Voices of Hostile Capital: 'Order' and Investment during the Second Spanish Republic1

South European Society and Politics, Vol. 4 No. 1 Summer 1999.

Steve Snow
Wagner College

Note: This is a pre-publication version of the final published article.

The Spanish Second Republic (1931-1936) was a tumultuous period of democracy,

reform and reaction. During the reformist biennium (1931-33), moderate leftist

Governments instituted policies to ameliorate the often-desperate circumstances workers

and peasants faced. Greatly complicating these efforts, however, investors and landowners

liquidated productive assets and all but ceased domestic investment. Bank accounts were

emptied, billions of pesetas drained from the country, the stock market dropped

precipitously, and many landowners sold their holdings at bargain rates. The effects were

calamitous: capital flight and the sharp decline in investment were major causes of the

Spanish economic crisis of the 1930s (Comín and Martín 1984: 254; Palafox 1991: 205).

Why the panic? The most obvious, yet ultimately unconvincing, explanation is that

owners of capital predictably reacted against radical policies. A close examination of the

Spanish financial press and employers' publications reveals that labor militance––most

often referred to as 'disorder,' 'anarchy' and 'indiscipline'––was a major cause of investor

1
Preliminary versions of this article were presented at the Society for Spanish and
Portuguese Historical Studies Conference, St. Louis, Missouri April 23-26 1998, and at the
Mediterranean Studies Association Conference, University of Coimbra, Portugal, May 26-29. For
their comments and criticisms, I thank the conference participants, John Keeler, Stanley Payne,
George Rappaport, Richard Sherman, Cheryl Wheeler and Kim Worthy. Translations from
Spanish are mine.
unease and hostility. The modal complaint was that the Government was allowing the

workers to run wild, not that social reforms wrecked profits. To win back business

confidence, investors and employers demanded a restoration of 'order', by which they

meant the suppression of labour. Politicians obliged with a vengeance beginning in late

1934, contributing to the radicalization of the workers and their political allies, and in turn

pushing Spain towards civil war. Explaining investors' attitudes, therefore, is crucial to

understanding the fate of the entire Second Republic.

EXPLAINING INVESTMENT UNDER THE LEFT

The initial Governments of the Second Republic were not unique in their

confrontation with investors' economic power. The state's dependence on private

investment forms a crucial constraint for all leftist reformers to overcome (Lindblom 1977,

Przeworski 1985). Politicians know that citizens tend to vote their pocketbooks and punish

those in office when crises hit. Consequently, they listen closely to investors' concerns, to

avoid disinvestment and the resulting economic and political dislocation. Accounting for

the behaviour of owners of capital, therefore, helps us to understand policymaking in

capitalist democracies more generally. Approaches to this issue vary. Following

Hirschman (1970) and Kalecki (1943), some analysts argue that disinvestment is often a

weapon used against political enemies, and not merely a response to economic concerns

(see, e.g., Offe 1986: 246-7). This reasonable assertion, however, is unhelpful in

explaining specific events, as it does not spell out when investors' ideological concerns

tend to dominate pocketbook issues. As a productive generalization, therefore, it is most

appropriate to assume that a desire for profit primarily motivates investors. Among those
sharing this assumption, one can distinguish between 'economistic' and 'class-struggle'

frameworks. Proponents of both approaches tend to supply little in the way of systematic,

supporting evidence for their arguments. To explain Spanish investors' motivations, and to

make a larger point about investment under leftist governments in general, this paper

examines the Spanish financial press, employers' newsletters, and government bulletins, as

well as daily and monthly fluctuations in stock prices, number of bills in circulation, and

value of the peseta, among other measures. These data provide crucial information

regarding the levels of business confidence at different points during the Republic, and

thereby illuminate investors' reactions to specific political and social events.

The economistic approach assumes investors are rational decision-makers who

focus on purely economic factors. Kolm (1979: 64), for example, argues the political

catastrophes that have befallen leftist governments are best understood 'if they are viewed

in terms of economic variables.' Those who take this view also tend to focus on investors'

responses to radical policies. Their maxim might be: when governments 'threaten the very

institution of private profit...rational capitalists will not invest' (Przeworski 1985: 44-45).

This insight helps explain the economic dislocation that befell, for example, the Chilean

Unidad Popular Government led by Salvador Allende. Yet, it neglects an analysis of the

varied causes of capital strikes, which do not occur only when investors face desperate

circumstances. If Spanish investors responded only to economic factors, given the scale of

capital flight from 1931-1933, one would assume that the leftist governments threatened

free enterprise. This was not the case, however; they adhered to orthodox and deflationary

macro-economic policies. While the micro-economic reforms did lead to wage increases

and thereby increased costs, at the worst this had mixed effects on profits.
 Class-struggle theorists, on the other hand, focus on the ways in which workers

have helped win reforms, overcoming capitalist resistance. They are hopeful about the

political possibilities offered by workers' direct action. Authors such as Miliband (1969)

and Block (1977) assert that militance is the key to successful implementation of

progressive policies, and emphasize the possibilities that crises offer leftist administrations.

Block (1977: 22) argues that economic depression and post-war reconstruction reduce the

importance of business confidence and at the same time increase the intensity of working-

class pressure on the government. One can productively apply this interpretation to

successful reforms that take place under unusual conditions, such as the New Deal in the

U.S. and the post-war Labour-government reforms in Britain. It does not, however,

adequately account for the financial dislocation capital flight causes during economic

depression, nor that which occurs in response to more moderate policies. This paper

examines just such circumstances.

Labour militance can lead to reforms that otherwise would not have occurred, and

at the same time cause disinvestment and rally political opposition. Strikes and

demonstrations often lead to legislative victories, but also tend to frighten business, and

thus threaten the longevity of reformist legislation as well as the political viability of the

government. In the case of the French Popular Front, for example 'popular militancy was

the government's truest, indeed its only, ally, and the best hope which Blum and his

Socialist colleagues had... in forcing through further and more extensive reforms'

(Miliband 1969: 105). The very militancy that allowed great gains by the French workers,

however, stoked investors' hostility and led to economic crisis and the political defeat of

the government (Snow 1999). There was a similar dynamic at work in Spain, where the
Depression did not reduce investors' power to influence the economy, and worker

mobilization did not smooth the path for successful reforms. Capital flight exacerbated the

Spanish economic crisis, and mobilized political opposition. This led to the election of

rightist parties in 1933, which nullified many of the most important gains of the reformist

biennium. Militance often results in short-lived reforms and political defeat for the

government––as during the French Popular Front––and occasionally complete political and

economic catastrophe––as under Unidad Popular in Chile. The Spanish reformers

managed the economy quite prudently; workers' direct action, however, hurt the governing

left by enraging investors and employers. Throughout the Second Republic, investors

reacted sharply against labour militance, which took various forms––all of which were

termed 'disorder.'2

Strikes, about which we have the best statistics, increased drastically under the

Republic, especially when compared to the period of the Primo dictatorship (1923-1929)

(Figure 1).

2
In the 1930s Spanish labour engaged in peaceful, violent, economic and
revolutionary strikes, demonstrations and protests. This paper, which cannot seek to
disentangle these often intertwined strands, aggregates all such types of labour militance,
as did conservative Spanish politicians, the financial press, and employers.
 strikes strikers days lost
1200 16000000

14000000
1000
12000000
strikes and strikers

800
10000000

days lost
600 8000000

6000000
400
4000000
200
2000000

0 0
1924'25 '26 '27 '28 '29 '30 '31 '32 '33
1924 - 1933

Figure 1. Strikers, Strikes and Days lost

1923-1933
(Source: Anuario Estadística 1934)
Figure 1. Strikes, strikers and days lost. 1923-1933
(Source: Anuario Estadística 1934)
 UGT PSOE CNT
1600000 80000

1400000

1200000 60000

1000000
UGT, CNT

PSOE
800000 40000

600000

400000 20000

200000

0 0
1923 '24 '25 '28 '29 '30 '31 '32 '33
1923 - 1933

Figure 2. Membership in Socialist (UGT) and anarchist (CNT) unions; membership in

Socialist Party (PSOE), 1923-1933. (Source: Morlino 1981, 101-2)

The difference is especially notable in the period immediately following the proclamation

of the Republic in April 1931. Compared to the previous three months, the first twelve

weeks of the Republic (April-June) saw the average monthly strike rate more than
quadruple (Boletín del Ministerio de Trabajo y Previsión Social [BMT], Nos. 7-12).

Commenting on these trends, La Semana Financiera (24 July 1931) saw 'a very

accentuated breakdown in the principle of authority.' Not only did the number of strikes

grow, likewise did membership in the Anarchist (CNT) and Socialist (UGT) unions, as

well as membership in the Socialist Party (PSOE) (Figure 2). The Socialists were

politically moderate in the early 1930s and demanded only a bigger slice of the economic

pie, while the Anarchists wanted total social revolution, and were often violent. In any

case, the skyrocketing number of Socialists and unionized workers meant that the days of

employer dominance were ending. In sum, the 1930s in Spain were marked by 'the trade

union invasion of the political sphere.' (Juliá, 1989: 25)

Investors and employers said they wanted to preserve 'order' in the face of these

shocking developments; their main interest was actually to protect the existing economic

order; and their greatest fear was the violent overturning of society. The wealthy did desire

to keep the social peace in the face of often-violent actions by the working classes. The

central meaning of their denunciations of 'anarchy' and 'indiscipline,' however, was that

they intended to fight to retain their privileges in the face of calls for social justice. With

the fall of the Primo dictatorship, large landowners and industrialists lost their formal,

institutional representation in the political system, and state elites would no longer direct

policy toward maximizing their incomes. Most obviously, the capitalist and oligarchic

classes could no longer count on the government to restrain salaries through repression of

workers' organizations––the economic linchpin of many Spanish businesses (Palafox 1991:

174-5). One of the first acts of the Provisional Government, for example, was to make

legal the formation of labour unions. The newly assertive workers posed an economic
threat, as they represented bargaining power that would lead to higher wages, which could

only come from employers' profits.

Preserving 'order' meant both maintaining peaceful streets and continued profits. It

also, and most importantly, meant banishing the nightmare of complete destruction of the

social and political order by revolutionary masses. Among the moneyed classes, labour

militance in Spain during the 1930s caused fear, hostility and eventually calls for violence–

–visceral reactions that cannot be explained by decreases in net revenues. In unsettled

times, fear of unruly workers can intrude on the calmest investor's mind and overwhelm

the criteria that usually govern business decisions. As Block (1977: 22) points out,

investors tend to ask themselves a simple question: 'Is the working class under control?'

(see also Kalecki 1943: 326). In Spain, financial journals repeatedly referred to the lessons

of the Bolshevik revolution, and lauded the Fascists' fight against workers and the political

left in Italy and Germany. In the first months of the Republic many Spaniards saw an

anarchist putsch as a very real danger. What frightened the financial elites most about

labour militance, in sum, was the idea that 'the bourgeois Republic of 14 April be

conquered in rapid stages by the socialist Republic and then by communism' (La Semana

Financiera 1 May 1931). Spaniards had more than contemporary examples against which

to compare their politics. The First Republic (1873-74) was remembered mainly for the

social dislocations and 'anarchy' which accompanied it, and these ghosts were haunting

Spain in the 1930s. Conservative Spaniards remembered General Pavía, whose

insurrection ended that brief federal experiment, as the protector of 'order.' In the words of

El Financiero (17 April 1931), published only days after the proclamation of the Republic,

Either the government is consolidated, and legitimates its existence, reaffirming

public order and assuring social peace with firmness and without faltering, or,
 opportunely and in his moment, another General Pavía will come and impose the
normality that had been lost.

This prediction came true. By the spring of 1936, conservatives and business

interests warned they would rather destroy democracy than endure more drastic militance

by the working classes. In July of that year, General Franco justified his insurrection in

part by pointing to the 'anarchy' in the countryside (Snow 1998). In short, one can interpret

investors' reactions to labour militance in economic terms alone, but this only tells part of

the story. A more complete account allows a fuller understanding of the Second Republic's

appalling fate and the causes of the Spanish civil war.

THE CAUSES OF CAPITAL FLIGHT (1931-33)

In the eventful summer of 1931, the Provisional Government issued a number of

momentous decrees. These created a wage-arbitration system, prevented landowners from

hiring non-union labour during disputes with unionized workers, instituted the eight-hour

day, widened the scope of collective bargaining, and established grounds for reasonable

dismissal.

As the class-struggle approach would predict, workers took a hand in the process of

reforms. The wage-arbitration system, for example, gave workers an institutional opening

to win concessions from employers that they used to great advantage. The decree of May

1931 established a national system of 'mixed juries' (jurados mixtos) for industry and

agriculture, committees with an equal number of members appointed by labour and

management. These bodies had jurisdiction over working conditions, salaries, length of

contracts, and rights of those fired, among other issues. Workers used them to gain many
improvements in working conditions at the local level (Harrison 1989: 89). As a result,

employers and investors criticized them harshly (Cabrera 1983: 202-204). In the process

of land reform as well, some peasants took matters into their own hands. In September

1932, fed up with legislative delays, farm workers in Extremadura invaded a set of

uncultivated lands. Despite the landowners' vociferous objections, the Government

eventually responded by allowing peasants to plough the disputed lands for two years.

Further, while the Government stated the policy would apply to only some 30,000

hectares, due to increased peasant occupations it eventually allowed occupation of

120,000. The Minister of Agriculture gave 'recognition to many of the farm invasions by

disguising them as legal settlements'; these concessions, in fact, were the reformists' 'only

real accomplishment' in land reform (Malefakis 1970: 241, 281). Such gains were

certainly symbols of the workers' power to take matters into their own hands, as per the

arguments of class-struggle theorists. Such actions were also decisive in increasing

employers' and investors' intransigence, however.

Those holding financial portfolios did not wait for workers to assert themselves

before selling assets. After the declaration of the Republic on 14 April 1931, business and

investors disinvested on a massive scale, the economic and political fallout from which the

leftist governments of the reformist biennium never fully recovered. Fearing the worst,

wealthy Spaniards wanted cash, and they wanted it out of the country. While they were

shaken by the change in regimes, they were most alarmed by the prospect of rampaging

workers.

The Madrid Bolsa (stock market) was in a secular downward trend before April 14

1931, but this cannot obscure the effects of the Republic's establishment. It had lost about
1% of its value in the six weeks prior to that date; but in the next six weeks, it dropped by

around 15% (Figure 3).3 The peseta, which had been advancing modestly relative to other

currencies in the weeks before April 14, fell by more than 15% in the six weeks after that

date (Figure 4). Indeed, the peseta hit a low against the pound sterling that it had not

reached since Spain's defeat in the Spanish-American War, thirty-two years before (El

Financiero, 5 June 1931).4 In a typical sign of capital flight, the number of bills in

circulation skyrocketed as bank accounts were emptied and pesetas exchanged for other

currencies, sent abroad or stashed under the bed. Within a mere fifty days, the increase in

bills in circulation exceeded those registered in any first semester of the previous ten years

(El Financiero 5 June 1931).

3
The Spanish financial press did not consistently calculate and publish stock
indexes. I have therefore constructed two different measures, for daily and monthly stock
prices in the Madrid Bolsa, based on data in El Economista. The stock indexes equally
weight all stocks and indicate their average percentage change during the relevant periods.
This index is an indicator of the markets' general response to events, not an instrument to
measure their precise movements. Further, I assume the interests of Spanish capitalists as
a whole were roughly similar, although one could argue that regional differences caused
different economic perspectives and behaviour. There were some regional variations in
investment confidence. According to data in El Economista, for example, after the
proclamation of the Republic the Barcelona stock market fell 19% from 10 April to 29
May 1931, yet the Bilbao stock market dropped only 9% in the same period. Finally, as
there was no clear difference of opinion between the financial press and employers'
publications, the paper will not distinguish between their views, and will assume that both
generally reflected the opinion of most investors and employers.
4
Martín (1987: 129) argues the years of Spanish budget deficits and permissive
money policies caused the rapid depreciation of the peseta in the spring of 1931. While
these factors doubtless influenced the secular trend of the currency, Figure 2 makes clear
the effects of the proclamation of the Republic.
 Stocks Peseta
103

104

98
Madrid stockmarket

101

Peseta
93
98
Republic proclaimed
April 14
88
95

92 83
3/1/31 4/14 5/27
March 1 - May 27 1931

Figure 3. Index of Madrid stockmarket and value of peseta

against seven currencies. March 1 – May 27 1931
(Source: El Economista)
 5.4
Billions of pesetas

5.2

4.8

4.6
1/31 4/11 7/31
January - July 1931

Figure 4. Bank of Spain: Bills in Circulation

1 January- 19 July 1931
(Source: El Economista)

The countryside saw the same dynamic with different assets. There was a rash of

sales of livestock and farmhouses, driving down property values (López 1984: 216-23). A

panicked Cardinal even tried to smuggle out religious artifacts (Bahamonde and Toro

1981, 320). Often Spaniards accompanied their cash in its flight abroad. During the

summer of 1931, the best hotels in the south of France were bustling with business,
'jammed with Spain's largest landowners and nobility who fled Spain' (The New York

Times, 6 August 1931). Owners of capital did not soon change their opinion about the

Republic. During its first year, investors exported from Spain roughly 2 billion pesetas

(Harrison 1985: 99; Florensa Palau 1980, 320; cf. Robinson 1970, 83). By April 1932, the

peseta had lost 25% of its value, according to the weekly data in El Economista. By

December 1933 the stock market had fallen by nearly half (Anuario Estadística 1933:

451).

Spanish politicians argued over the causes of this exodus of wealth and the

wealthy. Socialist Indalecio Prieto, Finance Minister under the Provisional Government,

attributed disinvestment to a political aim to harm the Republic (quoted in La Industria

Española, April 1931). Juan Ventosa y Calvell, self-appointed spokesman for

conservative economic interests, asserted in a series of speeches given in 1931 that there

was no such conspiracy. The cause of capital flight was 'disorder' (Ventosa 1932: 23 and

passim; Robinson 1970: 84). Despite such denials, however, Monarchists had in fact

distributed a series of leaflets in the initial weeks of the Republic that encouraged

disinvestment to subvert the new government (Ben-Ami 1978: 276-77; also see Payne

1993: 44). For the majority of investors, who did not engage in economic sabotage, there

certainly was no shortage of reasons to disinvest in the spring of 1931. A dramatic change

in political regime naturally produces disquiet and anxiety among the moneyed. In

addition, the presence in Government of three Socialist Ministers (Justice, Finance and

Labour) doubtless added to the worries. After a few months, however, it became obvious

to all that the Government was firmly in the hands of moderates who were not about to

proclaim communal property––or even proto-Keynesianism. Yet money remained hidden,

and economic growth stunted. As per Ventosa' s thesis, after their initial shock at the

change in regimes and Socialists in Government, investors and owners of capital focused

their anxiety and hostility on strikes, land occupations and occasional violence by the

working class. The reforms hurt profits, but labour militance seemed to threaten the entire

system.

The reformers' micro-economic policies occasioned some legitimate complaints;

but their monetary and fiscal policies were notable for conservatism and adherence to

economic orthodoxy. Despite the demands for increased government spending in a time of

great economic hardship, the Government by no means obliged. In real and nominal

terms, in fact, the budget deficits during the period 1931-1933 were less than those under

the last three years of the Primo dictatorship (1927-1929), which was a period of economic

expansion (Comín and Martín 1984: 251). Examination of the less accurate data available

to investors at the time indicates even more financial rectitude. According to Finance

Ministry figures (in El Sol, 19 May 1934), the budget deficit for the first full year of the

rule of the left (1932) was less than half of the deficit for 1929, the last year of the

dictatorship. Both of the first two years of the Republic (1932 and 1933) had deficits

lower than any year under Primo. It is difficult to believe, therefore, that owners of capital

thought they faced profligate leftists willing to spend the nation into bankruptcy. The

financial press' initial observations regarding the new Government support this view.

La Semana Financiera (1 May 1931) noted the Government sought to project a

'sense of diligence and prudence in the realm of finance and economics, and if this road

continues to be followed there will be beneficial economic consequences.' El Economista

(23 May 1931), surprisingly, praised a Socialist politician––Finance Minister Prieto––for

the considerable evidence of his 'prudence and good sense.' Even six months later (14

November 1931)––after the earthshaking reform decrees that summer––the same paper

commended Prieto for his 'honourable management of the Ministry of Finance...[and] good

orientation and intentions' (see also Bahamonde and Toro 1981: 318; Harrison 1989: 99).

Jaume Carner, the subsequent holder of the Finance portfolio, received similar

approbation. La Actualidad Financiera (23 December 1931) asserted 'his designation has

produced an excellent effect in financial circles.' Foreigners agreed. The Economist of

London (27 February 1932) noted that Carner was a 'hard-headed' Finance Minister who

sought 'to clean up the whole financial position inherited from eight years of

dictatorship...[which] played ducks and drakes with the nation's finances.' In sum, the loss

of confidence during the first biennium is quite difficult to trace to investors' worries about

leftist profligacy.

In the realm of microeconomics, however, the reformers' critics had a more

plausible, though still exaggerated, case. Without question, financial journals complained

loudly about the social reforms' economic effects (Bahamonde and Toro 1981). A

common complaint was that they were bankrupting business and forcing owners of capital

to abandon productive activities. The legislation certainly raised costs for producers,

especially in agriculture. Reliable statistics are quite difficult to come by, but wages likely

increased by over 20% in real terms from 1931-33 (Tortellá Casares 1983: 131; Cabrera

1983: 132). The degree to which agricultural profits were affected remains unclear, yet

large landowners, which dominated Spanish agricultural life, likely did not suffer as much

as they claimed (Cabrera 1983: 162-3). In addition, higher pay not only raised costs, it

raised consumption, which benefited specific sectors of the Spanish economy and had an
important counter-cyclical economic effect (Fontana and Nadal 1977: 484-5; Cabrera

1983: 132; Harrison 1989: 80). The Catalan textile industry, for example, was hurt by the

loss of export markets due to the Depression, yet did not experience a drop in production

thanks to increased domestic consumption. This was true also of specific agricultural

commodities, as well as consumer goods more generally (Benavides 1972: 46). Despite

the protestations of a 'crippled' agricultural sector, production remained high from 1931 to

1935 (Malefakis 1970: 284). Had it not been for the increase in salaries, the especially

abundant harvests of 1932 and 1934 would have lowered agricultural prices much more

sharply, and with them the fortunes of producers (Tortellá Casares 1983: 131).

The reforms did hurt profits for many businesses and landowners, in large part

because Spanish capitalism was premised on low salaries gained by repression, not

entrepreneurial initiative (Palafox 1991). It is difficult to determine the reforms' precise

impact, yet it is clear that there exists a sharp contrast between the financial press' strident

claims and the facts of the matter. Payne (1993: 15 3) who generally has been sympathetic

with Spanish conservatives of the 1930s, terms as 'hysteria' some of business' complaints in

this period. According to the Anuario Financiero, average profits were down 10% in 1930

compared to the previous year, while in 1931, they fell by only 6%. Further, in 1932, the

first full year of the Republic, the Anuario shows an increase in average profits over 1931.

Even in 1933, the worst year of the Depression, of the 47 largest Spanish businesses only

11 declared fewer profits than the year before, and many did quite well (Tuñon de Lara

1976: 127). One cannot disregard completely the notion that a strictly rational, calculated

response to costly social reforms drove investors' actions. This perspective, however,

cannot explain the scale of capital flight in 1931 and 1932. Neither can it account for the
absence of investors' enthusiasm when the reforms began to be dismantled in 1934. Nor

can it explain the sharp upturn in stock prices when the rightist Governments of 1934-35

crushed the working class and their unions.5

The first elections under the Republic, which resulted in a huge victory for the

reformers, indicate that investors were not worried as much about reforms as they were

about social unrest. The Republican-Socialist reformist alliance won 407 seats, with 51 for

the intransigent rightist opposition (Payne 1993: 50-51). Strikingly, the financial journals

did not express much concern about this victory for the left. Instead, they limited

themselves to warning of the need to maintain control of the workers. El Financiero (3

July 1931) struck a typical note. 'The impression produced by Sunday's electoral result has

been satisfactory…[but there is] as much effervescence and passion in those lower

[classes] as inexperience and lack of control in those above.' Likewise, La Semana

Financiera (3 July 1931) declared 'The first impression of the electoral stage was

satisfactory....[but we need] a Republic based on order, the law and fairness.' El

Economista (4 July 1931) argued the Government must make 'its first duty the re-

establishment of tranquillity.' The financial journals stressed this theme because they were

convinced that normal investment patterns would never return unless the workers were

subdued. It was perhaps a self-fulfilling prophecy, but it was correct.

5
Critics of the reformist biennium also argued the social reforms caused the
Depression in Spain (see, e.g., El Financiero, 30 October 1931; Ventosa 1932). If true,
this clearly would have affected investors' behaviour. If the reformers had ruined the
Spanish economy, they would have lost the confidence of owners of capital-and quite
rightly. In fact, Spain was clearly feeling the Depression's effects before the establishment
of the Republic in April 1931. For statistics see Cabrera (1983: 84-5, 97, 116) and
Hernandez (1983: 299-302).
 Repeatedly in the next four years, employers and the financial press repeated that

investment confidence would only result from the re-establishment of 'order.' El

Economista (1 August 1931), for example, stated 'the withdrawal of money, [is a] natural

consequence of the persistence of the deluded working masses in multiplying

conflicts...The country suffers much with this state of unrest [intranquilidad], and the stock

market reflects that' (1 August 1931). According to El Financiero (15 May 1931), Spain

needed 'public order and social peace, without which nothing can survive nor could survive

in the economic and financial realms.' For these editorialists, it was clear that international

investors as well were watching the labour unrest. 'The Government should face

resolvedly, urgently and radically the problem of public order, without which there is

neither internal nor external credit,' argued La Semana Financiera (24 July l931). El

Financiero (11 Sept. 1931) similarly traced the peseta's difficulties to specific Spanish

strikes. The first week of September started calmly in the foreign currency markets,

according to an editorial, 'but then the revolutionary strike in Zaragoza happens, and in

London the pound jumps, very actively, over 54 [pesetas]; the strike of Zaragoza is

followed by the general strike in Barcelona, and in London the rate on the pound jumps

over 55.'

These writers' proposed solution to the investment crisis was predictable in light of

their analysis of its causes. 'Strengthening order and social peace will cause a renaissance

in the life of business and increase production,' said La Semana Financiera (23 October

1931). Noting the continuing drop in the stock markets, La Actualidad Financiera (3 June

1931) asked rhetorically

Is it due to the emigration of capital? To monarchist campaigns? To the

Communist bogey? To the combined enemies of the regime? Pardon us for saying
 so, we believe sincerely that almost all is due to the weakness (blandura) of the
Government.

The financial press supported the conservative politician Alejandro Lerroux. El

Financiero (17 July 1931) quoted approvingly this 'man of order': 'It is necessary,' Lerroux

stated, 'to put an end to the liberty many so poorly bear.' It was argued that this would

have beneficial economic consequences. The social reforms were expensive for some, but

were not the main preoccupation of investors and employers. In evaluating Spain's

economic climate, they anxiously looked to the situation in the streets and countryside. In

short, on the interpretation of Spanish businessmen and investors, it was not the world

economic crisis that was harming their businesses, 'but rather a simple lack of public order,

and they asked for a policy of "inexorable punishment" for those who disturbed it' (Tuñon

de Lara 1976 II:49). When finally put into effect, this policy brought business confidence

back to Spain.

THE ELECTIONS OF 1933 AND THE RULE OF THE RIGHT

In November 1933 the first nation-wide elections took place since the victory of the

reformist parties in the summer of 1931, and they functioned in part as a referendum on the

reformist biennium. The financial press lobbied hard for the eventually victorious rightist

parties. Strikingly, journals did not emphasize typical economic issues. As La Semana

Financiera (3 November 1933) pointed out at the end of the campaign, 'With two weeks to

go before the election we don't know how the different political parties are going to

proceed on the issues [such as] budget matters, economic recovery, agrarian and industrial

rebirth, commercial policy, public works, transportation––we don't know.'

 The modal criticism during the election was a vague carping about 'socialism run

amok,' combined with systematic denunciation of the complete lack of order in the streets

and countryside.6 As they did during the reformist biennium, the financial journals linked

the lack of 'order' with the dearth of investment confidence. In 1933, however, they began

to use violent language and advocate repressive measures against the workers as a means

of restoring investment. The employers' association Unión Económica (quoted in La

Actualidad Financiera September 27 1933), for example, stated 'It is necessary that the

principle of authority be imposed without mediation, so that the confidence of capital

activates production and increases wealth.' Revista de Economía y Hacienda (December

16 1933), lamenting a violent post-electoral strike, made a similarly menacing argument:

'It won't be possible for economic activity to be reborn while all the centres of anarchist

propaganda and organization are not extirpated.' According to La Semana Financiera (1

December), Spanish economic problems stemmed from 'social indiscipline that will only

be remedied by imposing the principle of authority without indulgence.' Manuel Azaña,

Prime Minister during the reformist biennium, responded to this reasoning. It is

intolerable, he declared, for Spanish industry to be based on repression and exploitation,

where 'to animate the businessman, he has to assume the misery of his collaborators...the

admitted and irremediable misery of the Spanish factors of production' (quoted in Palafox

1991: 274). The political tide was running against such humane views, however.

A political cartoon in Labor (November 4 1933), an employers' association

newsletter, made clear the wealthier classes' increasingly extremist views. The caption

6
There were isolated and half-hearted complaints about 'immoderate increases in
spending' (La Semana Financiera 13 Oct. 1933) and 'monstrous deficits' (Labor 14
October 1933). Such comments, however, were very much the exception, and did not
accurately represent the facts, as we have seen.
read 'We must combat the Socialist "cancer"; not with therapeutics like hygiene, but a

decisive surgical operation that extirpates it. Will a vote against be enough?' Some

editorials went even further, expressing admiration for fascism. As early as 1931 financial

writers had praised the Italian solution to militant workers. La Semana Financiera (23

October 1931), for example, noted approvingly that while 'socialization of a Communist

character' had threatened Italy, Mussolini's march on Rome had nipped this in the bud by

'substitut[ing] organs of conciliation and arbitration contained in corporative organization.'

The attraction of such extreme measures was much more widespread by 1933. El

Financiero (24 November 1933), for example, stated 'We defend the notion [of] a regime

of informed vertical syndicalism...Fascism? We don't care to stop and digress, [but]...The

redeeming fascio germ would be welcome.' The author then went on to praise Hitler's new

Government 'for the policy of sacrifice and pain leading to the organic coexistence that we

advocate.' Striking a rare defensive note, the editorial concluded 'you have to look for the

good and efficient where you can find it.' Vida Económica (10 December 1933) sounded a

similar tone, declaring 'Once the state acquires vigour, class interest passes to a very

secondary position and the interest of the community prevails in unsuspected ways. So it

has happened in Fascist Italy and Hitlerite Germany.' These attitudes foreshadowed both

the repression which was to be so successful in reassuring investors and employers, and the

political logic of the Franco dictatorship.

Upon the electoral victory of the rightist forces in November 1933, the financial

journals again demonstrated their preoccupation with labour militance, which was soon

echoed in politicians' statements and actions. In a series of articles that suggested

appropriate policy priorities for the incoming rightist Government, there was again much
less interest in typical financial matters than one would suppose from financial papers, just

as during the election campaign. La Semana Financiera (22 December 1933), for

example, argued 'The first concern of public power, in order of urgency, is reestablishment

of social peace, moral discipline and the prestige of the law.' Only after making this point

did the author go on to discuss more typical economic issues; even then, repeal of the

agrarian-reform legislation was ranked last out of ten priorities. El Trabajo Nacional

(March 1934) argued likewise. 'The first and essential task of a Government that wants to

worry about Spain's economic resurgence has to consist in re-establishing the principle of

authority––today so much in question––severely guaranteeing public order.' Revista de

Economia y Hacienda (November 25 1933) offered a ten-point program for the newly

elected Government, leading off with 'First. Re-establishment of the principle of authority,

ending the anarchy of control and re-establishing everywhere social discipline and respect

of law.' El Economista (23 December 1933) specified what it saw as the proper aims of

the new Government, apparently in order of importance: 'pacify spirits, re-establish

authority and put policy in some order.' Investors hoped the Government would heed this

advice, and the markets reflected these hopes.

Indicators of investment confidence increased markedly, if temporarily, after the

1933 electoral defeat of the left. According to data in El Economista and El Financiero,

the peseta increased in value by nearly 4%, recovering sharply from its free-fall during the

election campaign; stock prices rose by close to 10%. According to the interpretation of

La Actualidad Financiera (27 December 1933), the markets 'reacted with certain optimism

facing the prospects of tranquillity and calm that the new governmental situation has

brought.' The year 1934 did see a slight increase in some measures of confidence. The
external capital finance available to corporations, for example, increased by 55% over

1933 (the nadir of Spain's economic depression), and the amount of credit granted by

Spain's six largest banks accelerated its steady growth from the depths of January 1932. In

sum, 'investors' state of confidence showed evidence of symptoms of recuperation from the

start of 1934' (Palafox 1991: 232-4; 235). The upswing in the stock market did not last

long past the election of the rightists, however, sputtering out in late January. In general,

one would have expected more of a rise in investment confidence during 1934. Certainly,

the improvement in this regard was not as striking as that of 1935, by which time the

government had completely crushed the working class. Investors demanded from the new

Government violent repression of the workers, and were not patient in waiting for such

measures. The new Government, led by Lerroux, took office on 19 December 1933. The

declaration the new Prime Minister read in the Cortes on that date clearly echoed the

concerns of the financial press. 'The first preoccupation of this Government has to be, in

order of urgency, re-establishment of social peace, moral discipline and rule of law'

(quoted in El Economista 23 December 1933). Only after expanding on this theme did

Lerroux argue that his Government would also 'correct the defects of the existing [reform]

laws.' The 'corrections,' however, were to prove insufficient for investors and employers.

Quoting the employers' publication Labor, Cabrera (1983: 234) accurately summarizes up

the attitude of business to the new rightist Government.

The employers' class declared themselves ready to co-operate with the

Government, as long as the latter pledged to make sure of the introduction of order
and authority, but this support would be withdrawn immediately if the Government
demonstrated itself incapable of 'combating energetically and with whatever means
necessary those who systematically and with destructive aims disturb order,
dishonouring the nation.'
 Workers and peasants saw their condition deteriorate markedly after the 1933

election. Wages dropped by 60%, and employers denied jobs to unionized workers

(Preston 1978: 103). While the Government allowed the landowners to impose their will

in the countryside, the government moved to attack the reformist legislation. One of the

earliest measures was a change in the system of mixed juries. Granting a long-standing

demand of employers, in January 1934 the Government decreed that presidents of these

arbitration boards appointed by the Ministry of Labour could not be current or recent

members of trade unions. This greatly decreased the chance of labour-friendly board

decisions (Cabrera 1983:219). As for agrarian issues, the Government in May 1934

returned to their original owners large parcels of land that had been expropriated as part of

agrarian reform. That same month the Government abolished the direct confiscation

clauses of the Agrarian Reform Law. It also repealed the Law of Municipal Boundaries,

which had prevented landowners from importing farm workers from other provinces at

harvest time in order to avoid paying higher wages to local organized workers. Instead of

being repealed outright, other reforms (e.g., minimum salaries), were simply ignored and

thereby abrogated by lack of enforcement (Tuñon de Lara 1976II:21). Just to make sure

that local political leaders were sympathetic to this new orientation, the Interior Minister

demanded the removal of those who 'did not inspire confidence in matters of public order'

(quoted in Preston 1978:112). One hundred and ninety-three leftist mayors and municipal

councils were replaced (Payne 1993:198). In spite of this movement towards satisfying the

hard right, the government was unable to make progress on an issue that financial analysts

had been complaining about for years: strikes. The first three months of the new

Government saw an average of 120 strikes per month. This was not a great improvement
over the average rate of 149 per month during the last three months of the leftist

Government's rule (BMT, Nos. 39-45). La Semana Financiera (5 January 1934) chose to

draw an historical analogy. 'It was said to the Carthaginian warrior that "You know how to

win, Hannibal, but you don't know how to take advantage of victory." It would be sensible

for us if this phrase gained currency.' The next month, impatient for stronger action

against strikers, Labor (10 February 1934) acidly declared the new Government

supposes that its mission is based on crossing its arms before illegal strikes….If the
Government did not completely shirk its responsibilities during the development of
these conflicts, which cause so much damage and annoyance, they would all be
radically suppressed.

Similarly, El Trabajo Nacional (March 1934) warned of 'passivity or impotence in those

charged with watching over public order...[who follow a] vacillating, indecisive, and often

faltering (claudicante) policy.'

In March 1934, two strikes gave the Government a chance to demonstrate to critics

its firm hand. Employees at the newspaper ABC downed tools when it hired non-union

workers, and the Interior Minister took the opportunity to declare a state of alarm and close

the headquarters of various leftist organizations. El Financiero (9 March 1934) welcomed

this development, thundering 'if you want peace, prepare for war.' ABC fired the union

workers, and with government help defeated the strike. La Semana Financiera (16 March

1934) thought it saw some positive signs in these developments. 'Public order has come

out of the test more invigorated than it was before; the principle of authority has shown to

redeem itself from earlier weaknesses (flaquezas).' Some were not so impressed. La

Actualidad Financiera (21 March 1934) lamented a lack of toughness in putting down the

strike. As summed up La Semana Financiera (20 April 1934), 'tolerance is fine in normal
times, but in abnormal times, the first thing is to re-establish the disturbed order.' The

Government attempted to brandish its intolerance. When the Socialist farm workers' struck

later that spring, the Interior Minister disbanded local municipal governments, imprisoned

as many as 7,000 farm workers and even arrested four deputies of the Cortes suspected of

being among the leaders of the strike (Malefakis 1970: 340). The employers' association

Unión Económica commended the 'fortifying of authority,' while the Revista de Hacienda

y Economía kept the pressure on. 'The government must not vacillate in continuing the

action it has begun; it will have the resolute support of the opinion of the nation that

desires order, peace and work' (quoted in Palafox 1991:237). Lest the Government forget

its position on this issue, La Semana Financiera (11 May 1934) stated it again. 'In Spain

for some time now the principal problem has been the establishment of a policy of

authority and order that loans confidence to capital.'

Rightist Repression and the Return of Confidence: 1934-1935

After the failed Socialist uprising in Asturias, employers and investors got the

violent repression of the working class they had long been calling for, and in response the

stock market soared. From that October 1934 until the victory of the Popular Front in

February 1936, landowners and factory bosses prevented or broke most strikes. On 3

October 1934, the Socialists called a nation-wide general strike to protest the inclusion of

extreme-right ministers into the Government. The strike failed in most areas. In the

province of Asturias, however, there was a serious insurrection as miners occupied small

villages and even gained control of Oviedo, the provincial capital, declaring it a

revolutionary commune. The government's bloody pacification of the province took

several weeks and more than a thousand lives (Payne 1993: 220). In response to this

attempt at social revolution, the new far-right Ministers insisted on extreme severity

against the rebels and leftists more generally. All over Spain, police rounded up union

leaders; closed down Socialist party branches; removed city councils; suspended mixed

juries; imposed press censorship; and jailed between 30-40,000 citizens suspected of

having leftist sympathies. Two months after the uprising, the Government downgraded the

state of martial law to a 'state of alarm.' There was no further progress to normal

government.

The Government took this opportunity to end strikes and other labour militance. In

November of 1934 legislation established the category of an 'abusive strike' (huelga

abusiva) which applied to those work stoppages that were not in response to specific

labour issues. Workers who downed tools without making specific economic demands

could be fired and their contracts abrogated. Employers took this opportunity to dismiss

troublesome workers on a massive scale. In sum, the law 'left the workers' associations

without any possible defence' (Cabrera 1983: 242). Throughout 1935, the mixed juries and

municipal governments remained suspended, the political prisoners stayed in jail (Jackson

1966: 174), and the unions were unable to undertake their basic functions (Preston 1978:

132). The situation in the countryside was worse. Landowners evicted tens of thousands

of tenants from their lands while the Minister of Agriculture declined to intervene

(Robinson 1970: 202). Employers refused to hire union workers, and conditions were

abysmal for those who had work. By July 1935, landowners had by various pretexts

evicted as many as 80,000 tenant farmers (Robinson 1970: 203) in their drive to 'reduce the

peasantry to submissiveness once more' (Malefakis 1970: 329). Even Francoist historian
Ricardo de la Cierva admitted that the landowners, in this process of re-establishing their

dominance, 'were genuinely ferocious' (quoted in Payne 1993: 237). In the Cortes, the

modest agrarian reform legislation passed during the first biennium was almost completely

eviscerated, although none of the reformist legislation was formally repealed. Instead, the

Government refused to enforce them, so employers and landowners were free to ignore

them. La Semana Financiera (6 September 1935) lost no sleep over these developments.

'Perhaps there is some boss that commits abuses, but in general what is needed today is not

to preach social justice, but reaffirm discipline and work.' The employers' association El

Bloque (18 March 1935) was more blunt in an article titled 'Manifesto to the Classes of

Order.' 'It is a duel to the death, and will only end with the annihilation of one of the two

belligerents: the revolutionary organizations or Spanish society.'

Finally fulfilling the noisy demands of the financial press, strikes virtually halted

under this repression. From November 1933 to September 1934––the first 11 months of

the rule of the right-the average number of strikes per month was 102. In the following 14

months, from October 1934 (when began the repression resulting from the Asturias

uprising) to December 1935, the average number of strikes per month was 17 (BMT,

Nos.41-66).7 Labor (7 December 1935) applauded this labour quiescence, terming it a

'normalization' of work life, with 'bosses and workers channeling their efforts to raising the

productive spirit...this is how work has gone for several months, without difficulties or

conflicts, without animosity or distrust...a perfect union [of capital and labour].' The stock

market reflected this new 'order.' Between September 1934 and December 1935, it rose

over 21%. La Actualidad Financiera (14 August 1935) wrote 'the stock market, as a
whole, can't be more brilliant.' This rise was all the more striking when compared to the

first nine months of rightist rule, when the market fell nearly 5%. Figure 5 below charts an

index of the Madrid Bolsa against the number of strikes, marking the start of the repression

that began in response to the October 1934 uprising. After the rightist victory in

November 1933, stocks rose only briefly as the new Governments proved unwilling to end

strikes by whatever means necessary. As the number of strikes dropped dramatically after

October 1934, the stock market rose in response.

strikes stocks

182 Repression of
labour begins: 115
Oct. 1934

Stock index (Nov. 1933=100)

152

110
122
Strikes

92
105

62
100
32

2 95
N '34 O '35
August 1933 - November 1935

Strikes and Stock Index

7
The BMT is our only source for the number of strikes in this period, but the true
figures were probably a bit higher (Tuñon de Lara 1977:188; see also Malefakis 1970:
313).
 (August 1933 –November 1935)
Sources: BMT; El Economista.

Other indicators showed a similar tendency in 1935. Compared to 1933, external

financing of corporations almost doubled, and the number of firms accessing the capital

market increased by a third. More substantially, industrial production hit its highest point

under the Republic (Palafox 1991: 232). The rightist Governments of 1935 were more

extreme than those of 1934, and did more to ensure the effective abrogation of the social

legislation. Their most important contribution to confidence, however, was the harsh

crackdown on labour. The data indicate that it was only when the government met the

violent demands of the financial press did confidence return.

There are other possible explanations for this upturn in confidence. None are

terribly convincing. For example, the rightist Governments of 1934-35 did not institute

investor-friendly economic policies, according to financial writers. Early in the rule of the

right, La Actualidad Financiera (2 May 1934) complained about economic policy. 'The

truth is that the economic management of the previous [leftist] governments is being

repeated enormously faithfully in this Government, with regard to the vacuity, the lack of a

plan.' A year later, even the rightist Finance Minister Chapaprieta himself admitted as

much. 'I do not see that the Governments of the left had any different economic policy

from the Governments of the right. I have not found these differences' (quoted in Revista

de Economía y Hacienda, June 1 1935). That same journal (May 25 1935) complained 'the

current economic tendency is the road to disaster... [it is] the wrong policy followed since

1931.' The figures on budget deficits support these criticisms. The total deficits during the
two years of rightist rule (1934 and 193 5), in real and nominal terms, were greater than the

total of the three years from 1931-1933 (Comín and Martín 1984: 251).

The financial press had other complaints regarding the rightists' management of the

economy. Labor (January 19 1935), for example, wrote 'With confidence in the political

situation, business is undertaken, but confidence alone is not enough...The money that

creates new money must be protected and stimulated, but the Treasury does not see it that

way.' In sum, the financial papers were not at all impressed with the rightists' handling of

the economy, which therefore could not be the cause of increased confidence. Neither was

any improvement in Spain's economy behind the increase in stock prices, according to La

Actualidad Financiera (31 July 1935). Responding to another Spanish journalist who had

written the rising market was 'a reflection of the beginning of economic prosperity,' the

editorialist responded 'we disagree totally with this colleague,' arguing that the money

flowing into the stock market was seeking the safest place, and was not a reflection of

improved economic conditions.

5.0 Conclusion

Before the massive repression that began after October 1934, Spanish investors had

not seen the stock market as a safe place. This is remarkable, given that the rightist parties

had in 1933 wrested control of the government away from the left, and during 1934 greatly

weakened the reforms of the first biennium. If Spanish investors looked strictly to their

pocketbooks, it is doubtful that they would have been so reticent during the rule of

politicians whose sympathy for business was only overshadowed by their conservatism.

The massive scale of capital flight that occurred after the proclamation of the Republic is
likewise difficult to explain using the assumption that investors only rationally analyse

economic factors. From the start of the Republic, Spanish investors and employers were

willing to tolerate democracy, but clearly held 'order' more dear. This catchall term

encompassed different levels of meaning. The moneyed classes wanted peaceful streets,

docile unions respectful of the traditional economic hierarchy, and, most crucially, no

threats of social revolution. The financial press knew all along what policies would bring

back investor confidence, and so they never ceased calling for a violent end to the

'disorder' caused by an assertive labour movement. Spanish politicians parroted the

financial journals' opinions and ultimately acted on them. In capitalist democracies

generally, political leaders pay close attention to investors' demands.

Spanish workers did not wait for the government to hand them reforms. To their

credit, they took advantage of democracy and struck and bargained and fought for their fair

share; some demanded much more. The backlash was deadly, however, and pushed Spain

towards civil war. The ruthless repression of 1935 radicalized the unions and their

political allies, increased support for root-and-branch revolution, and led directly to the

bitterly contentious factory and farm occupations of the spring and summer of 1936. To

understand the economic origins of General Franco's self-proclaimed crusade against

'anarchy' and 'disorder,' we must first understand the dynamic of the preceding years

between the investing classes, business confidence, and labour.

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ARCHIVAL SOURCES

Statistical compendia:

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Periquet (ed.). (Madrid)

Government publications:

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Financial journals:

La Actualidad Financiera (Madrid)

The Economist (London)

El Economista (Madrid)

El Financiero (Madrid)

La Semana Financiera (Madrid)

Vida Económica (Madrid)

Revista de Economía y Hacienda (Madrid)

Employers' periodicals:

Labor (Madrid)

El Trabajo Nacional (Madrid)

El Bloque (Madrid)

La Industria Española (Madrid)

Newspapers:

El Sol (Madrid)