The Great Transformation Read online

  This almost miraculous performance was due to the working of the balance of power, which here produced a result that is normally foreign to it. By its nature that balance effects an entirely different result, namely, the survival of the power units involved; in fact, it merely postulates that three or more units capable of exerting power will always behave in such a way as to combine the power of the weaker units against any increase in the power of the strongest. In the realm of universal history, balance of power was concerned with states whose independence it served to maintain. But it attained this end only by continuous wars between changing partners. The practice of the ancient Greek or the Northern Italian city-states was such an instance; wars between shifting groups of combatants maintained the independence of those states over long stretches of time. The action of the same principle safeguarded for over two hundred years the sovereignty of the states forming Europe at the time of the Treaty of Münster and Westphalia (1648). When, seventy-five years later, in the Treaty of Utrecht, the signatories declared their formal adherence to this principle, they thereby embodied it in a system, and thus established mutual guarantees of survival for the strong and the weak alike through the medium of war. The fact that in the nineteenth century the same mechanism resulted in peace rather than war is a problem to challenge the historian.

  The entirely new factor, we submit, was the emergence of an acute peace interest. Traditionally, such an interest was regarded as being outside the scope of the system. Peace with its corollaries of crafts and arts ranked among the mere adornments of life. The Church might pray for peace as for a bountiful harvest, but in the realm of state action it would nevertheless advocate armed intervention; governments subordinated peace to security and sovereignty, that is, to intents that could not be achieved otherwise than by recourse to the ultimate means. Few things were regarded as more detrimental to a community than the existence of an organized peace interest in its midst. As late as the second half of the eighteenth century, J. J. Rousseau arraigned tradespeople for their lack of patriotism because they were suspect of preferring peace to liberty.

  After 1815 the change is sudden and complete. The backwash of the French Revolution reinforced the rising tide of the Industrial Revolution in establishing peaceful business as a universal interest. Metternich proclaimed that what the people of Europe wanted was not liberty but peace. Gentz called patriots the new barbarians. Church and throne started out on the denationalization of Europe. Their arguments found support both in the ferocity of the recent popular forms of warfare and in the tremendously enhanced value of peace under the nascent economies.

  The bearers of the new “peace interest” were, as usual, those who chiefly benefited by it, namely, that cartel of dynasts and feudalists whose patrimonial positions were threatened by the revolutionary wave of patriotism that was sweeping the Continent. Thus for approximately a third of a century the Holy Alliance provided the coercive force and the ideological impetus for an active peace policy; its armies were roaming up and down Europe putting down minorities and repressing majorities. From 1846 to about 1871—“one of the most confused and crowded quarter centuries of European history”*—peace was less safely established, as the ebbing strength of reaction met the growing strength of industrialism. In the quarter century following the Franco-Prussian War we find the revived peace interest represented by that new powerful entity, the Concert of Europe.

  Interests, however, like intents, remain platonic unless they are translated into politics by the means of some social instrumentality. Superficially, such a vehicle of realization was lacking; both the Holy Alliance and the Concert of Europe were, ultimately, mere groupings of independent sovereign states, and thus subject to the balance of power and its mechanism of war. How then was peace maintained?

  True, any balance-of-power system will tend to prevent such wars as spring from one nation’s failure to foresee the realignment of Powers which will result from its attempt to alter the status quo. Famous instances were Bismarck’s calling off of the Press campaign against France, in 1875, on Russian and British intervention (Austria’s aid to France was taken for granted). This time the Concert of Europe worked against Germany, who found herself isolated. In 1877–78 Germany was unable to prevent a Russo-Turkish War, but succeeded in localizing it by backing up England’s jealousy of a Russian move toward the Dardanelles; Germany and England supported Turkey against Russia—thus saving the peace. At the Congress of Berlin a long-term plan for the liquidation of the European possessions of the Ottoman Empire was launched; this resulted in averting wars between the Great Powers in spite of all subsequent changes in the status quo, as the parties concerned could be practically certain in advance of the forces they would have to meet in battle. Peace in these instances was a welcome by-product of the balance-of-power system.

  Also, wars were sometimes avoided by deliberately removing their causes, if the fate of small Powers only was involved. Small nations were checked and prevented from disturbing the status quo in any way which might precipitate war. The Dutch invasion of Belgium in 1831 eventually led to the neutralization of that country. In 1855 Norway was neutralized. In 1867 Luxembourg was sold by Holland to France; Germany protested and Luxembourg was neutralized. In 1856 the integrity of the Ottoman Empire was declared essential to the equilibrium of Europe, and the Concert of Europe endeavored to maintain that empire; after 1878, when its disintegration was deemed essential to that equilibrium, its dismemberment was provided for in a similarly orderly manner, though in both cases the decision involved the existence of several small peoples. Between 1852 and 1863 Denmark, between 1851 and 1856 the Germanies threatened to disturb the balance; each time the small states were forced by the Great Powers to conform. In these instances, the liberty of action offered to them by the system was used by the Powers to achieve a joint interest—which happened to be peace.

  But it is a far cry from the occasional averting of wars either by a timely clarification of the power situation or by the coercing of small states to the massive fact of the Hundred Years’ Peace. International disequilibrium may occur for innumerable reasons—from a dynastic love affair to the silting of an estuary, from a theological controversy to a technological invention. The mere growth of wealth and population, or their decrease, is bound to set political forces in motion; and the external balance will invariably reflect the internal. Yet even an organized balance-of-power system can ensure peace without the permanent threat of war only if it is able to act upon these internal factors directly and prevent imbalance in statu nascendi. Once the imbalance has gathered momentum only force can set it right. It is a commonplace that to ensure peace one must eliminate the causes of war; but it is not generally realized that to do so the flow of life must be controlled at its source.

  The Holy Alliance contrived to achieve this with the help of instruments peculiar to it. The kings and aristocracies of Europe formed an international of kinship; and the Roman Church provided them with a voluntary civil service ranging from the highest to the lowest rung of the social ladder in Southern and Central Europe. The hierarchies of blood and grace were fused into an instrument of locally effective rule which needed only to be supplemented by force to ensure Continental peace.

  But the Concert of Europe, which succeeded it, lacked the feudal as well as the clerical tentacles; it amounted at the best to a loose federation not comparable in coherence to Metternich’s masterpiece. Only on rare occasions could a meeting of the Powers be called, and their jealousies allowed a wide latitude to intrigue, crosscurrents, and diplomatic sabotage; joint military action became rare. And yet what the Holy Alliance, with its complete unity of thought and purpose, could achieve in Europe only with the help of frequent armed interventions was here accomplished on a world scale by the shadowy entity called the Concert of Europe with the help of a very much less frequent and oppressive use of force. For an explanation of this amazing feat, we must seek for some undisclosed powerful social instrumentality at work i
n the new setting, which could play the role of dynasties and episcopacies under the old, and make the peace interest effective. This anonymous factor, we submit, was haute finance.

  No all-round inquiry into the nature of international banking in the nineteenth century has yet been undertaken; this mysterious institution has hardly emerged from the chiaroscuro of politico-economic mythology.* Some contended that it was merely the tool of governments; others, that the governments were the instruments of its unquenchable thirst for gain; some, that it was the sower of international discord; others, that it was the vehicle of an effeminate cosmopolitanism which sapped the strength of virile nations. None was quite mistaken. Haute finance, an institution sui generis, peculiar to the last third of the nineteenth and the first third of the twentieth century, functioned as the main link between the political and the economic organization of the world. It supplied the instruments for an international peace system, which was worked with the help of the Powers, but which the Powers themselves could neither have established nor maintained. While the Concert of Europe acted only at intervals, haute finance functioned as a permanent agency of the most elastic kind. Independent of single governments, even of the most powerful, it was in touch with all; independent of the central banks, even of the Bank of England, it was closely connected with them. There was intimate contact between finance and diplomacy; neither would consider any long-range plan, whether peaceful or warlike, without making sure of the other’s goodwill. Yet the secret of the successful maintenance of general peace lay undoubtedly in the position, organization, and techniques of international finance.

  Both the personnel and the motives of this singular body invested it with a status the roots of which were securely grounded in the private sphere of strictly commercial interest. The Rothschilds were subject to no one government; as a family they embodied the abstract principle of internationalism; their loyalty was to a firm, the credit of which had become the only supranational link between political government and industrial effort in a swiftly growing world economy. In the last resort, their independence sprang from the needs of the time which demanded a sovereign agent commanding the confidence of national statesmen and of the international investor alike; it was to this vital need that the metaphysical extraterritoriality of a Jewish bankers’ dynasty domiciled in the capitals of Europe provided an almost perfect solution. They were anything but pacifists; they had made their fortune in the financing of wars; they were impervious to moral consideration; they had no objection to any number of minor, short, or localized wars. But their business would be impaired if a general war between the Great Powers should interfere with the monetary foundations of the system. By the logic of facts it fell to them to maintain the requisites of general peace in the midst of the revolutionary transformation to which the peoples of the planet were subject.

  Organizationally, haute finance was the nucleus of one of the most complex institutions the history of man has produced. Transitory though it was, it compared in catholicity, in the profusion of forms and instruments, only with the whole of human pursuits in industry and trade of which it became in some sort the mirror and counterpart. Besides the international center, haute finance proper, there were some half-dozen national centers hiving around their banks of issue and stock exchanges. Also, international banking was not restricted to the financing of governments, their adventures in war and peace; it comprised foreign investment in industry, public utilities, and banks, as well as long-term loans to public and private corporations abroad. National finance again was a microcosm. England alone counted half a hundred different types of banks; France’s and Germany’s banking organization, too, was specific; and in each of these countries the practices of the Treasury and its relations to private finance varied in the most striking, and, often, as to detail, most subtle way. The money market dealt with a multitude of commercial bills, overseas acceptances, pure financial bills, as well as call money and other stockbrokers’ facilities. The pattern was checkered by an infinite variety of national groups and personalities, each with its peculiar type of prestige and standing, authority and loyalty, its assets of money and contact, of patronage and social aura.

  Haute finance was not designed as an instrument of peace; this function fell to it by accident, as historians would say, while the sociologist might prefer to call it the law of availability. The motive of haute finance was gain; to attain it, it was necessary to keep in with the governments whose end was power and conquest. We may safely neglect at this stage the distinction between political and economic power, between economic and political purposes on the part of the governments; in effect, it was the characteristic of the nation-states in this period that such a distinction had but little reality, for whatever their aims, the governments strove to achieve them through the use and increase of national power. The organization and personnel of haute finance, on the other hand, was international, yet not, on that account, independent of national organization. For haute finance as an activating center of bankers’ participation in syndicates and consortia, investment groups, foreign loans, financial controls, or other transactions of an ambitious scope, was bound to seek the cooperation of national banking, national capital, national finance. Though national finance, as a rule, was less subservient to government than national industry, it was still sufficiently so to make international finance eager to keep in touch with the governments themselves. Yet to the degree to which—in virtue of its position and personnel, its private fortune and affiliations—it was actually independent of any single government, it was able to serve a new interest, that had no specific organ of its own, for the service of which no other institution happened to be available, and which was nevertheless of vital importance to the community: namely, peace. Not peace at all cost, not even peace at the price of any ingredient of independence, sovereignty, vested glory, or future aspirations of the Powers concerned, but nevertheless peace, if it was possible to attain it without such sacrifice.

  Not otherwise. Power had precedence over profit. However closely their realms interpenetrated, ultimately it was war that laid down the law to business. Since 1870 France and Germany, for example, were enemies. This did not exclude noncommittal transactions between them. Occasional banking syndicates were formed for transitory purposes; there was private participation by German investment banks in enterprises over the border which did not appear in the balance sheets; in the short-term loan market there was a discounting of bills of exchange and a granting of short-term loans on collateral and commercial papers on the part of French banks; there was direct investment as in the case of the marriage of iron and coke, or of Thyssen’s plant in Normandy, but such investments were restricted to definite areas in France and were under a permanent fire of criticism from both the nationalists and the socialists; direct investment was more frequent in the colonies, as exemplified by Germany’s tenacious efforts to secure high-grade ore in Algeria, or by the involved story of participations in Morocco. Yet it remains a stern fact that at no time after 1870 was the official though tacit ban on German securities at the Bourse of Paris lifted. France simply “chose not to risk having the force of loaned capital”* turned upon herself. Austria also was suspect; in the Moroccan crisis of 1905–6 the ban was extended to Hungary. Financial circles in Paris pleaded for the admission of Hungarian securities, but industrial circles supported the government in its staunch opposition to any concession to a possible military antagonist. Politico-diplomatic rivalry continued unabated. Any move that might increase the presumptive enemy’s potential was vetoed by the governments. Superficially, it more than once appeared as if the conflict had been quashed, but the inside circles were aware that it had been merely shifted to points even more deeply hidden under the amicable surface.

  Or take Germany’s Eastern ambitions. Here also politics and finance intermingled, yet politics were supreme. After a quarter of a century of perilous bickering, Germany and England signed a comprehensive agreement on the Baghdad Railway, in
June 1914—too late to prevent the Great War, it was often said. Others argued that, on the contrary, the signing of the agreement proved conclusively that the war between England and Germany was not caused by a clash of economic expansionism. Neither view is borne out by the facts. The agreement actually left the main issue undecided. The German railway line was still not to be carried on beyond Basra without the consent of the British government, and the economic zones of the treaty were bound to lead to a head-on collision at a future time. Meanwhile, the Powers would continue to prepare for The Day, which was even nearer than they reckoned.†

  International finance had to cope with the conflicting ambitions and intrigues of the great and small Powers; its plans were thwarted by diplomatic maneuvres, its long-term investments jeopardized, its constructive efforts hampered by political sabotage and backstairs obstruction. The national banking organizations without which it was helpless often acted as the accomplices of their respective governments, and no plan was safe which did not carve out in advance the booty of each participant. However, power finance just as often was not the victim but the beneficiary of dollar diplomacy which provided the steel lining to the velvet glove of finance. For business success involved the ruthless use of force against weaker countries, wholesale bribing of backward administrations, and the use of all the underhanded means of gaining ends familiar to the colonial and semicolonial jungle. And yet by functional determination it fell to haute finance to avert general wars. The vast majority of the holders of government securities, as well as other investors and traders, were bound to be the first losers in such wars, especially if currencies were affected. The influence that haute finance exerted on the Powers was consistently favorable to European peace. And this influence was effective to the degree to which the governments themselves depended upon its cooperation in more than one direction. Consequently, there was never a time when the peace interest was unrepresented in the councils of the Concert of Europe. If we add to this the growing peace interest inside the nations where the investment habit had taken root, we shall begin to see why the awful innovation of an armed peace of dozens of practically mobilized states could hover over Europe from 1871 to 1914 without bursting forth in a shattering conflagration.