Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

How to avoid a financial crisis: the promoters of the Spanish Stabilization plan of 1959

Trincado Estrella, Universidad Complutense de Madrid
Gallego Elena, Universidad Complutense de Madrid

After the Spanish civil war, the Franco regime boosted economic activity with an iron hand. The increase in Spanish GDP in the 1940s was so weak that the level of GDP of 1935 was not reached again until 1951. On the contrary, in the neighbouring countries the production levels of 1945 were higher than those of 1939 despite having suffered the Second World War. The Francoist rulers attributed the failure of the reconstruction to an exogenous factor: the policy of isolation to which the economy was subjected by the allied powers. However, the economic blockade was not real, as the reasons for the Spanish backwardness were political and led to Spain not being able to join the international economic cooperation institutions that would have an essential role in the reconstruction and launching of the post-war European economy. Autarky and interventionism would be the two basic orientations of the economic policy of the first Franco regime. The economy was subordinated to the objectives of political and military independence, which for the hierarchs of the regime meant the pursuit of economic self-sufficiency. The application of a contemptuous mentality of the most elementary principles of economic theory had disastrous consequences for the functioning of the productive system and caused a shortage of essential goods. The external imbalance was sustained while the North Americans transferred massive dollars from 1951 in compensation for the installation of military bases. But there came a time when the external accounts deteriorated until the reserves were exhausted. In the first half of 1959, Spain was virtually in default. However, at least two years before government sectors defended the idea that the orientation of economic policy needed a change, preparing the ground for the Stabilization Plan of 1959. This was the result of the joint work of a small group of Spanish experts and the IMF. The result of the plan was spectacular and prevented the impending financial crisis. This paper studies the period previous to the stabilization plan reconsidering the importance of the ideas of a group of experts that led to it, who came from the recently created in 1943 Faculty of Political and Economic Sciences of the Central University of Madrid (currently, Complutense University of Madrid).

Area: Eshet Conference

Keywords: Spanish Stabilization Plan, Financial crisis, open economies, liberaization, Spanish economists

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