Growth and stagnation in the Greek economy, 1830-1940

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
Nations 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.
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.
Version : 18/3/2003
Constantine P. KOSTIS and Socrates D. PETMEZAS

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
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
2

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
expansion in the 19
th
and
labor-intensive
agricultural
century : an overview
Independent Greece in the 19th century was almost unique among European
countries in showing such a rapid demographic growth. The countrys 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.
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).
3
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 death rate
(b)
(d)
natural
infant
% rural
% urban
General
Marital
Extra-
Nuptiality
growth
mortality
(<2.000
(>10.000
fertility
fertility
marital
Index
inh.)
inh.)
(If)
(Ig)
fertility (ih)
(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%
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
67,30%
16,60%
0,307
0,535
0,009
0,566
1907
1910
0,307
0,229
0,078
1920
0,310
0,201
0,109
0,148
1928
7,20%
63,90%
21,80%
57,50%
28,30%
1930
0,282
0,157
0,125
1940
0,205
0,134
0,071
0,122
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
250.000
90,00%
Currants Export
80,00%
Currants Production
% of Value on Exports
200.000
70,00%
60,00%
150.000
50,00%
40,00%
100.000
30,00%
20,00%
50.000
10,00%
0,00%
0
1851
1856
1861
1866
1871
1876
1881
1886
1891
1896
1901
1906
1911
1916
1921
1926
1931
1936
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
4

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).
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.
5
Volume of production and exports of Tobacco and % on total value of Greek exports
90.000
60,00%
80.000
50,00%
Tobacco Exports
Tobacco Production
% of Value on Exports
70.000
40,00%
60.000
30,00%
50.000
20,00%
40.000
10,00%
30.000
0,00%
20.000
-10,00%
10.000
-20,00%
1851
1856
1861
1866
1871
1876
1881
1886
1891
1896
1901
1906
1911
1916
1921
1926
1931
1936
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 Northeastern 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.
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
6
Table 2 Land and labor productivity in Greek agriculture (1860-1930)

Southern
SAU /
UC /
UC /
average
Greek
RALE
SAU
RALE
rates
provinces
(T/L)
(Y/T)
(Y/L)
D (UC)
D (SAU)
D (RALE) D (SAU / D (UC /

RALE)
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%
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
SAU /
UC /
UC /
country
RALE
SAU
RALE
D (UC)
D (SAU)
D (RALE) D (SAU / D (UC /

RALE)
SAU)
0,17%
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%
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%
-0,05%
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
Greeces 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.
7

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 chronic11 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 World
War II data and for the methodology.
ARL as % of
rural population
average labor surplus

minimum
chronic (seasonal) labor surplus
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
57,8 %
13,0 %
38,6 %
34.20 %
29,8 %
1954
1929
34,97 %
15,2 %
2,3 %
whole country
1955
35,14 %
10,6 %
-3,0 %
whole country
The
fragile
linkages
between
the
rural
whole country
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
8

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
700.000
150%
Imports Wheat
600.000
% Value on Imports
130%
% Value Wheat on (Currant &

Tobacco)
110%
500.000
90%
tons
400.000
70%
300.000
50%
200.000
30%
100.000
0
1851
10%
-10%
1856
1861
1866
1871
1876
1881
1886
1891
1896
1901
1906
1911
1916
1921
1926
1931
1936
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.
9

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
10

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 (OBRIEN and TONIOLO 1991)
11
Table 4 Distribution of Greek industries per sector, 1874/75-1900

Source: CH. AGRIANTONI, (1986, 209 ; 341)
Sector
Industries %
1874/75
Food-
Horsepower %
1900
46,7
1874/75
Workers %
1900
1874/75
1900
52,0
39,9
43,3
21,7
21,5
processing
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
Industries %
Workers %
Average size (workers per
workers
industry)
1874/75
1900
1874/75
1900
1-5
5,6
1,4
0,5
1874/75
1900
0,1
3-4
5
16-18
6-25
43,0
40,5
15,0
9,8
15-16
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
12

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 oilpressing, 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.
13

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.
14

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 landowners. 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 downpayment (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
15

peasants n 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 propritaire minent 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 landownership 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.
16

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.
17

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)
18

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.).
19
350,00
300,00
revenue
expenditure
250,00
deficit
millions of new Drs.
200,00
150,00
100,00
50,00
0,00
-50,00
-100,00
1833
1838
1843
1848
1853
1858
1863
1868
1873
1878
1883
1888
1893
1898
1903
1908
Figure 4 Budgetary Deficits
The era of balanced budgets and relative financial stability (e.g. 1830s1860s) 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
20

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 18261844 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 Greekowned 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. (GEORGIADS 1893).
21

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 IN A N C E S R A T I O S , 1 8 6 3 -1 9 1 4
8 0 ,0 0
7 0 ,0 0
6 0 ,0 0
5 0 ,0 0
4 0 ,0 0
3 0 ,0 0
2 0 ,0 0
1 0 ,0 0
t a x e s / p u b li c o rd in a r y r e ve n u e s
d ire c t / t o t a l t a x e s
1914
1911
1908
1905
1902
1899
1896
1893
1890
1887
1884
1881
1878
1875
1872
1869
1866
1863
0 ,0 0
to ta l ta 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).
22

formation. Finally, in such cases modernization is related to mutations in the Interstate 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 statesystem 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)
Period
(1)
(2)
(3)
(4)
(5)
(6)
(7)
G.D.P.
Annuities of the
(2)/(1)%
Ordinary public
(2)/(4)%
Revenues from
(2)/(6)
public debt
revenues
loans
1863-64
183.200.000
5.223.610
2,85
18.370.530
28,43
6.280.728
1865-69
232.320.000
7.633.071
3,29
27.600.510
27,66
9.144.902
83,17
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
The
currant
43,25
overproduction
crisis
106,36
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
23

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 socalled 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 underemployment
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).
24

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.
25
Land and labor productivity in Greek agriculture, 1860-1930
Conventional Units per 'stremma' units of land (Y/T)
45,00
1911
40,00
1887
35,00
1875
1860
30,00
25,00
1929/30
20,00
15,00
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)
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 volumeregulating 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.
26

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 Rgie cointress 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 smallowners 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.
27

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).
28
Table 8 Average foreign exchange prices on Paris, 1876-1914

Source: (ZOLOTAS 1927, 217)
Year
price per 100
Year
gold francs
price per 100
Year
gold francs
price per 100
Year
gold francs
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
29

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 countrys 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 emigrants 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.
30

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)
2.500
2.000
1931
1.500
1.000
General PI
Consumer PI
Wholesale PI
domestic goods PI
500
imported goods PI
1938
1937
1936
1935
1934
1933
1932
1931
1930
1929
1928
1927
1926
1925
1924
1923
1922
1921
1920
1919
1918
1917
1916
1915
1914
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 countrys demographic
profile was temporarily impeded.
31

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 States 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.
32

4.000
3.500
3.000
2.500
Consumer PI
Fr.F.
UK Pound
US D.
Sw.F.
2.000
1.500
1930
1.000
500
0
1914
1916
1918
1920
1922
1924
1926
1928
1930
1932
1934
1936
1938
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.
33
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
% change to
Volume
% change to
Industrial
1924=100
the previous
100=1924
the previous
price index
year
year
(a)
1921
1.007.103
26
1922
1.958.417
50
92
1923
3.189.867
82
64
1924
3.883.162
100
22
100
1925
4.977.829
128
28
104
123
1926
5.472.686
141
10
104
136
1927
6.655.375
171
21
117
13
146
1928
7.115.149
183
122
150
1929
7.158.095
184
127
145
1930
6.631.363
171
-7
131
131
1931
6.062.008
156
-9
135
116
1932
6.749.598
174
12
127
-6
137
1933
8.548.654
220
26
138
159
1934
9.913.281
255
16
158
14
161
1935
10.177.256
262
158
166
1936
11.840.829
305
16
175
11
174
1937
13.829.834
356
17
190
187
1938
13.552.083
349
-7
208
168
100
(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
34

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).
35

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
36

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.
37
Table 10 Greek GDP, 1858-1938

in 1914 FF
GDP
mean annual
GDP per
mean annual
primary
secondary
tertiary
growth rate
capita
growth rate
sector
sector
sector
1858-1871
200.528.571
1872-1882
328.500.000
GDP
5,11%
159,29
195,28
1883-1891
510.177.778
5,53%
1892-1896
557.320.000
1,32%
1897-1905
615.833.333
1906-1911
750.750.000
GDP p. cap.
71,71%
5,79%
20,99%
1,81%
71,97%
5,41%
22,35%
237,19
2,15%
69,91%
3,28%
26,64%
236,03
-0,07%
71,59%
3,42%
25,06%
1,50%
244,15
0,49%
62,30%
3,86%
33,81%
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
GDP (deflated with mean annual real GDP per mean annual
drachmas
the Kostelenos PI)
growth rate
capita
Crafts
GDP p.c.
growth rate estimations (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.
38
Comparaison between the "real" per capita GDP as deflated using the Kostelenos PI and the 1914
golden drachma
500,00
450,00
The second chain of the PI

is the 1875-1899 series with
1875=1,00
The first chain of the

Kostelenos PI is the
1858-1875 series with
1860=1,00
400,00
The third chain of the

PI is the 1899-1914
series with 1899=1,00
350,00
1894
1906
300,00
250,00
200,00
Since 1906 both GDP

deflations seem ro follow
the same direction and
rythme.
1886
1879
150,00
100,00
In the 1899-1905 period the two

GDP deflations show diverging
directions and rythmes.
50,00
1914 golden drachma PP
1936
1933
1930
1927
1924
1921
1918
1915
1912
1909
1906
1903
1900
1897
1894
1891
1888
1885
1882
1879
1876
1873
1870
1867
1864
1861
1858
0,00
Kostelenos PI
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
commercial
Imports
Exports
mean annual
growth rate
deficit
p.c.
p.c.
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%
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%
5,30%
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
39

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.
100,00%
Exports as a percentage of Imports

90,00%
80,00%
70,00%
60,00%
with 5-year average
50,00%
40,00%
30,00%
1833
1841
1849
1857
1865
1873
1881
1889
1897
1905
1913
1921
1929
1937
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.
40
Table 13 Greek Budgets 1833-1938

in 1914 FF
revenue
expenditure
mean annual growth

rate
1833-1850
16.511.111
budgetary revenue expenditur mean annual growth

deficit
16.266.667 revenue expenditur
p. cap.
e p. cap.
rate
1,48%
19,17
18,89 revenue expenditur
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%
-3,95%
1892-1896
99.520.000
93.500.000
-1,56%
-2,94%
6,05%
42,15
39,60
-2,69%
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%
70%
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
1858
1863
1868 1873
1878
1883
1888 1893
1898 1903 1908
1913
1918
1923 1928
Trade as % of GDP
budg expenditure as % GDP
Budg.Deficit as % of 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)
1933
1938
Figure 11 Budgetary deficit and Trade as % of GDP

Table 14 Various Macroeconomic Indexes 1858-1938
Commerce/ GDP
commercial
budgetary
deficit/ GDP
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%
41

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 sociopolitical, 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
1832
47.516
1864
1881
1897
1913
(.000)
density (inh/km2)
Peloponnese, Continental Greece, Cyclades
753
15,85
50.211
Ionian Islands
1.365
27,19
63.606
Thessaly and the province of Arta
2.072
32,58
63.212
small loss of territory, no population losses
2.466
39,01
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.
42

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.
43

Bibliography
Official Data
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47

X. ZOLOTAS, (1927) ,
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Athens.
Prof. Constantine P. KOSTIS
Dept. of Political Sciences
and Public Administration,
University of Athens, Greece
Prof. Socrates D. PETMEZAS

Dept. of History and Archaeology
University of Crete, Greece
petmezas@phl.uoc.gr
48

Growth and stagnation in the Greek economy, 1830-1940

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GROWTH AND STAGNATION IN THE GREEK

Constantine P. KOSTIS & Socrates D. PETMEZAS

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

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

Constantine P. KOSTIS and Socrates D. PETMEZAS

International Financial Control (IFC) and the new

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

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

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

Constantine P. KOSTIS and Socrates D. PETMEZAS

Slow growth and financial fragility

Constantine P. KOSTIS and Socrates D. PETMEZAS

Table 1 The demographic data (1830-1950)

Figure 1 Currants production and exports, 1830-1938

Constantine P. KOSTIS and Socrates D. PETMEZAS

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

Constantine P. KOSTIS and Socrates D. PETMEZAS

Figure 2 Production and Exports of Tobacco, 1881-1938

This colonization and the constitution of the extensive Western

The almost complete predomination of small-ownership in rural Southern

Constantine P. KOSTIS and Socrates D. PETMEZAS

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

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

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

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

This concerns mainly the Southern Greek provinces (exporting currants,

Constantine P. KOSTIS and Socrates D. PETMEZAS

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

average labor surplus

chronic (seasonal) labor surplus

economies : uncompleted industrialization

For the calculation of these indexes see (PETMEZAS 2000)

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

Constantine P. KOSTIS and Socrates D. PETMEZAS

% Value Wheat on (Currant &

Constantine P. KOSTIS and Socrates D. PETMEZAS

necessary raw materials to the growing Greek industry14.

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

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

It is noteworthy that the domestic Greek production of chemical fertilizers

Constantine P. KOSTIS and Socrates D. PETMEZAS

Constantine P. KOSTIS and Socrates D. PETMEZAS

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

Table 5 Distribution of the Greek industries according to their size

Average size (workers per

The first Greek industries were concentrated in sectors which were

Constantine P. KOSTIS and Socrates D. PETMEZAS

Table 6 Power use proxy for the Greek Industry

HP per 100 workers

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

Constantine P. KOSTIS and Socrates D. PETMEZAS

Crises, Bankruptcy and rationalization, 1893-1905

of the agricultural sector in the

Constantine P. KOSTIS and Socrates D. PETMEZAS

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

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

Constantine P. KOSTIS and Socrates D. PETMEZAS

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

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

Constantine P. KOSTIS and Socrates D. PETMEZAS

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

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

Constantine P. KOSTIS and Socrates D. PETMEZAS