Capitalism in the nineteenth century
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As the nineteenth century began, the United Kingdom was locked in a struggle with Napoleonic France that did much to define the terms for institutional developments, capitalist and otherwise, in the remainder of the century.
Napoleon sought to introduce a "continental system" that would render Europe economically autonomous, making the Royal Navy's blockading power irrelevant. It involved such stratagems as the use of beet sugar in preference to the cane sugar that had to be imported from the tropics.
The Continental system did cause some mercantile circles within the UK to agitate for peace, but the government was able to resist that agitation, in part because the United Kingdom was well into the industrial revolution. The war stimulated the growth of certain industries -- pig-iron output, which was just 68,000 tons in 1788, soared to 244,000 tons by 1806.
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[edit] Banking after Napoleon
The growth of Britain's industry meant the growth of her system of finance and credit. At the beginning of the century, banking was an affair for clubs of very wealthy families. But gradually, and at an accelerating pace after the collapse of the threat from Napoleon, a new sort of banking emerged, owned by anonymous stockholders, run by professional managers, and the recipient of the deposits of a growing body of small savers.
The new breed of banks was new in prominence, not newly invented. A Quaker family, the Barclays, had been banking in this manner since 1690. But this model of banking became ever more prominent through the nineteenth century.
The UK's growing importance as the center of capitalism in this period benefitted from the great degree to which the business world of Britain was open to talented foreigners, like Johann Baring, who had come from Bremen in 1717 and turned himself into a successful cloth merchant in Exeter. His sons, John and Francis Baring, set up a trading company in London, and Francis became one of the most influential bankers of his time. By his death in 1810 he was allegedly worth 7 million pounds.
Indeed, the Barings bank that lived on after Sir Francis' death was important enough to become the target of a barb from George Gordon Byron. In 1823, that great poet wrote: "Who makes politics run glibber all?/ The shade of Bonaparte's noble daring?/ Jew Rothschild and his fellow-Christian, Baring."
The end of expensive hostilities and the rebound in trade after Napoleon's fall led to an expansion in the bullion reserves held by the Bank of England, from a low of under 4 million pounds in 1821 to 14 million pounds by late 1824. This was also the period during which the Erie Canal was under construction in the United States, and many investors in Europe saw opportunities in America, just as many investors in the developed world look to the emerging markets of today.
[edit] The end of the Bank of the United States
President Andrew Jackson's hostility to the Bank of the United States was perhaps the central issue of the election campaign of 1832. The following year, the Bank of the United States ceased to receive public funds.
There were several results of this action -- one was an increase in the importance of the London banks to the U.S. economy, and another was an expansion of the state banking systems, amongst which the federal treasury was now splitting its deposits.
The U.S. government also sold huge amounts of public land in Jackson's second term, lands acquired at the cost of dispossessing their inhabitants. It deposited the proceeds from these sales in its "pet" state banks. As the money supply expanded, asset prices rose, increasing the appetite of Europe's investors, creating a bubble. Between 1830 and 1837, the US trade deficit was $140 million.
By 1839 this bubble burst. The Union Bank of Mississippi collapsed. As credit conditions worsened, American states that had borrowed from London banks proved unwilling to raise taxes to pay, and a wave of defaults (including the default of two of the wealthiest states, Maryland and Pennsylvania) resulted.
[edit] A Civil War and the Suez Peninsula
Throughout the early decades of the nineteenth century, capitalism as a financial phenomenon was becoming intertwined with the new methods of manufacturing, especially of textiles.
This intertwining was aided by Eli Whitney's invention of the cotton gin in 1793. During the Orleanist period in France, the financial and manufacturing methods pioneered in England were enthusiastically adopted in France.
It came as a great shock to mercantile circles within both of those countries, then, when civil war began in the United States in 1861, and President Abraham Lincoln closed the ports of the U.S. within the area of the rebellion to international commerce, a closure that he (somewhat inaccurately) described as a "blockade."
The textile industries in Britain and France shifted to reliance upon cotton from Africa and Asia during the course of the U.S. civil war, and this fact created pressure for an Anglo-French controlled canal through the Suez peninsula. That canal opened a little more than four years after the war ended, November 17, 1869. Intriguingly, it was also in 1869 that a railway finally spanned the North American continent, as the Union Pacific work crew met that of the Central Pacific in Utah. Capitalism and the engine of profit was making the globe a smaller place.
Also, older innovations were made routine, even mechanical, parts of financial life during this century. For example, the Bank of England had first issued bank notes during the seventeenth century, yet those notes were hand written. After 1725 they were partially printed, but cashiers still had to sign each note and make them payable to a named person. But in 1844 parliament passed the Bank Charter Act tying these notes to gold reserves, effectively creating the institution of central banking and monetary policy. The notes have been fully printed since 1855.
[edit] The Slow Fade of British Hegemony
Through the final decades of the nineteenth century, from the opening of the canal forward, the United Kingdom slowly lost its pre-eminence in manufacturing and finance. There is a lot of debate about the reasons for this; indeed, historian Paul Kennedy has called it "one of the most investigated issues in economic history."
There were many elements, including the obsolescence of the personal management style, confrontational labor relations, inadequate capital investment, and the rise of at least three competing industrial giants -- Germany, Japan, and the United States. There were also cultural factors such as generational differences and the class-conscious educational system at play.
In 1880, the United Kingdom still contained 22.9 percent of total world manufacturing output, but that figure was shrinking. Also, in 1880, its share of world trade was 23.2 percent -- that would be 14.1 percent in 1911 - 1913.
