The Paradox of Progress: Economic Growth Amidst Pessimism

The late 19th century presented historians with a fascinating paradox – an era of unprecedented industrial expansion that contemporaries nevertheless perceived as a “Great Depression.” Between 1870-1890, iron production more than doubled across major industrial nations while steel output, the new benchmark of industrialization, increased twentyfold from 500,000 to 11 million tons. Global trade continued its dramatic ascent, albeit at slightly moderated pace compared to earlier decades. The United States and Germany surged forward as industrial powerhouses while new entrants like Sweden and Russia joined the industrial revolution. Overseas economies from Argentina to Australia experienced boom periods that would seem familiar to observers of 1980s international debt crises.

Yet despite these indicators of robust growth, contemporary observers from British financiers to German industrialists expressed profound anxiety about economic conditions. This apparent contradiction between statistical growth and psychological depression stemmed from fundamental shifts in the capitalist system. As Alfred Marshall noted in 1888, the era was characterized by “low prices, low interest, and low profits” – a phenomenon that particularly afflicted agriculture and traditional industries.

The Agricultural Crisis and Its Global Ripple Effects

No sector suffered more visibly during this period than agriculture. The dramatic expansion of global agricultural production in previous decades now flooded world markets, triggering a price collapse that reshaped rural societies across continents. Wheat prices in 1894 stood at barely one-third of their 1867 levels. The phylloxera epidemic that began in 1872 devastated French wine production, reducing output by two-thirds between 1875-1889. These shocks produced varied responses:

In Britain, where agriculture employed a shrinking minority, the response was dramatic contraction – wheat acreage plummeted by two-thirds between 1875-1895. Denmark pivoted successfully to higher-value animal products. Protectionist measures emerged in Germany, France and the United States to shield domestic farmers. Meanwhile, rural populations voted with their feet – the 1880s witnessed unprecedented emigration from Ireland, Italy, Spain and Eastern Europe, serving as a social safety valve that prevented more widespread rebellion.

The agricultural depression also reshaped global trade patterns. Britain became increasingly dependent on food imports, purchasing by 1905-09 about 56% of its grain, 76% of dairy and 68% of eggs from abroad. This growing import dependence reinforced Britain’s commitment to free trade even as other nations embraced protectionism.

The Corporate Revolution: Concentration and Rationalization

Facing squeezed profit margins, industrial capitalism underwent profound structural changes. The late 19th century witnessed the rise of large-scale corporate enterprises through mergers and acquisitions – a phenomenon Americans termed “trusts” and Germans called “cartels.” The Rhine-Westphalian Coal Syndicate controlled about 90% of regional production by 1893, while Standard Oil dominated 90-95% of U.S. petroleum refining. U.S. Steel, formed in 1901, accounted for 63% of American steel output.

This concentration movement coincided with efforts to rationalize production through “scientific management.” Frederick Winslow Taylor’s time-motion studies, developed during the 1880s in the troubled U.S. steel industry, sought to maximize worker productivity through systematic analysis of labor processes. While full Taylorism wouldn’t take hold until after 1918, these developments signaled the transition from owner-operated firms to professionally managed corporations – what some scholars have termed “organized capitalism.”

The Protectionist Turn and National Economies

The period 1880-1914 marked the end of economic liberalism’s long ascendancy. Germany and Italy led the protectionist charge in the late 1870s, with France (Méline Tariff of 1892) and the United States (McKinley Tariff of 1890) following suit. Average tariff rates by 1914 reflected this shift:

– United States: 30.1%
– Russia: 30.0%
– France: 18.3%
– Germany: 12.5%
– Britain remained the lone major industrial power committed to free trade, its policy shaped by London’s financial interests and lack of agricultural protectionist constituencies.

This protectionist wave reflected the growing identification of economic competition with national rivalry. As economist E.E. Williams warned British readers in “Made in Germany” (1896), industrial competition had become a matter of national economic security.

The Imperial Dimension: Expansion as Economic Strategy

The temporal coincidence between the “Great Depression” and the late 19th-century scramble for colonies has long intrigued historians. While simple causal relationships remain debated, contemporaries clearly perceived imperial expansion as an antidote to economic stagnation. A U.S. State Department official captured this mindset in 1900: “Territorial expansion is but the by-product of commercial expansion.”

Imperialism provided both markets for manufactured goods and outlets for capital investment. British foreign investments grew dramatically, accounting for 44% of global overseas investments by 1914 compared to 56% for all other nations combined. The City of London’s financial dominance increased even as Britain’s industrial lead eroded.

The Belle Époque Boom: 1896-1914

From the mid-1890s, the global economy entered a sustained upswing that contemporaries dubbed the “Belle Époque.” Several factors drove this transformation:

1. Geographic Expansion: Industrialization spread to new regions including Scandinavia, northern Italy, Hungary, Russia and Japan. Agricultural production zones expanded dramatically in North America, Argentina and Australia.

2. Technological Revolution: While often remembered for automobiles, airplanes and cinema, this period equally witnessed refinements of first industrial revolution technologies – steel production methods improved, steam turbines developed, and global shipping tonnage nearly doubled between 1890-1914.

3. Mass Market Emergence: Rising urban populations and real incomes created new consumer markets. Innovations like branded packaged goods (Lipton’s quarter-pound tea packages from 1884) and installment purchasing democratized access to consumer durables.

4. Service Sector Growth: White-collar employment expanded dramatically. In Britain, commercial employees grew from 91,000 in 1851 to over 900,000 by 1911, with similar patterns across industrial economies.

Structural Tensions and the Road to War

Beneath the surface prosperity, significant tensions developed:

– Trade Imbalances: Industrializing economies accumulated deficits with primary producers, while Britain’s financial services balanced global accounts.
– Labor Unrest: After real wage gains during the “depression,” workers faced renewed pressure as profit margins tightened post-1900.
– National Rivalries: Economic competition became increasingly framed in nationalist terms, with industrial capacity equated with military potential.

These contradictions would ultimately help precipitate World War I, shattering the very economic order that had produced such remarkable growth. The pre-1914 world became a nostalgic benchmark – a lost golden age that postwar leaders would struggle in vain to recreate.

The imperial age thus represents capitalism’s adolescence – a period of dramatic growth spurts and awkward transitions, when the system’s potential and contradictions became equally visible. Its legacy would shape economic thinking and policy throughout the tumultuous 20th century.