Global Conflict and Elite Integration in the 19th and Early 20th
Centuries
Crystal Palace,
London
Kenneth Barr, Shoon Lio, Christopher Schmitt, Anders
Carlson,
Kirk
Lawrence, Jonathan Krause, Yvonne Hsu,
Christopher Chase-Dunn and Thomas E. Reifer
University
of California, Riverside
v. 8-2-06 14,834 words
This is IROWS Working Paper #27
available at http://irows.ucr.edu/papers/irows27/irows27.htm
Introduction
National and international elites
have in significant ways shaped each era of world-systemic transformation
(Lachmann 2000, 2003; van der Pijl 1998). During the nineteenth and early
twentieth centuries—a period marked by the formation and ongoing development of
British hegemony—rapid financial, political, and technological changes allowed
for unprecedented growth in international trade, investment, and global
integration (Bairoch 1996; Haggard 1995; O’Rourke and Williamson 1999). Technological innovations in water transport
(steam power and canals), communications (telegraph, overseas cables), and
rapidly expanding railroad systems altered long-standing meanings of time and
geography. In addition, emergent and efficient organizational forms, such as
cartels and centralized banks, re-concentrated the fresh glut of wealth and
influence among ruling elites—despite lower-echelon incursions by the rising
middle-classes and entrepreneurs. Furthermore, the era was clearly marked by an
increasing trend in not only the magnitude, but also the density of world
commerce.
The convergence of these
transformations created the possibility of global integration of states and
their representatives for the first time, and the degree of elite integration
and cooperation in this period was indeed unprecedented. The elites did not
always act in unison; the relationships among elites were often marked by
conflict and struggle over divergent interests. Accompanying that growth were
inequalities, uneven development, and repressive elite reactions in response to
shifting class boundaries as massive economic changes and technological
developments occurred concurrently with the clashing global groundswells of
capitalism, nationalism, liberalism, and secret accords, often culminating in
violent domestic and international conflicts (Arrighi 1994; Polanyi 2001
[1944]; Snyder 1991, 2000). We contend that the patterns of global conflict and
cooperation, and the related waves of globalization, were partial products of
elite action because the nature of the relationships among the elites and the
interests they represented were embedded in the structure of the world-system
as a whole.
This paper presents vignettes drawn
from our ongoing project on global elite integration to present a tentative
description of the structure of relations among the various elites. In
particular, we draw our narratives from case studies of elite networks in Great
Britain, France, Germany, Russia, and the United States; all major rivals for
world-systemic hegemony in the nineteenth and early twentieth centuries. We
argue that understanding the elites in each of these countries, and their
relationships to other elites at a national and international level, is
critical for understanding the contours of world-systemic conflict and
cooperation in the years leading up to WWI.
Theoretical Framework
This paper is part of our broader
research project focusing on global class formation, conflict, and
integration. Here, we focus on national
and international elites, their networks, and the relationships of both to the
instances of conflict and cooperation in the second-half of the nineteenth and
early twentieth centuries. While our research agenda draws on several theoretical
perspectives to delineate the relationship between elites, hegemony and global
conflict, we rely heavily on the world-systems framework, which maintains that societies are subsystems
within a larger single system; therefore, in order to understand historical
societal development we must take a multi-level approach by focusing on
localities, regions, and the world-system as a whole. A world-system is defined
as a mesh of intersocietal networks in which the interactions are important for
the reproduction of the internal structures of the constituting units,
affecting in important ways changes occurring in the affiliated local
structures (Chase-Dunn and Hall 1997).
Our research on national and
international elites and elite networks reveals that the relationships between
and among various elites, and the states they were linked to, were sometimes
mutually beneficial, often asymmetric, and in many cases decidedly
exploitative. From a world-systems
perspective, the outcomes of elite activity in micro-level encounters
and in meso-level networks have macro-level implications—what could be
considered a bottom-up flow of effects. The reverse flow, in which macro-level
events, institutions, and processes shape the meso- and micro-levels, is also
assumed. Applied to our project, we contend that local and international elites
are the embodied nodes of elite networks. We argue, then, that understanding
elite activity, and mapping elite networks and assessing their degree of
integration and fragmentation, are important and necessary in generating an
understanding of world-systemic history.
Another focus of this project is on
the relationship between international trade and conflict. Here, we
problematize the long-standing liberal view that international trade promotes
social benefits such as economic prosperity, political negotiation, and, in
particular, peace. The groundwork for a challenge to the assumed trade-peace
linkage has already been laid, as scholars have specified boundary conditions
that have helped determine if and when trade promotes peace versus when it
creates situations of dependence, asymmetricality, or exploitation, and thereby
fosters conflict (Boswell and Dixon 1990; see also Rueschemeyer, Stephens and
Stephens 1992, chap. 5). In addition, other scholars have taken a critical
approach to the assumed connection between trade and peace (Barbieri 2002;
Rosencrance and Thompson 2003).
For our purposes, the perplexing
relationship between trade and conflict calls for building on the extant
research by generating a deeper understanding of both processes. In this paper,
we will discuss the preliminary results of our research on elite networks. This
qualitative research was undertaken in response to our belief that an analysis
of the breadth and depth, as well as the meanings and types, of elite
integration may provide insight into the trade/conflict relationship. That
elites would know one another is not surprising and is therefore not the
subject of this study; however, to our knowledge a nuanced understanding of
elite networks and their functionality, or disfunctionality, and whether they
affect, or effect, levels of conflict is currently not available. We believe these facets of elite integration
and conflict must be thoroughly analyzed in the development of any theory
pertaining to the relationship between elite integration and conflict. That is
the focus of this portion of the research project. A concurrent sub-project
analyzes the correlation between trade and conflict. A
synthesis of the two works-in-progress will then be performed. The overall
research project, in sum, will utilize both quantitative and qualitative
analyses to reveal the true connections between elite integration, trade, and
conflict.
We
began our investigation in the early part of the nineteenth century, using this
period as the base line from which to appreciate the rise of transnational
linkages during the nineteenth and early twentieth centuries. This paper
focuses only on key elite networks and institutions within the states competing
for hegemony: France, Germany, Great
Britain, Russia,
and the United States.
Since our intention in this part of the project is to illustrate particularly
distinctive, crucial, and compelling dynamics within these countries, the
elites discussed are by no means exhaustive; however, they constitute key
components of the institutional networks they occupied. After completing our
research on the years leading to WWI, we will continue with a similar analysis
of the post WWI world-system.
Micro-Histories
The Cannon and the
Kaiser
Modernization, liberalism, and
nationalism were the three most potent factors affecting the lives of
nineteenth-century Germans. Modernization was limited primarily to the economic
sphere, with social and political adaptations lagging far behind. Innovations
and development in business organization, industry, and finance propelled Germany to the
status of a hegemonic contender. These economic changes also initiated an
industrial bourgeoisie and attendant workers unions whose burgeoning power
seriously threatened an ancient and rigid social order of landed ruling
aristocrats (Junkers) and princes. Though the world revolution of 1848 was
largely defeated in Germany,
the aristocrats developed an enlightened conservatism that allowed them to stay
on top while coopting segments of the rising classes. Taken together, Germany’s
meteoric economic emergence provided the means for simultaneously upsetting the
European balance of power and fragmenting its own social bases of domestic
power.
Liberalism’s tenets of fraternite, liberte, and equalite posed
challenges and opportunities to both the time-honored social standing of the
ruling elites and the newfound affluence of the industrial bourgeoisie. Like Russia, the ossification of Germany’s
social hierarchy had no easy or ready means by which to adapt to the ideology
of liberalism. German elites chose the strategy and tactics of repression and
minor concessions throughout the nineteenth century. Yet domestic tensions
increased dramatically from their point of view – requiring the influence of
elites if the status quo was to be preserved.
A solution came in the form of
conflict. After two hundred years of being Europe’s
battleground and buffer zone, it won several wars in quick succession. The
defeat of Austria-Hungary
settled the issue of Protestant Prussian primacy in German affairs. The defeat
of its archenemy France
led to German unification and a Prussian Hohenzollern on the throne. The speed
and decisiveness of these victories had far-reaching effects within and without
Germany.
First, the victory was seen as accomplished by military elites and “great
leaders” whose prominence was re-established just as their position had been
waning vis-à-vis an emergent bourgeoisie. Second, in addition to its late but
rapid economic development, Germany
became a geo-political power virtually overnight. The previous European system
of alliances shifted uneasily into a newer and more precarious balance. Third,
similar to developments in other countries during the nineteenth century,
national pride swelled as Germans realized a long-sought unification. While
nationalism developed relatively late in Germany compared to other powers,
it became the key to maintaining the status quo for German elites. In addition
to the calming effects nationalism had on the lower classes, to a certain
extent, the aristocracy and the bourgeoisie whose support they needed (but
detested) closed rank. Together they formed a relatively small cadre of
individuals embedded within an elite network that connected them to each other
and to key elites in other countries.
The German formula of military
might and strong leadership coupled with key industries were embodied in elites
such as its three rulers (William I, Frederich III, William II); four
Chancellors (Bismarck, Caprivi, Hohenlohe, Bulow); and three military General
Chiefs of Staff (Moltke the Elder, Schlieffen, Moltke the Younger) (Blackbourn 2003; Calleo
1978; Craig 1983; Feuchtwanger 2001; Kehr 1977; Kennedy 1987; Mommsen 1995;
Rèohl 1994; Rosinski 1966; Snyder 1991; Wehler 1985). In addition, two exemplars
from the rising bourgeoisie were especially connected with the military:
Siemens (electrical power, engineering, and telegraphs) and Krupp (steel,
railroads, and armaments) (Feldenkirchen 1999;
Manchester 1968; Modelski and Thompson 1996). In the discussion that
follows, relationships among these elites will be briefly characterized below
by looking in more detail at Kaiser William II, Moltke the Elder, Krupp the
cannon-king, and Siemens.
Working both in concert and in
opposition to one another, the actions of these elites led to compartmentalization
(Hughes 1987; Kitchen
1968; Rosinski 1966; Vagts 1959) and coalition politics (Calleo 1978; Kehr 1977;
Kehr, Anderson, and Anderson 1973) steering German policies up
to WWI. Prussia became the command center of Germany after its unification; the
Prussian King was also the German Emperor, and the “supreme commander of the
German Army in both war and peace” (Chickering 1996:460). The King’s army was led by
an elite cadre of officers and staff drawn almost exclusively from the ranks of
the Junkers (Kitchen 1968). Key industrial giants such
as Krupp (Manchester 1968) initially produced the steel
and railroads that made German victories possible. Krupp’s armaments were
finally preferred by Kaiser William II over the objections of the military, and
he provided the bulk of their heavy munitions, armor plates, and weaponry from
1890 on. Krupp and other industrialists were grudgingly admitted but not
necessarily accepted into higher social circles as their usefulness increased.
Tradeoffs of wealth and name in the guise of intermarriage among German
aristocracy and bourgeoisie became increasingly common as the century wore on.
Connections of kinship and honor
served to integrate the ruling classes in Germany
with each other and to Europe as a whole.
Kaiser William II had an extended European family; and marriages among European
royalty had followed a fairly detectable pattern across the past several
hundred years. German Emperors and Kaisers almost invariably married other
Germans; if not, then English and northern Europeans were most popular. The
English and Russians most commonly married Germans, or Danes, when they didn’t
marry partners from their own country. A Hanoverian, King George III of England (until
1820) had a granddaughter: Victoria Saxe-Coburg Windsor. She ruled as England’s Queen (1837-1901); her daughter’s
husband was a Hohenzollern (Frederick III) and their son was Germany’s
Kaiser William II. He visited her regularly until tensions between the two
countries over the Baghdad
railway began to emerge in 1910 or so.
General Von Moltke was an exemplar
of the most critical considerations for upward mobility in the German military:
honor and aristocracy as evidenced by birth, political views, and religious
affiliation. Descended from thirteenth-century Teutonic knights, Moltke served
as a page to the King of Denmark; trained in Clausewitz’s army as a surveyor
under the military Chief of Staff von Moffing; performed exemplary service as
Prince Charles’ tutor and escort, and was consequently favored with the
delicate task of aide-de-camp to the dying Prince Henry of Prussia (brother of
King Frederich William III) (Whitton 1972:54). Following two promotions in
the same year, Moltke was commissioned to Constantinople
as military advisor to Chasref Pasha, the right-hand man of Sultun Mahmoud II.
Returning to Germany, he was made First Adjutant to Prince Frederick William
(nephew of Frederick III), and appointed as military Chief of Staff when von
Rehler died in 1857 (Whitton 1972:64 and 68
respectively).
As Instructor-in-Chief, Moltke oversaw the training, made nominations and promoted
the core nucleus of Army officers himself (Whitton 1972:71).
Social networks played a similar
role for those Germans without blue blood, affording opportunities for
bourgeois advancement. Krupp’s steel business originated with his
great-grandfather who began the family steel mill, doing business during the
Napoleonic blockade of England.
Alfred Krupp built a fledgling business into a global conglomerate of ore and
coal mines, iron works, machinery, railroad equipment, and artillery. His
sister and brothers were also involved. His son, Friedrich Alfred Krupp
continued the expansion of the company into a horizontally and vertically
integrated group, with its iron and steel mills; and with its production of
armored plate, ships, submarines and diesel engines. Like his father and unlike
most of the upwardly mobile bourgeoisie, Friedrich Alfred declined a title of
nobility. He was however a temporary member of the Reichstag, as well as a
supporter of Tirpitz’s fleet policies.
Werner Siemens (then in the
military); Georg Halske (a mechanic), and Johann Georg Siemens (a counselor of
justice, as well as Werner’s cousin and also the father of Georg von Siemens,
founder of Deutsche Bank) co-founded the company in 1847 (Feldenkirchen
1999:15). Siemens & Halske specialized in electrical engineering and design,
manufacturing, and installation of telegraphs, steam, gas, and (electric and
conventional) railroad equipment before entering the heavy electric industry
and later, automobiles. It enjoyed clear market dominance because “none of its
competitors could approach Siemens & Halske with regard to size,
capitalization, differentiation of production, technical knowledge, experience,
qualifications, standing, contacts, domination of the market, and power”
(Feldenkirchen 1999:15). Werner’s initial patent for the telegraph was intended
for military use, but diplomats and businessmen soon followed and business
boomed. He retained his military rank while simultaneously selling his product
to the Prussian Army (Feldenkirchen 1999:35).
Unable to open a market in France,
Siemens fared better in London, founding a branch in 1850; and in Russia, where
a further branch office was opened in St Petersburg in 1853; and developed from
there by laying (undersea and transcontinental) cables. (Feldenkirchen
1999:35-7). “Political, military, and economic considerations led the United Kingdom
in particular to intensify its efforts to build up a global telegraph network”
(Feldenkirchen 1999:37). A branch also opened in Austria
(in 1879); later companies were formed in France,
Spain, Belgium, and the United States. The US branch
failed not long after its creation. The first supervisory boards consisted only
of direct family members, despite Deutsche Bank’s objections of what was
perceived to be a limited banking input.
Siemens’ main competitor was Emil
Rathenau, who founded the Deutsche-Edison company (1883) that grew into AEG.
Taken together, AEG and Siemens carved up Europe and parts of North
America for the purpose of putting Edison Company patents and
products to work (Feldenkirchen 1999:489). AEG eventually acquired companies
and patents that permitted it to market General Electric products in some areas
as well (Feldenkirchen 1999:491). By 1913, Siemens and AEG represented almost
70% of the electrical industry business (second and third only to Krupp AG in
overall size) (Feldenkirchen 1999:26). The two companies founded a mutual
wireless telegraph company at the request of Kaiser Wilhelm II for military
purposes. Further cementing the ties, Walter Rathenau, brother of AEG’s
founder, ran the Raw Materials Department for Germany during WWI.
During the nineteenth century and
up to WWI, German advances in the geopolitical, industrial, and economic
spheres placed modern Germany
on a level unparalleled in continental Europe. Hohenzollern Prussia
won quick and decisive military victories over Denmark
(1864) and Austria-Hungary
(1866). With the defeat of France
in the Franco-Prussian War (1870-1871), Prussia
supplanted France as the
premier military power in continental Europe.
In 1871 Prussia
also successfully united the German states under the Prussian aegis, placing
the Kaiser on the throne of the German Empire. These victories were based
firmly on Von Moltke’s leadership and effective industrialization and
modernization of the army, especially his advocacy for an increasingly dense
and pervading system of railroads. Germans led the fields of armament
technology (especially artillery) and electronics/engineering with Krupp and
Siemens dominating their respective domains. Krupp and its subsidiaries would
provide arms (often impartially) for numerous conflicts including the Balkan
and Boer Wars as well as both World Wars. Siemens remains today a sizable
commercial entity. Such great success did not come to Germany
naturally or by fate, but was the result of negotiation and networking by
elites such as the Kaiser, Von Moltke, Siemens and Krupp.
Witte and Russia:
Tradition in the Face of Development
For
nineteenth century Russia,
the changing nature of global production, led by Great Britain, strained the
traditional relationships had allowed it to be so successful
internationally. Russia’s swift expansion throughout the
seventeenth and eighteenth centuries had allowed it to rise to a
position of prominence as a major geopolitical contender, as demonstrated by
the “great game,” a cold war between Britain
and Russia over the fate of Asia. The shift
within the balance of power system that would take place with Russia’s defeat in the Crimean War, a war
hastened by the collapse of Russia’s
long-time nemesis the Ottoman Empire, would
illuminate the inability of the traditional institutions of expansion around
which the Russian state had founded itself to continue to successfully operate
in the world-system. Russia’s
traditional elite failed to maintain their power base—a function of their large
estates—and develop the modern industrial system necessary to maintain a
competitive navy and army. The emperor
had no clothes.
This
struggle, between the traditional, landed and military elite and the almost
non-existent bourgeoisie, would reveal itself most fully in the personage of
Sergi Witte, the Minister of Finance responsible for Russia’s massive industrialization
at the turn of the century. It would be
under his tutelage that the Russian economy would industrialize most, making
his tenure as Minister of Finance one of constant struggle. The examples of the Tariff war with Germany and the
Russo-Japanese War will be used to highlight the contradictions growing between
tradition and development, the central themes of this section.
The Russian economy of 1840-1880
was static, but from 1880-1917, however, change was exponential. While the Emancipation of 1861 did not
immediately create an urban proletariat, eventually some peasants did vote with
their feet and make their way into the cities.
As their numbers began to swell, the Tsar, recognizing the importance of
modern industry, began to encourage its development. Often times such encouragement took the form
of financing growth through foreign debt and outright state ownership.
It would be
the Ministers of Finance, from Bunge—the first to give lip service to
industrialization—to Witte, who would focus their efforts on Russian
industrialization. Under the direction
of Sergi Witte, in the late nineteenth century, their efforts would begin to
pay off and industrial growth would begin in earnest. Such quick change did not go unnoticed, and
those with different interests became uncomfortable as the methods employed by
Witte caused much distortion in the economy, transferring wealth from peasants
and the landed elite to a small but increasingly threatening class of
industrialists. This distortion of the
economy was familiar to many in the west, as Witte was following the basic
outlines of the modernization playbook developed by Frederic List, a German
political economist who promoted autarky and protection of burgeoning national
industry (List 2005). Following the
Listian path meant large tariffs and protection for Russian industry.
The costs
of the tariffs imposed by Witte were enormous politically. A tariff war with Germany,
Russia’s
largest trading partner, soon followed. Bismarck, his hand forced
by the Prussian agrarians, had gradually been raising the duties on Russian
imports (Von Laue 1963). With neither
side willing to make concessions, both sides continued to trade tariff for
tariff until Witte ended the stalemate by threatening to “stop the seasonal
migration of farmhands from Russia into the Junker estates of Eastern Germany,
which would have meant ruin to the latter” (Von Laue 1963: 110). The Russo-German trade treaty of 1894 left Russia with a
lighter tariff but a “more competitive position in the German grain market” as
well (Von Laue 1963: 110). Bismark’s
caution allowed Witte to conclude a peace favorable to the Russian state.
The tariff
spat was not the first instance of poor relations between Germany and Russia. In 1887, in an attempt to strong arm Russia out of Bulgaria,
Bismarck drove Russian government bonds out of Germany. His hope was that this economic ploy would
remind the Russians of their dependence on their western neighbor. The ploy backfired, and French investors
purchased the bonds at a lower interest rate.
This was a huge slip by Bismarck, who unwittingly laid the foundations
for the French-Russian entente that would haunt Germany in WWI.
Exchanging
German for French creditors “did not eliminate the basic fact of Russian
dependence on foreign moneylenders (and their governments) or sweeten the
humiliation of such bondage” (Von Laue 1963: 26). This foreign debt is indeed significant when
understood through modern theoretical perspectives such as dependency
theory. It has been firmly established
(Bornschier and Chase-Dunn 1985; Dixon and Boswell 1996) that foreign investment
is significantly less likely to promote growth than domestic investment. Russia was the
extreme case of an economy influenced by foreign money flows, and it happened
quickly:
Even as late as 1880 foreigners
accounted for only about 17 per cent of all capital invested in industrial
corporations operating in Russia. Only in the last years of the century did
foreign industrial investment reach higher and eventually startling
proportions, accounting for an estimated 26 per cent of the Russian total in
1890, 45 per cent in 1900, and 47 per cent in 1914. No other major European state even came close
to having a comparably significant infusion of foreign investment. (McKay 1974:
340)
This documented
growth reflects a switch in the logic of investment. Prior to 1860, the emancipation, and a
concerted effort to industrialize, most investment had been commercial (McKay
1974). McKay writes, “as with the Dutch
entrepreneurs of the seventeenth century, the foreign trade activities of
leading merchants might lead to involvement in industrial pursuits, but for the
most, commerce remained the primary focus” (1974: 340).
Because of
the trends discussed above, Witte and his policies were under heavy attack from
many directions. His most outspoken and
powerful opposition politically were the Ministers of the Interior, who
represented the landed aristocracy.
Witte also faced criticism from many economists of the day. P.V. Ol’, one such economist, documented
foreign investment in Russia
from the mid-nineteenth century to the 1917 revolution. He included in his work the source of the
investment, the amount, and where it went.
Geoffrey Jones and Grigori Gerenstain, in their English translation of
Ol’s work, note one of the more important facts, “the greatest share of foreign
capital was invested in State loans and government railway stock” (Ol’
1983). This focus on the railway should
not be surprising, as Witte’s plan to expand the Russian economy depended upon
the opening of East-West trade through the trans-Siberian railroad, a trade
that would prove lucrative to the state in the form of tax revenue (Von Laue
1963).
The ability
of the Russian state to continue to receive foreign investment depended heavily
on a stable exchange rate, and therefore, the gold standard. Of his many contentious policies, Witte’s
implementation of the gold standard would be the one “most bitterly resisted
within and without the government” (Von Laue 1963: 139). Of course, such conflict did not stop Witte,
and Russia
went on the gold standard (again) in 1896.
With the return to the gold standard, balance of payments became a
national necessity. Despite the warnings
of the critics, crisis did not emerge, and the gold standard weathered both the
Russian defeat in the Russian-Japanese War as well as the 1917 Revolution. Furthermore, the gold standard “served as a
vehicle not only for foreign credit but for the Europeanization of Russia in
general” (Von Laue 1963: 144).
Witte, whose long term plan for
trade was nearing fruition, sought a secure hold in China where trade could begin to
create a tax base capable of paying off the considerable loans of the
state. Loans that had been undertaken to
build the railway (Von Laue 1963; see also Ananich 2005). Pleve, the Minister of the Interior
(1902-1904) and Witte’s political nemesis had his own agenda. While Witte required trade with China to
provide a tax base and pay off his loans and maintain the gold standard, Pleve
wished to “rally the country to the flag and dampen the oppositional fervor
that had engulfed most elements of the population since the turn of the
century” (Manning 1982: 67). For Pleve,
whose largest concern was the emergence of liberal social movement headed by
the zemstvo constitutionalists, foreign policy was less an economic lifeline
and more of a political safety valve.
Obviously, the goals of both men were incompatible. War would not create an environment in which
trade would flourish. In the end, Pleve
emerged victorious in his efforts to control Russian foreign policy, but his
safety valve didn’t have the desired effect.
He paid with his life on July 15, 1904.
Following his assassination, a moderate, Prince P.D. Sviatopolk-Mirskii,
took control of the Ministry of Interior (Manning 1982). Witte would also fall from grace, but not yet
into the grave. Eduard Pleske replaced
him in 1903. What marks Witte as
remarkable among the many ministers to helm the Russian state throughout the years
is his staying power. As Russia began to
loose battle after battle against the Japanese, and as the state began to get
desperate for foreign loan monies, Nicholas III would, out of necessity, return
Witte to a position of power as the chairman of the Council of Ministers. Only Witte, it became clear, had the
necessary relationship with French creditors required to secure the needed
credit.
While it is dangerous to
simplify the muddy waters of history in such a simple narrative, the limited
space available limits our ability to address the full complexity of the
period. What is clear, however, is that
the changes taking place in the world-system, themselves a result of the
industrialization of Britain,
were exerting pressure on the traditional structure of the Russian state and
its people. The stress this pressure
caused manifested itself most clearly with the dominance of Sergi Witte, the
first true “industrialist” to rise to power within the traditional system of
power in Russia. His network of power, which extended most
importantly into the French financial system, ensured that even after his fall
from grace in 1902 that he would continue to play a powerful role in Russian
politics, and eventually be resurrected to an even higher position of power as
the chairman of the Council of Ministers.
The Rothschilds:
Financiers of the World-Economy
International finance had no bigger
player throughout much of the nineteenth century than the House of Rothschild.
A small businessman in the Jewish ghetto in Frankfurt
around the turn of the eighteenth century, Mayer Amschel dealt with merchandise
from rare coins to flour; Mayer would build on his business acumen and wealth
to preside over the creation in 1810 of his namesake banking firm (Chernow
1997:9). The House of Rothschild was set up as a partnership in which each of
Mayer’s five sons ran a house in one of the principal capitals in Europe:
Frankfurt, London, Naples,
Paris, and Vienna
(Ferguson 1999:xxi). The firm would be spectacularly successful: “Perhaps the
most important point to grasp about this multinational partnership is that, for
most of the century between 1815 and 1914, it was easily the biggest bank in
the world” (Ferguson 1998:3). 
The
Rothschilds also maintained a nearly global network of agents who conducted
business and gathered information on their behalf. “The most international of all great banking
houses” (Hobsbawm 1989:42), the House of Rothschild’s massive and diversified
capital portfolio placed the family in key locations in elite networks. The
Rothschilds individually, and through their firm, had a significant impact on
global elite integration and had varying degrees of influence on both conflict
and peace during the period of our study.
The Rothschilds’ ascendancy was the
result of their development of a system to finance state debt by state-issued,
fixed-interest, bearer bonds that were traded on international exchanges but
that could also be traded privately. Indeed, the Rothschilds played a role in
the financialization of the world, as they “destroyed the predominance of the
land, by raising the system of state bonds to supreme power…endowing money with
the same privileges as land” (Heinrich Heine, as quoted in Ferguson 1999:xxiv).
Rothschild coat of arms
In addition to their principal role
in state finance, other Rothschild businesses included bullion brokering and
refining, commercial bills, commodity trading, foreign exchange trading and
arbitrage, insurance, personal banking to wealthy individuals, and rail
financing in France, Austria, and Germany. The family also owned
mercury mines in Spain
(Almadén), and invested in oil fields and in mines producing gold, copper,
diamonds, and rubies (Ferguson 1998:6-7). This diversified portfolio performed
spectacularly; total wealth of the House of Rothschild during the late
nineteenth century was estimated at over 400 million pounds (6 billion dollars)
(Morton 1961:57).
Prices and yields of the
state-bonds depended upon the debtor state’s ability to pay interest, which
could be constrained by war and/or internal instability. In addition, the
Rothschilds’ nearly global diversified portfolio was sensitive to possible
causes of market shifts throughout the world. Mastering this system of
international finance required access to the political and economic news that
were critical in assessing risk, “this explains why,” as Ferguson notes, the
Rothschilds spent so much time, energy and money maintaining the best possible
relations with the leading political figures of the day” (1998:4-5).
Participating in elite networks was therefore a key part of the success of the
Rothschilds; as managers of the assets of elites and state debts, they played
an important part in the politics that shaped the century (Corti 1928:109,
223). Indeed, the Rothschilds were very much at the center of political
affairs: “True, no Rothschild yet occupied a throne, but when a throne became
vacant they were asked to advise as to who should occupy it” (ibid:197). This
political centrality, combined with an unparalleled international portfolio of
financial and capital investments, would place the Rothschilds in nodal points
in the elite networks that would impact the shape and duration of peace and war
in the nineteenth century and in the years leading up to WWI.
Peace and War
The international movements of capital
and of the financial groups who negotiated these movements are by some regarded
as a leading cause of war, by others as a strong force for maintaining peace.
During the period 1870-1914 they worked their effects in both directions,
though seldom determining events in either. (Feis 1965:467)
Indeed, the Rothschild relationship to peace and war was
complex; at times it seems they were providing the means for war while at other
times they attempted to broker peace. This rather schizophrenic positioning has
received divergent treatments in historical analysis. On one hand, the
Rothschilds have been viewed as exploiting conflict for investment gain
(Ferguson 1998:21). The Napoleonic Wars provided a particularly profitable
opportunity. The London
house, under the direction of Mayer’s son Nathan, helped finance the British
government’s war against Napoleon (Ferguson 1999:xxi-xxii). The Rothschilds
also profited by trading goods declared contraband by Napoleon’s trade blockade
throughout Europe at premium prices (Morton 1961:40-1), by moving gold from
England through France to Wellington’s armies fighting Napoleon (ibid:45-7),
and also by making commissions acting as a clearinghouse for the British
government’s advances to Austria, Prussia, and Russia in the later part of the
wars (ibid:47-8). The period’s concluding battle at Waterloo would be a boon for the Rothschilds.
Nathan, acting upon speculation of an English loss, sold immense holdings of
consols, the English state bonds. When the market collapsed, in part due to the
panic created from his firm’s bond dumping, Nathan bought heavily at the
bottom. When England
won the battle, and the market, as well as the British government,
restabilized, the Rothschilds generated a profit of 250,000 pounds on the rise
in bond prices (Ferguson 1999:xxiii, 42-44, 48-50).
The years of relative peace that
followed revealed part of the reality of contradictions between peace and
profit. Thus, while the Rothschilds have been characterized as seeking to
maintain peace, both for ideological/moral reasons but arguably more
importantly to ensure the stability necessary for investment predictability
(Corti 1928:174, 177-94, 429; Ferguson 1998:20), they also knew that war was
quite profitable. The “fundamental paradox at the heart of Rothschild pacifism”
was that governments at peace have less need for military financing; therefore,
in the period following the Napoleonic Wars, “all the major powers effectively
ceased to be Rothschild clients. Peace seemed to be making the five houses
redundant” (Corti 1928:379). Given this threat to their asset base, the
Rothschilds acted quickly and the firm began financing the rearmament efforts
of France and Austria
(ibid:403). This reveals a potential hypocrisy that would continue for the
Rothschilds; they funded preparations for war but were explicitly pro-peace in
disposition. As tensions rose and conflict became increasingly likely, the
Rothschilds worked to maintain the peace; a delicate balance typical of
financiers during the years preceding WWI when “their interests in general
disposed them toward peaceful arrangements…In times of crisis their weight was
usually behind peaceful statesmanship” (Feis 1965:468). The Rothschilds were no
different in that respect; after helping to provide the means to wage war and
to pay the costs of its aftermath, wars occurred that they “found themselves
unable, despite their best efforts, to prevent” (Ferguson 1998:xxx).
In the Crimean War of 1854-56, the
Rothschilds underwrote the debt of France,
Britain, Austria, and Turkey (Corti 1928:334; Ferguson
1999:75-6, 79). The war had a major negative impact on international finance
(see table, Ferguson 1999:72), as did other wars from 1854-71; however, even as
they fretted over political instability, the Rothschilds prospered relative to
other financiers because of their international partnership structure, which
created intra-firm diversification, and their dominance in the bond markets
that governments needed to finance military costs (Ferguson 1999:72).
Significantly, the Rothschilds outcompeted Barings, who lost a significant
amount of political capital by issuing Russian government loans (Ferguson
1999:73).
In the
Franco-Prussian War, the Rothschilds played a significant role in the peace
process by negotiating peace with Germany
on behalf of France and then
underwriting loans to pay the French government’s indemnity to Germany (Corti
1928:395; Feis 1965:39). The Rothschilds were more directly involved in the
profitability of conflict during the Boer War. Here, a brief elaboration of the
Rothschild link is instructive.
In South Africa, the London
Rothschilds’ provided extensive financial support for the merger of Cecil
Rhodes’ De Beers diamond company, the second-largest company in the Kimberly
mining region, with Compagnie Française,
the third-largest. The Rothschilds then financed the merger of the newly merged
firm with the previously largest firm, Kimberly Central. The end result was a
new De Beers with ninety-eight percent control of South African diamond output.
For their part, the Rothschilds became the second-largest shareholder in the
new firm, and in 1899, Carl Meyer Rothschild was appointed to the board. While
the Rothschilds were maintaining significant control, a syndicate was created
to control the world diamond market, a move similar to the one the Rothschilds’
held in mercury and copper mining (ibid:356-9).
Nathan Rothschild’s support of
Cecil Rhodes, who we will reveal in the next section to be a member of the
powerful elite Round Table, developed from the 1882 contact between Rhodes and
a Rothschild agent in South
Africa. Rhodes
surmised that the Rothschild political networks could be an asset in his
financial and political aspirations. The Rothschilds did not disappoint and
helped secure the De Beers merger through political connections in London. In 1889, Rhodes
established the British South Africa Company to achieve his goals for gold
mining and then colony-building in Central Africa.
Notably, Rhodes assigned all of his assets, with the exception of 2000 of his
De Beers shares willed to his siblings, to Nathan Rothschild, with instructions
to complete his vision of a Jesuit society upon death (ibid:356-360).
The relationship between Rhodes and
the Rothschilds became strained, however, as differences emerged between the
two parties over plans for expansion beyond British territory, particularly
with regard to the Boer republics. Rhodes was eager to mine for gold in the
Boer republics and also in the Matebele
Kingdom to the north; a
plan that would certainly lead to conflict. The Rothschilds largely supported the
mining plans, and were not unaware of the potential, and later actual,
bloodshed that would emerge during attempts to stake claim to resources under
African control. Yet, in following their precedent, the Rothschilds searched
for the means to achieve profit amidst competing parties with minimal
investment destabilizing conflict. In this case, the Rothschilds, in opposition
to Rhodes who feared competition for gold acquisition, floated loans for rail
expansion to the Transvaal government in Pretoria.
When the Boer War broke out, following a failed attempt by Rhodes’ militia to
overthrow the Transvaal government in the “Jamestown Raid,” the Rothschilds
sought to minimize both casualties and the political fallout from a war that
did not have public support and which was perceived by some to be based on a
search for profit (ibid:361-64).
The most significant outcome of the
Boer War for the Rothschilds was the loss of their position as primary lender
to European states. Whereas in previous conflicts the British government turned
to the Rothshilds for financial support, in the Boer War Great Britain
utilized a combination of direct market sales and the banks of J. P. Morgan and
Barings. This was a major blow to what had been a virtual Rothschild monopoly
on state finance and would portend the concomitant decline in Rothschild power
with the ascent of the US
as the financial center in the century to follow (Ferguson 1999:366-68). We
will return to this watershed moment in world-system dynamics later in this
section.
South
and Central Africa were not the only places in
which the Rothschilds flirted with indirect support of conflict in the last
part of the nineteenth century. In 1888, the London house issued securities to help
finance the Naval Construction and Armaments Company, then the merger of the
Maxim Gun Company with the Nordenfelt Guns and Ammunition Company that were
used with deadly effect in multiple conflicts, including against British
imperial efforts. Natty Rothschild, grandson of Nathan, was a principle
shareholder in the merged company and exerted influence over its management
(Ferguson 1999:412-13). In addition, the Austrian Rothschilds had a significant
share in the Witkowitz ironworks which supplied iron and steel to the Austrian
navy and bullets to the army. Thus, “if late nineteenth-century imperialism had
its ‘military-industrial complex,’ the Rothschilds were unquestionably part of
it” (Ferguson 1999: 413). As important
players in the “militarism of the bourgeoisie” that has been claimed by many to
be a prime cause of WWI (Ferguson 1999:412), the Rothschild’s delicate position
on peace and war grew more tenuous in the early twentieth century as heightened
tension among the core of powerful states increased the likelihood of a
devastating multi-national conflict.
World War I
The years immediately preceding WWI would find the
Rothschilds seriously engaged in diplomatic efforts to maintain peace among the
great powers. In 1912, Alfred de Rothschild sent a letter containing the
following to German diplomat von Eckardstein, who forwarded it to Count Bulow,
the Kaiser’s Chancellor:
…of recent years Germany’s policy
toward England has been a kind of “pinprick” policy, and, although a pin is not
a very impressive document, repeated pricks may cause a wound…I hope and pray
with my whole heart that no serious wound my result. I have done everything
possible over such a long period of years, and I feel now that you do not fully
appreciate the great advantage of a genuine understanding with England….(Wechsberg
1966:363)
In 1912, Natty Rothschild continued the family’s attempts to
establish peaceful ties between Great Britain
and Germany,
publishing an essay in which he stated:
What have we [Great Britain]…not got in common with Germany?
Nothing perhaps except their army and our navy. But a combination of the most
powerful military nation with the most powerful naval nation ought to be such
as to command the respect of the whole world, and ensure universal peace.
(Ferguson 1999:430)
This desire to facilitate a peaceful resolution to an
increasingly combative situation did not cease. Additional correspondence from
Natty indicates faith in peace until war was a certainty (Ferguson 1999:431-2).
On July 1, 1914, less than a month before Austria
declared war on Serbia,
Natty wrote to the French Rothschilds in hope that French Prime Minister
Poincaré would follow the German
Emperor’s example of working diplomatically with Russia
and Austria
to find a peaceful solution to the rising tension and impress upon the Russian
Tzar that:
France
is Russia’s greatest creditor, in fact the financial and economic conditions of
the two countries are intimately connected and we hope you will do your best to
bring any influence you may have, to bear upon your statesmen even at the last
moment, to prevent this hideous struggle from taking place, and to point out to
Russia that she owes this to France. (ibid:432)
In an attempt to avert war, Natty sent an appeal for peace
to the Kaiser, but no response was received (ibid:436).
A massive financial crisis emerged
during the month of July when war became nearly certain. On July 27, the day
before war was declared, Natty informed the Paris house that “all the foreign Banks and
particularly the German ones took a very large amount out of the stock exchange
today” (ibid:432). Natty turned down the Paris house’s request to sell British
government bonds in an attempt to obtain gold since it would further
destabilize the markets and send a strong message that war was going to occur
(ibid:433). The bond market started to collapse as the notes of all the major
powers slumped (although, interestingly, Germany’s less so than others,
suggesting faith in the German war effort). Amidst a growing liquidity crisis
as war broke, the stock exchange was closed on July 31. Despite the best
efforts of the Rothschilds, World War I had begun.
As people searched for a way to
make sense of what had largely been an inconceivable event, the role of finance
received scrutiny. Writes the Nation
in 1915, looking back on the causes of WWI:
The broad fact is that, whenever
politics can be made the servant of trade, money is forced to develop a
national personality. Finance may be in its essence cosmopolitan, but the
modern world has compelled it to acquire nationality…In a world where the
practice of Protection and the quest for places in the sun has obliged
financiers to constitute themselves into national groups, it is clear that this
economic rivalry makes for Imperialism, which itself underlies the whole struggle
for a balance of power. The national groups of financiers may not desire war;
but they do and must desire that the diplomacy on which they rely for their
future expansion shall be strong enough to seize and hold the concession or the
sphere of penetration which they desire. This rivalry helped to maintain armed
peace, and in due course the armed peace broke out in the world war. (as quoted
in Ferguson
1999:412)
War
created significant hardships for the Rothschilds. Outside of the impact on
business operations, a number of Rothschilds fought for their countries in WWI,
including Britain, France, and Austria. A Rothschild would die in
the war effort, as would two close relatives. The locations on opposing sides
in the conflict were also reflected in the marriages of various Rothschilds
from disparate national origins, creating strains within the family. In
addition, the alliance of Britain
and Russia created tension
due to Russia’s
treatment of Jews (ibid:446-448).
Financially,
the London
house took a beating, tallying significant loses for three straight years
beginning in 1913. In 1914, the house lost close to ₤1.5million, or 23
percent of its capital (ibid:437). By 1915, the firm had fallen from first to
the second largest bank in the city, behind Midland; by 1918 the London house
would also fall behind Kleinworts Greenfell (ibid:454-5).
War
also disrupted the world system that the Rothschilds had mastered so well in
the nineteenth century. The ties between the Vienna
house and the Paris and London houses, which had been shaky, were
severed for good, and the relationship between the Rothschilds and the German banks
including the Warburgs was severely damaged. The overseas trade that the
Rothschilds had profitably financed was disrupted and the gold standard ceased
to be operable. The tax structure in many countries also turned against the
Rothschild’s favor as increasingly progressive tax systems, which Natty had
strenuously lobbied against, hit their assets (ibid:414-27, 454).
These
changes paled in comparison to the key blow to Rothschild dominance: the rise,
without their participation, of New
York to a position atop the world financial system.
Prior to WWI, as discussed earlier, the Rothschilds held a virtual monopoly on
state finance and had provided the funds for the war efforts and aftermath for
most of the warring governments. World War I would complete the shift from Paris and London to New York that began in
the Boer War. In WWI, while France borrowed 610 million pounds from Britain,
they borrowed ₤738 million from the United States, while Britain borrowed
₤936 million from the burgeoning financial power (ibid:437). The
Rothschilds were no longer the financier of choice for transfers between
states; J. P. Morgan filled that role, although the further democratization of
polities would restrict the ability of Morgan to leverage financial power to
shape political policy in the manner the Rothschilds had 100 years earlier
(ibid:455-6).
Taken
together, the reverberations from the world-system-wide shock of WWI would
rattle the foundations of the House of Rothschild. The decline of the symbol of
international financial success in the nineteenth century was imminent:
Although there is no question that the
Rothschilds gained in one or two isolated respects from the war—which boosted
demand for Vickers’ guns, New Caledonian nickel, and De Beers’ diamonds—its net
effect was unquestionably negative. It is only a slight exaggeration to say
that the world in which the Rothschilds had thrived came to an end in 1914
(ibid:454).
World War I, then, was the exemplar of the outcomes of war
that the Rothschilds sought to prevent. Not only did the family suffer personal
and financial losses, the severity and reach of the war would radically change
the social, political, and financial system that they had thrived upon. World
War I marked the end of the Rothschild reign.
In conclusion, the Rothschilds
leveraged technology, social networks, and exceptional business acumen to
become the strongest and most international financial firm throughout most of
the nineteenth century. Their power, and the resulting profit, was heavily reliant
upon positive relations with the governments of the states in which their
houses were based, a situation that at times created conflict for what was a
truly multinational firm. While they profited from war, most notably in
financing military build-ups, costs of operations, and post-war cleanups, they
knew that large-scale war would destabilize the political and financial systems
in which predictability was ultimately desired. While their role in the years
leading up to WWI certainly provided some of the fuel for the calamity that
would occur, the Rothschilds were clearly opposed to its outbreak, and for good
reasons. World War I’s disruption of the political, social, and financial
systems caused significant losses for the Rothschilds. More important, the War
also marked what had been a decline in the Rothschild reign that coincided, and
was precipitated by, the shift in the international financial center from Paris and London to New York. In the end,
the House of Rothschild could not escape world-systemic dynamics.
Anglo-American
Establishment: The Round Table
The nineteenth century was
“Britain‘s Century,” the period when the United Kingdom achieved hegemony
through its position as both the “workshop of the world” and the “commercial
and financial entrepôt of the world,” with London as its great clearinghouse
(Chapman 1984; Ingham 1984; Anderson 1987; Arrighi 1994; Rubinstein 1998). Up
to the final days of the Great Depression (1873-96), Britain was the leading industrial
manufacturing power in the world. Its textile industry, its machines, its
shipping, its railways, shaped the economic networks that spanned the globe. Up
to World War I, the City of London
was the world’s leading financial center. Britain’s hegemony was marked by
increasing international trade, investment and global integration that peaked
in the late nineteenth and early twentieth centuries.
Great Britain’s
ascendance to hegemony was in part due to its ability to reconstitute the
global social order destabilized by the French Revolution and world-systemic
conflict. The American Revolution, the French Revolution and subsequent wars
against Revolutionary and Napoleonic France provided the structural context
within which Britain
was able to use its advantage to integrate and control the world economy. The
French Revolution and the war against Napoleonic France forced Britain to search for new markets in Latin
America, the Middle East, and Asia. Britain’s
unilateral adoption of a free trade practice and ideology created worldwide
networks of dependence on the expansion of its wealth and power. Britain’s
hegemony was undergirded by its sea power and commerce. From William Pitt to
the Rhodes-Milner Round Table Groups, the British elites envisioned a
consortium of civilized nations with Great Britain at its core.
Crystal Palace Exhibition
The Cecil Bloc and the
Milner Group
Robert Arthur Talbot
Gascoyne-Cecil, who was the Viscount Cranborne and third Marquess of Salisbury,
formed the Cecil Bloc that became the nexus of power in Britain. Lord Salisbury was the foreign secretary
under Disraeli in 1878 was his own foreign secretary during his own
administrations as Prime Minister (1885–1892
and 1895–1902). With respect to
domestic politics, Salisbury
was deeply suspicious of democracy and opposed the parliamentary reform of
Disraeli. Grenville (1964) argued that an enlightened and progressive oligarchy
would probably correspond to Salisbury’s
vision of the ideal form of government. Lord Salisbury constituted the Cecil
Bloc by
(a) a triple-front penetration in
politics, education, and journalism; (b) the recruitment of men of ability
(chiefly from All Souls) and the linking of these men to the Cecil Bloc by
matrimonial alliances and by gratitudes for titles and positions of power; and
(c) the influencing of public policy by placing members of the Cecil Bloc in
positions of power shielded as much as possible from public attention. (Quigley
1981:15)
Members of the Cecil Bloc included his nephew Arthur
Balfour, Baron Quickswood, Sir Evelyn Cecil and others who served in key secretarial
positions under Lord Salisbury. Balfour had represented Britain in secret talks set up by the German
Ambassador Count Hatzfeldt and Alfred Rothschild in 1898 when the conflict
heated up between Britain
and Germany over East Africa. Balfour was Prime Minister between
1902-1905.
The Secret Society of
Cecil Rhodes
The
South Africa Company was organized by Cecil Rhodes and a group of London capitalists with
an initial capital investment of £700,000, most of which was set aside
specifically for railway construction (Galbraith 1974:122). The company acquired extensive mineral rights
and administered the territories of Southern and Northern
Rhodesia until 1923. Rhodes
believed in the extension of British rule throughout the entire world. He
modeled a secret society on the Jesuits, with the aim of promoting English
ideals and federal imperialism (Quigley 1981). The secret society took form in
1891. The six initiates of Rhodes’ secret
society were Lord Rothschild, Harry Johnston and Abe Bailey who were financiers
of African and American ventures, the journalist William T. Stead, Reginald
Brett and Alfred Milner (Quigley 1981; van der Pijl 1984). Reginald Brett, Lord
Esher, was a lifelong friend of Arthur Balfour, Albert Grey, Lord Roseberry and
Alfred Lyttelton. Lord Esher served as the secretary of the Office of Works
(1895-1902), Lieutenant Governor and Governor of Windsor Castle (1901-1930),
member of the Royal Commission on the South African War (1902-1903), and
permanent member of the Committee of Imperial Defense (1905-1930). But more
importantly, Esher was the most important
political advisor to Queen Victoria, King Edward VII and George V (Quigley
1981:42). Rhodes and Milner aimed at uniting an English-speaking world in a
federal structure with North America and Britain at its core (Marlowe 1976;
van der Pijl 1984).
After the death of Lord Salisbury,
the Milner group was formed out of the Cecil Bloc. Alfred Milner had shifted the emphasis on
family connections to ideological consensus in constituting the group (Quigley
1981:29). Through the influence of Stead, Brett and Rhodes,
Milner was appointed as High Commissioner of South Africa. As High
Commissioner, Milner gathered men who would subscribe to the ideology that the
extension and integration of the Empire and the development of social welfare
were crucial to the continued existence of the British way of life (Marlowe
1978). These men were known as the members of “Milner’s Kindergarten” (Marlowe
1978; Quigley 1981:52). Patrick Duncan, Phillip Kerr (later Lord Lothian), and
Lord Robert Henry Brand were among the twenty-three members of the
kindergarten. Sir Patrick Duncan was Treasurer of the Transvaal in 1901,
Colonial Secretary of the Transvaal in
1903-1906, and Acting Lieutenant Governor in 1906.
The Rhodes-Milner Round Table Groups were
founded in September 1909 in a conference at the Estate of Lord Anglesey, Plas
Newydd in Wales.
The Round Table Groups were designed to promulgate the idea of forming a World
Federal Government, based on the unification of the British Empire and the United States.
It could be argued that the Round Table Groups provided the blueprint for
future organizations such as the Royal Institute for International Affairs, the
Council on Foreign Relations and the Bildeberg group. The leaders were Philip
Kerr, secretary of the London
group and Lionel Curtis as organizing secretary for the whole movement
throughout the world (Quigley 1981:117).
Curtis and others had set up local Round Tables in South Africa, Canada,
New Zealand, Australia and India. The Rhodes-Milner, or
Round Table groups existed in seven countries—England, South Africa, Canada,
Australia, New Zealand, India and a rather loosely organized group in the
United States. The backbone of this organization was built along the already
existing financial cooperation running from the House of Morgan in New York to the group of international financiers in London led by the Lazard
Brothers (Quigley 1966,1981).
Anglo-American Rivalry
for Hegemony: Carnegie and the House of Morgan
While the traditional story
emphasizes the role of the Robber Barons and US industrialists after the
American Civil War, we argue that for some time US industry was largely subordinate
to financial capital. Only during the
New Deal did capital groups, such as the Rockefellers and other industrial
firms fully come to dominate the US economy. In any event, after the Civil War, the core
base of support for Anglo-American liberal internationalism was among the
Anglo-American cosmopolitan financial houses that formed the transatlantic
circuit of money capital that fueled US industrialization from the railroad
boom to the rise of heavy industry (van der Pijl 1984: see also Adler
1970). Two of the most important enterprises
emanating from this Anglo-American process of class formation were Carnegie
Steel and the House of Morgan, the importance of the latter standing in stark
contrast to the limited role of the House of Rothschild in US finance, which
stuck primarily to state and federal bonds, and even here ran into many
problems (Ferguson 1999a: 117, 348-349; cf. Birmingham 1967: ch. 17). German-Jewish investment banking firms, such
as Kuhn Loeb, handled loans instead to Germany, while the Deutsche Bank signed
an oil market agreement with Rockefeller as early as 1913 (van der Pijl 1984:
43-45; see also Gall 1995: 62-67).
Carnegie's industrial efforts, in contrast, were facilitated by access
to available European capital from the House of Morgan in London
– often raised on the London capital markets –
and from Drexel, Morgan and Co. in the Northeastern US.
During the
worldwide depression and intensified inter-enterprise competition of 1873-1896,
Carnegie used this moment of worldwide price deflation to vastly expand his
industrial empire. During these years of
ruinous competition and falling profits, railroad consolidation grew by leaps
and bounds. Railroad companies
increasingly turned to investment bankers, notably the House of Morgan, with
its access to European capital markets, for stocks, bonds and corporate loans
with which to consolidate the industry, which came under the control of the new
financiers (Chandler 1977: 187). Starting in 1874, Carnegie traveled to London to negotiate a
$400,00 bond issue with the House of Morgan for his Thomson steel mill (Misa
1995: 1330134). As for Carnegie, not only did he become one of the leading
entrepreneurs in the US and indeed the world, he helped to weld together an
Eastern Establishment, setting up the Carnegie Endowment for International
Peace, composed of diplomats and businessmen straddling the transatlantic
economy, that would eventually ally with a declining British hegemony as the US
grasped the baton of world money and power.
In their
discussion of the early origins of the
transatlantic ruling class and "Atlantic military empire," Calleo and
Rowland (1973: 46-47) note that t