The relentless revolution: a history of capitalism

by Joyce Appleby

  German nationalism owed a lot to the French Revolution and its Napoleonic aftermath. Napoleon had honed the revolutionary army into a mighty military force. He reformed institutions wherever he conquered, carrying his modernizing impulses along as his army marched across Europe in the first decade of the nineteenth century. He erased the Holy Roman Empire, which had tied together a loose confederation of German-speaking Central European states since 800. He formed in its place a confederation of thirty-nine states, including Austria. Napoleon’s legacy and the name of that small town in the Austrian Netherlands where he met defeat would long be remembered.

  After Waterloo, a coalition of European powers met in Vienna and created a peculiar entity called the Concert of Europe. The French Revolution’s excesses had been so frightening that even former enemies cooperated to defeat Napoleon. The exhausted, participating countries in the concert basically used diplomacy to shuffle lands around to achieve some kind of balance of power. A century of hostilities made peace seem worth a few sacrifices. The British succeeded in getting the others to condemn the slave trade, but the major purpose of the concert was to calm the Continent down. There was no returning to the past, so the job of conservatives was to maintain the status quo that they had established. They blamed the radical ideas of the Enlightenment for fomenting the French Revolution. To them, the rallying cry of “Liberty, fraternity, and equality” represented an attack on religion, the family, and standing authorities. The lesson was clear: People needed an iron glove, and the hand within it had best be one attached to a distinguished heritage. The postrevolutionary conservatives didn’t want to replace one set of ideas for a better one; they wished to eliminate ideas from politics altogether. Far better to rely on customs and customary habits of obedience.

  On the other side of the learning curve, European liberals cherry-picked those novelties from the creed of the French Revolution that fitted well with their notion of reform. They detested Napoleon’s megalomania but applauded his rationalization of the law. They championed natural rights and added to them a commitment to free trade and economic development. They also supported a broader suffrage to counteract the influence of the aristocracy newly empowered by Napoleon’s defeat. Round two of the confrontation between stalwart defenders of the status quo and enlightened representatives took place in Germany. Only now it wasn’t a contest between two sets of ideas but rather arm wrestling between liberals and the aristocrats who had engineered the Congress of Vienna.5 Germany, especially the kingdom of Prussia, which gained two cities and the iron-rich Ruhr Valley, came out of this extended European trauma very much on the winning side. Still, like Italy, “Germany” represented an agglomeration of duchies, principalities, and independent cities.

  Economic Development and German Nationality

  It was crystal clear that the separate German states suffered economically from being a crazy quilt of states rather than a group under a national blanket. The 350 German principalities lacked uniform weights and measures, excise duties, road rights-of-ways, and commercial practices, not to mention currencies, banking institutions, and toll-free transportation. Rather than promote commerce, the autonomous cities acted as administrative centers for either the church, a university, or a princely court. Armies, especially in Prussia, commanded a large proportion of public funds, and everywhere administrative costs were bloated. While improvements in British agriculture steadily raised the people’s standard of living throughout the eighteenth and nineteenth centuries, impoverished serfs still did the farming in most of Germany.6

  The French had eliminated the old feudal dues that bore down on their peasantry in one spectacular night of legislation. Ending serfdom in Germany took a lot more time—in 1807 for Prussia, but not until 1832 in Saxony. In Prussia 65 percent of workers still tilled the soil, so restructuring rural landholding was tantamount to transforming the entire society. Looking enviously at agricultural gains in England and the Netherlands, where only 40 percent tilled the soil, Prussian landlords began to think that free labor might improve agricultural output. The government passed laws freeing all serfs while compensating landlords for their loss of income from fines and rents. The reform gave the land of those serfs who didn’t have enough to farm effectively to the landlords as well. It will not shock modern readers to learn that landlords, who controlled the government, took hundreds of thousands of acres from these newly freed serfs, who were left to fend for themselves as agricultural laborers.7

  When the transition from serfdom to free labor was complete, southwestern Germany retained its tradition of small farms. Even in Prussia, the number of farms doubled, going from fewer than a million in 1816 to more than two million in 1858. Those former serfs with enough land to farm worked for themselves while the great Prussian estates were now worked by landless workers. Not until the end of the century did harvest yields markedly increase.

  German urban centers were hardly more advanced than the countryside. Guilds suppressed competition and retained the capacity to repel innovations until well into mid-century. Formidable obstacles prevented people, products, and ideas from moving about through these many jurisdictions. Only a common language and the memory of having once been together in the Holy Roman Empire supported the dreams of a united Germany, but that was enough for the leaders of Prussia, whose military made it the likely champion of unification. Prussia had the coal, iron, investors, and political will to sponsor economic development. Its leaders realized that the road to nationhood lay through commercial development even though the Junker aristocrats loathed the urban middle class that dominated commerce. Nothing for it; they needed wealth to maintain their army and its esteemed military traditions.

  The potential for a great German nation centered in the kingdom of Prussia, which was bigger than the next three largest states of Bavaria, Hanover, and Westphalia put together. In a fascinating contrapuntal action between economic and political incentives, Prussia lured more and more German states into the Zollverein, the uniform, commercial union that it had started in 1817. Some entrepreneurs benefited from an expanded internal market and protection from foreign competition, but other regions suffered from competition, which their local tariffs had mitigated. Yet year by year the Zollverein grew, helped by Prussia’s willingness to make financial sacrifices to gain the admittance of major states in the south. Economic improvements held out hope of herding the diverse German states into one national fold.

  A new concept helped nudge German unity forward. Once economies had been viewed as strong or weak, but now, with England setting a fast pace away from former levels of productivity, people started talking about advanced and backward economies.8 It was a startlingly new way of thinking about economic activities. Previous economies had simply involved the repetitive, age-old tasks of feeding the people, producing useful objects, and making their exchange possible. Economies now were expected to develop or bear the onus of being backward. “Backward” had a different ring from “traditional.” The idea of backwardness exacerbated competition among Austria, Prussia, Russia, France, and England. This linear view of history as a progressive movement is so familiar to us that we can easily miss its initial impact. Before, military might have mattered most, especially in Germany, the ground for so much warfare. The high cost of maintaining a military establishment made the state’s economic development critical to sustaining a position in the international order. With Great Britain continuing its industrial ascent, wealth creating and power exerting became ever more entwined.

  Germany’s large domestic market provided the stimulus for development. The great river arteries of the Rhine, Oder, Weser, and Elbe carried most of the commercial traffic with canals aiding navigation. Steamships appeared in the 1820s, followed by more canal building, but the most transformative invention for nineteenth-century Germany was the railroad. Not the horse-drawn wagons on rails that had been used in coal mines for a long time, but locomotive-driven railroads that pulled loads up and down hills, across great pla
ins, and right onto the loading docks in port cities. All it took was laying down track, preferably with standard dimensions. Perfected by the English in 1830s, the railroad shrank the distances between places, people, and products, as measured by time, much as had lateen-rigged ships three centuries earlier. In Germany, as in the United States, canals became important complements to railroad transportation.

  The German states sprawled across the center of Europe between the modernizing West of France, Belgium, and the Netherlands and the backward East of Russia, Poland, and the Balkan states still part of the Ottoman Empire. German railroads connected these halves of Europe. Their construction prompted the repair of decaying overland trade routes and stimulated the economies of Germany’s neighbors—always a sound policy if a country has something to sell. The Zollverein expanded, as more German principalities chose to join, coinciding with a speculative boom in railroad building.9 As so often happens with technology, one fruitful area stimulated another; railroad building supported German mining, metallurgy, and machine making. In France railroads radiated out from Paris; in Germany they linked industrial centers.

  Unlike most underdeveloped countries today—to use the twentieth-century term that has replaced the unkind adjective “backward”—Germany had the capital to build railroads. Private bankers like the Rothschilds and Mendelssohns were a major source of investment funds. That they were Jewish firms enabled conservatives to inject the poison of anti-Semitism into discussions of economic problems. Other prominent private banking houses belonged to Huguenots. From a social standpoint bankers could be seen as outsiders, but their branches and connections in Amsterdam, Brussels, Paris, and London only enhanced their capacity to finance German industrialization. In this early period financial institutions were critical. Capital was not in short supply, but it was dispersed through a population untutored about investments.

  It was imperative to Prussia to exclude Austria from any new arrangement so that it could dominate the future German nation. Otto von Bismarck, the great architect of the German nation, adroitly deployed the Prussian Army against Denmark, Austria, and France in a series of short wars that secured unification of Germany on his terms. By 1871 there was a new German Empire with the king of Prussia as emperor. The waxing Hohenzollern dynasty had pushed aside the waning power of the Hapsburg Empire, now reduced to Austria and Hungary. Once unification was achieved, Germany became the industrial giant of Europe. Bismarck had triumphed with his policy of “iron and blood” against what he rather dismissively called the “speeches and majority decisions” of his liberal opponents.

  Germany had extracted a large indemnity payment from France in addition to taking Alsace-Lorraine as a victory prize from the Franco-Prussian War. The acquisition of the iron-rich Ruhr Valley triggered a large internal migration from the overpopulated eastern parts of Germany to the industrial West. The consequent prosperity created an exuberance that proved propitious for economic development. Again cultural differences proved influential. Germany’s population, for instance, proved more mobile than that, say, of France, where partible inheritance kept younger sons at home waiting for a share of their parents’ property. Germans also began crossing the Atlantic, to build new lives in the New World. Germany and Ireland accounted for 80 percent of the nine million immigrants who came to the Americas, mainly the United States, in the middle decades of the nineteenth century.10

  Private Initiative in the United States

  In the United States the elaboration of a commercial society took place under remarkable, and remarkably different, circumstances. Commercialization worked interactively with democracy to accelerate national development. Americans had paid dearly for their revolution in blood and debts, but 1789 brought to an end a long period of economic distress. Revived prosperity promoted the construction of roads, the extension of postal services, and the publishing of newspapers. The United States soon printed more newspaper issues than any other country in the world, regardless of size. The establishment of the new government under the Constitution coincided with this economic turnaround.

  Treasury Secretary Alexander Hamilton thought Adam Smith’s idea that an economy could regulate itself crazy. Perhaps this was because Hamilton knew that it had taken his authority and expertise to convert the revolutionary debt into an asset. This he accomplished by consolidating all the IOUs held against the state and federal governments. He then issued “stock” to pay them off and dedicated specific taxes to fund the interest on these issues. Investors quickly bought up the debt. Thanks to Hamilton’s fiscal prowess, the United States became a safe place to store money. Most Europeans who bought Hamilton’s stock invested the earned interest in the country’s many private ventures. You could say that the United States became the financial community’s first emerging market. At the same time, the European war that the French Revolution triggered put a premium on American foodstuffs. Its shippers became neutral carriers for the belligerents.

  Competition and obstacles, if not overwhelming, have proven a great stimulus to economic development. Northerners, who since the seventeenth century had worked hard to find a niche in the world market, developed the institutions and personal traits that propelled capitalism while the planter elite of the staple-producing South rested on its laurels, or more precisely, on its handsome profits, first from tobacco and rice and then from cotton. The planters spent lavishly to maintain a genteel way of life and hid, as best they could, the harsh realities of their dependency on slave labor.

  Owning slaves acted as a kind of insurance policy for their masters. Jefferson inherited 135 slaves when his father-in-law died in 1774, among them Elizabeth Hemings and her 9 children. When Jefferson died fifty-two years later, he owned more than 70 Hemingses. The value of slaves soared after Whitney’s cotton gin made profitable the crop of the short-staple cotton that could be grown all over the South. Rarely has an invention come at a more opportune moment. Textile mills were proliferating in Great Britain and elsewhere. Southern specialization intensified their demand for foodstuffs, lumber products, and manufactured goods that the North could supply. Producing cheap shoes and clothes for slaves became a start-up venture for many a bootstrap entrepreneur.

  Against the measurable wealth that slave labor created must be placed the immeasurable loss to the South of cultural capital in skills not learned, investment opportunities left undeveloped. Even less tangible was the enormous drain of the region’s moral resources from defending a social system that others found increasingly indefensible. All of the northern states had found ways to gradually abolish slavery by 1801, and the U.S. Constitution provided for a ban on slave imports from Africa after 1808. With the expansion of the South’s frontier, the price demanded for enslaved persons in the domestic market doubled within a decade. Soil exhaustion in Virginia and Maryland made it very tempting for planters to sell their stock in human beings.

  The domestic slave trade represented the one great entrepreneurial activity in the South. With eastern land worn out from the overcropping of cotton, frontier openings became bonanzas. The biggest losers in this new era of southern expansion were the African Americans whose opportunities for manumission practically disappeared once their value rose. Men, women, and children were wrenched from kith and kin and force-marched to western Georgia, Alabama, and Mississippi, carrying the institution of slavery deeper into the continent. Before railroads arrived to promote long-distance trade, the internal slave trade represented the most important interstate commerce, a fact rarely mentioned in American history textbooks. By 1820 more than a million African Americans had moved beyond the boundaries of the original states to Alabama, Mississippi, and Louisiana.11

  When Jefferson came into the presidency in 1801, he worked swiftly to democratize Hamilton’s accomplishments, dismantling the Federalist fiscal program, reducing taxes, and cutting the size of the civil service. The United States got the best of two worlds with Hamilton’s and Jefferson’s economic programs. Hamilton dismissed the notion t
hat ordinary people could use their money wisely and thus ignored the most protean element in the economy, but he won the confidence of investors at home and abroad. Jefferson, on the other hand, distrusted financiers and wanted to liberate working-class white men from the condescension of their superiors. His belief in limiting government power also had roots in the slaveholders’ determination not to be harassed by the federal government.

  Rejecting Hamilton’s guidance of the economy from the center, Jefferson freed money and credit from national control and left it to the states and private corporations to supply the country with competing banks.12 For the next half century the states, shorn by the Constitution of the power to block economic developments, took the lead in promoting them. They built an infrastructure of banks, roads, and canals while offering bounties, licenses, and charters for promising and unpromising ventures alike.13 It is rather ironic that the judge whom the Federalists had appointed at the last minute to monitor the newly elected Jefferson, Chief Justice John Marshall, wrote stellar decisions against state-conferred monopolies and other breaches of contract that enhanced the scope of free trade and promoted commerce based upon competition rather than privilege, another Jeffersonian goal.

  If the Constitution laid the bedrock of America’s liberal society, the free enterprise economy raised its scaffolding. After its ratification, a new economic order took shape, erasing most traces of the one dominated by Great Britain. The elimination of imperial control over land and credit enabled thousands of operators to act on their plans with the financing of high hopes. Jefferson’s commitment to decentralizing governmental power dispersed opportunity to rural America, which had the abundant brooks and streams to be converted into waterpower, the principal source of energy for American manufacturing for some decades. Fortuitously this centrifugal movement of initiative was accompanied by successful efforts to join the parts of the Union by roads and canals and, still later, telegraphy and railroads. Congress also promoted informal unity with its expanding postal service and underwrote the mailing costs of the country’s proliferating newspapers.