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Banking Crisis in 1931 Led To Radical Voting

crisis in 1931 led to radical voting
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EDITOR'S NOTE: Those who don’t learn from history are doomed to repeat it, and offers a history lesson world leaders should learn from. In the wake of the German banking crisis in 1931, German voters rose up and voted for a radical party that exploited the groups of citizens hit hardest by the crisis. This party was the Nazi party, and we all know what happened next. With financial crises looming around the globe, preventing these crashes — and the possible bad actors who might take advantage of them on a political level — becomes even more important in 2021 and beyond. 

German banking crisis in 1931 contributed to the rise of the Nazi party, researchers find.

The 1931 banking crisis in Germany contributed to the rise of the Nazi party, researchers say in a new paper, hinting at a mechanism through which more recent crises might have led to a rise in radical politics.

Sebastian Doerr, Stefan Gissler, Jose-Luis Peydro and Hans-Joachim Voth draw on a dataset of firms’ exposure to Danatbank, the institution whose collapse sparked a systemic crisis in 1931. The data allows them to map out the regions of Germany most exposed to the crisis. They present their results in a Bank for International Settlements working paper.

The researchers find incomes in municipalities more exposed to Danat fell further during the crisis, and there was a “clear upward shift” in voting for the Nazis in these regions. They estimate the collapse of the bank added 2.9 percentage points to the party’s votes between September 1930 and July 1932, “equal to 15% of its mean vote gain”.

The researchers stop short of explicitly linking the same mechanism to the rise of populism in the wake of the global financial crisis. Indeed, they note other factors in 1931, including “pre-existing anti-Semitism”, added to the radicalisation of voters. Danat’s chairman was Jewish and was singled out during the crisis, something that did not happen at other banks.

However, they say their results imply a “synergy between economic and cultural factors”, which they argue has been underexplored in the literature to date.

Originally posted on Central Banking.

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