Imagining the macroeconomy in interwar Poland

MARK BLYTH: From the Rhodes center for International Finance and Economics at Brown University. This is the Rhodes Center Podcast. I'm the director of the Center and your host, Mark Blythe. On this episode, I talked with Malgorzata Mazurek, a historian, associate professor of Polish studies at Columbia University and author of the forthcoming book The Economics of Hereness-- The Polish Origins of Global Developmentalism, Nineteen Eighteen to Nineteen Sixty-Eight.

I came across Mazurek's work when a colleague sent me an early chapter of the book and said, Mark, you got to read this. I did, and he was right. You see, I've always been fascinated by the Polish economist Michal Kalecki, who's famous for a lot of things-- his theory of profits, his critique of full employment, and a host of other things. But what Mazurek's work does is to place Kalecki as a real living person in the context of post World War I Poland.

In doing so, she reveals what he was puzzling with then and what we're puzzling with now, and how they're more similar than different. In the book, Mazurek explores how between World War I and II, a group of thinkers and economists led by Kalecki and another economist, Ludwik Landau, began to re-envision and re-imagine Poland's economy and Poland's future. Their work, as Mazurek tells it, threatened many of the assumptions commonly held by those in power at the time, and foreshadowed a lot of what we would call developmental thinking in the mid-20th century, one that we would become more familiar with in the '50s and '60s.

Mazurek gives us a fascinating history of Poland in the 20th century, with a unique confluence of attitudes towards trade, immigration, and ethnic diversity created an unexpected laboratory for new economic ideas. Understanding the evolution and impact of their ideas also feels especially enlightening today, as you will figure out by having listened to our conversation.

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Malgorzata, welcome to the podcast.

MALGORZATA MAZUREK: Thank you for having me.

MARK BLYTH: You just gave a talk here at to the Rhodes Center on your forthcoming book, which is The Economics of Hereness-- The Polish Origins of Global Developmentalism. And it's a really remarkable book because what it does is it takes the notion of development that everyone has in their head, that this is something that so-called developed countries do to underdeveloped countries, which presumes the existence of these things called countries and national economies.

And if you do a certain checklist of policies, then you will presumably grow faster and become more modern and all that sort of stuff. And what you point out is that development originally in the interwar period, in places like Poland and pretty much everywhere, development was about the development of the national economy itself. It wasn't something that happened to other people.

So if we think about Keynesian economics. Keynesian economics was development economics. It was an attempt to envisage and develop the resources of a national economy. Now for that to happen, you need to have things like economic subjects, consumers. And that's really difficult when you have a space like interwar Poland, which is a multi-ethnic polity which is extremely divided politically, and you've got real ethnic differences in ethnic communities geographically, et cetera, et cetera.

And your heroes in this story, Landau and Kalecki, basically start off gathering statistics on the garment trade. And out of that, they imagine an economy that is deracinated, that is de-ethinisized, and that would very much resemble the kind of post-war macroeconomics that we ended up with. So just all of that as background. Basically, why did these two economists start doing this, and what was the political project behind it?

And particularly what I want to bring in is this notion that, you call it full employment developmentalism as the opposite of Poland, as an emigrant state. So maybe start there. Why was Poland an emigrant state? What did that mean? What are they trying to do? Why are they getting people to leave?

MALGORZATA MAZUREK: The answer to this question starts in the Nineteen Twenties, when a group of new nation states came about in Central Europe on the rebels of land empires, and Poland was one of them and was the leader of thinking that if you have a poor population and ravaged country after the war, the only thing that really makes sense is to let them go and let people go to other countries where they can have a better life and maybe send back money. And that idea was at the heart of public policy in interwar Poland.

MARK BLYTH: All right, so stop there because that's so weird. Because ultimately, I think about many people these days would think about an economy as the number of people, the amount of hours they work, multiply one by the other and add to that the quality and amount of capital they've got. And if you reduce any of these things, your economy is going to get smaller. Yet, they thought that the solution to economic backwardness and decline was to get rid of people. Correct?

MALGORZATA MAZUREK: Correct.

MARK BLYTH: Why?

MALGORZATA MAZUREK: There are several assumptions behind this way of thinking, and one of them was that if you want to attract capital in a poor country, like Poland was in the interwar period, you need to have so-called sound finance. You need to run politics of tight budget. This meant that the country that is in such situation and wants to attract new capital cannot spend money, cannot invest, and cannot provide better life for local population. So the local population becomes an afterthought while the tight budget and creditworthiness becomes the priority. And this is how immigrant state was born.

MARK BLYTH: So this is when I teach the gold standard to my undergraduate students. I give the example of Minnesota. So why is Minnesota filled with Swedes? Well, the short version of it is because the Russians got railroads and they could cut down more trees than the Swedes, and they killed the global timber market. And they were a small producer and a small agricultural producer. They hadn't yet industrialized. So a third of Sweden left.

So in the 19th century, this mechanism of adjustment of outmigration was actually quite common. But it runs into problems in the Nineteen Twenties when you get a world that no one wants to take, the emigration that goes with the emigration, right?

MALGORZATA MAZUREK: Yes, there is a pull and push mix of factors, which is that new national states start to, on the one hand, value their local populations, especially ethnic minorities in these countries. So ethnic poles had higher value than ethnic minorities, such as Jews, Ukrainians, Belarusians, et cetera. On the other hand, there were no mechanisms to secure that those new valuable citizens can have a good life where they were born, and this created also the push factor to maintain immigration policies.

But the problem was that in the interwar period, we have a world of walls emerging, closed borders became commonplace in that period, and that killed the paradigm of immigrant state.

MARK BLYTH: And the gold standard fell apart at the same time, et cetera. So we now have a broken system. So in a sense, these guys, Landau and Kalecki, are trying to think a way around this. The old model of adjustment just let people go to Minnesota. That one's dead. And you have rising ethnic tensions at home because of this preference for the native, "Native population." And they're trying to figure out, is there some other way of doing this?

And they basically, through the study of statistics, stumble upon a kind of notion of a national economy. I'm reminded almost of Benedict Anderson rather than it being languages than this, it's economic statistics that allows them to create a notion of the Polish economy. Why is that different? What is it that were trying to do with those ideas?

MALGORZATA MAZUREK: What is new, I think, is that Poland was not just an emigrant state, but it was an export economy. Like many poor countries, they rely on export of primary resources or finished goods or whatever. Here we have a country that cannot export anymore and cannot send people away. And I think this was a perfect storm together with the rising ethnic tensions in which the idea of providing jobs to people became a quite sound solution to these problems.

MARK BLYTH: So this is where this idea of full employment comes up. Now we associate that with Keynes, as historians such as yourself have corrected everyone correctly that he wasn't the only person that thought of this. This was going on in multiple places. In a way, it's kind of a functional response to the same problem. They're all grappling with it. There's only so many ways you can stabilize this. If we have an economy and we actually employ people, maybe that's one way that we can figure out how this works.

They start doing this through basically doing these surveys in the Garment District. So tell us a bit about that. How do you get from surveys in the Garment District to the notion of a national economy and full employment?

MALGORZATA MAZUREK: To come up with an idea of national economy or a picture of national economy, you need to be able to read the component parts of that national economy. And so garment industry was a place where wholesalers met with consumers and also were in contact with factory owners and producers. And that intersection of these three sectors-- production, distribution, and consumption gave a first glimpse into how national economy worked.

MARK BLYTH: And so it's basically a proto macroeconomics. Rather than looking at the them as individuals, you're looking at them as members of a particular class of activities producers, consumers, et cetera. So you've got that kind of proto macro thing there. Why did they think that this would be a solution?

I mean, I'm just imagining the following. Imagine I'm one of these economists, and I'm trying to convince the Polish liberal classes in the Nineteen Twenties that this is the way to go. What are the arguments that they're making about why we don't need to do this as an ethnic project? Why it's not about getting rid of the Ukrainians? It's about making everybody Polish. How did they try and make those arguments?

MALGORZATA MAZUREK: First of all, ethnic antagonisms undermined not just respective ethnic groups, but also the Polish state. And by the mid Nineteen Thirties, ethnic antagonisms basically transformed Poland into a failed state, if you will, because ethnic Poles couldn't imagine that they would live next to Jews. And Jews understood that as a minority nationality, they may have no future in Poland, and they should look for another place to go. So if you want to keep social peace, finding an economic solution to a social problem seemed reasonable.

MARK BLYTH: Landau came up with this idea of pulling social income. What was that?

MALGORZATA MAZUREK: This is basically a way of counting national income with a focus on distribution and also with focus on consumption and living standards. So it's very similar to Simon Kuznets idea of national income, who stressed the importance of so-called effective demand and spending power of people in estimating what is the wealth of the nation. The idea of national income was not just a technical exercise.

It also estimated what is the capacity of a national economy, understood as a collection of consumers who go to the market to buy goods and eventually make Poland rich. Again, because Poland actually, of course, it was a new nation state, but before World War I, it was a country that was much more industrialized and developed than it was in the interwar period.

The idea of social income was basically a distributive take on estimating the circuit of goods, money, and shops.

MARK BLYTH: It's almost a circular flow of income type model that you would associate with, like the work of Keynes and other demand side economists as well. And they're part of that conversation that's going on in the Nineteen Thirties. So we have social income "national income with Landau." What we get with Kalecki is the centrality of full employment.

MALGORZATA MAZUREK: Yes, but there would be no Kalecki without Landau, if you will. So Michal Kalecki theorized the way in which market economy fluctuated, the famous essay on theory of business cycle, in which he explained that there is a pattern that dictates evolution of capitalism, which is the primacy of investments as a set of factor driving national development, but also investments rely and depend on effective demand on how and what people consume and spend.

And so indeed, business cycle economy in Kaleckian model is a closed economy. It's, of course, a model. What is so interesting in the Polish case is that model became a reality because Poland in the interwar period was a country that could not obtain any loans, could not send any people away for work migration, and became basically an autarchic state by default, by force.

MARK BLYTH: So these ideas began to be developed in the '20s. But the crisis really hits in the Nineteen Thirties, but it's not in public. Again, in your talk, you're talking about the fact that this has to go underground. It's written almost as samizdat. It's written as hidden literatures and anonymous authors, et cetera. Why were these ideas so threatening to the Polish elite? Why did the Polish elites not think, hey, these are good ideas, why don't we do that rather than throwing everyone out?

MALGORZATA MAZUREK: Poland was an anti-communist state by design. It protected Europe from the Bolshevik threat, so to speak. And so if you were a radical socialist or, God forbid, communist, there was a chance that you would get into prison. And these ideas were basically politically persecuted in the '20s, but also in the Nineteen Thirties.

So although Landau and Kalecki were not communists, they were at some point communist sympathizers. And they did not have party affiliation in that period. They couldn't publish their radical socialist ideas in any public newspaper or research bulletin.

MARK BLYTH: So essentially, just the notion of a national economy where basically you don't have ethnic cleavages, where you have consumers and you have producers, you have consumption, you have investment, all that sort of stuff. That itself is threatening. That itself is a kind of wrong idea because the only acceptable model is essentially gold standard type deflation, a tight budget and people leaving. So you're creating a kind of powder keg here, and in a sense it has to go wrong.

There is an alternative, which is to do this, or at least begin to think this way. And if you're not going to do this, then you're just heading into ethnic strife and conflict. This actually ends up, in a sense, being true. Landau meets his end in Nineteen Forty-Four. How does he meet his demise?

MALGORZATA MAZUREK: Ludwik Landau stayed in Poland when the World War II broke out, which his dear friend Michal Kalecki did not do because he went to the United Kingdom in the late Nineteen Thirties. Ludwik Landau was the chief economic expert in the Polish Underground State, and his policy designs projected what Poland should become after the war is over. As you and our listeners know, under Nazi occupation, if you were Jewish, you were under existential threat.

And so in Nineteen Forty-Four, despite the fact that Ludwik Landau had many friends who protected him, and he did not leave his family in the Jewish Ghetto and was not killed as a Jew, he was eventually arrested in the street in unknown circumstances, actually, and disappeared. His body was never found.

MARK BLYTH: Oh, wow. So, Kalecki, as you say, he goes off to London. Now, most people who know Kalecki, know him through this very, very famous piece in the political quarterly in Nineteen Forty-Four, which, oddly enough, is called the Political Problems of full Employment. So here we have this person that's like, I've got this great idea as to how we don't have a failed state. How about we go for full employment? And he's most famous for writing a piece that says, and if you do, there's going to be these problems.

The problems being management loses the right to manage. The investors will go on a capital strike because of the cost of this, et cetera. It's very prescient for the Nineteen Seventies. Can you connect these two things, how does the guy who thinks full employment is a solution end up writing a piece in Nineteen Forty-Four that says full employment is a deep problem?

MALGORZATA MAZUREK: This is a fascinating issue because Kalecki at heart was a realist, and as much as he thought in terms of modeling, his economic knowledge was framed as theory, as thinking in terms of models. He believed in the primacy of politics over economics, and he also did not believe that socialism would also be a kind of a mixed system, in which you would have some sectors of the economy that were private, and that you could not really seize the state for the sake of socialist development.

And I think he thought about capitalism not as the machine, but as a collection of group interests driven by passionate people who had their agendas often messy and that nevertheless aggregated into a world in which power struggle organized around the notion of class would be a dominating force in both politics and economic life.

MARK BLYTH: So it's this moment whereby he starts off visualizing a kind of deracinated everyone's a consumer and the producer type of state. In such a world, there's no class. There's no classes. There's perhaps different things you do functionally-- you consume, you produce, et cetera. But there's no classes. And what he comes back to. And what he becomes famous for, again, as you point out in your talk, is that he brought the notion of class back into economics at that point in time by essentially saying that the interests of the investor class are actually quite different from the interests of workers.

So even if you aim for full employment, you're going to set up a whole new set of conflicts. You never quite got rid of it, and that conflict remains central. But then we forgot about Kalecki for a long time. And in the '70s, with inflation, et cetera, the breakdown that he foresaw, and there's been a recent rebirth of interest in him and his writings on business cycles and so on and so forth. But he goes on to become quite a successful individual. So tell us what happens to Kalecki.

MALGORZATA MAZUREK: This is a fascinating story. What happened to Kalecki after he died because he became an economist of development in the Nineteen Fifties and '60s, and he was still known for his theory of business cycle. And then indeed, I think the crisis of Keynesianism brought him down. And ideas of Kalecki resurfaced during crisis of Two Thousand and Eight.

And I think this is where we really see the revival of Kaleckisian economics that really explains how organized labor will be always trumped by investors, by powerful stakeholders with capital, and that ultimately, this sociological model leads to eternal instability and volatility of the world economy, in which the poor and the weak are always on the losing end. And I think his insistence on class and power really helped understand that economics is nothing but a collection of models and equations to solve and multiply.

MARK BLYTH: When's the book coming out?

MALGORZATA MAZUREK: The book is coming out next year, early Twenty Twenty-Six, and it's going to be publication of Cornell University Press. It is a historical book that tells a story from the late 19th century to the Nineteen Sixties, but it also has a long epilogue that explains today's relevance of full employment.

MARK BLYTH: So give us a taste of the epilogue.

MALGORZATA MAZUREK: The epilogue really situates Kaleckian economics as a powerful force in rethinking the importance of class or social status in general in today's political economy. And the epilogue also recovers Ludwik Landau as a champion or as pioneer of studies on global inequalities that also resurfaced in last years. So I would place Ludwik Landau in the lineage of students of global inequalities next to Colin Clark, Kuznets, Branko Milanovic, Thomas Piketty, and others.

MARK BLYTH: One more thing, and I don't know if it's in the epilogue, but when I read chapter three, one of the things that it made me think was, we're going back to the future in the following sense. We now live in a world where mass deportations of ethnic minorities is thinkable again, and we care about the external financial balance more than the internal financial balance. We don't quite have a gold standard, but nonetheless, there are haunting elements of this return. Does this concern you? Does this make you think that we are heading back to the future in a way?

MALGORZATA MAZUREK: Yes, I'm very concerned because each time when powerful people start thinking in terms of people as a demographic problem, something that can be removed as a excess or surplus population, then we are in trouble. And I think that as much as class thinking and materialist thinking has its problems, because people are not just materialist creatures, and they also think in more complex ways than through the lens of class, this really leaves space for politics that is much more constructive than demographic thinking that invites us to think in terms of elimination, segregation, and, yes, death at the end.

MARK BLYTH: Well, let's hope that the good side of Kalecki's arguments appeals to our better spirits and we don't go back to the future. So, Malgorzata, thank you very much for the podcast.

MALGORZATA MAZUREK: Thank you for having me.

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MARK BLYTH: This episode was produced by Don Richards and Zack Hirsch with production assistance from Sabrina Klimek. If you like this episode, leave us a rating and a review on Apple, Spotify, or wherever you listen, and be sure to subscribe to the show while you're at it. We'll be back soon with another episode of The Rhodes Center Podcast. Thanks for listening.

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