From Finance to Fascism: The Real Effect of Germany’s 1931 Banking Crisis

60 Pages Posted: 28 Mar 2018 Last revised: 14 Mar 2019

See all articles by Sebastian Doerr

Sebastian Doerr

University of Zurich - Department of Economics; University of Zurich - UBS International Center of Economics in Society

Stefan Gissler

Board of Governors of the Federal Reserve System

Jose-Luis Peydro

Government of Catalan - Catalan Institution for Research and Advanced Studies (ICREA); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: March 6, 2018

Abstract

Do financial crises radicalize voters? We analyze a canonical case - Germany during the Great Depression. After a severe banking crisis in 1931, caused by foreign shocks and political inaction, radical voting increased sharply in the following year. Democracy collapsed six months later. We collect new data on pre-crisis bank-firm connections and show that banking distress led to markedly more radical voting, both through economic and non-economic channels. Firms linked to two large banks that failed experienced a bank-driven fall in lending, which caused reductions in their wage bill and a fall in city-level incomes. This in turn increased Nazi Party support between 1930 and 1932/33, especially in cities with a history of anti-Semitism. While both failing banks had a large negative economic impact, only exposure to the bank led by a Jewish chairman strongly predicts Nazi voting. Local exposure to the banking crisis simultaneously led to a decline in Jewish-gentile marriages and is associated with more deportations and attacks on synagogues after 1933.

Keywords: financial crises, banking, Great Depression, democracy, anti-Semitism

JEL Classification: E44, G01, G21, N20, P16

Suggested Citation

Doerr, Sebastian and Gissler, Stefan and Peydro, Jose-Luis and Voth, Hans-Joachim, From Finance to Fascism: The Real Effect of Germany’s 1931 Banking Crisis (March 6, 2018). Available at SSRN: https://ssrn.com/abstract=3146746 or http://dx.doi.org/10.2139/ssrn.3146746

Sebastian Doerr (Contact Author)

University of Zurich - Department of Economics ( email )

Schönberggasse 1
Office G-05
Zürich, 8001
Switzerland

HOME PAGE: http://www.sdoerr.com

University of Zurich - UBS International Center of Economics in Society

Schönberggasse 1
Zürich, 8001
Switzerland

Stefan Gissler

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Jose-Luis Peydro

Government of Catalan - Catalan Institution for Research and Advanced Studies (ICREA) ( email )

P/ Lluis Companys 23
Barcelona, 08010
Spain

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=432

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society ( email )

Raemistrasse 71
Zuerich, 8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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