Message Area
lblHidCurrentSponsorAdIndex =

  < Back to Table Of Contents  < Back to Topic: Who We Were, Where We've Been

article number 616
article date 12-06-2016
copyright 2016 by Author else SaltOfAmerica
Transformation to a Worldwide Economy, 1860-1900
by Chester Wright

Outstanding Tendencies.

During the last half of the nineteenth century certain outstanding tendencies affecting the economic development of many nations transformed the world.

Most fundamental and far-reaching in its effects among all these tendencies was the progress in science and its application in inventions.

In all the sciences—natural, biological, and social—the advance in knowledge proceeded at a rate unparalleled in history; the acceptance of the scientific point of view spread rapidly and an ever increasing amount of wealth was made available for the advancement of science and for spreading a knowledge of its achievements over the world.

Hitherto unknown or unused resources and forces of nature were made use of for supplying man’s needs; and the more effective guidance in cooperating with nature, which science provided, enabled the world to supply its existing wants, to say nothing of many latent and undreamed-of wants, more completely than ever before.

At the same time this advance in knowledge made possible more effective cooperation between men throughout most of the world in carrying on their economic activities:
• the spread of railroads, barely started by 1860, opened up vast continents;
• the development of the steamship made the oceans less formidable barriers than small seas had been before;
• distant communication took minutes instead of months due to:
- the extension of the telegraph,
- the introduction of the cable,
- the telephone,
- the wireless, and
- the radio.

Innumerable economic and other social institutions developed to further a more effective cooperation among men in the process of supplying their economic wants. Increasing wealth made possible greater savings and in many countries each generation added to the accumulated capital and wealth handed on to the succeeding generation.

In the more advanced nations modern capitalistic industry arose in all its magnificent powers; it transformed the organization of industrial society.

But the modern capitalistic industry brought in its train problems among the most difficult that confront the world of today.

It was chiefly by means of this economic progress that the rapid increase in the world’s population was made possible. By 1900 that population was estimated at about 1,500 million of which over one-half was in Asia and over one-quarter in Europe.

Two centuries earlier the world’s population was around 1,000 million and, although accurate figures are lacking, it seems clear that most of the increase that took place during that interval was in countries under, or largely influenced by, Western civilization.

Between 1860 and 1900 the population of Europe rose from less than 300 million to almost 400 million so that in the course of the century the population of that continent had somewhat more than doubled.

In supplying the economic needs of this vastly greater population the larger portion of the increased annual output of wealth, which, of course, was in part made possible by the growth in population, was consumed.

Yet the increase in wealth-producing capacity was sufficient at the same time to raise the actual standard of living of no small proportion of the people. In fact the desire to raise the standard of living still higher was becoming a factor in checking the rate of population increase among the more advanced nations where, in the latter part of the century, the birth rate showed a declining tendency.

But the people of Europe also contributed through the steadily growing volume of emigration during this period, increasingly drawn from south-central and eastern Europe, to the population and economic development of other continents. In this way, as well as in many others, the growth of population in Europe had important reactions on the economic development of the world.

The increase in the accumulated wealth and capital, particularly in Europe, was of far-reaching economic significance. It made it possible for the people of Europe to buy many more things that were the products of other continents and it enabled such countries as England, France, and Germany to export capital to the less developed countries of the world, thus making another contribution to the economic advancement of those countries.

Port Said Egypt after opening of the Suez Canal. The Suez Canal opened in 1869 and increased growth of export trade.

The tendency toward greater economic freedom, which had been especially marked during the first half of the century, was furthered in many ways by the economic developments during the latter part of the century. Helping the increase in mobility of labor, capital, and business management were:
• better means of transportation and communication,
• the spread of education,
• the development of financial institutions,
• the progress made in abolishing slavery or serfdom, and
• the extension of greater political rights to the people.

But the trend toward a policy of "laissez faire" in the relation of the state toward industry may be said to have been reversed in the latter quarter of the century. Originally in no small measure a product of the rapid changes in the organization of industrial society, which necessitated the casting aside of the elaborate system of regulation and control that had developed in earlier centuries, much had been accomplished in meeting this need during the century preceding about 1875.

The reaction against the laissez-faire policy became more noticeable during the last quarter of the century and can be traced to various causes.

Most important among these was the group of new problems arising out of the changes in the organization of industrial society, for by this time the undesirable results which accompanied those changes had attained such prominence and such general recognition that the state was being increasingly called upon for action involving regulation and control.

Other causes are to be found in the intensification of conflicts of economic interests between nations that accentuated the spirit of nationalism, and in the rising power of the masses seeking greater industrial democracy.

Though the growth in the spirit of nationalism could be traced for several centuries, it became accentuated during the latter part of the nineteenth century. Political developments such as the unification of Italy, the organization of the German Empire, and the transformation of Japan furthered the tendency.

The economic development within different countries helped to knit the people together through increasing the bonds of common economic interest, replacing a local or provincial economy by one that was national in scope, and augmenting the power of the central government.

Governments in increasing measure resorted to a policy of strengthening the nation economically and a new type of mercantilism developed. The effort to make the nation more nearly self-sufficing led to economic imperialism and a renewal of the active struggle for colonial empire.

International economic competition became keener and the causes of conflicts in economic interests more numerous. The various ways by which the economic development of the period contributed to bring about this result will be made clearer after a brief survey of that development in the leading nations.

Here it will suffice to note that the interaction between economic and political developments that accentuated this spirit of nationalism took a heavy toll of the world’s wealth to support the growing burden of armament, played no small part in the events that culminated in the first World War, and today constitutes one of the world’s great problems.

Finally, there was the great force of the growing spirit of democracy demanding more liberty and greater equality of opportunity in both political and economic activities.

As economic conditions improved and education spread, new wants developed and new or latent ideals were aroused among the people; the masses brought into closer contact, especially in the cities, began to organize and became more articulate.

Groups demanding wide-sweeping reforms such as the trade unionists, the socialists, and the communists grew in power, and slow yet steady progress was made in extending to the people a greater voice in their government and in introducing reforms designed to secure a greater degree of industrial democracy.

To such power had these groups attained that in the twentieth century we find the communistic Bolshevik regime in control of Russia and a labor ministry at the head of the government in Great Britain, an outcome that would scarcely have been deemed credible in 1860, so rapid had been the development of this movement and so widely ramified its effects upon industrial society.

These nineteenth century tendencies, so outstanding in their reaction upon the economic life of the time, were chiefly felt in the world of Western civilization. Partly as illustrating their reactions in the leading countries of western Europe, partly because the economic development of those countries was especially significant in the development of the United States, and partly for the reason that our remarkable progress and its relations to the economic world of today can be appreciated only by a comparison with the progress of those countries, we now turn to a brief summary of the economic history of England, France, and Germany during the half century preceding the outbreak of the first World War.

This summary of economic histories will be confined chiefly to the developments that were of most significance because of their international reactions.

French factory.


The trend in the economic development of the United Kingdom during this half century was along the lines established in the preceding period. The tendency toward specialization in manufacturing, commerce, and finance was dominant; and the resulting international economy steadily increased the number of ties that made the country dependent upon constant contact with the rest of the world.

It was only by means of specialization in these lines that it was possible to provide a living for the rapidly growing population. Though the population of Ireland steadily declined until in 1911 (it was only a little over 4 million, or practically one-half of what it had been before the great famine), the total population of the United Kingdom rose to over 45 million in that year, representing an increase of 50 per cent since 1861. In England proper the population had more than quadrupled since 1801.

By the opening of the twentieth century the United Kingdom had surpassed France in the number of its inhabitants, though in the middle of the eighteenth century the latter had more than twice the population of the former.

At the same time the country was contributing through emigration to other lands, chiefly the British colonies and the United States, an average of almost 200,000 people a year after 1850.

For British agriculture this period was destined to prove most trying. In spite of the repeal of the corn laws, prices remained fairly high and agriculture was generally prosperous until about 1875. Following this came two decades of serious depression resulting in widespread changes. A series of unusually poor crops aggravated the difficulties.

More fundamental and permanent as causes were the steadily increasing proportion of foodstuffs imported from other continents than Europe and the rapid decline in the cost of transportation. By the seventies over half of the wheat imports were coming from these sources and by 1900 seven-eighths.

At the same time the introduction of refrigeration made it possible for the fresh-meat products of distant lands to invade the English market. In the face of this competition from newly developing continents British agriculture was forced to resort to still better methods of cultivation and to give more attention to dairying, market gardening, or fruit growing, where the competition was less severe.

By the twentieth century, as a result of these changes and higher prices, the condition of agriculture became more prosperous. Oats, wheat, and barley in order were the chief grain crops, potatoes and turnips the chief vegetables, and sheep and cattle the most numerous livestock.

Intensive methods prevailed and two-thirds of the number of holdings were under 50 acres in size.

An outstanding feature was the very small proportion of owners who worked their farms, only one-eighth of the total, in spite of efforts made to increase the number.

In England proper the number of agricultural laborers declined one-third during the last half of the century; in 1901 only about one-tenth (for the whole United Kingdom one-eighth) of the male population earned a living through agriculture as compared with four-tenths in 1800.

Meanwhile the growth in population was such that during the first decade of the present century that country was importing almost four-fifths of its wheat supply and two-fifths of its meat.

It is said that the usual supply of food on hand within the country was sufficient for only about seven weeks. The danger involved in this situation was only too vividly impressed upon the country during the first World War; yet this was inherent in the line of economic development that made modern industrial England possible.

In manufacturing at the middle of the century England led the world both in advanced technological methods and volume of output. Although the century had not ended before this position of leadership was seriously challenged, it was the continued success in the development of her manufacturing industries that afforded the main basis for her economic progress.

The leading branch of manufacturing was the iron and steel industry together with the related machinery, engineering, and shipbuilding trades.

This was closely connected with the mining industry, especially coal mining, which showed the greatest growth among the country’s mineral products during this period. In fact coal was by far the most important natural resource of the country in its influence upon the nation’s development.

Artist, Gerald Palmer’s depiction of British coal miners.

Iron mining was next but, although the output was increased, the country was forced to import a steadily rising proportion of the ore used in manufacturing. The same was true of tin, where the domestic production remained nearly stationary. Lead and salt continued to be produced in considerable amounts but the output of copper became negligible.

Next in importance to iron and steel and the related trades came the textile industry. Among its branches the manufactures of cotton and of wool were far in the lead; these were the only important branches to show marked growth. Following the textile industry in importance was the group engaged in the manufacture of food, drink, and tobacco.

The first Census of Production for year 1907 showed a net output of over £700,000,000 with nearly 7million employees. This included mining, quarrying, building construction, and local public utilities. Adding to the number of employees those not included in the census there were probable more than 9 million employed, a figure between three and four times the number engaged in agriculture.

It would thus appear that nearly one-half of the 20 million people estimated as engaged in work in the United Kingdom were to be found in these industries. Perhaps this is the best indication of the relative importance of these activities in the economic life of the country.

The history of England’s commerce during this period is largely a product of the course of development in agriculture and manufacturing. The growth in the value of the foreign trade was fairly regular except for about a quarter century (a period of falling prices) after 1872; by 1910 the value was more than triple that in 1860.

Throughout the period this foreign trade considerably exceeded that of any other country. The balance of trade, which had become unfavorable in the fifties, steadily rose in amount and after the close of the century was fluctuating around $750 million a year—a fact that belies the widespread notion that an unfavorable balance is really injurious.

Except for coal the exports were chiefly manufactured products and the imports were raw materials and foodstuffs. Approximately a third of the foreign trade was with other parts of the British Empire.

The policy of free trade was continued, with but slight modification toward the close, throughout the period though, beginning in the nineties, there appeared an active agitation for protection, owing to the nearly stationary position of exports, the reaction towards higher protection in other countries, and the desire for a system of imperial preference.

The merchant marine grew even more rapidly than the foreign commerce. By the first decade of the present century the United Kingdom was building two-thirds of the world’s ships, owned one-third of the world’s merchant marine tonnage, and carried over one-half of the ocean-borne commerce of the world. At no other period in modern history, with the exception of the Dutch supremacy in the early seventeenth century, has any nation been so dominant in the ocean-carrying trade of the world.

It was chiefly upon the expanding manufactures and commerce that the growth in the country’s capital and wealth was based. The increasing output made possible greater saving until in the twentieth century the annual savings had risen to over $1,500 million a year.

Aided by this accumulating capital and the development of her financial institutions England remained the great financial center of the world.

As this capital accumulated a steadily increasing volume flowed out of the country in search of investment in less intensively developed regions where the opportunities for obtaining a higher rate of return were greater. By 1910 the total of these foreign investments was estimated at $17,500 million, a little over one-half being in countries outside of the Empire, and approximately $800 million was being added annually to this sum.

The income from this source and from the carrying trade was more than sufficient to meet payments due on account of the unfavorable trade balance. A rough estimate of the country’s wealth shortly before the first World War placed it at around $86 billion, or greater than that of either France or Germany.

Considering her limited area and natural resources the growth of England’s wealth during the nineteenth century was a remarkable achievement. The result is the best proof of the wisdom of the underlying policy of specializing in manufacturing and trade; for only thus was such economic growth made possible.

Nonetheless, the small area of the British Isles set some limitations upon the economic development within the United Kingdom. By the twentieth century the still more rapid development of other nations with greater area and resources had deprived the country of the preeminent position among the economic powers of the world which it had held during the greater portion of the nineteenth century.

Fig. 80.—Increase of population in the United States, the United Kingdom, Germany, and France since 1800.


Compared with that of the other leading nations, the economic development of France during the half century following 1860 was slow.

The brief Franco-Prussian War ended in the imposition of a heavy indemnity and the loss of Alsace-Lorraine with its valuable iron ore and potash deposits; it helped to increase the national animosities that resulted in the assumption of an enormous and continuing economic burden for the purpose of armament.

One of the most significant features of the period was the very slow growth in the country’s population, the net gain being barely 10 per cent in all, so that by 1910 the total was less than 40 million. There was very little emigration and the declining birth rate, probably chiefly due to the desire to raise the standard of living, combined with a none too low death rate, was mainly responsible for this result.

Although agriculture still remained the chief pursuit of much the largest group among the people, it declined relatively. The proportion of the population classified as living in rural districts fell from around 70 per cent to 50 per cent. Approximately three-fifths of the holdings were operated by people who owned them; their size showed little change and remained extremely small, more than a third being less than 2 1/2 acres and five-sixths less than 25 acres in extent.

By the eighties the agriculture of France, like that of other countries of western Europe, was beginning to feel serious foreign competition; but unlike England, the country promptly resorted to protective tariff duties. Thus protected, the agriculture of the country underwent less of a transformation than in England, a somewhat more commercial basis generally and the increase in dairying and market gardening being the most noticeable changes.

Except for sheep there was a moderate increase in livestock and the wheat, oats, and barley crops also rose. The cultivation of sugar beets advanced rapidly, but the important viticulture suffered severely through pests from which it had scarcely recovered at the end of the period.

Silk culture declined following the opening of the Suez Canal and heavy importations from the Far East.

It was not until near the end of the century that much progress was made in introducing such machinery as was suitable and, though the general methods of cultivation showed improvement, they were seldom up to the best current standards.

This very moderate growth of agriculture combined with an almost stationary population, enabled the country to remain relatively self-sufficing as far as its food supply was concerned. Moreover, the industry and thrift of the agricultural class in France proved one of the most important economic resources of the nation.

In manufacturing, particularly in the introduction of modern methods, the country made greater progress than during the first half of the century. The introduction of new processes made it possible to use the theretofore undeveloped iron ore.

Although new coal fields were opened up, between a third and a half of the coal consumed had to be imported.

Whereas the development of the iron and steel industry that resulted was at a rapid rate, the total output remained far below that of England or Germany. In the manufacture of machinery and shipbuilding the country was also relatively backward.

In the textile industries, linen excepted, and particularly in the manufacture of the finer grade of products, there was marked progress, and a considerable export trade was maintained.

In the manufacture of chemical products the country remained backward and not until the twentieth century was much use made of hydroelectric power.

Even at the end of the period, French manufacturing industries were characterized by a relatively small scale of production, owing in certain lines at least to their preeminence in artistic finish. In 1911 almost one-third of the active population was classified as engaged in industrial activities.

Paris France during the Exposition of 1889.

The foreign commerce of France, aided by the movement to reduce tariff duties in the fifties, continued to expand until about 1880.

There followed a strong reaction toward protectionism, backed by both the agricultural and the manufacturing interests; and this tendency dominated the commercial policy of the country for the rest of the period. Partly as a result of these restrictions and partly owing to the declining price level, the value of the foreign commerce remained nearly stationary for the two decades following 1880.

The first decade of the twentieth century, aided by the rising price level, brought a renewed advance; so that the total value at the end of the period was about three times what it had been in 1860.

After 1895 the balance of trade, theretofore generally favorable, was almost invariably unfavorable. The tonnage of the French merchant marine failed to grow, despite the fairly heavy subsidies and favoring regulations adopted about the middle of the period, until after 1900; by 1914 it had increased about 50 per cent, though nearly one-half of the total was still made up of sailing vessels.

In general the economic growth of the country though slow was fairly steady. The changes in the general character of the activities were so small that even in the twentieth century France could be regarded as being relatively self-sufficing economically—a situation not without certain advantages in such an emergency as the first World War, but a product of developments and policies that failed to produce so rapid a growth as in England or Germany.

The thrift of the people increased the accumulated capital and there was a considerable outflow to other countries, especially to eastern Europe, large sums being invested in Russian bonds.

The total wealth of the country was estimated at $62 billion, not far below that of Germany, and the national income at about $7,300 million, a sum which, though about a quarter less than that of Germany, gave a per capita income that was greater than in Germany.

However, the relative position of France among the economic world powers at the beginning of the twentieth century showed a marked decline as compared with its position in the eighteenth century.


The rapid rise of industrial Germany during the latter portion of the nineteenth century was one of the outstanding features in the economic history of Europe during that period. No other country on the Continent was making greater economic progress.

Although, as previously stated, Germany until nearly the middle of the century was 100 years behind England in economic development, still changes were taking place, such as the extension of the Customs Union, the spread of railroads, and the slow introduction of factory methods which facilitated the rapid development of the following period.

A great impetus was received from the organization of the German Empire in 1871 following the Franco-Prussian War. A renewed self-confidence, a new spirit of self-assertiveness, and a greater interest in material development appeared.

The broader and more powerful government with its paternalistic organizing tendencies became an important factor in directing and stimulating the nation’s economic development.

This remarkable development was a factor in the continued growth of the country’s population which by 1914 had risen to about 67 million as compared with 37 million in 1860. This growth occurred in spite of a decline in the birth rate, which was only partially offset by the declining death rate.

Emigration to other countries reached the highest point, over 200,000, in 1881; with the expansion of industry it declined rapidly until in the twentieth century it was seldom over 30,000 a year, and was exceeded by the number of immigrants, chiefly from the East and Southeast.

One of the most striking reflections of the course of events was the internal movement of population from rural to urban districts; for, although the absolute number of people living in rural districts showed no appreciable change, the proportion of the total population living in such districts declined from over two-thirds to two-fifths of the total.

German agriculture, in common with that of other western European countries, began to feel the competition of other nations in the seventies, for it was then that the country ceased to export and began to import grains both from the United States and, as the railroad system developed, from Eastern Europe.

Just as in France, agriculture imports led to a demand for protection, which became a factor in the reaction from the tendency toward free trade that had dominated during the third quarter of the century.

Beginning in 1879 under Bismarck’s leadership, the tariff duties were advanced so as to afford an increasing amount of protection for both agriculture and manufacturing.

As far as agriculture was concerned various motives played a parts in the adoption of this new policy. The agricultural class, particularly the junker landlords of the East, wanted higher prices for their products.

Considerations of defense led the statesmen to want, as far as it was possible, to keep the nation self-sufficing for its food supply, and it was argued that the farming population supplied recruits for the army who were stronger physically and more amenable to army discipline than those from urban districts.

Artist’s depiction of German Army.

The newly rising manufactures, facing the competition of older industries in other countries, sought protection for their products; and the fiscal needs of the imperial government with its rapidly growing expenditures made this source of income from indirect taxation particularly attractive.

Under the protection afforded by the tariff, German agriculture, although showing only a moderate growth in area under cultivation, was able, by the use of more scientific and intensive methods, to secure a very considerable increase in the output of the main products. Rye, oats, wheat, and barley, the chief grain crops, increased; the potato crop advanced rapidly; the beet-sugar crop showed a still greater growth and made possible a large exportation.

Except for sheep, there was an increase in the number of livestock, especially swine, though more significant was the improvement in their quality.

Increased use of machinery, together with the more scientific and intensive methods of cultivation adopted, raised the output per acre of the chief crops above that of most countries. By far the larger portion of the holdings were under 50 acres in extent. In 1907 out of a total of over 5,700,000 holdings, nearly three-fifths were under five acres—seldom sufficient to provide a living—and less than 300,000 were more than 50 acres in extent. The last group, however, included somewhat more than half of the total acreage.

The process of freeing the small cultivators from such remnants of feudal obligations as survived was fairly well completed during the early part of this period, so that much the greater portion of the land—nearly five-sixths in 1907—was cultivated by its owners, either peasants or the holders of large estates, the latter being most numerous in the North and East.

The proportion of the population that obtained a living by agriculture steadily declined until it made up about 28 per cent of the total.

Despite the growth of German agriculture the output failed to keep pace with the rising demand for foodstuffs and the nation became increasingly dependent upon outside sources of supply. The extent of this dependence is difficult to measure but it has been estimated at about one-fifth of the domestic consumption at the outbreak of the first World War.

The most marked deficiency in foodstuffs was in the case of fatty foods.

During the war, although Germany was able to obtain some supplies from neighboring countries, the scarcity of food became a most serious problem; in fact it is to the lack of food that one of the leading generals has attributed the decline in the morale of the people which he asserts was the main reason for the nation’s final defeat.

Though such an explanation is doubtless an exaggeration, this dependence obviously considerably increased the difficulties of defense. It was not without influence upon the country’s prewar expansionist policies.

As previously intimated, the great expansion of manufacturing industries was the outstanding feature in the economic development of Germany during this period. The introduction of modern machine methods proceeded at an unprecedented pace and transformed the organization of the industries where such methods were practicable.

The advance in the sciences and the close connection maintained between them and industry was another important stimulus in this growth.

The tariff duties imposed on manufactured products were typically lower than those on agricultural products; raw materials commonly were admitted free; the duties on semi-finished products were low and those on finished products were maintained at a moderate level.

Based upon the development of the coal fields and the iron-ore deposits acquired in Lorraine, the important iron and steel industry forged ahead until the output of iron considerably surpassed that of Great Britain. The production of coal, if the inferior lignite be included, reached a figure not far below that of the latter.

The great manufacturing industries of the Ruhr district centered around this growth. Closely connected therewith and aided by science was the chemical industry, notably the manufacture of dyestuffs, in which the country led the world.

In the manufacture of electrical machinery and apparatus, marked success was achieved; shipbuilding also rose to a position of importance.

BASF Chemical factory included the production of dyestuffs.

With the introduction of factory methods the textile industries, linen excepted; expanded rapidly, though the main products were typically of a somewhat lower grade than in France or England.

The development of combinations known as cartels, favored by the tolerant attitude of the government, was a prominent feature in the industrial history of the period. As a result of the industrialization of the country, five-twelfths of the population was dependent upon mining and manufacturing by 1907.

The history of Germany’s foreign commerce during these years naturally reflected the changes in her domestic economic activities. The imports of foodstuffs and raw materials for manufacturing steadily rose and manufactured products made up an increasing proportion of the exports, nearly two-thirds of the total by the end of the period. Among these exports the most important were machinery, iron and steel manufactures, and textile products.

Among the countries to which Germany was exporting, Great Britain and Austria-Hungary were far in the lead, followed by the United States, France, and Russia. In the case of her imports Russia and the United States each supplied about twice the amount obtained from any other country; Great Britain and Austria-Hungary came next in order.

Between the organization of the Empire and the outbreak of the first World War, her foreign trade quadrupled in value; at the latter date it exceeded that of any other country but the United Kingdom.

The balance of trade, except for a few years in the eighties, was unfavorable and towards the end of the period fluctuated around $300 million a year.

With the expansion of her shipbuilding industry and her commerce, Germany was successful in developing her merchant marine. The net tonage of her merchant fleet more than tripled and in the ocean-carrying trade she attained a position next to, though still far below, the United Kingdom.

The preceding account will make it evident that Germany in her economic development, was following in the path that England had taken long before in the direction of specialization and an international economy that involved increasing dependence upon trade with the rest of the world; however, her greater area and resources lessened the extent of that dependence.

That growing dependence, however, was in no small measure responsible for the demand for expansion—"a place in the sun “—and furnished a basis for the claim that expansion was a defensive move, since otherwise the nation’s continued development, and in time of war its existence, would be threatened.

In spite of the opportunities for investment at home made possible by her rapid development, the growth of accumulated capital was such that the investments in foreign countries, often closely connected with foreign trade, steadily increased until at the close of the period they were estimated at over $7 billion. As in the case of England the income from this source together with that from shipping more than sufficed to meet the unfavorable trade balance.

In the expansion of these foreign investments, as in the growth of domestic industry, the development of the great German banks played a particularly active part. By 1914 the total wealth of the country was estimated at about $76 billion and the national income at $10,460 million—both figures only slightly below those for the United Kingdom, though the per capita income was only about three-fifths that of the latter country.

Other Countries in Europe.

Concerning the economic development of the remaining countries of Europe the briefest statements must suffice. Belgium and Holland shared in the advanced development of their neighboring countries, the former specializing in manufacturing and the latter in commerce and agriculture.

Switzerland, safe in its Alpine stronghold, prospered with the growth of tourist trade and, in the more habitable portions, developed much the same activities as the adjacent countries.

The Alpine stronghold, Switzerland.

The union of the crowns of Austria and Hungary in 1867 gave somewhat greater unity in this country, though it still suffered from the complex racial composition of the inhabitants, the numerous conflicting interests, and a lack of willingness to make mutual sacrifices for the common good.

The spread of the railroad system helped to develop greater economic unity and to promote trade with neighboring countries. Under the stimulus of a high protective tariff a considerable growth of manufacturing occurred in Austria, but Hungary remained chiefly agricultural in character.

In the sixties Italy achieved political unity and became recognized as one of the six great powers of Europe, but at the cost of an armament burden that was staggering in proportion to her economic resources.

The people were extremely poor and the lack of opportunities for absorbing the rapid increase in the population led to an emigration which in proportion to the number of inhabitants was the largest in Europe.

The lack of varied natural resources, especially coal and iron, made agriculture the main pursuit and only latterly was there an appreciable growth of manufacturing along modern lines coupled with some effort to make use of the available water power.

Vast Russia up to about 1860 had scarcely been touched by the industrial development of western Europe. The freeing of the serfs, 1858-1863, marked the ending of this surviving stronghold of European feudalism.

The construction of an adequate railroad system was recognized as the first prerequisite for the modernization of the country as well as for purposes of defense; but the resources of the government were limited, and it was only slowly that even the outlines of the main system were completed.

Aided by an extremely high tariff and considerable foreign capital, some progress was made in introducing modern manufacturing methods, chiefly in Poland. But even at the close of the period by far the greater portion of the vast population—probably nearly 90 per cent—was primarily engaged in agriculture. Foodstuffs and raw materials constituted the only important exports.

The trend of development in the Scandinavian countries was greatly influenced by the industrialization of their neighbors and their growing demand for foodstuffs and raw materials. Denmark became devoted to agriculture and was notably successful in dairying. In Norway and Sweden with their varied resources, mining, fishing, forestry, and shipping were also important activities.

In the Iberian peninsula, Spain and Portugal suffered from unstable or inefficient governments and remained relatively backward—a condition which was even more marked in the Balkan peninsula.

Economic Developments in Other Continents.

The important economic developments that took place in other continents, North America perhaps excepted, were generally very closely connected with the industrialization of western Europe. In many cases they were a product of the outflow of European people, capital, and business methods, as well as of the rising European demand for the foodstuffs and raw materials of other lands.

At the same time, however, it must not be overlooked that, except for these developments in other continents, no such growth as took place in the countries of western Europe would have been possible. There was an increasing interaction between the two, a result of growing interdependence based upon greater specialization and a more nearly worldwide economy.

In the western hemisphere Canada was closely following at a later date the general lines of development of her neighbor to the south. The organization of the Dominion Government in 1867, the construction of transcontinental railroads, the opening up of the vast agricultural West, and the growth of manufacturing in the East were the outstanding features of the period.

Like her neighbor to the south, Canada developed her railroads to the Pacific.

In Latin America the obstacles to progress arising from unstable governments, a sparse population, and widespread ignorance among the masses continued to be the retarding factors outside of such progressive countries as Argentina, Chile, and portions of Brazil. Only in the first two countries was anything like a fair railroad system in existence.

From all these Latin American countries, aided by foreign capital and business enterprise, came a steadily increasing volume of products from the newly developed agricultural, forest, and mineral resources.

In Asia, where dwelt about half the world’s population, the most important economic developments were largely a product of the growing impact of the Occident. The opening of the Suez Canal in 1869 was an appreciable factor in augmenting this influence.

The transformation of Japan, following the overthrow of the Shoguns in 1868, the abolition of feudalism, and the adoption of western methods, affords perhaps the most striking example of a nation’s sudden rise to power in recent decades.

The area of the Japan was about three-quarters that of France, and most of the land was mountainous and unsuited for agriculture. Yet such was the growth of the country that a population of under 33 million in 1871 had risen to nearly 54 million by 1914, not including that in newly acquired territory.

Though the extractive industries continued to occupy most of the population, marked progress was made in the introduction of manufacturing under modern methods, notably in the iron and steel and textile industries.

In less than half a century the nation rose from a position of relative obscurity and a medieval economic organization to a recognized position among the economic and political world powers. Western nations began to feel the competition of Japanese products in Asiatic markets and of the rapidly developed merchant marine in the carrying trade.

In the rest of Asia the chief economic developments were largely a product of the activities of European peoples and countries.

In India, under English direction, a comprehensive railroad system was constructed.

Russia completed the Trans-Siberian railroad in 1905 and extended other lines into Turkestan.

European capital made a start in building the greatly needed system in China.

Outside of India and a small beginning in China, Western methods of manufacturing were not used and in its economic contacts with the rest of the world, the continent of Asia served mainly as a producer of raw materials and a consumer of manufactured products.

In Africa considerable progress was attained in making known its varied resources and at least a fair beginning in developing these resources. Outside of Cape Colony, however, few railroads penetrated far into the interior. The backward state of the native population prevented the development of any appreciable market for foreign manufactured goods.

From the point of view of Europe, Africa remained significant chiefly as a source of raw materials and an opportunity for economic exploitation.

Australia and New Zealand, developing under a purely Western civilization with a high standard of living, became contributors to the world’s supply of foodstuffs and raw materials and provided a moderate market for manufactured products.

The Dutch East Indies, notably Java which became one of the most densely populated regions of the world, and the Philippines, after their acquisition by the United States, also became more important sources of supply for certain raw materials.

Manila, Philippines becomes an important source of supply for certain raw materials to the United States.

The Growing Economic Rivalries of Nations.

The foregoing summary will suffice to show why the trend of economic development tended to accentuate the economic rivalries between nations which characterized the period, revived the spirit of economic imperialism, and became an increasingly important factor in world politics and the events that culminated in the first World War.

For the purpose of securing a clearer understanding of the situation and its effect upon the economic and political relations between the United States and the rest of the world, a brief summary of the most significant developments that brought about this result is desirable.

Underlying all was the tendency toward a more nearly world-wide specialization and division of labor—a product chiefly of lowered costs of transportation that followed the expansion of railroads, the opening of oceanic canals, and the introduction of steamships.

The resulting economic interdependence among nations created more bonds of common interest, but also gave more frequent occasion for the appearance of conflicting interests. Moreover, the more advanced and powerful nations were tending to specialize in the same general line—industry. Their products were often identical in general character and hence competition between them was greatly intensified.

Thus England, far in the lead during the first half of the nineteenth century, saw one nation after another becoming a serious rival in one or more lines of economic activity; France, Germany, the United States, Japan, to mention the most conspicuous, became competitors in manufacturing, first in the domestic markets and then in the world markets.

Moreover, greater specialization in industry led to keener competition in other fields: a struggle to secure the supplies of raw materials upon which these industries were based, a need for foodstuffs with which to feed the growing industrial population, and competition in the world’s commerce in all these products.

At the same time the rapidly accumulating capital of these nations, flowing out into less developed countries, resulted in a keen rivalry to secure the most promising opportunities for exploitation.

Finally, it may be pointed out that the working out of certain economic laws was of significance in bringing about these results:
• diminishing returns on increasing capital investments at home combined with better facilities for investment abroad hastened the outflow of lendable funds;
• diminishing returns in the extractive industries, even though partly or entirely counteracted by improvements, combined with cheaper transportation, tended to increase the dependence upon foreign sources of supply for foodstuffs and raw materials; and
• the prevalence of decreasing costs in manufacturing hastened the process of industrialization and intensified the competition in the sale of manufactured products.

These economic developments combined with the growing spirit of nationalism (also in part a product of economic changes) led to increased emphasis upon what is called “dollar diplomacy"—that is, international negotiations governed by economic considerations—and also to the vigorous revival during this period of economic imperialism.

The struggle for colonies, which had been so keen in the immediately preceding centuries, though not abandoned, as has previously been pointed out, was much less prominent during the period from 1815 to about 1880. Even in the case of England, who took the lead during these years, such expansion of the Empire as occurred was less the product of any definite policy on the part of the home government than of the activities of her merchant traders, capitalists, and those who already dwelt in her scattered dominions.

The closing decades of the nineteenth century witnessed a marked change in the situation. By that time desirable regions that could be easily acquired were becoming scarce, Africa providing the most important.

By that time the consequences of the rapid industrialization of other nations besides England were becoming obvious; at that time the reaction toward economic protectionism became widespread; by that time Italy and Germany had become unified, within a short period Japan was modernized, and all three joined in the general struggle.

At bottom, the ideals were substantially those of the old Mercantile System—the development of a rich, powerful, economically self-sufficing empire. Except for the emphasis which mercantilism had placed upon money and the accumulation of the precious metals, colonies were looked upon as contributing to this aim in much the same variety of ways.

Modernized Japan joined the world economic system.

Thus colonies would supply the mother country with raw materials and foodstuffs; they would provide a market for manufactured products; their trade would yield a profit and help in the development of a merchant marine; they would provide opportunities for the investment of capital and a home for emigrants where they would not be lost to the empire.

Impelled by such objectives and a realization that the desirable regions were getting scarce, the movement to acquire colonies received a new impetus during the last quarter of the nineteenth century. Practically all that remained of Africa was soon divided up among the great powers; the same held true of the scattered islands of the Pacific.

At the same time in many of the less powerful countries where actual annexation seemed impracticable “spheres of influence” were agreed upon as in the case of China, Persia, and Siam.

In still other lands economic penetration—the investment of capital frequently combined with considerable influence upon the government in obtaining economic advantages—became an important method for furthering these ends.

On more than one occasion this economic rivalry threatened to cause war and in the complex of factors that underlay the first World War it was among the most significant. Finally, it may be noted that that war, by aggravating national rivalries and providing illustrations of the importance of economic power and self-sufficiency, has only intensified the keenness of this struggle.

Only as one understands the outstanding features in the economic development of the world during the last century, can he understand many of the most prominent problems in the world of today.

Moreover, only against this briefly sketched background of world development, can one fully appreciate the economic development of the United States during this period, grasp the important interaction between our development and that in the rest of the world, and comprehend the increasingly significant relations between our country and the world of today.

The United States since 1860—The Period as a Whole.

Before taking up the detailed narrative of our development during these years, a brief characterization of the period as a whole is needed to furnish some background for the more detailed account and to emphasize its outstanding features.

At the outset the country was plunged into a prolonged and devastating civil war—the product of the conflicting sectional interests and ideals that had long troubled the nation. The victory of the North settled forever the question as to the indissoluble character of the Union.

Politically, the outcome was of the utmost significance for the future of the country; economically, however, its effects, though important, were less significant and far-reaching. For this reason the question may be raised whether it is properly chosen as separating two distinct periods in the country’s economic development. If so, what are the characteristics that distinguish the period that followed from that which preceded?

Among the enduring economic consequences of the war the most important were the effects upon the South where, in addition to the economic devastation involved, there was the necessity of adjusting conditions to the abolition of slavery.

Also, the South lost in its relative influence upon national affairs; the North, and in time the West, gained in political power; and everywhere the influence of accumulated capital became increasingly prominent.

Savannah Harbor, 1880’s.

Other economic changes in the country as a whole that are directly traceable to the war are: a higher level of tariff duties, greater Federal expenditures and taxes, some changes in the circulating medium, and the acceleration of such movements as the growth of manufacturing, the introduction of a national banking system, the construction of the transcontinental railroads, and the immediate decline of the merchant marine.

Whether these changes were of sufficient importance in their influence upon the general trend of economic development of the country to justify the claim that the war marks the beginning of a new period may well be questioned. After all, these changes cannot be considered as the dominating factors in shaping that development.

If it is possible to name any one factor that dominated, it was the same one that dominated the preceding period—the influence of the West—at least until about the close of the century.

The country was still absorbed in the process of settling, opening up, and developing the vast areas barely touched by the hand of the white man before 1860. The railroads now became an important factor in the pioneering movement and the rapid construction of the different lines stretching from the Mississippi Valley to the Pacific coast soon provided easy access to the western half of the country.

In the meantime changes in the public land laws made acquisition of these areas easier and easier. The West was still the land of opportunity. Until 1890 at least, the westward surge of population proceeded with unabated force, and a steadily growing volume of immigrants poured in from Europe.

The newly opened lands and the improved transportation facilities aided the continued rapid expansion of agriculture, and the surplus products found a market in the industrialized nations of Europe.

The expansion in the West was also a major factor in the recurrent panics and thus helped to shape much of the monetary history of the period. Until after the first World War farming continued to occupy the attention of the largest single group of the population.

The factor of second importance in our economic development during this period was the growth of modern capitalistic industry, most prominent in the great expansion of manufacturing.

Favored by the continued development of the country’s rich and varied natural resources and stimulated by the introduction of new machinery and the rapidly expanding domestic market, manufacturing grew by leaps and bounds.

Before the end of the century manufacturing industries were making a larger net contribution to the national income than agriculture. Imports of manufactured products dwindled to only a small percentage of the domestic output and exports were entering the world markets so that in this field the country could be considered almost self-sufficing.

But the spread of modern capitalistic industry created new problems that assumed a steadily increasing prominence in the economic and political life of the nation. These involved:
• the relation between labor and capital,
• the regulation of railroads and public utilities,
• the control of combinations and trusts, and
• the business cycle.

These problems loomed larger and more formidable with every passing decade till, with the advent of the twentieth century, they may be said to have become the dominant issues. By that time the development of the West had ceased to be the most important factor in shaping the course of events in the economic life of the nation. A new epoch had begun.

This result was due to the fact that the supply of free fertile public land was practically exhausted. The preliminary work of settling the fertile land and opening up the resources had come to an end, as far as it can be said that there is ever any end to this process.


The frontier had disappeared. Thenceforth the supply of undeveloped fertile land, which from the foundation of the colonies had been the most important single factor in shaping the economic development of the nation, rapidly dwindled in its influence.

How fundamental and widespread in its effects upon the economic life of the nation this was destined to be will appear in the more detailed history that follows. Here it must suffice to assert that these reactions were so fundamental that the last decade of the nineteenth century marks the ending of one great epoch in our economic history and that the advent of the twentieth century begins a new epoch where new conditions dominate and where problems of a new character come to the forefront.

If the foregoing brief analysis is accepted as correct, we can now attempt to indicate more accurately the position which the years since 1860 hold in relation to the general periods in the economic history of the country. The years from 1816, when the period of transition ended, to the close of the century—if we had to name a specific year, 1896 might be chosen—are properly to be considered as one great epoch during which the settlement and opening up of the West was the dominant factor in shaping the economic development of the country.

The Civil War is an episode of this epoch; but it does not mark any distinct change in the general trend of development or in the conditions dominating that development. It did bring certain changes of a minor character already noted.

The most important difference between the portion of the epoch that preceded the Civil War and that which followed is found in the fact that during the former, the influence of the West was relatively greater while in the latter that influence, though still dominant, was on the decline.

The influence of the changes and problems incident to the spread of modern capitalistic industry—much less significant in the ante-bellum years—was assuming a rapidly increasing importance. Thus from the economic point of view the ante-bellum and post-bellum years may be regarded as two periods of one great epoch, varying somewhat in character, partly because of changes owing to the war and partly because of slower changes inherent in the evolution of industrial society. In their most fundamental characteristics they were substantially similar.

The twentieth century, it has been stated, marks the beginning of a new epoch in our economic history. Manufacturing came to surpass agriculture in the number of persons engaged in the pursuit as well as in the value of the output; the urban population by 1920 exceeded the rural population; the nation once devoted to farming was becoming industrialized.

This shift reacted upon foreign commerce, which underwent a marked change in character and brought the nation into keener competition and closer contacts with the rest of the world.

Capital began to flow out to other lands; the country became a creditor nation; and indications of economic imperialism began to appear.

Among the more advanced nations the United States retained an unusual degree of self-sufficiency, but its increasing share in the economic life of the world was making a policy of isolation less and less tenable; inevitably world problems beset it.

In the amount of its wealth and material income, no country could compare with it; by 1914 its national income came to exceed that of the United Kingdom, Germany, France, Austria-Hungary, and Italy combined; its per capita income was well above that of any other land. In economic power it had become the leading nation of the world.

We now turn to the more detailed study of how all this came to pass . . .

< Back to Top of Page