The New Industrial Revolution
THE law regulating human development may possibly be formulated somewhat as follows : Nature favors those organisms which, for the time being, operate cheapest; but organisms are wasteful which, relatively, lack energy. An organism may fail in energy either because it is deficient in mass, or because it has been imperfectly endowed with energetic material. In either case the result is the same: organisms which, compared with others, are wanting in energy are wasteful, and, being wasteful, nature rejects them. Applying this law to recent social phenomena, certain deductions may be made which are not without interest regarding the past, and may be worthy of consideration in view of the future. An inquiry of this kind must begin with Europe, which until lately has been the focus of activity.
Scientifically speaking, the Urals have never formed a dividing line between Europe and Asia. The boundary between the two continents has been fixed by the path of trade, which early regulated the flow of civilization and the migrations of the races. The true frontier of modern Europe has always consisted of a triangular isthmus, about 800 miles broad at its narrowest, following the line of the Vistula and the Dniester, or from Dantzic to Odessa ; and some 600 miles deep along its base, from the mouth of the Vistula to the Neva, or from Dantzic to St. Petersburg. The apex of this triangle rests upon the Black Sea, at the outlet of the Dniester and the Dnieper ; while its eastern frontier is formed by the chain of water courses which unites the Black Sea with the Baltic, by the way of the Dnieper, the Lovat, Lake Ladoga, and the Neva.
A thousand years ago, when Constantinople was the capital of the world, the Eastern trade reached Scandinavia by these water courses ; Kiev being the outpost of the Greek economic system, and Novgorod the northern emporium. The Scandinavian merchants left Novgorod, bearing furs and amber to sell on the Bosphorus, and brought back spices and coin. Speaking generally, this isthmus, though forming, as it were, a debatable land between two civilizations, appertained to Europe, and contained what are now the German Baltic provinces of Russia, beside Poland and Lithuania. Within the commercial thoroughfare formed by these water courses lay the cradle and hothed of Western civilization; beyond lay desolate wastes, impenetrable alike to the trader and the soldier. These wastes cut off the Occident from the Pacific coast, a region singularly favored both in soil and minerals. Europe, on the contrary, has never been remarkable either for the fecundity of its soil or for the wealth of its mines. It reached high fortune rather because, before railroads, its physical formation lent itself in a supreme degree to cheap transportation by water.
A tongue of land deeply indented by the sea, and penetrated throughout by rivers navigable, at least, for small craft, Europe could market what it had to sell when the treasures of Asia and America lay inaccessible. This advantage she retained until within about twenty years, and the new industrial revolution has been at once the cause and the effect of its loss.
Even a generation ago competition remained much upon the basis of the eighteenth century. Although tending to shrink, the margin of profit stayed broad enough to spare the individual trader, and distance afforded Europe protection against the attack of more favored communities. America, for example, did not harass France or Germany. On the contrary, America offered these countries the best market for their surplus ; the United States buying manufactures with bullion, raw materials, or food, which last freight raised to a price harmless to the value of land. The case of England will illustrate a universal condition.
Between 1760 and 1870 Great Britain reached the plenitude of prosperity, and she did so chiefly because of the American trade. As late as 1860 a disparity existed between England and the United States, which to-day seems almost incredible. While England’s exports of manufactures then reached $613,000,000, those of the Union only slightly exceeded $40,000,000; and while in 1860 Great Britain had substantially completed her railroad system, that of the United States lay in embryo. Thirty thousand miles of road were then in operation ; nearly 200,000 are now in use, and even in 1900 4500 more were added. The United Kingdom, in 1898, possessed altogether 22,000 miles, and building has long gone on at the rate of a hundred miles or so a year. The burden of construction on the two communities can be easily compared. In 1860, with the facilities then existing, neither iron, nor coal, nor grain, nor meat could be exported from America in competition with the product of British mines or farms ; while, on her side, Great Britain could sell her manufactures in the United States almost at her own price. The reason for this is obvious. A generation ago, land rates of transportation could not be made even to approximate sea rates : therefore, iron, for instance, could not be brought from the interior to the ports. England had substantially no land carriage. Her resources lay on the coast.
In these years Great Britain accumulated great sums in ready money, mostly, perhaps, through the returns of agriculture. The manufacturing population grew apace, — eating much, yet producing no food ; nevertheless they paid for food liberally, because the revenue from America provided ample wages. Thus passing from hand to hand, the larger share of American remittances finally lodged in the coffers of the landlords in the shape of rent. The landlords consequently enjoyed opulence, habitually saved a part of their incomes, and invested what they saved either in business paper or in foreign securities. Agriculture thus formed the corner stone of the economic system of Europe during the decades which ended with the Franco-German war.
Bagehot wrote Lombard Street between 1870 and 1873, and in the introduction to that interesting essay he inserted a passage which has made luminous many subsequent phenomena. Commenting on the loanable funds always lying on deposit in London, Bagehot observed : —
“ There are whole districts in England which cannot, and do not, employ their own money. No purely agricultural county does so. The savings of a county with good land, but no manufactures and no trade, much exceed what can be safely lent in the county. These savings are . . . sent to London. . . . The money thus sent up from the accumulating districts is employed in discounting the bills of the industrial districts. Deposits are made with the bankers . . . in Lombard Street by the bankers of such counties as Somersetshire and Hampshire, and those . . . bankers employ them in the discount of bills from Yorkshire and Lancashire.” 1
Almost as Bagehot wrote these words the economic equilibrium of the world changed ; and it changed because the introduction of the railroad permitted the consolidation of larger and more energetic masses than had theretofore existed. The movement first gained headway in central Europe, which prior to 1870 had been the most decentralized portion of a decentralized continent.
The consolidation of Germany between 1866 and 1870 led to the downfall of France, and the transfer to Berlin of a large treasure, in the shape of a war indemnity. Besides entering on a period of industrial expansion incident to accelerated movement, the German Empire, by means of this treasure, succeeded in restricting its coinage to gold. Silver being discarded fell in value, until, in 1873, France also curtailed its silver coinage ; and thus, by degrees, half the supply of metal for the currency having been eliminated, a contraction followed, which lasted until the abundant yield of gold about 1897 began to make good the deficiency. The contraction of the currency caused a fall in prices, more particularly the prices of agricultural products and freights, and this fall struck at the very vitals of England.
The structure of society had not been simplified in Great Britain, during the French Revolution, as it had on the Continent. Consequently, in 1870, much of the apparatus of the Middle Ages survived, especially in the customs relating to the tenure of land. In Great Britain land was expected to earn two profits, — one for the cultivator, the other for the landlord ; and though this had been possible when freights were high, it became impossible as they fell, accompanied as the fall in freights was by a decrease in the value of the crops themselves.
In 1873 it cost, on the average, about $0.21 to convey a bushel of wheat from New York to Liverpool, in 1880 only about $0.117; or, estimating the value of the bushel of wheat in London in the early seventies at $1.60, and allowing for the reduction in railroad as well as in ocean rates, the farmer lost something equivalent to a protective tariff of 10 per cent. This difference seems toward 1880 just about to have offset the rent. At a later date matters grew worse and farms went out of cultivation.
And now a very curious phenomenon occurred. In earlier days the manufactures of Great Britain had been sold in America ; the proceeds had been remitted to Lancashire or Yorkshire, had for the most part been spent in wages, and by the wage earner had been expended for food; the sale of food had paid the gentry’s rent, and the gentry’s accumulations had either found their way back to Lancashire in the form of loans, or had been invested in American stocks. Such was the condition when Bagehot wrote Lombard Street. What happened in the next two decades a few figures will explain better than much argument. For example, the acreage under wheat in England, Scotland, and Wales fell from 3,490,000 acres in 1873 to 1,897,000 in 1893, while imports of wheat rose from 43,863,000 hundredweight in 1873 to 65,461,000 in 1893. Meanwhile, the population of the United Kingdom had only grown from 32,000,000 to 38,000,000. In other words, the imports of wheat had increased 50 per cent, and the population 20 per cent: and this leaves out purchases of flour, which had swelled from 6,000,000 to 20,000,000 hundredweight.
The course of trade is obvious enough. The profits made on sales of merchandise abroad, and paid out in wages, no longer remained with English farmers as the price of food, thus forming a basis for English credit. After 1879, as soon as earned, these profits flowed back again whence they came, with the effect of gradually converting the landholding class from lenders into borrowers.
The landed class became borrowers largely because of the traditionally extravagant system of family settlements. The eldest son took the property, but he took a property incumbered with settlements for the widow, the brothers and sisters. These settlements constituted a fixed charge on rent; and when rents disappeared the owner had to make good the settlements, or pay the interest on his mortgages, which amounted to the same thing, out of sales of personal property. Hence, although economy might be practiced, liquidation on a large scale became imperative ; and frequently it proved impracticable, even with frugality, to save the land.
At all events, the best property to realize upon was American stock and bonds, and, accordingly, from the early eighties sales began. At first the drain upon the United States was hardly noticeable ; then it gathered volume, and after 1890 grew overwhelming. The purchasing power of this country failed, the market broke, gold flowed abroad in floods, and the panic of 1893 supervened. But to comprehend that momentous convulsion, and to realize the bearing it has had on all later events, a few words must be said in relation to the straits into which the United States had fallen, and the gigantic exertion by which the people freed themselves from debt. There is little more dramatic in recent history.
In 1865 the problem presented was this : The United States could certainly excel any European nation in economic competition, and possibly the whole Continent combined, if it could utilize its resources. So much was admitted ; the doubt touched the capacity of the people to organize a system of transportation and industry adequate to attain that end. Failure meant certain bankruptcy. Unappalled by the magnitude of the speculation, the American people took the risk. What that risk was may be imagined when the fact is grasped that in 1865, with 35,000 miles of road already built, this people entered on the construction of 160,000 miles more, at an outlay, probably, in excess of $10,000,000,000. Such figures convey no impression to the mind, any more than a statement of the distance of a star. It may aid the imagination, perhaps, to say that Mr. Giffen estimated the cost to France of the war of 1870, including the indemnity and Alsace and Lorraine, at less than $3,500,000,000, or about one third of this portentous mortgage on the future.
As late as 1870 America remained relatively poor ; for America, so far as her export trade went, relied on agriculture alone. To build her roads she had to borrow, and she expected to pay dear; but she did not calculate on having to pay twice the capital she borrowed, estimating that capital in the only merchandise she had to sell. Yet this is very nearly what occurred. Agricultural prices fell so rapidly that between 1890 and 1897, when the sharpest pressure prevailed, it took something like twice the weight of wheat or cotton, to repay a dollar borrowed in 1873, that would have sufficed to satisfy the creditor when the debt was contracted. Merchandise enough could not be shipped to meet the emergency, and balances had to be paid in coin. The agony this people endured may be measured by the sacrifice they made. At the moment of severest contraction, in the single year 1893, the United States parted with upwards of $87,000,000 of gold, when to lose gold was like draining a living body of its blood. And the terror lay in the fact that the further realizing went, and the lower prices fell, the greater the needs of the foreigner became, and the more drastic had to be the liquidation. After 1890, for example, cotton spinning for some years ceased to pay in Lancashire : consequently, many manufacturers found themselves in the same plight as the landlords, and had to resort to the same expedients.
What America owed abroad can never be computed ; it is enough that it reached an enormous sum, to refund which, even under favorable circumstances, would have taken years of effort; actually forced payment brought the nation to the brink of a convulsion. Perhaps no people ever faced such an emergency and paid, without recourse to war. America triumphed through her inventive and administrative genius. Brought to a white heat under compression, the industrial system of the Union suddenly fused into a homogeneous mass. One day, without warning, the gigantic mechanism operated, and two hemispheres vibrated with the shock. In March, 1897, the vast consolidation of mines, foundries, railroads, and steamship companies, centralized at Pittsburg, began producing steel rails at $18 the ton, and at a bound America bestrode the world. She had won her great wager with Fate; society lay helpless at her feet; she could flood the markets of a small, decentralized, and half-exhausted peninsula with incalculable wealth. How tremendous her victory was, how far reaching must be its results, may be judged from the returns which show the condition of the British minerals.
As early as 1882, the iron mines of the United Kingdom yielded their maximum, at 18,000,000 tons of ore ; in 1898, the yield had fallen to 14,000,000. In 1868, 9817 tons of copper were produced ; in 1898, 640 tons. Two years later the turn came in lead, the output in 1870 having reached 73,420 tons, as against 25,355 in 1898 ; while tin, which stood at 10,900 tons in 1871, had dwindled to 4013 according to the last returns. The quantity of coal raised, indeed, increases, but prices have advanced from 50 to 70 per cent during the year; and though now they tend to fall, it is only through a shrinkage of the industrial demand, caused by inability to compete on such a basis. The end seems only a question of time. Europe is doomed not only to buy her raw material abroad, but to pay the cost of transport. And Europe knew this instinctively in March, 1897, and nerved herself for resistance. Her best hope, next to a victorious war, lay in imitating America, and in organizing a system of transportation which would open up the East.
Carnegie achieved the new industrial revolution in March, 1897. Within a twelvemonth the rival nations had emptied themselves upon the shore of the Yellow Sea. In November Germany seized Kiao-chau, a month later the Russians occupied Port Arthur, and the following April the English appropriated Wei-hai-wei ; but the fact to remember is that just 400 miles inland, due west of Kiao-chau, lies Tszechau, the centre, according to Richthofen, of the richest coal and iron deposits in existence. There, with the rude methods used by the Chinese, coal actually sells at 13 cents the ton. Thus it has come to pass that the problem now being attacked by all the statesmen, soldiers, scientific men, and engineers of the two eastern continents is whether Russia, Germany, France, England, and Japan, combined or separately, can ever bring these resources on the market in competition with the United States.
From the days of Alexander downward, the dream of every dominant Occidental race has been to overrun the East; but, with the exception of England, who invaded India from the sea, no Western people have ever established a foothold in the recesses of Asia. Alexander left nothing behind him, and the Romans met disaster. Tiberius addressed himself to the task of reducing Germany. He first made three successful campaigns between the Rhine and the Elbe by way of Paderborn and Brunswick. He then proposed a combined movement from the Rhine and the Danube against Bohemia; but before it could be executed, in the year 9, Augustus sent Varus to organize the newly conquered province of North Germany, where Varus with his army perished. Subsequently, the government decided that the cost of expansion exceeded the profit, and the legions retired behind the Rhine. A century later Trajan marched down the Tigris to the Persian Gulf, contemplating an attempt on India by sea; but Hadrian, on maturer consideration, fell back upon the Euphrates. In the Middle Ages, whenever the Crusaders ventured beyond the defiles of the Lebanon, they suffered defeat; and the Teutonic Knights could never force their way beyond the region of Livonia.
Thus repulsed, mediæval Europeans cast about for means to reach Cathay by water, since ships fit for the purpose then existed. In 1497 Vasco da Gama doubled the Cape of Good Hope on his voyage to India, while five years earlier Columbus, in pursuit of the same object, had stumbled on America. This discovery changed the equilibrium of society by giving it an impulsion westward, — an impulsion shared by Asia as well as Europe. Here doubt is impossible. Colonization in Hispaniola began in 1496, and emigration has poured westward ever since ; on the other hand, the organization of modern Russia dates from Ivan the Terrible, who reigned from 1533 to 1584. Modern Russia, indeed, is nothing but the old Tartar Empire centralized on the Neva instead of on the Amoor, with the Slavic influence instead of the Mongol in the ascendant. Almost contemporaneously with the voyage of Columbus the current began to sweep the Asiatics over what had once been Europe. Novgorod lay at the eastern extremity of the triangular isthmus between the continents; and Novgorod was a European town, and a bulwark of the Baltic provinces. In 1495 Ivan III. pillaged Novgorod, expelled the German merchants, and began to press westward. In the middle of the next century Ivan the Terrible occupied Narva, reached the Caspian, crossed the Urals, and began the conquest of Siberia. In 1703 Peter the Great fixed the capital on the Neva. In 1772 came the first partition of Poland, and by 1795 Asia had pushed her frontier across the debatable land, and had reached the Vistula.
Withal, the new empire, like its Tartar predecessor, has proved impervious to attack, and this invulnerability has controlled the most complicated problem of modern times. That problem is the old one of the possibility of absorbing northern Asia in the European economic system. Had Napoleon prevailed in 1812 he might have solved the difficulty; for an archaic community often reaches with rapidity the level of its conqueror, as did Gaul after Cæsar’s campaigns. When, however, the primitive race remains free, subject to no severer constraint than the pressure of peaceful competition, instances are rare where the pupil has overtaken the master, while the master has kept his vigor. Certainly Russia has not outstripped Germany and France. For two centuries Russia has imported foreigners with a view to accelerate her movement, and yet to-day the Russian people are, relatively, as sluggish as when Ivan the Terrible ruled at Moscow. No more striking illustration of comparative inertia could be found than the building of the Siberian railroad, — an inertia the more noteworthy as no enterprise was ever undertaken under more favorable auspices, or with stronger incentive to activity through apprehension of impending peril.
To regard the Siberian railroad as a purely Russian venture is incorrect; it is only necessary to read the French newspapers of the last decade to be convinced of the contrary. The Siberian railroad has been the result of the effort made by Europe to extend its base over Asia, and it has been made possible only by the support of the Western nations. Russia’s chief contribution has lain in the administrative department, and it has been the administration which has crippled the enterprise.
As long as the United States acted as a useful appendage to Europe, absorbing at once her surplus manufactures and population, and repaying her with silver and gold, Europe looked on the development of eastern Asia with indifference ; but no sooner had the shadow of American competition fallen across the Atlantic than penetrating the recesses of Asia was recognized as essential to safety. Uneasiness, which had been growing since 1880, gave way to alarm dur ing the crisis of 1890, when the Bank of England betrayed unequivocal signs of weakness, and in 1891 an imperial rescript ordered the construction of the Siberian road to begin on the Pacific coast.
Much has been said about the magnitude of the Siberian railroad scheme. It has certainly strained the resources of Russia and France; it has even impaired the credit of the Czar’s government ; it has been prosecuted with all the resources and vigor of the empire: probably, therefore, it may fairly serve as a gauge of Russian energy, whereby the Russian may be measured with the citizen of the United States.
The length of the entire Siberian line, including branches, fell short of 6000 miles. The road runs for the most part through an easy country ; the land cost nothing; work can be carried on from several points at once ; and a French company offered to complete the task within six years, at an average cost of $30,000 the mile. In reality, the main division, on whose effective working success or failure hung, is only half this length. From Cheliabinsk to Stretensk on the Amoor, where steam navigation to the Pacific begins, is less than 3000 miles, and M. de Witte solemnly assured the world that this vital section should be in thorough order by 1898, or 1899 at the latest. In the spring of 1900, when the Chinese outbreak occurred, not only did this line prove unfit for ordinary travel, but incapable of transporting enough troops to Manchuria to afford police protection to the road itself. As for garrisons, the Russian government appears to have sent them to Port Arthur and elsewhere by sea, which is equivalent to the United States government sending troops to California round the Horn. Such is the fruit of nine years of toil, at an outlay estimated at double the price asked by Frenchmen for the work, and with a product so inferior that experts are agreed the road will have to be nearly rebuilt to raise it even to the European standard. The European standard, nevertheless, represents perhaps not more than half the energy developed by American systems.
In the United States, between 1880 and 1890, the average construction exceeded 6000 miles of road annually, all built by private enterprise ; and in 1887 more than 12,000 miles of track were laid. Had the United States been under a stimulus of apprehension such as the Russians felt in regard to their eastern frontier, the building of a line equal to that to the Amoor could scarcely have occupied three years at the most, and probably much less.
Measuring thus Russian with American energy, the former could hardly hold a higher ratio than as one to four or five in relation to the latter, — a handicap which would seem to preclude successful competition.
This conclusion is likely to be generally accepted by Europeans; for at present the theory that the Siberian railroad would provide a practicable channel for international traffic, as against the sea, appears to have been abandoned. Therefore, for the next generation, the relations of the West toward China in regard to transportation promise to remain nearly unchanged.
Furthermore, there can be no mistaking the symptoms. Russia is betraying exhaustion under the strain of an attempt at industrial competition. Hence she has collapsed at the crucial moment, and her collapse has checked the partition of China, which has been a chief aim of central Europe. A convulsion in China has long been anticipated as the signal for a division of the empire by an agreement of the Powers, somewhat as Poland was apportioned a century ago. In 1795 Russia possessed the energy to seize her prey. In 1900 she could with difficulty move an army corps, far less prosecute a campaign. A severe financial crisis has been in progress in Russia for many months. Hitherto M. de Witte has been unable to secure his annual loan to cover his deficit, and accordingly the Bank of Russia is losing gold. Every item of outlay possible to be suppressed has been suppressed ; yet paralysis supervened. This paralysis isolated Germany and England; for the overland route to Berlin remained closed, and in the rear lay the United States intrenched in Luzon. The Germans perceived finally that the military position was hopeless, and capitulated. The victory for America, in the East, appears to be decisive, and the organization of northern China by her commercial rivals, temporarily at least, postponed.
On the other hand, assuming that Europe is once more foiled in her attempt to expand eastward, it is not demonstrated that an economic equilibrium will be reached with America in the ascendant. Though now the position of Europe is untenable, her energy is not exhausted, and therefore she will presumably seek means of defense. If she cannot expand, she will doubtless consolidate, and try to compensate for inferior resources by superior administration. Should all else fail, she will, unless the precedents of history are to be reversed, resort to war. Probably without exception sinking communities have fought for life. Upon the same principle, the present economic situation logically points toward a collision. After finishing her internal lines of communication, America has extended them across the sea to her rival’s ports, the more effectually to deluge them with her wares. Furthermore, the United States bars all avenues of escape. She has long held South America closed; she is now closing China ; and while thus caging Europeans within their narrow peninsula, she is slowly suffocating them with her surplus. Any animal cornered and threatened will strike at the foe ; much more, proud, energetic, and powerful nations. Nevertheless, war is an eventuality which each can ponder for himself. European economic consolidation, though perhaps equally dangerous, is less familiar.
Obviously, great economies may be effected by concentration. Disarmament, more or less complete ; the absorption of small states, like Holland, Belgium, Denmark, and the like ; the redistribution of the Austrian Empire ; the adoption of an international railroad system, with uniform coinage and banking; and, above all, the massing of industries upon the American model, may enable Europe to force down prices indefinitely, and possibly turn the balance of trade. In other words, the twentieth century offers the prospect of a continuation of the conditions of the last upon a progressive scale, the severity of competition depending largely on the supply of gold coming from the mines, in proportion to the volume of trade.
Should the foregoing statement of facts be approximately correct, and presupposing that the United States succeeds temporarily in preventing the industrial development of China, the following inferences seem justified. Europe stands at a disadvantage, whether in war or peace, because of inferior natural resources, inadequate bulk, and imperfect organization ; but the position of Europe is not so desperate that it may not be amended by inertia in America and energy at home. Moreover, Americans must recognize that this is war to the death, — a struggle no longer against single nations, but against a continent. There is not room in the economy of the world for two centres of wealth and empire. One organism, in the end, will destroy the other. The weaker must succumb. Under commercial competition, that society will survive which works cheapest; but to be undersold is often more fatal to a population than to be conquered.
Economies consist in the administration of masses, thus eliminating double profits, surplus wages, and needless rent. Such masses in America are represented by the so-called “ trusts: ” therefore the trust must be accepted as the corner stone of modern civilization, and the movement toward the trust must gather momentum until the limit of possible economies has been reached.
Analogously with political institutions, all institutions of any country are but the reflection of a social condition ; and as that condition changes, so must habits and methods of thought and government. In proportion as the United States consolidate within, in order to evolve the largest administrative mass, so must they be expected to expand without; and as they expand, they must simplify and cheapen their administrative machinery, until in this direction, also, the limit of economy by mass has been attained. When that limit has been touched the process will automatically stop, as the Roman Empire stopped under Augustus. In the stern struggle for life, affections, traditions, and beliefs are as naught. Every innovation is resisted by some portion of every population ; but resistance to innovation indicates, in the eye of nature, senility, and senility is doomed to be discarded. When a whole nation becomes senile, like the Chinese, it perishes. That nation thrives best which is most flexible, and which has fewest prejudices to hamper adaptation.
One quality Nature inexorably demands of men : she exacts from them the capacity to exert their energy through such channels as she may open from age to age. Those who can conform to her behests she crowns with wealth, with power and renown ; those who rebel or lag behind she exterminates or enslaves. Should America be destined to prevail, in the struggle for empire which lies before her, those men will rule over her who can best administer masses vaster than anything now existing in the world, and the laws and institutions of our country will take the shape best adapted to the needs of the mighty engines which such men shall control.
Brooks Adams.
- Lombard Street, p. 12.↩