Precipitous collapse of the nineteenth-century peace, and of the first era of haute finance, into a mess of squabbling empires and aggressive militarism, as described by Karl Polanyi:
The breakdown of the international gold standard was the invisible link between the disintegration of world economy since the turn of the century and the transformation of a whole civilization in the thirties. Unless the vital importance of this factor is realized, it is not possible to see rightly either the mechanism which railroaded Europe to its doom, or the circumstances which accounted for the astounding fact that the forms and contents of a civilization should rest on so precarious foundations.
The true nature of the international system under which we were living was not realized until it failed. Hardly anyone understood the political function of the international monetary system; the awful suddenness of the transformation thus took the world completely by surprise. And yet the gold standard was the only remaining pillar of the traditional world economy; when it broke, the effect was bound to be instantaneous. To liberal economists the gold standard was a purely economic institution; they refused even to consider it as a part of a social mechanism. Thus it happened that the democratic countries were the last to realize the true nature of the catastrophe and the slowest to counter its effects. Not even when the cataclysm was already upon them did their leaders see that behind the collapse of the international system there stood a long development within the most advanced countries which made that system anachronistic; in other words, the failure of market economy itself still escaped them.
The transformation came on even more abruptly than is usually realized… The conflict of 1914-18 merely precipitated and immeasurably aggravated a crisis that it did not create. But the roots of the dilemma could not be discerned at the time… For suddenly neither the economic nor the political system of the world would function… In reality, the postwar obstacles to peace and stability derived from the same sources from which the Great War itself had sprung. The dissolution of the system of world economy which had been in progress since 1900 was responsible for the political tension that exploded in 1914… The only viable solution of the burning problem of peace… [was] completely out of reach; so much so that the true aim of the most constructive statesmen of the twenties was not even understood by the public, which continued to exist in an almost indescribable state of confusion.
What appeared a sudden and violent collapse had been coming for some time.
The booming third quarter of the nineteenth century, with a wave of technical innovations from the 1850s (e.g. the ‘American system’ of production engineering using interchangeable parts, and invention of the Bessemer process allowing cheap production of steel), led swiftly into a crisis of profitability.
The Long Depression of the 1870s was followed by a belle époque during the late Victorian and Edwardian eras.
In Britain this age of finance saw the former ‘workshop of the world’ submit to the supremacy of the City of London. Britain’s Bank Charter Act of 1844 had constrained the growth of state money and circulating notes, limiting inflation and thus favouring the creditor interest in that country.
A generalized switch to the gold standard in the 1870s allowed the integration of the financial systems of Britain, western Europe, the United States and their respective empires.
The industrial capitalist class, which hitherto prided itself on sobriety and delayed gratification, now mimicked the extravagant habits funded by current expenditure of the old landed aristocracy.
The appreciation of financial assets during this boom corresponded to a change in the real economy, as a smaller portion of profit was materialized in new equipment, plant and machinery. Instead it was stored as money capital, and labour re-deployed towards construction, restoration and furnishing of stately homes in the countryside, on domestic servants and other luxury consumption, and from the 1890s on armaments as Britain, Germany and France, the industrial powers of Europe, contended for control of African colonies.
These territories, seized or merely dominated, served as suppliers of cheap raw materials, keeping wage costs down. They also were outlets for the excess liquidity of rentiers.
When the music stopped in 1914, the rival empires faced each other armed to the teeth.
Earlier this year Harvard University Press published a new book by Michael S. Neiberg on the outbreak of the Great War.
Dance of the Furies claims that the populations of belligerent Powers, as opposed to their leaders and the power elite, never saw it coming. When troops were mobilized and war was declared (even in the parliamentary states, Neiberg shows, the critical decisions were made by fewer than a dozen men), it came as ‘a clap of thunder in the summer sky’.
Most people were innocent of their state leadership’s longstanding territorial and economic ambitions. Nor were they swayed necessarily by nationalist bloodlust (an eventual result rather than a pre-existing cause of war, he avers).
Rather ‘the people of Europe accepted the necessity of war primarily because they believed their wars to be defensive’ and themselves subject to existential threat:
The “militarism run stark mad” that the American Presidential advisor Edward House saw on his visit to Europe in 1914 was limited to the governing elites… The overwhelming response of the people of Europe was not enthusiasm or joy but sadness and resignation.
The German government, latterly under the liberal Chancellor Bethmann-Hollweg, was scheming to dominate a Mitteleuropa through creation of a continental customs union, seizure of the Belgian coastline, annexation of the ore-rich Longwy-Briey territory, expansion eastwards into the Russian Empire, political-military subordination of France, Italy, Scandinavia and the Netherlands, and creation of a colonial Mittelafrika between the Atlantic and Indian oceans by taking over Portugal, Belgium and France’s African possessions.
As much was revealed by Germany’s war aims as stated in the Septemberprogramm.
These expansionist ambitions were more than two decades old. Diplomatic secrecy and an obliging media helped to shield them from popular scrutiny, but were the people of 1914 really so ostrich-like, such that general war between the Powers appeared to arrive with ‘truly dizzying speed’, and so that their own country, alone, seemed engaged in a battle for existential survival?
Neiberg has assembled enough letters and diaries to suggest as much.
Imagine that some nosy historian will, one hundred years from now, pore similarly over the private communications of today’s intelligentsia: the liberal professions (civil servants, lawyers, doctors, architects, etc.), academics, journalists and artists. Will this examination reveal minds any more perspicacious?
Or is this social layer, like its forebears, so attached to its own epoch that its members delude themselves about the fundamental nature, and likely fate, of the present order?