Franz Joseph appointed Gyula Andrassy--a member of Deak's party--prime minister in 1867. His government strongly favored the Compromise of 1867 and followed a laissez-faire economic policy. Guilds were abolished, workers were permitted to bargain for wages, and the government attempted to improve education and construct roads and railroads. Between 1850 and 1875, Hungary's farms prospered: grain prices were high, and exports tripled. But Hungary's economy accumulated capital too slowly, and the government relied heavily on foreign credits. In addition, the national and local bureaucracies began to grow immediately after the compromise became effective. Soon the cost of the bureaucracy outpaced the country's tax revenues, and the national debt soared. After an economic downturn in the mid-1870s, Deak's party succumbed to charges of financial mismanagement and scandal.

As a result of these economic problems, Kalman Tisza's Liberal Party, created in 1875, gained power in 1875. Tisza assembled a bureaucratic political machine that maintained control through corruption and manipulation of a woefully unrepresentative electoral system. In addition, Tisza's government had to withstand both dissatisfied nationalities and Hungarians who thought Tisza too submissive to the Austrians. The Liberals argued that the Dual Monarchy improved Hungary's economic position and enhanced its influence in European politics.

Tisza's government raised taxes, balanced the budget within several years of coming to power, and completed large road, railroad, and waterway projects. Commerce and industry expanded quickly. After 1880 the government abandoned its laissez-faire economic policies and encouraged industry with loans, subsidies, government contracts, tax exemptions, and other measures. The number of Hungarians who earned their living in industry doubled to 24.2 percent of the population between 1890 and 1910, while the number dependent on agriculture dropped from 82 to 62 percent. However, the 1880s and 1890s were depression years for the peasantry. Rail and steamship transport gave North American farmers access to European markets, and Europe's grain prices fell by 50 percent. Large landowners fought the downturn by seeking trade protection and other political remedies; the lesser nobles, whose farms failed in great numbers, sought positions in the still-burgeoning bureaucracy. By contrast, the peasantry resorted to subsistence farming and worked as laborers to earn money.

Data as of September 1989