Grand Pursuit

by Sylvia Nasar

  In reality, Vienna was infatuated by modernity. As early as 1883, tens of thousands of visitors were being whisked by electric train to the Prater, the vast “people’s park” on the Danube, to witness the biggest display of light and power the world had ever seen, the International Electricity Exhibition. Six hundred exhibitors, including America’s Westinghouse and GE, Germany’s AEG, and Sweden’s Ericsson, displayed fifteen accumulators, fifty-two boilers, sixty-five motors, and one hundred and fifty electrical generators. In the “telephonic music room” visitors could “hear the music and singing going on in the opera without moving one step.”8 In another exhibit they could listen to the latest bulletin from a Budapest-based news service for telephone subscribers. The bravest could let themselves be whisked to the top of a 220-foot rotunda, blazing with 250,000 candlepower, in a glass-enclosed hydraulic elevator. At the opening ceremony, Crown Prince Rudolf spoke proudly of “a sea of light” that would “radiate” from Vienna to the rest of the world.”9

  In the race to electrify, Vienna compared favorably to London. Telephone service began in 1881. Trams replaced horse-drawn buses in 1897. By 1906, when the opera Die Elektriker opened, the ten inner districts of the city had power. “Elektrokultur” became the slogan of Vienna’s entrepreneurs. Every housewife dreamed of an electric hookup that could banish soot and fumes from her kitchen. Factory owners wanted state-of-the-art factories with electric lighting and electric power–driven machinery. Physicians such as Sigmund Freud were eager to try electroshock therapy on their patients. Ludwig Wittgenstein’s grandmother took his cousin, the six-year-old Friedrich Hayek, out for a spin in her new electric car.

  While it was true that Emperor Franz Joseph spurned elevators and electric lighting, his son, Crown Prince Rudolf, was a staunch supporter of modern industry. Austria had the fourth-largest concentration of commerce and manufactures in Europe, producing steel, textiles, paper, chemicals, and cars. Vienna served as the administrative, trade, and financial center for a vast hinterland that provided the new megalopolises of Europe with food, fuel, and raw materials. The economic upswing of the late 1870s through the mid-1880s had created a boom in exports of sugar and textiles as well as in railway construction. By the late 1880s, electrification had displaced the railroads as the principal magnet for new investment.

  The city’s architecture reflected not only imperial but also bourgeois aspirations. The Ringstrasse, the wide boulevard that encircled the inner city with its neoclassical parliament building and baroque opera house, interspersed with the mansions of the “Boulevard Barons,” reflected the stupefying progress of the times. The luxury rental apartment, or Mietpalais, rather than the villa, attracted the nouveau riche, the parvenu, the social climber. Middle-class, multiethnic, and determinedly monoculturally German, Vienna was the destination of choice for refugees from the rest of the empire—especially after 1867, when liberals in the cabinet promoted Jewish emancipation along with economic modernization. Many of the recent immigrants became peddlers or small shopkeepers. Their sons mostly went into professions such as law or medicine that didn’t require attendance at an elite prep school, or banking, journalism, or the arts where a university degree was not needed. The preponderance of Jews in law, medicine, banking, journalism, and the arts stoked resentment, especially in bad times. As one historian put it, “Anti-Semitism rose as the stock market fell.”10

  Economic data contradict the stereotype of economic decadence. Not only did the economy grow three times as fast between 1870 and 1913 compared with the previous forty years, but per capita income doubled in real terms in that period, even as the population surged. True, Vienna suffered the same chronic shortage of housing, sewers, clean drinking water, and paved streets as Victorian London. But the economic historian David Good cites “overwhelming” evidence that “the Empire’s problems were not ones of economic failure but of economic success.”11

  • • •

  By 1901, when Schumpeter began his legal studies at the University of Vienna, it had become one of Europe’s great research centers in mathematics, medicine, psychology, physics, philosophy, and economics faculties. While German economics was dominated by a “historical school”—led by Gustav Schmoller at the University of Berlin—that despised abstraction and worshipped the imperial state, Carl Menger had established Vienna as the ideological and intellectual antipode of Berlin and the Continental leader in theoretical economics.

  Law occupied a loftier status and connoted a more liberal education in German-speaking universities than in English or American ones. Along with canon and Roman law, Schumpeter took courses in history, philosophy, and economics. Schumpeter soon decided that economics, especially theoretical, interested him more than the law. Menger was now too old and infirm to lecture, but the intellectual battle he had long waged against the historical school was now led by two brilliant disciples, Eugen von Böhm-Bawerk and Friedrich von Wieser. Schumpeter attended their seminars where he distinguished himself from older classmates such as Ludwig von Mises, a prominent liberal; and Otto Bauer and Rudolf Hilferding, two of Europe’s leading Marxists, by his “cool, scientific detachment” and “playful” manner.12 In his final year at university, the twenty-two-year-old succeeded in publishing no fewer than three articles in Böhm-Bawerk’s statistical monthly. By the time he was awarded his doctor of laws degree in early 1906, he had identified himself as a firm supporter of modern economy theory, or “English economics” as it was known in Berlin despite its well-known Austrian, French, and American contributors. His first postgraduate publication was a long and provocative essay, “On the Mathematical Method in Theoretical Economics.”

  Having declared his colors, so to speak, Schumpeter embarked on the intellectual “grand tour” so beloved by university graduates in the German-speaking world. Nursing an unspoken ambition to reconcile the warring schools of economic thought and perhaps eventually to breach the Continent’s most important university, he spent the spring term at the University of Berlin, getting to know the chief representatives of the German Historical School. In the summer, he spent several weeks in Paris, where he heard the mathematician Henri Poincaré lecture on physics. His ultimate destination was England, the country he admired as “the apotheosis of the civilization of capitalism” and whose economists he had studied exhaustively.13

  Arriving in London in early fall, Schumpeter proceeded to live the strangely double life for which his education had prepared him. His public persona was that of a gregarious, slightly flamboyant, pleasure-loving Continental aristocrat. Finding English manners, customs, and institutions “completely congenial,” he affected the routines of London’s fashionable set. He rented a flat on Princes Square, near Hyde Park. He ordered his suits on Savile Row. He kept his own hunter for daily rides on Rotten Row. He spent evenings at plays and dinners, weekends at house parties in the country.

  His other, equally elegant persona divided his waking hours between the austere and deliberately plebeian precincts of the London School of Economics, and the British Museum’s hushed, high-ceilinged reading room, where he made a point of working at the same table where the overweight, sloppily attired Karl Marx had composed Das Kapital. Convinced that truly original thinkers had their best ideas before turning thirty, and intent on reaching the first rung of his projected academic career as quickly as possible, the twenty-four year old Schumpeter was racing against a self-imposed deadline.

  Before leaving Vienna, he had outlined two books that he intended to write. In the first he would introduce “English” or theoretical economics to a hostile, ill-informed German audience. The second would be reserved for a groundbreaking contribution that he confidently expected to revolutionize economic theory. Like most intellectuals of his generation, Schumpeter was fascinated by the implications for society of Darwin’s theory of natural selection. Was it not ironic, he thought, that while constant change was a hallmark of modern times, economic theory ignored the process that was making the economy more productive
, specialized, and complex. Economic evolution was elusive, like “certain natural processes” to which Marcel Proust would allude in Swann’s Way that were “so gradual that . . . even if we are able to distinguish successively, each of the different states, we are still spared the actual sensation of change.”14 Economists made do with the assumption that the economy merely cloned itself year after year, becoming marginally bigger over time, but remaining essentially unchanged in all other particulars. True, if the economist wished to analyze how a small change in one economic variable affected all the others, “static” theory fit reality like a well-tailored suit. But existing theory fit badly or not at all if the change in question was large, or the timeframe too long to safely ignore structural changes in technology, the labor force, or institutions. And, contrary to the claims of German economists, economic history could do no better. Science, unlike history, was general. History concerned itself with what did happen, science with what could or could not happen under specific circumstances. That’s what made science an instrument of mastery. If economics was to be science it too had to be general.

  What was needed was a theory of economic development and the new university graduate intended to produce it. Schumpeter’s ambition was to replace static with dynamic economic theory, just as Darwin had swept aside traditional with evolutionary biology. As he would observe years later, he thought that his idea was “exactly the same as the idea . . . of Karl Marx,” who had also had a “vision of economic evolution as a distinct process generated by the economic system itself.”15

  On at least one occasion, Schumpeter took the train to Cambridge to seek Alfred Marshall’s advice. Now sixty-five and in poor health, Marshall was still recovering from a confrontation over Britain’s free trade policy with Joseph Chamberlain, the present colonial secretary, and was on the verge of relinquishing his Cambridge chair. Nonetheless, he gave the brash young man breakfast at Balliol Croft and listened tolerantly as he described his plans for constructing a theory of economic evolution.

  As Schumpeter was well aware, such a theory had been one of the older man’s unfulfilled dreams. Although Marshall had borrowed tools from physics to analyze the interplay of supply and demand in individual markets, he had always insisted that economic phenomena more closely resembled biological than mechanical processes, and criticized earlier economists for assuming that institutions, technology, and human behavior were fixed. Indeed, he introduced the latest edition of his Principles of Economics with the claim that “The Mecca of an economist lies in economic biology.”16 Nonetheless, Marshall had stopped short of developing a theory of economic development as Schumpeter proposed to do. Evidently the English Oracle expressed some skepticism in the course of the hour-long conversation because Schumpeter told him in parting that their exchange had cast him as “an indiscreet lover bent on an adventurous marriage and you a benevolent old uncle trying to persuade me to desist.” Marshall had replied good-humoredly, “And this is as it should be. For if there is anything to it, the uncle will preach in vain.”17

  Possibly Schumpeter had been hinting that he was about to embark on adventure of a more personal nature. He was having an affair with a woman twelve years his senior. Gladys Ricarde-Seaver was English, upper class, and “stunningly beautiful,” the daughter of a “high Anglican church official” who had grown up in a spacious villa in the shadow of St. Peter’s Cathedral near Harrow. Although biographers have been able to agree on very little else about her, including her age, public records strongly suggest that she was one of Webb’s “glorious spinsters[s]” living the “British museum life.” Thirty-six years old and never married, Ricarde-Seaver probably met Schumpeter at the LSE, which catered to women like her who were interested in feminism, social reform, and the popular Fabian cause of eugenics. The decision to marry was sudden, and neither bride nor groom seems to have anticipated parental approval, if indeed they notified their parents in advance. Gladys’s brother was the only witness at the civil ceremony in Piccadilly. While Anglophilia and the prospect of an aristocratic alliance might have accounted for Schumpeter’s impulsive decision, a pregnancy scare would seem to be a plausible motive. Later Schumpeter hinted to friends that Ricarde-Seaver had taken advantage of his youthful naïveté and when Ricarde-Seaver died in 1933 she left what was by then a considerable estate to a birth control society.18

  By breaking his private rule against wedlock before the end of the “sacred decade,” Schumpeter had forced the issue of how he would support himself. A fragment of a novel found among his papers after his death revolves around an Austrian aristocrat who marries “an English girl with a great pedigree and absolutely no money,” a clue that Gladys’s income was, at least at the time, too modest to support them both.19 Obtaining a professorship in Austria would necessarily be a tortuous and uncertain affair. He briefly toyed with the idea of joining the London bar, but that too would have taken years.

  This was the age in which enterprising young men with expensive tastes, limited incomes, and brides to support went east to make their fortunes. Possibly Ricarde-Seaver suggested that Cairo might offer more moneymaking opportunities than London or Vienna for someone with legal training but no experience. The Englishwoman in Schumpeter’s unfinished novel “had connections which she resolutely exploited for her darling,” and various Ricarde-Seavers were involved in large-scale business ventures from North America to North Africa. One uncle, for example, had been a close associate of Cecil Rhodes and the first prominent railroad engineer to support Rhodes’s scheme for building a “Cape to Cairo” transcontinental railroad.

  However the decision was made, the newlyweds wasted no time after exchanging their vows and headed south to Egypt with the swallows of winter.

  • • •

  Travel let Edwardians see that currents of change were unsettling the whole world. In a rapidly shrinking globe, even ancient civilizations such as Egypt’s were not immune. For someone who had hitherto thought of economic development as a European phenomenon, Egypt was bound to challenge the notion, not so much of limits to growth, but of limits on who could grow. Had Schumpeter not gone to Cairo he might very well have merited the economic historian W. W. Rostow’s unfair appellation as “a rather parochial economist of the advanced industrial world.”20

  Hard as it is to imagine today, Egypt was the China of the turn of the twentieth century. Anthony Trollope had visited Cairo on post office business in 1859. In The Bertrams, composed on the way home, he commented drily:

  Men and women, or I should rather say ladies and gentlemen, used long ago, when they gave signs of weakness about the chest, to be sent to the south of Devonshire; after that, Madeira came into fashion; but now they are all dispatched to Grand Cairo. Cairo has grown to be so near home that it will soon cease to be beneficial.21

  Napoléon I’s slaughter of the Mamluks in 1798 began the conquest of Egypt by the West, but Egypt’s transformation from an Ottoman fiefdom into a British dependency was mostly the work of entrepreneurs, bankers, and lawyers in the second half of the 19th century.

  The American Civil War and the resulting cotton famine turned Cairo into a Klondike on the Nile. Egypt’s ruler, the khedive Ismail Pasha, seized the opportunity to turn the whole country into a giant state-owned cotton plantation. As British trade with India grew, he saw a way to exploit that too, hence, the construction of the Suez Canal. Colossal amounts of foreign capital, mostly in the form of loans, flowed into Egypt. For Rosa Luxemburg, the Polish revolutionary, Egypt was a microcosm of the “madness” of modern imperialism:

  One loan followed hard on the other, the interest on old loans was defrayed by new loans, and capital borrowed from the British and French paid for the large orders placed with British and French industrial capital. While the whole of Europe sighed and shrugged its shoulders at Ismail’s crazy economy, European capital was in fact doing business in Egypt on a unique and fantastic scale—an incredible modern version of the biblical legend about the fat kine which remains unpar
alleled in capitalist history.22

  Inevitably, the debts piled up to complete Suez, and a host of other grandiose projects proved unsustainable. Within six years, the khedive was bankrupt, forced to sell his 44 percent stake in the canal and obliged to let his government be placed in what was essentially receivership. Had he invested more cautiously and avoided debt, some historians speculate, Egypt might have entered in the twentieth century as another, if smaller, Japan.

  A period of de facto British rule commenced in 1883. Evelyn Baring, the 1st Earl of Cromer, scion of the banking family and one of the great imperialists of the age, was installed as the power behind the khedive’s throne. Baring’s top priority was restoring Egypt’s solvency. He placed British officials at the helm of Egyptian bureaucracies, paid interest on the debt, balanced the budget, and spent what money remained on irrigation and infrastructure. An Anglo-French agreement reached in 1904 extended British rule indefinitely, sparking another, even more spectacular investment boom. Not much bigger than Holland, Egypt attracted as much British capital as India. Within three years, the nominal value of Egyptian equities had grown fivefold, and more than 150 companies with £43 million of capital had been formed. Lord Rathmore, a director of the Bank of Egypt, described the speculative mania that overtook investors: “People were apparently mad; I do not know what other word to use; they seemed to think that every company that came out was worth double its value before it had even started business.”23