If we looked up information about the evolution of inflation and the GDP in the inter-war statistics directories, we wouldn’t find anything. Not even the monetary policy interest rates, which analysts are so interested in. How could the people of those times possibly make investment decisions without looking at inflation, key interest rates, economic growth, or even lay their eyes on some CDSs, ratings and quantitative models that introduced the main economic benchmarks? Well, people back then simply had a healthier way of thinking. If they wanted security, they’d choose bank deposits and 4-5 percent annuities. If they wanted to take risks, they’d put their money into shares. Which were also more or less risky themselves, depending on the sector.

However, that was when Romanian industry’s foundations were getting set. Without CPI, IPPI, GDP, CDS. And shares, unlike today, could be grouped by sector: banking, oil, mining and drilling, paper and printing, construction, metallurgical, forestry, transport, insurance, electro-technical, and others. 

Let’s take them one by one to see what to invest in. In 1925, when The National Bank of Romania’s shares could be bought for 20,000 lei, 730 lei dividends were distributed, which were  equal to an annual yield of 3.6 percent. And in 1938, when those securities could be purchased for 5,800 lei, they had a 300 lei dividend, meaning 5.2 percent.   Also in this sector, Banca Romaneasca distributed, in 1937, 55 lei dividends, with a cost per share of 525 lei, so over 10 percent. What should we do? Should we choose to prefer safety over superior risk that comes with a higher return? Each investor has their own priorities. We should take note that owning shares in the Astra oil company would equate to 900 lei, in 1936, would be rewarded dividends of 50 lei – over 5 percent.

And what else could you buy that would get you returns higher than the interest rates on deposits? The Mining Credit gave out dividends of 25 lei in 1936, for shares worth 270 lei. So over 9 percent.

About the same could be said of the Mica company, with office on 36-38 Benito Mussolini Street. Only the investment was bigger – 1,300 lei per share.

Letea company, which produced paper, offered gross dividends of 80 lei in 1937 for an investment of 900 lei/share: 8.75 percent. The Iron Plants and The Resita Domains, with Malaxa as a shareholder and Auschnitt as deputy administrator, would give out net dividends of 50 lei for an investment of 460 lei per share. Over 10 percent! But Max Auschnitt also owned the Titan-Nadrag-Calan company, where dividends were three times the size of the discount rate: 15 percent.

Of course there were bigger dividends as well. Leather goods and footwear factories Dermata Cluj paid, in 1937, dividends of 60 lei for shares bought at the price of 310 lei. Meanwhile, the state was borrowing at a rate of 4-5 percent for a period of 40-50 years. It even suspended payments on some loans and asked for extensions, proving that it wasn’t the safest debtor.

The 5 percent unified annuity of 1903 should have matured in July 1970, and the 4.5 one of 1913 in April 1970, but Communism regime was installed before that could happen.

So we can see that business could be done even in the pre-QE era. When people didn’t know what the inflation rate was, so they could cover it with higher interest rates. Neither would they calculate the potential GDP to check whether the economy was overheating or if central banks needed to introduce more restrictive monetary policies. But, more importantly, we should look at company profiles – offensive or defensive. An offensive sector would have been the commercial banks sector, while oil sector was a defensive one. For paper and printing, for example, business is offensive, the important thing is what’s written in papers and magazines, not its physical support. And the field with the highest rate of money circulation is commerce, while the one with the lowest capital immobilisation are services, while heavy industries needs a large amount of credit. And it’s based on political connections, because it relies on State-issued orders.

That is why Malaxa and Auschnitt fought to remain in Carol II’s good graces. In the current period, they would be called barons, but let’s take note that they knew how to manage what they had. Finally, the barons of today, who have been stealing and corrupting, thought that the industry exploited by Ceausescu was so well-maintained that it could sustain theft. They were wrong. Capitalists were the ones who created industry, communists took nationalised what they inherited, and post-communists made a mockery of what has been perpetrated.

And while we’re on the subject of post-communism, we should underline the fact that the period stood out by creating large currency reserves and mandatory minimum reserves. What were they good for? They represented guarantees, along with guarantor IMF, so that we could take out safe loans. We haven’t indebted ourselves too much, because we just needed to subsidise the lack of quality management.

Management is weak, which is why Romania has very large assets compared to the little value it generates. Normally, money shouldn’t sit in reserves, which are guarantees for loans, and monetary-fiscal policies shouldn’t control the aggregate demand, but managers should be capable to put the resources to work to create a supply of goods.

But since they’re not capable of that, they don’t stray too far from the Ceausescu model based on which they grew, some of the money is kept safe so that it’s not dirtied up, with the help of reserves. This is why, when we open an old Economics book and try to list various data and notions, we notice that they’re not at all similar to what we’re seeing today.

The risk, when you put the economy in the hands of trustworthy people who don’t know what they’re doing in the roles they have been assigned, is that instead of markets and dynamism, you have dominant companies and resources that are not used efficiently. Could that be why, along with the nationalized properties, we’re also not recieving back Romania’s economic history? Is that so we don’t realize that we’ve not yet returned to the market economy?

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