EKIP– Expert Club for Economics and Politics A Different Opinion
The ideas and historical events discussed in this article can also be seen presented in this video.
Speculation, in the words of economist Assen Hristoforov, is an action by a producer, entrepreneur or trader “ with the intention of realizing more than normal profits in a relatively short period of time thanks to a special market condition”. The special market condition may be a natural disaster, war, epidemic or other extraordinary event. It is the root cause of a sharp increase in prices in the affected areas, and the consequence is the possibility of quick profits that are greater than normal.
Speculation provokes public discontent, directed against those who allegedly profit from the misfortune of others. A logical consequence is the intervention of public authorities, which tries to deliver justice. In the following lines, we will focus on the attempts to tame speculation in Bulgaria during the early years of World War II and the conclusions that can be drawn from their results.
Market and prices in Bulgaria at the beginning of the war
At the beginning of World War II, conditions were created for the so-called economic pseudo-boom. Pseudo-boom because it was not due to innovations, new markets, specialization, competition to satisfy people's needs, etc. It was a result of the war, because of which the demand for many types of goods increased on both the domestic and foreign markets, and their supply was limited. In conditions of emergency, the warring countries purchased large quantities of raw materials, materials and finished products, neutral countries also resorted to stockpiling. With the mobilization of many men in the army, production opportunities decreased, transportation costs increased, etc. The increased budget expenses were covered by printing paper money, which was used to pay for military and other orders. This led to an increase in prices. According to some sources, from September 1939 to March 1940, the increase in the cost of living in Bulgaria was between 25 and 30%. Opportunities for speculation emerged for manufacturers, wholesalers and retailers.
The actions of economic players in the country take different forms. Some hold on to their available goods in anticipation of ever higher prices. Others are inclined to pay their suppliers higher prices, driven by the seemingly unlimited demand. Even before the start of the war, many of the main prices of food products in Bulgaria were regulated by the state, but the domestic market is upset. In the first months of 1939, beans in Sofia disappear from the regulated market, but can be found at prices higher than officially set. Local products are purchased speculatively for export. The prospect of quick profits attracts free capital from industry or other sectors, and their owners actively participate in bidding for the import or export of goods with high profits. Mutual competition further fuels the increase in prices.
The fever also spread to the money and capital markets. The demand for securities, foreign currencies, gold, silver or objects made of precious metals increased. According to uncertain data for the first 7-8 months of the war, the price of gold in Bulgaria rose 10 times, reaching 4,000 leva for one napoleon (a gold coin of 20 francs). Gold itself almost disappeared from the market.
The devaluation of banknotes forced part of the accumulated profits to be preserved from depreciation through "flight from money". An opportunity to store wealth was found in real estate. Increased demand was also transferred to this market. Wartime conditions limited new construction, because some of the construction workers were mobilized into the army, the prices of construction materials were regulated by the state, but they disappeared from the market. Imports of important materials such as concrete iron decreased: in 1939, 57,847 tons were imported, and in 1940 - 41,197 tons, i.e. a decrease of about 29 percent. A large part of the imported materials was used by the state for military construction, which limited private construction. In the capital, from the end of the 1930s, about 140 new cooperative buildings were built, and in 1941 only 52 were completed. Real estate prices increased noticeably. Thus, in Sofia at the end of 1939, a two-room apartment cost approx. 160,000 leva, and at the end of 1941, they were sold for between 400 and 500,000, the prices of three-room apartments for the same period increased from 230-280,000 to about 1,000,000 leva, and those of four-room apartments from 380-400,000 to about 1,200,000 leva. General observations of real estate prices in Sofia (residential premises and shops) indicate that within the first two years of the beginning of World War II, they increased in price by between 200 and 300 percent. By 1941 and 1942, a real race was observed in Sofia for the purchase of real estate, including plots of land on which the construction of residential buildings was planned.
The reaction of the authorities
The emergence of speculation was not a surprise to Bulgarian society during World War II. Memories of similar processes from World War I (1914-1919) were alive among those in power and those in power, and the reaction was swift.
On April 4, 1940, the Minister of Trade, Industry and Labor Slavcho Zagorov submitted to the XXV Ordinary National Assembly a Bill on Ensuring Supply and Regulating Prices. In his explanatory statement, he indicated that “ the new conditions in which the state finds itself … have created in our country, as everywhere else, opportunities for the manifestation of a reprehensible and dangerous speculation in the items necessary for both the population and the state”. As the main goal of government policy, he defined the achievement of a “ stable general price level”. The bill was adopted and entered into force in May 1940. According to its Art. 1, the Ministry of Trade, Industry and Labor is assigned “ to take care of the supply of the population with goods and the correct formation of the prices of goods (materials and finished products)”. For this purpose, the Minister may determine the methods of sale, determine the amount of profits, and determine the prices of all types of goods. The maximum prices of goods set by the Minister are announced by his Order in the State Gazette and are not subject to appeal. It is envisaged that the so-called distribution cards will be introduced, which will limit consumption. One third of the law is devoted to penal provisions for violating its provisions. Penalties are provided not only for those who sell at higher than the set prices, but also for those who knowingly pay such prices.
An interesting point is that during the discussion of punishments in the National Assembly, MP P. Shishkov expressed regret that concentration camps have not been introduced in our country to punish speculators.
The second law to curb speculation dates back to the beginning of 1942. At the proposal of the Minister of Finance Dobri Bozhilov, the 25th National Assembly adopted the Law Against Speculation in Real Estate. The motives were not original: the need for stability in economic life was again emphasized. During the discussion in parliament, the People's Representative D. Andreev frankly stated that this law forces savers to keep their money in banks, which in turn helps " the state to finance the war ". In other words, this is an obvious appropriation by the state of private funds. According to the law, housing can only be purchased if the buyers have no other housing anywhere in the country. When purchasing a plot of land for construction, the entrepreneur is obliged to begin construction, and if " by the end of the sixth month the construction has not begun, the site is alienated in favor of the state ". Persons not engaged in agriculture or animal husbandry are prohibited from purchasing real estate larger than 30 acres. Restrictions have been introduced on the ownership of real estate for persons of Jewish origin. A mechanism has been established for determining the selling price of the property. The entrepreneur's profit is set at 20%, and his labor and material costs are calculated at standardized prices. Penal provisions are also provided for - fines and imprisonment - for violation of the law. The specified restrictions on the formation of selling prices and especially on the purchase of real estate do not apply to the state or municipalities.
The results
All available data indicate that the authorities' desire to tame speculation by repressive means ended without success. Speculation became a permanent fact of life for Bulgarians during the years of World War II. Those who tried to save part of their savings by purchasing apartments and other real estate in Sofia also failed. The bombings of late 1943 and early 1944 destroyed or severely damaged a large part of the building stock in the capital...
War and the speculation associated with it bring a sense of insecurity and deep injustice to people. The described legislative acts are an understandable but ineffective way to tame speculation and restore a sense of justice. They make the state omnipotent and more important than citizens, reduce the value of human life and exacerbate tensions between different social classes, and provide grounds for legal discrimination against the weak. A vicious circle is formed - the state becomes stronger to fight speculation, but strong states have greater confidence in waging wars that give rise to speculation…
The most important prerequisite for taming speculation must be sought in another direction. A good start is the restoration of peace and the limitation of state power.
The ideas and historical events discussed in this article can also be seen presented in this video.
The methodology has long been known - for example, Robespierre successfully fought speculation in France by sending all speculators to the guillotine. Corruption was similarly successfully fought.