotes in circulation were halved in value ; one-half of the original

value was left with the owner and the other was exchanged for Treasury Bonds.

47 The demographic structure of the country was also relatively altered. The

refugees and the population of the newly annexed provinces showed a rather different

(more “archaic”) demographic behavior than the population of the Southern Greek

provinces. The process of homogenization (WATKINS) of the country’s demographic

profile was temporarily impeded.


32

constrains were put in use and this meant a formidable reduction of the extensive

winter pastures in Northern Greece. Transhumant pastoralism became rapidly

outdated and livestock husbandmen were forced to either accept a formidable

reduction of their flocks and depression of their income or to opt for a different mode

of living and abandon their traditional transhumant pastoralism. Some of them simply

abandoned the country (KOSTIS 1987).

Land reform and land settlement programs could succeed only if the Public

treasury would finance the necessary and tremendously expensive large land

amendment projects in Northern Greece, a region that was relatively underdeveloped

compared to Greece. The country had also to mend for the settlement of a surplus of

one million refugee population in the cities and countryside. New houses had to be

built, working capital and credit to be extended to agricultural and handicraft

activities of the refugee and of the former sharecroppers. The over-exploitation of

natural resources by the under-capitalized Greek agriculture had dried out the natural

fertility of the soil since the early 1900s and in the early Interwar period land yields

fell to record low levels (PETMEZAS forthcoming ; KOSTIS 1987). The agricultural

economy was on the verge of collapsing.

A serious effort of economic recovery and financial amelioration bore some

fruits in 1926. Various converging factors contributed to a slow economic recovery

and to a balanced Public Budget. Pressure on the balance of payments was relieved

by the inflow of foreign capital, especially for public works through state contracts.

Monetary growth eased down and the drachma was finally de facto stabilized in

1927. Meanwhile, problems with the outstanding war debts spoilt the State’s credit in

the international market. With the exception of the “refugees’ loan”, contracted in

1924 under the auspices of the League of Nation for the settlement of the refugees,

the Greek State was again excluded from the international capital market.

Negotiations led, in 1927, to a compromise on the war debts and in order to offer

Greece the possibility to contract loans abroad, the experts of the Financial

Committee of the League of Nations imposed severe institutional conditions which

led finally to the agreement for the stabilization of the drachma in 1928 : e.g. the

reform of the Greek banking system through the creation of a modern Central Bank,

the modernization of public finances and the restoration of the gold exchange

standard. Once again the modernization of the Greek economy came from the interest

of the capital markets to assure the repayment of their loans.


33

1930

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

1914 1916 1918 1920 1922 1924 1926 1928 1930 1932 1934 1936 1938

Consumer PI Fr.F.

UK Pound US D.

Sw.F.

Figure 8 Parity of the Drachma with major International currencies

(1914=100) and the CPI

The new possibility offered to the Greek state to contract new loans abroad

was again excessively used. The Liberal governments optimistically believed that

investment in big public works would in very few years lead to high rates of

development. But the difficulties started just one year after the monetary stabilization

of 1928. Three successive crop failures (1929-1931) widen the Trade deficit and

restricted the demand for domestic industrial goods. The problems of the Balance of

Payments were reflected in the restriction of monetary circulation and the diminution

of the foreign exchange reserves. After the British Pound abandoned the Gold

Standard, in September 1931, the financial situation of the Greek Economy was

unbearable. The foreign exchange reserves of Greece had been exhausted and debt

service would drain more than half the public receipts. In 1932 Greece abandoned the

Gold Exchange Standard and was once more obliged to default servicing its public

debt.


34

Table 9 Indexes of industrial production, 1921-1938

source : (col.2 : ESYE 1939, 454), (col.5 : ALEXANDER 1964, 63).

YEAR Value in 000 Drs. INDEX

1924=100

% change to

the previous

year

Volume

100=1924

% change to

the previous

year

Industrial

price index

1921 1.007.103 26

1922 1.958.417 50 92

1923 3.189.867 82 64

1924 3.883.162 100 22 100 100

(a) 1925 4.977.829 128 28 104 4 123

1926 5.472.686 141 10 104 0 136

1927 6.655.375 171 21 117 13 146

1928 7.115.149 183 7 122 4 150

1929 7.158.095 184 1 127 4 145

1930 6.631.363 171 - 7 131 3 131

1931 6.062.008 156 - 9 135 3 116

1932 6.749.598 174 12 127 -6 137

1933 8.548.654 220 26 138 9 159

1934 9.913.281 255 16 158 14 161

1935 10.177.256 262 3 158 0 166

1936 11.840.829 305 16 175 11 174

1937 13.829.834 356 17 190 9 187

1938 13.552.083 349 -7 208 9 168

(a) : From 1925 onwards the production of electricity is included in the index.

The Shift to autarchy and industrial growth

The shift of the Greek economy to autarchy in the 1930s proved, in the short

term, to be beneficial. One can claim that, in the long run, it created an industrial and

economic infrastructure which could only survive under strict state protection ;

nevertheless, the rates of growth from 1932 to 1939 were impressive and the whole

economy was following a track of economic development. For the first time the

linkages between the agricultural sector and the urban economy became close and

profitable for both parts. But this was achieved only after the state intervened

decisively in the economy.

As the agricultural sector constituted the most important obstacle for the

industrial development of the country, the government first turned its interest towards

the support of peasant incomes, which were diminishing after 1920/21 and reached a

very low level after the 1929 - 32 crisis. The recently created Agricultural Bank (AB)

was the policy tool that penetrated the rural economy and financed an increasing

number of peasant households. Under its supervision the construction of small-scale

public works was undertaken. They proved to be very beneficial to the agricultural

economy, offering at the same time seasonal occupation to the slack rural labor. The

Agricultural Bank played an important role in the trade of the major Greek

agricultural products, limiting the control exerted on them by the commercial


35

intermediaries who, until that time, absorbed an important part of the agricultural

revenue48.

One of the first steps taken by the Metaxas dictatorship (1936-1940) was the

obliteration of the peasants’ debt towards the State and its financial institutions. This

debt constituted the most important obstacle to the penetration of credit in the

agricultural economy and a formidable blockage for the whole economy. By this act

the development of the domestic market for industrial products was extremely

facilitated.

The conditions which prevailed in the international trade after 1932 did not

help the agricultural exports of Greece (tobacco and currants) and obliged the Greek

government to contract “Clearing” agreements with the countries of Central Europe

and especially with Germany, which became the most important importer of the

Greek tobacco. As a result German economic influence increased.

Under such conditions the Greek industry augmented its share in the domestic

market through import-substitution strategies. During the First World War the Greek

industry had already profited by the artificial protection created by the disruption of

international trade. The industrial units created in this occasion were oriented towards

the domestic market (CHARITAKIS 1927, 41 sq.). After the Asia Minor defeat and the

arrival of the refugees, the industrial expansion, aiming at the absorption of the

soaring unemployed urban population (which was considered as a potential danger

for social peace) became an important goal of the state policy49. The new tariffs

imposed in 1923, combined with legislature aiming to assist industrial development,

had created the necessary institutional environment for the increase of industrial

investment (CHARITAKIS 1927, 156 sq., HATZIIOSSIF, 1993). Nevertheless,

industrial expansion until the 1930s had led to the “fragmentation” of industry

(creation of numerous small-scale industrial units). It is only after 1932, and the

48 The policy of state intervention in the market of agricultural products was

initiated in 1925 with the creation of the Autonomous Organism for the Currants

(ASO) and was followed two years later by the creation of Central Service for the

Protection of the Domestic Production of Wheat (KYPES).

49 According to common opinion the arrival of refugees created the necessary

preconditions for the industrial development of Greece, because it created a reservoir

of cheap labor force. But even a superficial study of the subject shows that the Greek

economy did not profit from the influx of refugees. On the contrary, the cost of their

rehabilitation was extremely high (KOSTIS 1992).


36

implementation of the policy of “self-sufficiency” (autarchy) followed by the State,

that spectacular progress was observed in the industry. During that time the Greek

banks showed a more systematic interest in industrial financing.

During the 1930s the Greek banking system played a much more important

role in the development of the economy than in the previous periods. The Central

Bank of the country assumed the absolute control of the foreign exchange market,

limiting in this way the flexibility of the commercial banks. At the same time it

followed a voluntary policy aiming to generate high liquidity for the Economy. The

government policy offered a firm support to the recently created publicly-owned

financial institutions (Agricultural Bank and Postal Savings Bank), which succeeded

in concentrating an increasing part of popular deposits. These deposits were used to

provide capital for the State policy (especially for the extensive public works). At the

same time the National Bank of Greece eliminated the competition of the other Greek

commercial banks and increased its share in the market, which in 1938 reached the

amazing level of 60% of the total deposits and advances. Dominating the capital

market and supported by the State, the National Bank of Greece followed a careful

policy of industrial financing with preference to enterprises which operated in their

sectors under privileged conditions (monopolies or exclusive providers of the state or

the army etc.). Even in cases of oligopolistic situations, the N.B.G. encouraged

further concentration of the industrial enterprises : the oligopolistic tendency of the

Greek banking system was thus reflected in industry.

Last, but not least, the bankruptcy of the Greek State made the realization of

the large public works, which until 1931 had been financed by expensive foreign

loans, easier. Paradoxically, the State (which could not hope for foreign financial

assistance) was obliged to rationally mobilize the domestic resources. It attained most

of its aims with considerably lower cost that it would otherwise have paid (due to

high interest rates and commissions) in the International Capital market. In the 1930s

the Greek economy showed, for the first time, a sustained growth and a tendency

towards internal market integration, however exceptional the international economic

environment and however frail the positive results of autarchic policies.

Appendices

Appendix 1 : Assessing the Macro-economic Variables

We dispose a relatively satisfactory estimate of the evolution of the nominal

Greek GDP (KOSTELENOS 1995) and a long series of the official values of

International Trade and Budget. We face a dilemma in evaluating the long-term


37

development of these variables, and especially of the nominal GDP, namely the

choice of an adequate deflator or CPI. In the 19th century and until 1914 the Greek

drachma was pegged to the golden franc (Latin Monetary union)50, but for most of the

time the NBG banknote (or “paper drachma”) was inconvertible and thus the price of

paper drachma fluctuated (always under the parity). No CPI was officially estimated.

Since 1914 the metallic (golden) drachma, was in parity with both the golden Franc

and the paper drachma but war inflation made necessary the official construction of

Price indexes (CPI and a “general” index)51. It is indubitable that for all post-1914

estimations the use of the official CPI is the best choice. The question is what we

should use before 1914. The only PI that exists is the one constructed by KOSTELENOS

(1995, 310-333) and it is presently under revision52. Using the Kostelenos deflator we

arrive at unacceptable results. Real per capita GDP seems to be almost stagnant in a

period of agricultural and commercial expansion (1851/71-1872/82), rises

significantly until 1882/91, and then declines. Most upsetting is the very slow growth

in the 1987/1905-1906/1911 period, which, according to our knowledge, is totally

unrealistic. It is evident that the pre-1914 deflator is not suitable.

50 Greece had adhered the Latin Monetary Union in 1869 and the golden

(“metallic”) drachma was (in theory) pegged to the golden Franc. In reality this

decision was materialized in Oct 1881. Since then the “new” (i.e. golden) drachma

was equal to the previous drachma at a rate of 121 old drachmas for 100 new gold

drachmas. In all our estimates for the years 1851-1914 prices are expressed in golden

drachmas (or Francs). For the post 1914 prices we use the Consumer Price Index

(CPI) of the General Statistical Service of Greece (ESYE) to deflate all prices to the

1914 level.

51 The CPI was calculated on a sample of prices from 104 towns and

townships (1914-1927). The “general index” was rightfully called “general PI of some

articles” (61 goods). Since 1928 a more thorough CPI (on 44 towns sample) and a

variety of other PI (wholesale, food, imported, exported goods, etc.) were constructed.

52 The Kostelenos (Laspeyres) PI was constructed using prices for basic goods

(wheat, cotton & tobacco, olives & olive oil, vineyards, meat, milk, iron ore, lead ore,

magnesite, salt, oil from olive stones) from the following years 1860, 1875, 1899 and

1914. Three different series of indexes (1858-1875, 1875-1899 and 1899-1914 with

base years 1860, 1875 and 1899 respectively) were linked to each other and finally to

the “General PI” of various goods (1914-1938) of the ESYE. The 1899 prices are not

very representative and it is certain that the Kostelenos PI is very unrealistic precisely

in this part of the price index chain.


38

Table 10 Greek GDP, 1858-1938

in 1914 FF GDP mean annual

growth rate

GDP per

capita

mean annual

growth rate

primary

sector

secondary

sector

tertiary

sector

1858-1871 200.528.571 GDP 159,29 GDP p. cap. 71,71% 5,79% 20,99%

1872-1882 328.500.000 5,11% 195,28 1,81% 71,97% 5,41% 22,35%

1883-1891 510.177.778 5,53% 237,19 2,15% 69,91% 3,28% 26,64%

1892-1896 557.320.000 1,32% 236,03 -0,07% 71,59% 3,42% 25,06%

1897-1905 615.833.333 1,50% 244,15 0,49% 62,30% 3,86% 33,81%

1906-1911 750.750.000 2,92% 282,55 2,10% 56,37% 5,00% 38,53%

1912-1924 1.684.181.382 13,09% 338,32 2,08% 48,47% 5,78% 46,13%

1925-1929 2.016.652.449 2,19% 329,56 -0,29% 45,19% 6,56% 48,24%

1930-1934 2.299.963.145 2,81% 350,34 1,26% 44,90% 7,30% 47,78%

1935-1938 2.918.603.870 5,98% 417,36 4,25% 49,06% 7,45% 43,43%

Table 11 Alternative estimations of real GDP

1914

drachmas

GDP (deflated with

the Kostelenos PI)

mean annual

growth rate

real GDP per

capita

mean annual

growth rate

Crafts’

estimations

GDP p.c.

(1970 US$)

mean annual

growth rate

1858-1871 313.910.668 249,35

1872-1882 422.816.323 2,78% 251,35 0,06% 1870 312

1883-1891 568.400.007 3,44% 264,26 0,51% 1880 350 1,22%

1892-1896 595.439.002 0,68% 252,18 -0,65% 1890 380 0,86%

1897-1905 703.657.829 2,60% 278,97 1,52% 1900 393 0,34%

1906-1911 746.561.441 0,81% 280,97 0,10% 1910 455 1,58%

1912-1924 1.592.518.537 11,93% 319,91 1,46%

1925-1929 1.966.661.747 2,61% 321,39 0,05%

1930-1934 2.402.509.246 4,43% 365,96 2,77%

1935-1938 2.936.956.556 4,94% 419,98 3,28%

Another option would be simply to express all our pre-1914 macroeconomic

variables in golden drachmas and to admit implicitly that, in the absence of a reliable

PI, this is the least bad solution. This choice is one of extreme importance, since it

changes completely the outlook of the long term development of the estimated “real”

GDP. It can be seen that using the Kostelenos PI as deflator the real per capita GDP

of the early period (up to 1875) is much higher ( and fluctuates more abruptly) than

in the case of the golden drachma53. In the 1894-1905 period, a period of brutal

income and financial crisis, the two series show equally diverging rates and

oscillations. It is only since 1906 (incidentally since the year the parity between the

golden and the paper drachma was reached), when the Greek economy achieved high

rates (and world prices rose) that the two estimations became almost identical.

53 Since KOSTELENOS (1995) has used budgetary data to construct proxies for

his tertiary sector, the years of War (1897, 1912-1914) and of general mobilization

(1878-1881, 1884-1885), when budgetary expenditure was record-high, present

overestimated figures for the tertiary sector. These shortcomings are presently under

revision.


39

Comparaison between the "real" per capita GDP as deflated using the Kostelenos PI and the 1914golden drachma

1894

1886

1879

1906

0,00

50,00

100,00

150,00

200,00

250,00

300,00

350,00

400,00

450,00

500,00

1858

1861

1864

1867

1870

1873

1876

1879

1882

1885

1888

1891

1894

1897

1900

1903

1906

1909

1912

1915

1918

1921

1924

1927

1930

1933

1936

1914 golden drachma PP Kostelenos PI

The first chain of theKostelenos PI is the1858-1875 series with1860=1,00

The second chain of the PIis the 1875-1899 series with1875=1,00

The third chain of thePI is the 1899-1914series with 1899=1,00

Since 1906 both GDPdeflations seem ro followthe same direction andrythme.

In the 1899-1905 period the twoGDP deflations show divergingdirections and rythmes.

Figure 9 Comparing the two different real per capita GDP estimations

Table 12 Greek International Trade 1851-1938

In 1914 FF Imports Exports mean annual

growth rate

commercial

deficit

Imports

p.c.

Exports

p.c.

mean annual

growth rate p.c.

1851-1871 46.567.095 25.548.714 Imports Exports 82,27% 39,22 21,52 Imports Exports

1872-1882 99.236.273 59.818.182 7,07% 8,38% 65,90% 58,99 35,56 3,15% 4,08%

1883-1891 122.480.556 91.229.778 2,34% 5,25% 34,26% 56,94 42,41 -0,35% 1,93%

1892-1896 108.986.600 78.046.600 -1,57% -2,06% 39,64% 46,16 33,05 -2,71% -3,15%

1897-1905 134.586.222 89.035.000 3,36% 2,01% 51,16% 53,36 35,30 2,23% 0,97%

1906-1911 153.322.000 123.170.000 1,86% 5,11% 24,48% 57,70 46,36 1,09% 4,18%

1912-1924 361.668.960 186.348.229 14,30% 5,40% 94,08% 72,65 37,43 2,73% -2,03%

1925-1929 676.610.710 338.365.197 9,68% 9,06% 99,96% 110,57 55,29 5,80% 5,30%

1930-1934 500.142.552 284.956.422 -5,22% -3,16% 75,52% 76,18 43,41 -6,22% -4,30%

1935-1938 627.572.926 407.688.143 5,66% 9,57% 53,93% 89,74 58,30 3,95% 7,62%

One can observe that the Greek GDP (expressed in “golden drachmas of

1914”) was growing between 1858/71-1872/82 with a mean annual rate of 1.8% from

159 drachmas (average of the 1858-1871 period) to 195 drachmas (average of the

1872-1882 period). In the subsequent period the growth was sustained at 2,15% and

GDP reached a peak of 237 golden drachmas in 1882-1891 (see Table 10). This

period of real growth is characterized by a parallel growth of exports : the chronic

commercial deficit falls from 82% to 34% (see Table 12 and Figure 10), while

International Trade as part of the GDP reaches an all-time high of 48% (see Table 14

and Figure 11). This GDP growth seems excessively optimistic and we thus believe

that the use of a suitable deflator would curb the rate of growth much lower than 2%.

One should note that an indirect method of estimating the real GDP (expressed in


40

international 1970 US$) of Greece and other European countries used by CRAFTS

(1983)54 had shown that this estimated growth of the per capita GDP is more

compatible with the high rates calculated using the “1914 golden drachma” than with

those calculated using the Kostelenos PI (see Figure 9 and Table 11). The rates by

Crafts are more satisfactory than either option we can use (the Kostelenos deflator or

the 1914PP golden drachma) and it is showed that the rate of growth of the late 1860s

and 1870s slowed down in the 1880s and stagnated (or regressed in the 1890s) before

it began again to increase rapidly in the 1900s.

Exports as a percentage of Imports

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

90,00%

100,00%

1833 1841 1849 1857 1865 1873 1881 1889 1897 1905 1913 1921 1929 1937

with 5-year average

Figure 10 Imports as % of Exports

54 CRAFTS (1983, 389) corrected the GDP of the various European countries

using the ICP method elaborated by KRAVIS et al. For Greece the coefficient used is

1,64.


41

Table 13 Greek Budgets 1833-1938

in 1914 FF revenue expenditure mean annual growth

rate

budgetary

deficit

revenue

p. cap.

expenditur

e p. cap.

mean annual growth

rate

1833-1850 16.511.111 16.266.667 revenue expenditur

e

1,48% 19,17 18,89 revenue expenditur

e

1851-1871 26.004.762 25.885.714 2,95% 3,03% 0,46% 21,90 21,80 0,73% 0,79%

1872-1882 50.854.545 55.036.364 5,97% 7,04% -8,22% 30,23 32,72 2,38% 3,13%

1883-1891 111.711.111 117.755.556 11,97% 11,40% -5,41% 51,94 54,75 7,18% 6,73%

1892-1896 99.520.000 93.500.000 -1,56% -2,94% 6,05% 42,15 39,60 -2,69% -3,95%

1897-1905 150.366.667 138.933.333 7,30% 6,94% 7,60% 59,61 55,08 5,92% 5,59%

1906-1911 155.300.000 141.050.000 0,44% 0,20% 9,18% 58,45 53,09 -0,26% -0,48%

1912-1924 395.593.934 381.979.929 16,29% 17,98% 3,44% 79,47 76,73 3,79% 4,69%

1925-1929 636.781.838 582.007.897 6,77% 5,82% 8,60% 104,06 95,11 3,44% 2,66%

1930-1934 558.512.519 539.882.495 -2,46% -1,45% 3,34% 85,08 82,24 -3,65% -2,71%

1935-1938 620.111.966 572.756.543 2,45% 1,35% 7,64% 88,68 81,90 0,94% -0,09%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

1858 1863 1868 1873 1878 1883 1888 1893 1898 1903 1908 1913 1918 1923 1928 1933 1938

Trade as % of GDP Budg.Deficit as % of GDP

budg expenditure as % GDP 5 per. Mov. Avg. (Trade as % of GDP)

5 per. Mov. Avg. (budg expenditure as % GDP) 5 per. Mov. Avg. (Budg.Deficit as % of GDP)

Figure 11 Budgetary deficit and Trade as % of GDP

Table 14 Various Macroeconomic Indexes 1858-1938

Commerce/ GDP commercial

deficit/ GDP

budgetary

deficit./ GDP

revenue/ GDP expenditure/

GDP

1858-1871 35,96% 10,48% 0,06% 12,97% 12,91%

1872-1882 48,42% 12,00% -1,27% 15,48% 16,75%

1883-1891 41,89% 6,13% -1,18% 21,90% 23,08%

1892-1896 33,56% 5,55% 1,08% 17,86% 16,78%

1897-1905 36,31% 7,40% 1,86% 24,42% 22,56%

1906-1911 36,83% 4,02% 1,90% 20,69% 18,79%

1912-1924 32,54% 10,41% 0,81% 23,49% 22,68%

1925-1929 50,33% 16,77% 2,72% 31,58% 28,86%

1930-1934 34,14% 9,36% 0,81% 24,28% 23,47%

1935-1938 35,47% 7,53% 1,62% 21,25% 19,62%


42

Appendix 2 : Some notes on the comparatibility of the

aggregate Greek census data

Before we present the numerous data collected on Greek demo-economic

realities, we should stress a particularity of the history of the Greek Nation State that

complicates the use of such a data base, e.g. the continual expansion of its frontiers

(1832-1947) and the relative dissimilarities of older and newly annexed provinces55

(see Table 15). In each phase of territorial expansion, new provinces, with relatively

dissimilar demo-economic characteristics were annexed and the process of socio-

political, demographic and economic homogenization, already in progress since the

1840s, receded.

Table 15 The expansion of the Modern Greek State (1832-1947)

source : SIAMPOS (1973 15)area population general population

km2 (.000) density (inh/km2)

1832 47.516 Peloponnese, Continental Greece, Cyclades 753 15,85

1864 50.211 Ionian Islands 1.365 27,19

1881 63.606 Thessaly and the province of Arta 2.072 32,58

1897 63.212 small loss of territory, no population losses 2.466 39,01

1913 120.887 Macedonia, Epirus, Crete, Samos, Northern Aegean Islands 4.775 39,50

1919 150.176 Thrace (Eastern and Western) 5.536 36,86

1923 129.281 Eastern Thrace ceded to the Turkish Republic 5.802 44,88

1947 131.944 Dodecanese 7.563 57,32

One should add that the valuable 19th century agricultural censuses and

statistics were never edited in a uniform pattern, while frequent changes of

administrative boundaries make comparisons in absolute terms difficult. For all these

reasons a lot of data manipulation had to be done before aggregate statistical

estimations could be adequately compared. This aggregation can not be done without

making allowance for these data manipulations.

Furthermore, newly annexed provinces had sometimes enjoyed special (fiscal

or other) privileges or suffered from specific stipulations in the annexation treaties.

Thus the Ionian islands (imbued with their regional particularity, which stems from

55 Greece was constituted as an independent Kingdom in 1832 after a long and

painful war of liberation that begun in 1821. The Kingdom comprised the Southern

parts of Classical Greece and it was enlarged to encompass the Ionian islands (1864),

Thessaly and the Epirotan small province of Arta (1881), Macedonia, Epirus, Crete,

Samos and the other islands of Northeastern Aegean (1913), Western Thrace (1919)

and the Dodecanese (1947). For a very brief period (1920-1922) Eastern Thrace was

also annexed.


43

the fact that the islands were never subjected to the Ottoman rule and were thus

endowed with societal characteristics akin to those of Italy) preserved (allowing for

some reforms) their particular land tenure and fiscal system until the Interwar period.

The annexation of Northern Greek lands (1881-1919) was not directly accompanied –

as most Greek peasants had hoped – by the immediate dissolution of the existent

social relations in agriculture. As a result the socioeconomic character of the land

tenure in Thessaly and Northern Greece, which was dominated by large absentee

land-ownership and small-scale sharecropping agriculture, turned out to be

fundamentally different from the one in the “Southern provinces” where56, as a result

of the Greek War of Independence, small-owner peasantry was the norm.

In the end of the First World War the matter was further complicated by the

massive population exchange between Greece, Turkey and Bulgaria, which was

designed (and succeeded) to transform deeply the ethnic composition of each State.

An aggregate number of 2,5 million people moved across the newly traced frontiers.

In Greece, this brutal re-allocation of people and resources was followed by the

promulgation (1917-1926) and the implementation (fully completed only in the early

1950s) of the radical Land Reform that profoundly restructured the population

settlement and land tenure system in Northern Greece. Painstaking research is still

needed to render the pre-1912 aggregate data on population and agriculture entirely

compatible with those of the post-1924 period.

Nevertheless, statistical data are relatively abundant for the post World-War I

period and delineate well the crucial socioeconomic developments : in the first

decade of the Interwar period the demographic and land tenure system faced

increasing stress from the above-mentioned re-arrangements, which were followed by

the negative repercussions of the 1929-32 economic crisis. It was only after this crisis

that the Greek economy seemed to be stabilized and showed a self-sustained upward

movement. In the 1930s the Greek Statistical Service had finally reached maturity

producing relatively abundant and coherent aggregate serial data.

Needless to say that the next round of destructive wars (1940-1949) and

subsequent demo-economic strains produced a new series of computational

difficulties (that of course are not comparable to the real pain and misery suffered by

Greek citizens during the second World War and the following Civil War).

56 Only in the plains of North-eastern Continental Greece (provinces of Attica,

Phthiotis, Thebes and Istiaia) some privately owned large estates (tchiftliks) were

constituted already in the early 1830s.


44

Bibliography

Official Data

Official data are offered from the following censuses : Population statistics

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Prof. Constantine P. KOSTIS Prof. Socrates D. PETMEZAS

Dept. of Political Sciences Dept. of History and Archaeologyand Public Administration, University of Crete, GreeceUniversity of Athens, Greece [email protected]

GreekEconomy 1830-1940

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