John Maynard Keynes (1926): Trotsky on England: Weekend Reading

1870 as the Inflection Point: An In-Take from "Slouching Towards Utopia?: An Economic History of the Long Twentieth Century

Il Quarto Stato

3.0: 1870 as the Inflection Point As of 1870 the smart money was still placed on the bet that the British Industrial Revolution would not mark a permanent divergence of human destiny from its agricultural-age pattern. All agreed that the Industrial Revolution had produced marvels of science and technology. All agreed that it allowed the world to support a much greater population than had previously been deemed possible. All agreed that it gave the world’s rich capabilities that, along many dimensions, fell little short of those previously attributed to gods. All agreed that it had greatly multiplied the numbers of the comfortable—that there were now many more people who did not feel the immediate bite of insufficient food, insufficient clothing, and insufficient shelter.

But had the Industrial Revolution lightened the toil of the overwhelming majority of humanity—even in Britain, the country at the leading edge? No. Had it materially raised the living standards of the overwhelming majority--even in Britain? Doubtful. Would it do either of these in the future? You had to be somewhat utopian to be confident that it would be so.

But that changed. Each year after 1870 John Stuart Mill’s belief that the progress of science and technology, of industry and enterprise had not lightened the day’s toil of any human being or effected great changes in human destiny became less and less credible and less and less true, and by the time World War I began in 1914 had become more-or-less completely false.

For, in comparative perspective with respect to all previous ages, 1870-1914 was indeed, as John Maynard Keynes wrote looking back at it from his World War I-era viewpoint: “economic Eldorado… economic Utopia… the earlier economist would have deemed it… an unprecedented situation… an extraordinary episode in the economic progress of [hu]man[ity]”. Human numbers increased, and increased more rapidly than ever before, from about 1.3 billion in 1870 to 1.75 billion in 1914, and yet food became cheaper and easier and not harder and more expensive to secure. In terms of the “bare-bones subsistence basket”, real wages of unskilled workers by the eve of World War I look like they stood more than 50% above their levels of 1870 or so—a world-wide reduction in potential Malthusian pressures never before seen.

How did the world accomplish its further threefold leap, relative to what had taken place in the British Industrial Revolution era of 1800-1870, in the underlying fundamentals of economic growth? And how did what was originally a geographically-concentrated surge become global, albeit unevenly global? Why, instead of the British Industrial Revolution growth surge petering out and being followed by a return to the Commercial Revolution era—itself a positive historical anomaly—did the rate of human progress leap ahead at a tenfold pace? Why does one year since 1870 see the relative technological and organizational progress of three years over 1800-1870, of ten years over 1500-1800, and of a hundred years over 1-1500? Just what happened around 1870 to make this shift? And what has happened between then and today to sustain it?

1870, you see, marked an inflection point in four important aspects of material life: transportation (with implications not just for goods traffic but for human migration as well; communication (with implications for finance and organization); openness (of societies and polities to financial, trade, and migration flows); and invention (with its implications for innovation and productivity growth):

  1. Globalization in goods transport, in the form of the iron-hulled screw-propellered ocean-going steamship linked to the railroad network, and subsequent developments.
  2. Globalization in communication, in the form of the global submarine telegraph network linked to landlines, and subsequent developments.
  3. The openness of the world—most important, perhaps, the open borders in migration, as one in fourteen humans changed their continent between 1870-1914. But also and closely linked to the other forms of openness that allowed transport and communications to produce globalization; that allowed research and development to diffuse throughout the world, albeit slowly; and that made the Long 20th Century the American Century.
  4. The development of the industrial research laboratory of Thomas Edison and Nikola Tesla, and its subsequent bureaucratization and generalization

These all four together were, I think, more likely than not enough to be a tipping point. I wish that I could do more in this book to explain why they together were a tipping point, but I do not know enough to do so. I can, however, trace their consequences.

The first two created the possibility of making the world economy, for the first time, a single system: the earnings of a rubber tapper in Brazil would be powerfully influenced by things happening continents away—by the economic growth and demand for rubber in North America and in western Europe and by the success of the British imperial project in Malaya and the Belgian in the Congo, to name four. The third realized the possibility of an integrated world economic system. Moreover, it transformed the U.S. from likely fifth fiddle to lead violin among the Long 20th Century’s global powers. This chapter will focus on this “globalization”.

The fourth greatly increased the pace of technological growth as inventors and innovators were no longer forced to be both lone wolves and to also be promoters, projectors, financiers, and managers. We postpone Thomas and Nikola, their industrial research labs, and their consequences to the next chapter.

What drove the world-wide surge in real wages over 1870-1914? That the surge was world-wide rather than confined to where industrial civilization had already taken root was due to the globalization of the economy of the railroad, the wharf and crane, the iron-hulled screw-propellered, ocean-going steamship, and openness to trade, finance, and migration—save that the pampas and the prairies and the other temperate climates were largely reserved for those of recent European descent.

The bringing new products—oil palms and nuts to west Africa, rubber to Malaysia, coffee to Brazil and central America, wheat and sheep to Australia, and many many more—and extracting resources from all around the globe was fueled by 100 million people leaving their continent of origin to live and work elsewhere: 50 million from China and India to places from South Asia and Africa to the Caribbean and the highlands of Peru; 50 million from Europe mainly to the Americas and Australasia but also to South Africa, the highland of Kenya, the black-earth western regions of the Pontic-Caspain steppe, and elsewhere.

These migrants and their descendants made a lot of our history:

  • One of these migrants—one whose move proceeded the great 1870-1914 wave as migration became really cheap—was Andrew Carnegie (1835-1919), immigrated to America from Scotland in 1848. He was perhaps the champion of upward mobility: his father was a subsistence-level handloom weaver, and he become the world’s premier steelmaster and perhaps the second richest person in the world. We will see a lot of Andrew Carnegie later on in this book.

  • Another migrant was Mohandas Gandhi (1869-1948), who migrated from India to Britain to study at the Inner Temple from 1888-1891 and then to South Africa in 1893, where he stayed for 21 years. Only then did he return to lead the movement to win independence from the British Empire for India. The claim is that he sailed to South Africa thinking of himself as a British Empire citizen first and an Indian second, and returned convinced that the British Empire must end and willing to do something about it. We will see a lot of Mohandas Gandhi later on in this book.

  • A third was David Leontyevich Bronstein (1847–1922), who with his wife Anna Lvovna Zhivotovskaya (1850-1910) crossed the the greatest river he had ever seen and moved 200 miles out of the forest and into the grasslands—which had been horse-nomad lands within historical memory—to pioneer one of the richest agriculture soils in the world: it was fifteen miles from his farm in Yanovka to the nearest post office. We will see a lot of David and Anna’s fifth child, Lev Davidovich Bronstein (1879-1940), later on in this book.

  • A fourth was Jennie Jerome (1854-1921), who made a reverse migration: from Brooklyn, New York, United States to Westminster, England to marry Lord Randolph Spencer Churchill, becoming engaged in 1873 three days after their first meeting at a sailing regatta on the Isle of Wight. Their marriage was then delayed for seven months while her father Leonard the financier and speculator and his father John Winston the seventh Duke of Marlborough argued over how much money she would bring to the marriage, and how it would be safeguarded. We will see a lot of her son, Winston Leonard Spencer Churchill (1874-1965), born eight months after their marriage later on in this book.

  • A fifth was Nikola Tesla (1856-1943), who left Croatia and his wished-for parental destiny as a Serbian Orthodox priest to Graz, Austria, Budapest, Paris, and then New York to become the most brilliant electrical engineer ever. We will see a lot of him later on in this book.

  • And a sixth was Herbert Hoover (1874-1967). Born in 1874 in Iowa, orphaned at 10, in 1885 he started moving west—first to Oregon to live with an uncle; second to California as the first student to attend Stanford University where he became a mining engineer, graduating in 1895 in the distressed aftermath of the Panic of 1893; and then in 1897 he crossed the Pacific to first Australia and then China to make his fortune. From 1901 to 1917 his base was London, as he worked in and managed investments in Australia, China, Russia, Burma, Italy, and Central America in addition to the United States. In 1917 he moved back to America. We will see a lot of him later on in this book.

The industrialization of western Europe and of the east and midwest of North America provided enough workmen to make the industrial products to satisfy global demands, and also to build the railways, ships, ports, cranes, telegraph lines, and other pieces of transport and communications infrastructure to make the first global economy a reality. The 1870-1914 world economy was a high—in historical comparative perspective—investment economy. Today there are 1 million miles of railroad in the world. There were 20 thousand miles of railways in the world when the U.S. Civil War ended in 1865. There were 300 thousand miles in 1914. (There are a million miles today.) In 1850 about 4% of all goods and services produced and marketed crossed national borders; in 1880 it was 11%; and by 1913 17%. (Today it is 30%.)

The upshot was indeed that for the world’s middle and upper classes, by 1914 it as indeed the case that “life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages…” And for the working classes of the globe, an increasing margin between living standards and bare subsistence emerged. All around the world over 1870-1914 there were five people where there had been four a generation before—half a century thus saw more population growth than had 400 years of the Han and Roman empires of earlier millennia. Underpinning this growth in human numbers were women who were better nourished and so could reliably ovulate, children who were better nourished so that their immune systems were less compromised, and the beginnings of effective public health.