Seven Crashes, page 6
I wonder whether the novel-reading world—that part of it, at least, which may honour my pages—will be offended if I lay the plot of this story in Ireland! That there is a strong feeling against things Irish it is impossible to deny. Irish servants need not apply; Irish acquaintances are treated with limited confidence; Irish cousins are regarded as being decidedly dangerous; and Irish stories are not popular with the booksellers.
The British reading public did not want to read about Ireland or past misery. Trollope added to his tale a heavy redemptive gloss, which does not appeal to modern readers either.
But though I do not believe in exhibitions of God’s anger, I do believe in exhibitions of His mercy. When men by their folly and by the shortness of their vision have brought upon themselves penalties which seem to be overwhelming, to which no end can be seen, which would be overwhelming were no aid coming to us but our own, then God raises His hand, not in anger, but in mercy, and by His wisdom does for us that for which our own wisdom has been insufficient. But on no Christian basis can I understand the justice or acknowledge the propriety of asking our Lord to abate his wrath in detail, or to alter his settled purpose. If He be wise, would we change his wisdom? If He be merciful, would we limit his mercy?
Trollope tried to draw a lesson that the long-run results of the famine had been beneficial, describing first how “a state of things was engendered in Ireland which discouraged labour, which discouraged improvements in farming, which discouraged any produce from the land except the potato crop; which maintained one class of men in what they considered to be the gentility of idleness, and another class, the people of the country, in the abjectness of poverty.” But then came the remedy:
It is with thorough rejoicing, almost with triumph, that I declare that the idle, genteel class has been cut up root and branch, has been driven forth out of its holding into the wide world, and has been punished with the penalty of extermination. The poor cotter suffered sorely under the famine, and under the pestilence which followed the famine; but he, as a class, has risen from his bed of suffering a better man. He is thriving as a labourer either in his own country or in some newer—for him better—land to which he has emigrated. He, even in Ireland, can now get eight and nine shillings a week easier and with more constancy than he could get four some fifteen years since. But the other man has gone, and his place is left happily vacant.48
Trollope’s providentialism is a mild version of the fearful doctrine pedaled by Anglican and Calvinist ministers in Ireland. In 1846, the Anglican priest Alexander Dallas called attention to the imminent apocalypse by using Trollope’s postal system to disseminate his tract A Voice from Heaven to Ireland, which he wanted to reach all Irish households on the same day.49 The Calvinist Hugh McNeile in 1847 preached a sermon titled “The Famine a Rod of God”: “First—God himself personally directs all the affairs of this our world. Therefore, plagues, pestilences, famines, wars ought to be considered as God’s agencies and not merely as arising out of second causes, whether of the state of the atmosphere or the ambition of man. Who hath appointed the rod? Second—Plagues, pestilences, famines, wars are used by God as national punishments for sin. Hear the rod.”50 How were poor people supposed to hear the rod? The most common response was to move away.
Emigration surged from the blighted territories, pushed by misery and pulled by the hope of better prospects across the Atlantic. Maybe we should turn to some nonfictional destinies. In July 1847, at the height of the commercial crisis, a young German immigrant in England, Bethel Henry Strousberg, tried like many others to flee. Strousberg did not get far: his steamer, the SS Washington, returned to Southampton harbor because it had not bunkered sufficient coal for the transatlantic voyage. Strousberg, who had absconded with the funds of the building societies he administered, was then arrested and sentenced to three months’ hard labor. Then he left—briefly as it happened—for the United States in January 1849. He would soon return to Britain, establish himself as a gifted journalist, but flee again when the details of his past conviction were brought up in public. This time he returned to Germany and remade himself yet again, as the figure who would build up Central Europe by constructing railroads.51
Another destiny that would later prove influential: the wealthy Liverpool iron merchant Thomas Jevons, a cultivated and decent man, saw his business fail in 1848. For his sensitive twelve-year-old son, Stanley, a whole world fell apart. He would eventually move to Australia. Strousberg and Jevons became visionaries—in very different styles—of a new economic order. The most immediately transformative visionary of the 1840s crises, however, was a thirty-year-old German philosopher, who used a substantial inheritance from his father, as well as donations from his manufacturing friend, Friedrich Engels, to publish his revolutionary tracts.
Marx, the Krisenhefte, and Globalization
The most influential analysis of the multiple crises of the late 1840s was that provided by Karl Marx. Marx’s work and legacy are characterized by a fundamental ambiguity that is frequently traced back to the profound intellectual changes or developments that separate the “Young Marx” from the “Mature Marx,” with the former seen as a heroic visionary and the latter as the progenitor of the disastrous Soviet experiment. Marx’s most dramatic and prophetic pronouncement, The Communist Manifesto, written together with Friedrich Engels in the revolutionary year 1848, is also by far his most telling and well-developed analysis of the process of globalization, and it is one which still looks apposite: “In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property.”52 It is that short and compelling work which is most often used in claims of Marx’s relevance for the twenty-first century. It is a pamphlet, a manifesto, which Marx became ever more convinced needed to be underpinned by scientific study: otherwise what would be its basis as a truth-claim? Marx increasingly insisted that science was needed to pierce the veil of ideology.
By contrast with the Manifesto, his most mature work, Capital, is strikingly incomplete. It offers no satisfactory theory of the basic concepts—value, class, crisis—that lie at the heart of the promised revelation. It says little about the process of globalization, or about international trade and the global character of financial flows, which had appeared to be central to the message of the Manifesto. Volume 1, published in 1867, sets out a historical account of how state actions provided for a primitive accumulation of capital, and provides striking vignettes of the deprivations and horrors of industrial society. But at its core is a failure, as one of Marx’s leading modern biographers, Gareth Stedman Jones, points out: the work did not identify “the laws of motion” of capital.53 Jonathan Sperber concurs: Marx the economist was engaged on an odyssey but never reached his Ithaca.54 Engels had reacted to an outline with the ominous warning: “IT IS A VERY ABSTRACT ABSTRACT INDEED.”55 The second and third volumes were finished by Engels, after Marx’s death, but they do not really complete anything.
Marx’s achievement is often thought to be an amalgamation or synthesis of British political economy, the French democratic and radical revolutionary tradition, and German romanticism. The latter appeared most emphatically in Marx’s early writings, and most revealingly in the often mystical 1844 –1845 manuscripts. Capital is the attempt to build out from British political economy, and to impose a materialist conception of history on French and German political fantasizing. Marx complained bitterly about German backwardness in economic thinking, with political economy remaining a foreign science (eine ausländische Wissenschaft): “Germans remained mere schoolboys, imitators and followers, petty retailers in the service of the great foreign wholesale concern.”56 The synthesis of such divergent national intellectual traditions could hardly ever be expected to be complete. In particular, the romantic German concept of an alienation, in which man’s true nature was denied, could not really be precisely documented in what Marx believed would be a materialist presentation of the social and historical process.
The problem of connecting different modes of analysis is evident in Marx’s discussion of crisis. It is only recently that the gigantic publishing venture of the Marx-Engels complete edition (Gesamtausgabe, or MEGA) has been extended to include a critical and decisive link in Marx’s intellectual trajectory: the notebooks he prepared on the international economic crisis of 1857, which appeared in 2017 as Krisenhefte in MEGA, Part IV, Volume 14. The 159 manuscript pages include excerpts from specialized economic and financial periodicals, and statistical series. The first booklet was titled “1857 France,” the second, “Book of the Crisis of 1857,” and the third, “The Book of the Commercial Crisis.” The statistical work was in part a continuation of Thomas Tooke and William Newmarch’s A History of Prices.57 What makes the Krisenhefte so revealing was that it was undertaken at the same time as Marx laid out in a journalistic and accessible form what a crisis theory might be. He was working as a European correspondent for the New York Daily Tribune, a task which provided a major part of his very meagre income, at a time when he was wracked by physical malaise, headaches, insomnia, liver disease, boils, and carbuncles, which he treated with the poison arsenic.
The outcome of this critical phase of Marx’s thinking, which launched the prophet on the road to the neglected Berlin publication On the Critique of Political Economy (1859) and then to Capital, was unsatisfying to the author in two regards. First, he was fascinated at this stage by numbers, and thought the Belgian mathematician and astronomer Adolphe Quetelet had laid the foundation for a new discipline of “social physics.” Marx had the intuition that by assembling data on different commodity prices, the valuation of financial instruments, shares and bonds, the operation and the reserves of the Bank of England and the Banque de France, as well as on production and employment, he would be able to uncover connections and discover empirical causal links. He was fascinated by the way in which prices fluctuated, documenting that they could not possibly reflect an unchanging “use-value” (Gebrauchswerth) of goods. Looking at data would uncover the fundamental and definitive laws of motion of capitalist society. But he lacked the statistical tools to really carry out this analysis.
One of the people Marx may well have encountered on his daily visits to the British Museum’s reading room was Stanley Jevons, who had also been struck by Quetelet’s work, and had a much deeper command of mathematics and calculus. Like Marx, Jevons worked on long rows of price series and tried to detect the patterns that drove business cycle fluctuations. He became the father of marginalist economics. Marx, however, seems not to have come across his work, and never refers to it.
It is perhaps too easy to transpose modern beliefs and especially techniques into the searching for connection and correspondence in the mid-nineteenth century. A contemporary academic, armed with STATA or perhaps even just Excel, would perhaps have been able to uncover more patterns and associations in the data, and on the basis of this analysis derive general conclusions about broad economic trends. Thomas Piketty, who boldly titled his major (and wildly successful) work Capital, is in this sense the true heir to Marx. Piketty uncovered in his long-term assessment of r (rate of return on capital) and g (growth rates) exactly the long-term “law of motion,” the philosopher’s stone that Marx had been searching for: the observation that the return on capital consistently over long time periods outpaced the growth of the economy, and thus generated increased inequality. In such a setting, the only way to make oneself was to inherit or marry money. The application may not work so well in the short run. In modern portfolio models expected returns on capital exceed growth, but then the outpacing is often due to some risk premium relative to a risk-free asset, and in crisis times risks increase.
The problem with Marx’s legacy lies in the fact that no one in the 1850s or 1860s would have been able statistically to replicate either of the conclusions that Marx thought he had established earlier: a law of the falling rate of profit (the theme especially prominent in Grundrisse, the unpublished manuscript on “Foundations of the Critique of Political Economy” that he prepared but then abandoned in 1857–1858) and of the increasing immiseration of the working class. A sympathetic expositor of Marxian thought, David Harvey, observed: “Unfortunately his argument is incomplete and by no means rigorously specified. . . . [T]he text is plagued by all manner of ambiguities.”58
Second, Marx was increasingly intrigued by the conditions in which political order changes. He initially in 1857 thought he was observing the final crisis of international capitalism. He was particularly eager to show how the most potent new political form that arose after the failure of the 1848 revolutions, Louis Napoleon’s Second Empire, was destined to collapse. At the conclusion of a series of articles published in the Neue Rheinische Zeitung on the French events of 1848 –1850, Marx established a theory about the international spread of crises: “The process originated in England, which is the demiurge of the bourgeois cosmos. On the Continent the various phases of the cycle repeatedly experienced by bourgeois society assume a secondary and tertiary form. First, the Continent exports to England disproportionately more than to any other country. . . . [W]hen crises on the Continent produce revolutions there first, the bases for them are always laid in England.” And he prophesied: “A new revolution is only a consequence of a new crisis. The one, however, is as sure to come as the other.”59
But both the international economy and Bonapartism proved initially quite resilient, and there was no general collapse in 1857 or immediately after. The globalized economy soon resumed its dynamic growth, and Napoleon III even tried to design rules for its operation, in an International Monetary Conference in 1867 that was intended to create the basis for a single universal currency, and in fact laid down some of the operating principles that would be realized in the international gold standard. The emperor faltered eventually because of a foreign policy miscalculation and not in the aftermath of an economic crisis.
Marx’s 1857 analysis was not so much concerned with what would become the key elements of Capital, underconsumption theory or the law of the falling rate of profit. Instead, Marx at this time was building quite simply on contemporary business cycle theory.
It became standard for authors in the Marxist tradition to call 1857 the first global economic crisis.60 But that is not right: 1825, following a bust in Latin American sovereign debt, was global, as was the 1837 crash which originated in the United States. Above all the late 1840s saw a general crisis, but it could not easily be described in Marxist terms as originating in overproduction or underconsumption.
A key role in the 1847 story, repeated a decade later in the crisis of 1857, lay in financial strain that required the world’s most powerful central bank, the Bank of England, to violate its own rules. Marx saw key lessons in these crises in the Bank of England’s suspension of the 1844 Peel Act, the crucial piece of legislation which limited the note issue of the Bank to its gold reserves. This looked like a massive design failure of the underlying institutions of capitalism, which produced systemic disturbances. Marx commented on the crash of 1857: “The truth is the English have very largely participated in speculations abroad, both on the Continent of Europe and in America, while at home their surplus capital has been mainly invested in factories, so that, more than ever before, the present convulsion bears the character of an industrial crisis, and therefore strikes at the very roots of the national prosperity.”61 The international flows provided a central mechanism of disturbance, as Marx saw it: “If the first reaction on Great Britain of our American collapse manifested itself in a monetary panic, attended by a general depression in the produce market, and followed more remotely by manufacturing distress, the industrial crisis now stands at the top and the monetary difficulty at the bottom.”62 Monetary difficulties would trigger a general crisis.
The monetary chaos that Marx was observing originated in the reliance of nineteenth-century monetary policy on a complex mechanism of bill brokers and banks dealing with financial instruments, bills of exchange. The bills could be used multifariously: they might relate to genuine commercial transactions (cargoes shipped across the oceans), but also were frequently simply a credit instrument (bills of accommodation). Any reader of nineteenth-century literature—Balzac, Trollope—is familiar with the economic and emotional distress of protested bills. Marx derived a great deal of his information from the experiences of Engels, a prominent manufacturer and thus also trader. As Engels wrote to Marx in 1857, the commercial world depended on “bill kiting: this way of making money by drawing bills on a banker or a bill broke and covering through another bill before maturity or not, according to how matters are arranged, is the rule on the continent and with all the continental houses here. All the commission houses do it.”63 Marx himself experienced how bills traded at big discounts when he tried to secure the payment in London in British pounds of the dollar bills sent to him by his newspaper employer in New York.
In 1857, it initially looked to Marx as if 1848 was repeating itself—perhaps ironically, since he had been contemptuously dismissive of dreamers who saw in 1848 a repetition of the great French Revolution, and famously derided Louis Napoleon as a joke version of the real Napoleon, with history repeating itself as tragedy the first time and farce the second. The business downturn of 1857 waked a familiar refrain: “The anxiety in the commercial world during the past week has, as you will conceive, in presence of the disastrous news from the United States and from England, been extraordinarily great; it may almost be compared to that which prevailed just after the Revolution of 1848.”64 Marx thought of parallels, while institutional actors thought of drawing lessons about the management of crisis.
