CAPITALISM

Disciples of Karl Marx generally define capitalism as a system of commodity production dependent on capitalists, accumulators of capital, and proletarians, laborers dependent on wages. Followers of Max Weber typically describe it is a system of economic organization reliant on markets and market structures. Everyone agrees that in Europe between 1789 and 1914 capitalism underwent an amazing metamorphosis both in regard to production and to exchange. After the end of the Napoleonic Wars an industrial revolution that first began in Britain in the late eighteenth century spread through western and central Europe. European society had hardly come to a rest before a second and even greater industrial revolution swept all before it between 1870 and 1914.

In the 1830s and 1840s, astute observers from the communist Marx to the laissez-faire champion John Bright initially believed that capitalist expansion would undermine state borders and that international markets and commercial entrepôts would replace states and their armies. But predictions of a pacific international capitalism undermining militaristic European monarchies proved tragically wrong.

a century of economic growth

Toward the later part of the eighteenth century, a wave of technological innovation, the expansion of British commerce into Caribbean and American markets during the wars of the French Revolution, and the large numbers of wage laborers in agriculture enabled Great Britain to be the first large state to operate on capitalist economic principles both in international trade and in industrial production. By 1840 more British workers were employed in manufacturing, mining, and construction than in agriculture. England was already more devoted to industry than the rest of Europe, and it continued to lead the industrial world throughout the nineteenth century. In England and Wales in 1891, 10 percent of the labor force was employed in agriculture and 44 percent in industry (manufacturing, mining, and construction); in Germany in 1895 comparable figures were 37.5 percent in agriculture and 36.4 percent in industry; while France in 1891 still had 40.3 percent of its labor force in agriculture and only 27.9 percent employed in industry.

A distinctive feature of European growth during this period was increased population growth combined with even faster economic growth. In 1700 the population of western and central Europe was more than 81 million; in 1820 it had grown to 133 million; in 1870, 188 million; and in 1913, 261 million. But over these time spans economic growth exceeded population growth. The contrast between levels of per capita gross domestic product (GDP) in Europe and Asia is remarkable (see Table 1). Although population growth was substantial between 1789 and 1914, it did not drown out economic growth.

the first industrial revolution, 1770–1870

In 1851 amazed continental Europeans traveled to the London Great Exhibition to marvel at the new technologies based on steam, iron, and cotton mills, technologies that were already spreading from their British epicenter to western and central Europe. Between 1820 and 1870, the years in which the First Industrial Revolution spread through the Continent, western and central Europe witnessed a growth in per capita GDP of 0.95 percent per year; this was relatively modest judged by the standards of the golden years between 1950 and 1974, but it was six times faster than annual economic growth for the more than three centuries between 1500 and 1820.

Despite this record of economic growth, the Industrial Revolution inflicted real hardships on the British population, and the people who sacrificed were not those who benefited. In 1799, at the age of seven, the orphan Robert Blincoe was removed from the St. Pancras poorhouse in London and, along with other young boys and girls, sent by the municipal authorities to cotton mills in Nottingham in north central England. At five o'clock in the morning the young orphans were awakened and fed a breakfast of milk porridge and a scarcely digestible rye bread. By five thirty, the boys and girls were at work in the factory, where they stood without interruption until twelve noon and worked a total of fourteen hours per day, sometimes extended an additional hour or two. The manager told them to "do your work well and you'll not be beaten."

Did the living standards and social condition of most British workers decline during the First Industrial Revolution? The controversy over living standards has been one of the longest sustained scholarly debates, but new findings by anthropometric historians have renewed interest in the question. Anthropometric historians study the height of human populations. While height is influenced by inheritance, it is also strongly influenced by nutrition. Populations that are well fed and live in healthy environments grow taller than malnourished populations in disease-ridden or polluted areas. Anthropometric studies show that heights were increasing in the early years of the Industrial Revolution but began to fall after 1840 as larger and larger proportions of the working-class population urbanized. Heights did not reach 1840 levels again until the eve of World War I. These findings constitute a serious challenge to optimistic interpretations of the First Industrial Revolution.

Unemployment was an enduring problem created by the expansion of a working-class population dependent on wage labor. Sending homeless children such as Robert Blincoe to the mills relieved Poor Law guardians of part of the burden, but emigration was another and more comprehensive solution. In hard times, British municipal authorities subsidized the emigration of the unemployed and of workhouse orphans, and these joined British and Irish rural migrants already on their way to North America. During the Irish Potato Famine (1846–1851), landlords offered emigration as an alternative to ejection and the murderous Irish Poor Laws. After the famine, Irish migrants followed their friends and kin, mainly to the United States but also to Australia, Canada, and New Zealand. German peasants too fled an increasingly crowded countryside. Given the cost of the journey and its length and hazards, very few returned.

By increasing continental Europe's contacts with Britain, the fall of Napoleon I promoted the spread of the Industrial Revolution. The French Revolution and Napoleon may have retarded Continental economic growth, but they created a legal framework that would be crucial for the spread of capitalist industry on the Continent. The Napoleonic Code of 1804 legislated a new quasi-absolute conception of property rights. It undercut complex systems of property holding that gave peasants usage rights while retaining eminent domain for local nobles. It abolished morte-main, perpetual leases and rents, entailments, and primogeniture. The code traveled with Napoleonic armies, but long after their retreat it remained in effect or served as a model for European legislators. At the same time, continental European states, struggling to catch up with Great Britain, played a much more active role in encouraging industrialization, underwriting the cost of railroad building and subsidizing heavy industry.

Still in the years before 1848 the progress of Industrial Revolution was relatively slow throughout continental Europe. Only Belgium, parts of France, a few areas in Germany, and a portion of Bohemia had really begun to adopt the new English industrial technologies. Large-scale coal production was confined to the Liège basin in Belgium and the Stéphanois basin in France. The Upper Silesian coalfields were in production in both Prussia and Bohemia, but transportation costs limited production to local purposes. Of all the technologies of the Industrial Revolution, only textiles had spread across the Continent from Barcelona to Lódz. Cotton textile towns such as Barmen, Elberfeld, Elbeuf, Ghent, Mulhouse, and Verviers more or less recapitulated the miserable living conditions of their English urban contemporaries.

While still in the process of assimilating the mills and furnaces of the First Industrial Revolution, Europe was soon shaken by a second and greater wave of industrial transformation: a second industrial revolution centered in western and central continental Europe, in Germany perhaps even more than in Britain.

the second industrial revolution, 1870–1914

The 1889 Exhibition Universelle in Paris was dominated by Gustave Eiffel's great tower marking the beginning of the age of steel. This Second Industrial Revolution was based on steel, electricity, chemicals, rubber, undersea cable, and great metal factories. Many of the important features of the economy of this age stemmed from its need for the enormous amount of fixed capital required for the integrated steel factories and the great metalworks and coal mines of the period. Often located near vital resources such as iron ore or coal, these new technologies were capable of producing large amounts of cheap steel, but their economies of scale required a large and steady mass market.

By 1914 industrialized Germany, endowed with abundant coal and access to ore, dominated the Continent, but everywhere wage labor was expanding rapidly as a proportion of the economically active population. In the era of the Second Industrial Revolution between 1870 and 1914, GDP per capita grew at an annual rate more than 30 percent faster than that of the era of the First Industrial Revolution. Whereas the mills of the First Industrial Revolution had increased the percentage of women and children such as Robert Blincoe working for wages, the factories of the Second Industrial Revolution sought adult males. While light metal factories sometimes employed young women as finishers, the great metal factory and the mining basin generally offered little employment for women. Both large employers and male workers saw the household as women's natural territory. Large employers preferred married males because they were considered more stable than single men. And at home women could feed and clothe male workers, tend to them when they were sick, and raise their children. Despite male convictions that women belonged in the home, the vagaries of employment and domestic need usually required even married women to work for wages at least for some portion of their lives.

Women had more opportunity in the growth of the white-collar workforce. Stereotypes of the workforce of the Second Industrial Revolution often focus on the male factory worker, the burly fellow with the muscular hand featured in the socialist posters of the time. But growing just as fast as the blue-collar factory workforce was a white-collar clerical workforce that often included women, although usually at the lower levels and for lesser pay. The spread of the department store, cooperatives, grocery chains, and mail-order houses and the expansion of branded, packaged consumer goods further increased the number of white-collar workers at the expense of the small shopkeepers and small producers who belonged to the lower middle class. After 1860 Félix Potin built a grocery empire of chain stores selling his own products made in his own factories and stored in his warehouses on the edge of Paris; in Great Britain, Thomas Lipton's sale of standardized quarter-pound tea packages was the

basis of his grocery empire. Many white-collar workers, both men and women, were teachers whose numbers grew as compulsory education spread throughout many areas of western Europe (it already existed in many German and Scandinavian states). At the same time the new diversified corporations of the period needed secretaries and typists; originally these were males, but by the second half of the nineteenth century the clerical profession feminized.

The rapid evolution and diversification of the European economy was made possible by its global expansion. Intercontinental regulatory organizations developed rapidly. In 1865 the International Telegraph Union was formed and in 1874 what was later called the Universal Postal Union; these international organizations established consistent standards and common practices for new technologies and new institutions. They would soon be joined by a host of similar organizations such as the International Bureau of Weights and Measures (1875), the International Union for the Protection of Industrial Property (1883), the International Railway Congress Association (1884), and the International Union for the Publication of Customs Tariffs (1890). Although none of these organizations possessed armies, the growing international economy of the second half of the century could not have developed if leading nations had not followed their rules.

No aspect of intercontinental expansion is more striking than the relatively unregulated international labor migration of Europeans to the Americas in the second half of the nineteenth century. Between 1850 and 1914 the steamship, the locomotive, and the marine cable produced classic transportation and communication revolutions. New inventions, the introduction of the screw propeller, and the construction of better designed, more fuel-efficient boilers increased the speed of travel while decreasing its cost. Over this period, technological innovation and fierce competition reduced the average time spent on the "Atlantic Ferry" from five to six weeks to ten to fourteen days. In 1869 the opening of the Suez Canal almost halved the trip between the United Kingdom and India. On land the railroad brought a similar revolution, and by 1914 the basic railway network had been constructed in India, the United States, and western and central Europe (but not Canada or Russia).

Between 1870 and 1914 roughly 14 million Europeans left the "Old Country" for good, mainly moving to the United States or Latin America or within the British and French empires to Algeria, Australasia, Canada, or South Africa. Combined with the movement of Indian and Chinese labor to Africa, the Caribbean, and Southeast Asia, no such transcontinental movements have been seen before or since. States' policies of leaving European migration relatively unregulated contrast strongly with their attitudes toward non-European migration; the United States, Canada, and Australasian states welcomed white Europeans while closing the doors to non-Caucasians. Reduced transportation costs and more powerful steamships that shortened the sailing time made return practical. In fact many Poles and Italians did return.

Mass migration affected the condition of unskilled labor throughout most of the greater Atlantic region. In the late nineteenth century, European living standards began to catch up with those in the Americas while the living standards of the Irish, Scandinavians, and Italians moved toward those of industrialized England and Germany. Inevitably calls for state restriction of emigration swelled among trade unionists and popular movements in receiving countries.

A communications revolution enabled Europeans to follow international events. From 1867 onward the development of cables made possible rapid communication across the Atlantic. By 1914 submarine cables linked all the continents. While news passed instantly across continents, it was transmitted to Europeans through daily mass newspapers printed in newly standardized national languages and often cast in the language of an increasingly strident nationalism.

The growing domination of world trade by the gold standard introduced still another important example of transnational economic regulation. In the 1870s major European countries and the United States joined the United Kingdom in fixing their national currencies in terms of a specific amount of gold. At its most ideal, a client ordering a commodity from a foreign producer could calculate the cost of the transaction knowing the price of the commodity and the exchange rates of the currencies in question for gold, largely avoiding the fluctuating currency exchange rates that introduce another element of uncertainty into trade. Through a combination of bank rates, foreign loans, and open market exchanges, the Bank of England enforced the gold standard, usually in coordination with French and German bankers.

Communication revolutions also facilitated foreign investment, and rates of foreign domestic investment attained remarkably high and sustained levels in the pre–World War I period. The years between 1870 and 1914 witnessed a massive outflow of British capital for overseas investment. The United Kingdom directed half of its saving abroad, and French, German, and Dutch investments were also substantial. By far the largest part of foreign investments was confined to Europe, North America, Australasia, and South Africa. Still the colonial world benefited from these investments. In part, the construction and expansion of great colonial empires by the British, Dutch, and French, imitated on a smaller scale by the Americans, Belgians, and Germans, encouraged investment in the colonial world. In theory the British Empire was committed to free trade, but the practice was sometimes more problematic. Indian administrators' decisions to opt for heavier and more expensive British railway engines instead of cheaper and lighter U.S. engines were probably influenced by considerations of imperial loyalty.

Despite the creation of an Atlantic labor market, the spread of technological and communicative revolutions binding continents, and the growth of transnational regulatory agencies, the internationalism of the epoch generally benefited states that provided regulatory control for capitalist markets and protection from the fluctuations of international trade. Consolidated states—bureaucratized, centralized states—created the legal foundations of the modern capitalist order. New business structures and financial relations were necessary to attract the enormous capital necessary for late-nineteenth-century heavy industry. At the beginning of the nineteenth century most partnerships were based on the principle of unlimited liability, making even inactive partners totally liable for debt in case of business failure. This seriously limited the ability to raise capital. In France the limited liability partnership had its roots in the late seventeenth century and the beginnings of the modern corporation dated to 1815, but the practical obstacles to their formation were formidable and had only slowly eroded by the 1860s. In the United Kingdom limited liability corporations made slow progress until a spate of acts between 1844 and 1856 made their formation relatively easy.

In the 1850s and 1860s many manufacturers and agriculturalists remained committed to free trade, which seemed to promise immediate economic benefits; even many French manufacturers who supported protectionism were in favor of free trade "in principle." Everything changed between 1877 and 1896 when even hitherto successful large-scale industrialists and most agriculturalists

discovered their own vulnerability. The 1889 bankruptcy of the great Terrenoire steel plant, the largest Bessemer producer in France, revealed that even the most modernized plants were not secure. This economic crisis led many steel producers to realize that the high fixed costs of their great factories, required to achieve economies of scale, made these plants utterly dependent on steady markets. At the same time, European agriculture found itself under assault. New refrigerator ships that could travel from Australia and the Americas in only a few days drastically lowered the cost of meat, and shipping plus the extension of the railways put cheap wheat from the U.S. Midwest and Russian Ukraine on western and central European tables.

As a result of their experiences during the 1870s and 1880s some of the most powerful groups in European society, both large industrialists and agriculturalists, rallied to create a new protectionist political order. In 1892 French industrialists joined agriculturalists to support the protectionist Méline tariff. In 1902—in a sure indicator of changing attitudes—the Birmingham industrialist and former Liberal leader Joseph Chamberlain publicly called for protectionism. For many industrialists, however, protectionism was only part of the story. These large producers used protectionism to stabilize their position in the home market so as to better compete in foreign markets. States and diplomats were used to sell the products of heavy industry and to promote metropole industry in the colonies. One relatively stable home market was the military market, and many industrialists began to cater to the new need for cannons and battleships. By the end of the century, early dreams that international capitalism was a pacific force for free trade gave way to the realities of military–industrial alliances.

The protectionism structuring international economic relations was accompanied by the formation of national business cultures and by a statism shaping internal industrial relations. Structured by state laws, the giant corporation that developed in the years after 1870 became a permanent feature of the capitalist world and also created a national culture of capitalist relations. To make its costly new technologies pay, producers had to be proactive in the search for markets. They involved themselves in marketing and sales. To keep production and marketing in balance a new type of manager was required: a person not only proficient in the new technologies but also able to coordinate different corporate sectors and divisions. Germany and the United States, both younger capitalist nations, were more innovative and imaginative in employing corporate forms than Great Britain. British family firms had led the way, but their continued reliance on family ownership limited their ability to raise funds. Further, the heads of family firms often followed the founder in focusing on production, thereby failing to appreciate the importance of marketing and sales so essential to the success of U.S. and German corporations.

The example of Germany illustrates how capitalist corporations formed distinctively national cultures. German businessmen adopted corporate forms quickly, and early on they established relations with government-supported German universities, which were at that time world leaders in scientific research. Unlike in either the United States or the United Kingdom, a handful of large banks played a leading role in financing German industrialists and established close relations with corporate leaders, all starting in the 1870s. Bankers played a key role partly because of the difficulties of raising capital in Germany but also because their intimate involvement with company affairs, as shareholders and representatives of shareholders, provided a guarantee of corporate integrity. While providing venture capital, industrial banks minimized the risks of cutthroat competition, promoting cooperation among leading Germany companies.

The intimate relationship between banks and heavy industry in Germany was unique, but among industrial nations governmental action to promote growth produced substantial variation in the economic environment. Since the Revolution, the French state had focused on training highly qualified engineers with close ties to government. Although modest efforts were made to train skilled workers later in the century, most skilled workers were trained on the job, where they learned plant-specific information. By contrast, in the 1890s the German state invested substantially in creating a system of schools for white-collar engineers and technicians and a separate system for blue-collar skilled workers. In 1897 this dual system was made uniform throughout Germany and enabled German industry to rely on a standardized, qualified labor force. The presence of well-trained skilled workers in Germany and the importance of technical elites in the French system importantly influenced the evolution of industry in both countries.

Dependence on states for protectionism, for regulation, and for infrastructure encouraged capitalist nationalism, as did the growing state demand for armaments among European states embracing both colonialism and militarism simultaneously. As illustrated in the first Opium War (1839–1842) between Britain and China, advances in steamboat technologies enabled Western powers to extend their domination from the coast to the interior of Asian and African nations. The technologies of the Second Industrial Revolution produced powerful new weapons pioneered on European battlefields but soon adapted for colonial warfare. The invention of the breechloader enabled gunmakers to construct rifles that were fast, more accurate, tough, and impervious to the weather. French

chemists developed smokeless gunpowder, and in the 1870s the repeater rifle spread. Within a few years, British troops were using the Maxim machine gun. This new weaponry combined with growing experience with tropical diseases and the means to forestall or overcome them made feasible military expansion into the interior of the Asian and African continents.

If capitalists increasingly identified themselves with their state so did many of their workers. The international socialist organizations were splendid ideological structures, but consolidated states loomed ever larger in working-class life. The growth of a large blue-collar working class that depended on wage work tied social stability to the boom-and-bust cycle of capitalism. Increasingly, political leaders in countries with large numbers of industrial workers began to take action, creating the foundations of modern welfare states. The German Empire was the pioneer. Otto von Bismarck (1815–1898), the "Iron Chancellor" who had united the German state, created the framework for the first national welfare state. After prolonged resistance in the Reichstag, in 1883 Bismarck passed a compulsory sickness insurance bill; in 1884, compulsory accident insurance; and in 1889, compulsory old-age insurance. The targets of this legislation were mainly skilled male workers; it is worth underlining how closely the welfare state was linked to the proletarians of the Second Industrial Revolution. Only later were these programs extended to white-collar workers. After a sweeping Liberal victory in 1906, the United Kingdom passed its own legislation, most importantly the National Insurance Act of 1911, which included provisions for unemployment insurance targeted exclusively at skilled industrial workers. By 1914 all the major European countries except Russia had compulsory accident insurance laws, and even Austria-Hungary had old-age pensions.

By 1914 capitalist industrialization had spread to every country in Europe, but it had not spread everywhere equally; it was concentrated in great industrial regions that sometimes straddled territorial borders. One such region stretched through northwestern Europe from Lille in northeastern France to Namur in southern Belgium to Dusseldorf in western Germany. The Ruhr in western Germany included the greatest agglomeration of mines and factories in the world, while textile plants proliferated in Barcelona and its hinterlands and in the Lódz basin in Russian-held Poland.

In regard to the dissemination of technology, the migration of labor, and participation in the gold standard, European capitalism in the years between 1789 and 1914 was thoroughly internationalist. The basic trends sweeping European economies were transnational, the same as those shaking the United States and beginning to sway Japan. Yet European capitalism ultimately reinforced and enhanced the power of European states. States supported capitalism but made themselves its gatekeepers. State regulation imparted a national character to European capital. The turn toward protectionism made states central to the new industrial economy, and the growing armament of the pre-1914 world made states important customers of capitalist industry. While European capitalism had powerful currents both nationalist and internationalist, in the end, in August 1914 statism triumphed over internationalism.

See alsoBanks and Banking; Business Firms and Economic Growth; Class and Social Relations; Economic Growth and Industrialism; Emigration; Immigration and Internal Migration; Imperialism; Industrial Revolution, First; Industrial Revolution, Second; Labor Movements; Marx, Karl; Socialism.

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Michael Hanagan