America: Crossing the Line

The struggle between Northern and Southern models of human ecology in nineteenth-century America, the theme of last week’s post, determined more than the shape of American continental expansion. The South followed what was becoming the standard pattern in the non-European world during that century, focusing on the production of commodities that were traded on global markets to pay for manufactured goods from European factories. That’s what the South did with cotton, tobacco, and a variety of lesser cash crops, and it’s also what British North America (that’s Canada nowadays) was doing at that same time with grain, lumber, fish, and the like.

Had the South kept the dominant position it originally held in American national politics, and arranged the nation’s trade policy to its own satisfaction, that’s what would have happened between the Mason-Dixon line and the Canadian border, too. Without the protection of tariffs and trade barriers, the North’s newborn industrial system would have been flattened by competition from Britain’s far more lavishly capitalized factories and mercantile firms. The products of America’s farms, mines, and logging camps would have had to be traded for hard currency to pay for manufactured products from overseas. That would have locked the United States into the same state of economic dependency as the nations of Latin America, where British banks and businesses—backed whenever necessary by the firepower of the Royal Navy—maintained the unequal patterns of exchange by which Britain prospered at the rest of the world’s expense.

That possibility went whistling down the wind once the rising spiral of conflict between North and South exploded into war. Southern opposition to trade barriers was no longer an issue once Southern congressmen packed their bags and went home in 1860; with that difficulty out of the way, Northern industries got the protection they needed, and the requirements of the war poured millions of dollars—yes, that was a lot of money back then—into Northern factories. The North’s total victory put the seal on the process, and not incidentally put paid to any lingering thoughts of regime change in America that might have been aired in private among Europe’s upper classes. Prussian general Helmut von Moltke could glare though his monocle and claim that the American Civil War consisted of “two armed mobs chasing each other around the country, from which nothing could be learned,” but a great many others paid close attention, and blanched.

If the powers of Europe needed any reminder of these issues, it came in 1867, when the short-lived French colonial regime in Mexico was terminated with extreme prejudice. That’s another of those bits of history remembered by nobody north of the Rio Grande and everybody south of it, and it deserves discussion here for reasons that will quickly become apparent to all of my readers who have been watching the situation in Greece. The short version is that banks in Britain, Spain and France loaned large sums of money to the government of Mexico, which then fell on hard times—there was a civil war involved, the Guerra de la Reforma, which is a bit further than Greece has gotten yet—and had to suspend payment on its debts. The British, Spanish and French governments responded by putting pressure on the Mexican government to pay up; this being the 19th century instead of the 21st, that took the form of military intervention.

The British and Spanish forces were willing to settle for cash, but the French emperor Napoleon III had a wider agenda and launched a full-scale invasion. After more than a year of heavy fighting, the French army controlled enough of the country to install a friend of Napoleon’s, an Austrian prince named Maximilian, as Emperor of Mexico. That’s one of several good reasons the Union forces in the Civil War threw so much effort into seizing the Mississippi valley in the first part of the war; Napoleon III was known to be sympathetic to the Southern cause, and so any land route by which he could get money and arms to the main Confederate armies and population centers had to be sealed off. As soon as the Civil War ended, in turn, toppling Maximilian’s government became a top priority for the United States government; money and arms poured south across the Rio Grande to support guerrillas loyal to Mexican president Benito Juarez, while the French came under heavy American pressure to withdraw their forces from Mexico. Napoleon III pulled his troops out in 1866, and a year later Maximilian got marched out in front of a Mexican firing squad. That was the last time any European power attempted to expand its holdings in the New World.

North of the Rio Grande, though, the potential for further conflict was hard to miss. It’s a commonplace of history that the aftermath of a war normally includes quarreling among the victors, since all the disagreements that had to be kept at bay while there was still an enemy to defeat typically come boiling up once that little obstacle is removed. That’s what happened across the North in the wake of the Civil War, as the loose alliance between industrial and agrarian interests began to splinter about the time the last of the confetti from the victory celebrations got swept up. Alongside the ordinary sources of economic and political disagreement was a hard fact better understood then than now: the farm states of the Midwest were unwilling to accept the unequal patterns of exchange that the industrial states of the East required.

To make sense of this, it’s necessary to glance back at Alf Hornborg’s analysis of industrial production as a system of wealth concentration. To build and maintain an industrial system takes vast amounts of capital, since factories don’t come cheap. All that capital has to be extracted from the rest of the economy, placed in the hands of a few magnates, and kept there, in order for an industrial economy to come into being and sustain itself. That’s why, in a market economy, the technological dimension of industrialism—the replacement of human labor with machines—is always paired with the economic and social dimension of industrialism—the creation of unequal patterns of exchange that concentrate wealth in the hands of factory owners at the expense of workers, farmers, and pretty much everybody else. The exact mechanisms used to impose and maintain those unequal exchanges vary from case to case, but some such mechanism has to be there, because an economy that allows the wealth produced by an industrial system to spread out through the population pretty quickly becomes an economy that no longer has the concentrated capital an industrial system needs to survive.

That’s the problem the United States faced in the latter third of the 19th century. The rising industrial economy of what would eventually turn into the Rust Belt demanded huge concentrations of capital, but attempts to extract that capital from the farm states ran into hard limits early on. The epic struggle between the railroad barons and the Grange movement over shipping rates for farm commodities made it uncomfortably clear to the industrialists that if they pushed the farm belt too far, the backlash could cost them much more than they wanted to pay. During the Reconstruction era, the defeated South could have what was left of its wealth fed into the business end of the industrial wealth pump, but that only worked for so long. When it stopped working, in the 1870s, the result was what normally happens when the industrial wealth pump runs short of fuel: depression.

They called it the Long Depression, though you’ll have a hard time finding references to that term in most economic texts these days. The first warning came with a spectacular stock market crash in 1873. The US economy faltered, struggled, then plunged into full-scale deflation in 1876 and 1877. There were plenty of ups and downs, and some relatively calm years in the 1880s, but a good many economic measures stayed on the wrong side of the scale until better times finally arrived in 1896.

There’s one good reason and at least three bad ones that you won’t hear much discussion of the Long Depression in today’s troubled economic time. The good reason is that most of today’s economic theories came into being in response to a later crisis—the Great Depression of the 1930s—and the desire to avoid a repeat of the ghastly consequences of that latter collapse has inspired a certain amount of tunnel vision on the part of economic historians. The bad ones? Well, that’s a little more complex.

Many of my readers, to begin with, will have heard pundits insist that economic crises happen because modern currencies aren’t based on a gold standard, or because central bankers always mismanage the economy, or both. That’s a popular belief just now, but it’s nonsense, and it only takes a glance at American economic history between the Civil War and the founding of the Federal Reserve in 1912 to prove once and for all that it’s nonsense. The Panic of 1873, the Long Depression, the Panic of 1893, the Depression of 1900-1904, the Panic of 1907, and several lesser economic disasters all happened in an era when the US dollar was on the strictest of gold standards and the United States didn’t have a central bank. That’s bad reason #1: once you discuss the Long Depression, most of the rhetoric backing a very popular set of economic notions pops like a punctured whoopee cushion.

More broadly, across nearly all of the squabbling theological sects of modern economic thought, Adam Smith’s belief in the invisible hand remains glued in place. Smith, as longtime readers of mine will recall from an earlier series of posts, insisted that a free market economy is innately self-regulating, as though controlled by an invisible hand, and tends to maximize everybody’s prosperity so long as it’s left to its own devices. Exactly how much leeway should be left to the invisible hand is a matter of much disagreement among economists. There’s a broad spectrum from the Keynesians, who want government to cushion the market’s wilder vagaries, to the Austrian school, which insists that whatever the market does by itself is by definition right, but you’ll have a hard time finding anybody in the economic mainstream willing to consider the possibility that the market, left entirely to itself, might dive into a depression twenty-three years long. That’s bad reason #2; once you discuss the Long Depression, it becomes very hard to ignore the fact that an economy left to its own devices can dole out decades of misery to everybody.

Then there’s bad reason #3, which is that the cause of intractable problems like the Long Depression was well understood at the time, but nobody wants to talk about it now. That unwillingness, in turn, reflects the way that a concept once very widespread in economics—the concept of overproduction—came to be associated with a single economic school or, even more precisely, with a single economist, Karl Marx. Overproduction is one, though only one, of the elements Marx wove into his system of economic ideas, and generations of Marxist theorists and publicists used it as a reason why capitalist economies must eventually collapse; with the inevitability of Pavlov’s drooling dogs, capitalist theorists and publicists thus automatically shy away from it; and the Long Depression makes it excruciatingly hard to shy away from it.

For all that, overproduction’s easy to understand, and it offers a crucial insight into how industrial economies work—or, more precisely, how they stop working. An industrial system, as we’ve discussed already, rely on unequal patterns of exchange that extract wealth from the many and concentrate it in the hands of the few, to provide the capital concentrations needed to build and maintain the industrial system itself. The way this usually works in practice is that whatever the people on the losing end of the exchange have to exchange—whether it’s the labor of a work force, the raw materials of a foreign country, or what have you—is given an artificially low value, while the products of the industrial system have an artificially high value, so the people on the losing end get a pittance for their labor, their crops, and so on, while high prices for industrial products keep the factory owners rich.

The problem, of course, comes when the people who are getting next to nothing for their labor, crops, and so on are also the people who are supposed to buy those expensive industrial products. As the people on the losing end of the exchange get poorer, their ability to buy industrial products goes down, and unsold products pile up in warehouses. What happens next puts the entire system at risk: if the factory owners cut prices to move product, they risk dispersing the concentration of capital they need to keep the system going; if they cut production and lay off workers, they decrease the number of people able to buy their products even further; there are other options, but all of them add up to serious trouble for the industrial wealth pump.

That’s overproduction. In the Long Depression, as in the Great Depression, it was an everyday reality, driving, severe deflation and high unemployment, and we’d still be talking about it today if Marx hadn’t been turned into an intellectual figurehead for one side in the bare-knuckle brawl over global power that dominated the second half of the 20th century. There’s much to be said for talking about it again, since it’s becoming an everyday reality in America as we speak—we’ll be exploring that in more detail in later posts—but it also needs to be factored into any understanding of the rise of America’s global empire, because the decision to go into the empire business in a big way was driven, in large part, by the overproduction crises that pounded the American economy in the late 19th century.

Read the literature of empire from the Victorian period and the connection is impossible to miss. Why did industrial nations want imperial colonies? The reason given in book after book and speech after speech at the time is that the industrial nations needed markets. Free trade rhetoric, then as now, insisted that all an industrial nation had to do was to build a better mousetrap and the world would beat a path to its door, but then as now, that’s not how things worked; the markets that mattered were the ones where a single industrial nation could exclude competitors and impose the unequal exchange of cheap labor and raw materials for expensive manufactured products that would keep the wealth pump churning away.

That was the option that faced America as it approached the beginning of the 20th century. It says something for the influence of ideals in American public life that this option wasn’t chosen without a fight. The debate over an American empire was fought out in the halls of Congress, in the letters pages of hundreds of newspapers, in public meetings, and any number of other venues. Important politicians of both major parties opposed imperial expansion with every resource and procedural trick they could muster, and scores of cultural figures—Mark Twain was among them—filled the popular magazines of the time with essays, stories, and poems challenging the imperial agenda.

In the end, though, they lost. To a majority of Americans, the economic case for empire outweighed the moral and political arguments against it. By 1898, the pro-Empire faction had become strong enough that it could push the country into action; the annexation of Hawai’i and the Spanish-American War that year crossed the line and redefined America as an imperial power, launching it along a trajectory that would very quickly draw it into conflicts that generations of Americans had done their best to avoid. We’ll discuss that next week.

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End of the World of the Week #14

In apocalyptic belief systems, just as in baseball, you often can’t tell the players without a program, and it’s not at all uncommon for prophets of any given end-of-the-world prediction to provide helpful guides explaining which figure in contemporary public life ought to be identified with the Great Beast of Revelations or the equivalent. Life can get complicated, though, when competing prophets disagree about who corresponds with which legendary figure—and when the two sides of a savage political and religious quarrel end up accusing each other of being the Antichrist, it can be hard indeed to figure out who if anyone is on the side of the angels.

That’s what happened in the early thirteenth century when the Holy Roman Emperor Frederick II faced off against Pope Gregory IX. The popes and the emperors spent most of the Middle Ages getting into it over a galaxy of issues that even historians have trouble remembering nowadays, but Frederick was not your usual medieval emperor. His contemporaries called him Stupor Mundi, which more or less translates out as “the astonishment of the world;” he was fluent in six languages, ruled a ramshackle empire that extended from Sicily to Germany with a bit of Palestine thrown in for good measure, and carried out a successful crusade while excommunicated by the Catholic church, which in medieval terms was definitely a puzzler.

It was probably inevitable that Gregory IX would call Frederick the Antichrist—it was par for the course for thirteenth-century popes to use that timeworn label for the people on their enemies list—but not even a pope could get away with doing that to the Stupor Mundi. Frederick immediately had his public relations people—yes, medieval emperors had public relations people, or at least Frederick did—start churning out tracts proving that the real Antichrist was Gregory IX. The two of them continued along the same lines for years, filling the medieval equivalent of the media with colorful denunciations extracted from the usual parts of the Bible .

Still, Gregory never made a convincing Antichrist to anyone but Frederick and his friends, since he was simply a common or garden variety medieval pope, and spent his career in the usual way, fighting bloodthirsty wars against his personal enemies and issuing proclamations condemning Jews, heretics, and cats. Frederick was another matter; a great many people in his lifetime thought that there was a good chance the Stupor Mundi might just be the Great Beast after all. In his inimitable way, though, he surprised them all by suddenly dying of dysentery in 1250.

—story from Apocalypse Not