The Dawn of a New Economic Era

The mid-19th century witnessed an unprecedented economic transformation that reshaped the global order. Following the revolutionary upheavals of 1848, Europe and the wider world entered a period of remarkable industrial expansion and capitalist development. As William Whewell observed in 1852, those who mastered “peace, capital, and machinery” for public benefit became society’s servants while enriching themselves—a sentiment capturing the spirit of this new age.

This era marked the definitive triumph of industrial capitalism, with a select group of advanced nations transitioning to industrial economies. The period from 1848 to the early 1870s saw world trade increase by 260%, while global coal production rose 2.5 times and iron output quadrupled. Steam power, the era’s defining technology, expanded 4.5-fold from 4 million horsepower in 1850 to 18.5 million by 1870.

The Foundations of Global Capitalism

The economic surge had roots in several interconnected developments. First, the transportation revolution—particularly railways and steamships—created what Marx termed “means of communication truly adequate to the modern means of production.” British exports grew faster in the seven years after 1850 than in any comparable period, with cotton cloth exports doubling from 1850-1860.

Second, the discovery of gold in California (1848) and Australia (1851) dramatically increased the world’s money supply. Gold coinage in Britain, France and America surged from £4.9 million annually in 1848-49 to £28.1 million in 1850-56. This monetary expansion facilitated credit growth and investment while creating mild inflation that encouraged entrepreneurial activity.

Third, economic liberalization swept across Europe. Guild restrictions fell in Germany (1860s), Austria (1859), and Scandinavia. Anti-usury laws were repealed in Britain (1854), the Netherlands, Belgium and northern Germany. Company formation became easier, with Prussia seeing 115 new joint-stock companies established between 1851-57 compared to just 67 in the previous 25 years.

The Engine of Industrial Progress

Industrialization spread geographically with striking unevenness. Britain remained the workshop of the world, producing half of global iron output in 1870 (6 million tons). Yet challengers emerged:

– Germany’s fixed steam power grew from perhaps 40,000 horsepower in 1850 to 900,000 by 1870—equaling Britain
– U.S. steam capacity doubled Britain’s by 1870
– Belgium, though small, produced half of France’s iron output by 1873

The railroad became the era’s signature achievement, combining iron and coal in transformative infrastructure. Global track mileage expanded exponentially, with 62,000 steam locomotives in service by 1875. Other industries showed more modest growth—cotton consumption rose 60% in the 1850s, wool production doubled by the 1870s.

Two revolutionary technologies emerged:
1. Electrical communications (telegraphy)
2. Industrial chemistry (synthetic dyes, photography)

These fields marked a shift toward science-based industry, foreshadowing future developments where education and research would become crucial to economic competitiveness.

The Social and Political Consequences

The economic boom had profound social impacts:
– High employment reduced labor unrest
– Real wages rose enough to prevent hunger riots (except in backward regions like northern Italy and Spain)
– Mass emigration provided safety valves for population pressures

Politically, the prosperity:
– Undermined revolutionary movements (British Chartism faded)
– Stabilized post-1848 regimes (Napoleon III’s Second Empire gained legitimacy)
– Allowed authoritarian governments to centralize power (Habsburgs unified control over Hungary)

As one contemporary noted, the masses grew “lethargic and apathetic” during prolonged prosperity—a frustration for radicals hoping to reignite the revolutionary spirit of 1848.

The Globalization of Capital

The period saw unprecedented capital flows:
– British overseas investments reached £1 billion by 1875 (up 75% from 1850)
– French foreign investments grew tenfold between 1850-1880
– Even opium exports from British India to China tripled in value

Trade liberalization advanced through treaties in the 1860s, though Britain alone embraced full free trade. The Latin Monetary Union (1865) standardized currencies across France, Belgium, Switzerland and Italy, facilitating commerce.

The Crisis of Confidence (1873 and Beyond)

The boom reached its zenith in 1871-73 before collapsing spectacularly:
– 21,000 miles of U.S. railroads went bankrupt
– German stock prices fell 60% from peak
– Half the blast furnaces in major iron-producing nations shut down
– Immigration to America dropped from 200,000 annually to 63,000 in 1877

As a German analyst wrote in 1889, since 1873 “the word ‘crisis’ has hovered over everyone’s head.” This marked the end of mid-century liberal confidence and the beginning of a new, more uncertain economic era.

Legacy of the Transformation

The 1850-73 period established industrial capitalism as the dominant global system. Key achievements included:
1. Creation of an integrated world economy
2. Demonstration of industrialism’s transformative power
3. Establishment of Britain’s financial hegemony
4. Emergence of Germany and America as industrial powers

Yet the era also planted seeds of future challenges—overproduction, financial instability, and the social tensions that would characterize the late 19th century. As one French observer noted in 1869, nations could prosper through “gentleness, hard work and constant self-improvement” rather than harmful schemes—an optimistic vision that would soon face severe tests in the age of imperialism and great power rivalry.