The relentless revolution: a history of capitalism (28 page)

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.
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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.
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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 that 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.
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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.
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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.

Eager for farms of their own, a never-ending stream of Americans pushed west with confidence that they had a right to the land. Acquisitions from native tribes had to be bought, negotiated for, or wrested from those tribes that had lived there for centuries. Then the adjective “hostile” became linked to the word “Indians.” Newspapers characterized the Native Americans’ tenacious fight to save their ancestral hunting grounds as examples of savagery. The invaders justified their intrusion on the ground that the indigenous people had failed to improve the land or at least improve it in the European manner. Capitalism with its steady promotion of development gave a kind of specious justice to Americans’ advance into the wilderness. Skirmishes and set battles between the invaders and defenders continued throughout the settlement of the Ohio and Mississippi valleys.

Nothing could hold back the tide of land-hungry men and women from the land that Americans had appropriated rhetorically much earlier. They called their first legislative body of 1774 the Continental Congress. When George Washington formed his first cabinet fifteen years later, he said that he wanted men “disposed to measure matters on a Continental Scale.” After the War of 1812, Congress gave its veterans 160-acre bounties in land lying between the Illinois and Mississippi rivers. The westward movement of families away from eastern centers of authority and refinement accelerated. When land offices opened on the frontier, sales soared. Most veterans sold their patents to land speculators in eastern cities. Frontier communities sprouted up like daisies in a summer meadow. By 1815 annual sales of the national domain had hit $1.5 million and more than doubled four years later.
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Producing food became the great enterprise of Americans. Moving onto better and better land throughout the century, American farmers finally reached California, whose lush Central Valley remains today one of the world’s greatest exporters of cotton, vegetables, cattle, poultry, nuts, and fruits.

American geographic mobility astounded foreign visitors, who wrote home about the undulating train of wagons snaking their way to Pittsburgh, whence they could raft down the Ohio. To these visitors, American society offered an ever-changing visual landscape as people moved, roads were graded, land was cleared, and buildings were raised in a reconfiguration of the material environment that went on without rest. Ordinary men had never before had such a chance to create their own capital. With cheap land, easy credit, and ready markets at home and abroad for their crops, they flourished. Some would break in new land and then sell it at a considerable profit when others moved to the area. Access to land meant maximizing family labor. One Ohio pioneer, finding that his hundred-acre farm did not offer “full employment” for his sons, plunged all his savings into buying enough land to absorb their full working capacity. Farmers not only thought in terms of capitalizing their labor but considered their sons’ labor in those terms as well.

Although much of the land in Ohio was poorly drained, most chroniclers of the frontier remarked on its astounding yields. The returns from selling cotton abroad helped settle international debts, but the northern frontier pushed economic development toward building towns, hundreds of them. Four million families started new farms between 1860 and 1920. Farm mortgages became more common when state legislatures after the Civil War pushed mortgage rates below 12 percent.
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Farming has been romanticized over the years, but many contemporaries considered farm work drudgery. One New Englander bemoaned the fact that there had been no factory jobs when as a boy he had to apprentice himself to a farmer. Some sons and daughters—particularly those with a scholarly bent—voted with their feet to leave the family farm and seek out jobs as schoolteachers, another expanding field.

With few exceptions, entrepreneurs came from outside the circle of wealthy colonial families. Drawn from a growing middle class distinguished by its work ethic and openness to new ideas, they borrowed from friends and family, invested their own sweat equity, and sank or swam with regularity. With such volatility, “panics” and “busts” came every score of years. The human loss in dollars and disappointments was significant, but the young economy was resilient enough to snap back. The lifting of colonial restrictions on manufacturing unloosed as well Yankee ingenuity. In the generation born after the Revolution many a poor boy discovered his talent for making clocks, buttons, industrial wire, textiles, shoes, hats, pianos, vulcanized rubber, and steam engines of various kinds. Eli Whitney, who invented the cotton gin, also originated the principle of interchangeable parts in manufacturing when he got a contract to build rifles for the army. Specialization offered commercial opportunities to whole communities. Wethersfield, Connecticut, for instance, annually sent to market one and a half million onions.
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Levi Dickinson invented a broom from corn. By 1833 the townspeople of Hadley, Massachusetts, were producing half a million brooms a year. One English traveler noted that he had never “overheard Americans conversing without the word DOLLAR being pronounced.” It didn’t matter, he said, whether the conversation took place “in the street, on the road, or in the field, at the theatre, the coffee-house or at home.”
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