Volume 2 is rather divergent in character from Volume 1. Volume 2 has more of a theoretical and scientific character. It deals with problems that do not lend themselves to immediate application for use in practical life, for example, in agitational work. On the other hand, it is especially important for solving the problem of economic crises. Other than that, unfortunately, Volume 2 is [like] a quantity of capital that has not yet been put to use, that has not shown a profit.
If we want to read the whole of Capital—this is what Comrade Luxemburg recommends to us2—we can “with a clear conscience” skip over Volume 2, to begin with, in order to [go ahead and] read Volume 3. Volume 3 deals with problems that coincide more directly with the observations made by an ordinary person in practical life.
Volume 2 deals with the process of circulation of capital. The circulation of capital is the total process that capital as a whole goes through. This encompasses the purchase of raw materials, and of means of production, the actual production process itself, and the sale of the goods produced. The circulation process is the entire circuit completed by capital.
Volume 1 deals with the middle phase, which is the decisive one, the most important, because it shows where surplus value comes from.
It is not only the individual phases that belong to the overall process of circulation, but also certain periods of time that depend on the conditions of commodity exchange on the market.
Depending on the branch of production in which a [particular quantity of] capital is employed, and depending on the state or condition of the market [in general], these time periods may be longer or shorter, [that is,] the time periods that are used for the purchase of raw materials, the production of the commodities, and then their sale.
To begin with, [let us consider] the acquisition of the means of production. There are branches [of the economy] in which the raw materials and tools are present right there on the spot. In mining, for example, the time [necessary] for the acquisition of raw materials drops out of consideration entirely.3 In other branches, where materials are worked up, [the time necessary for] the acquisition of the materials has to be added. Depending on whether these raw materials need to be brought from far away or are produced nearby, the time necessary for getting hold of them will be longer or shorter.
Depending on where the markets for the sale of the commodities are located, the time necessary to reach the market will of course be longer or shorter. In the food industry, for example, the realization of the commodities [must] take place immediately after they are produced and in a continuous, unbroken process. On the other hand, in the clothing industry, which is put to work at particular times, production is linked with longer time intervals, in [a situation in] which larger quantities of goods are placed on the market at the appropriate “season.” Here the realization of the commodities takes a longer time.
Also in the phase of actual production we see greater differences, depending on the state of the technology and the particular characteristics of the production process. To a certain extent it can be said that the length of the production process is shortened by advances in technology. For example, today in contrast to former times, it is possible for products that have to be dried before they are completely finished to be dried by chemical processes. Previously one had to rely on natural drying.
The means of transport and their development can enormously reduce the time that capital needs to get hold of goods and get rid of them.
The development of production on the world market gives capital the possibility of making it easier to obtain raw materials.
In addition there occurs the building up of the credit system, which accelerates commodity production in general.
The development of technology contributes to shortening the turnover time for capital. But there are quite large differences among the various branches of production. An important consequence follows from this for the production of surplus value:
The amount of surplus value that one quantity of capital obtains depends on the size of the variable capital during a certain time span. One may take three equal quantities of capital, with the same amount of variable capital, and the same degree of intensity of exploitation. All three will have a different turnover time. One quantity of capital will turn over in all of three months (that is, after three months the capitalist will have turned everything back into money); another capital will require all year, and the third all of two years. Given that the law of value remains in full force and that surplus value is fully calculated and its derivation fully ascertained, it is only from the variable capital, on the basis of different turnover times, that a great disparity would necessarily arise in the surplus value of the individual quantities of capital.
We come now to questions that Volume 1 of Capital dealt with, questions such as: How is surplus value divided up among the individual capitalists so that, on the one hand, the law of value is not violated (that is, the law according to which commodities are bought or sold in accordance with the amount of labor that has gone into them), and so that, on the other hand, each individual quantity of capital earns an equal profit?
If no equalization [of profits] takes place, then the capitalists would invest their capital in those branches of industry that have the shortest possible turnover time. That would have [the following] effect on the production process: prices would be reduced and therefore so would surplus value.
How far down would surplus value go? Down to the amount that is produced in the next [longest] category [in terms of turnover time], that is, in the category of capital that turns over in one year.
In the latter category, however, an outflow of capital has taken place, back into the first category [where] the turnover time is only three months. Thus there is reduced production, from which there follows a rise in prices and because of that, a rise in the rate of surplus value. As a result there is again an inflow of capital, because to capital it is all the same whether it is employed in businesses that turn over four times a year or in businesses that turn over only once a year, as long as the latter yield the same amount of surplus value as those that turn over four times a year.
The difference in turnover times brings about a movement of capital from one branch of production into others. The purpose of this process of equalization is to arrive at [roughly] the same amount of surplus value [for all capitalists]. And this goes on in such a way that the production that is put to work for society is always subject to fluctuation. But this coincides with the needs of society, with social demand. That is the other aspect which determines how far the overfulfillment of production can go.
The satisfaction of needs in the various spheres of society is regulated by the movement of capital. On the other hand, by the same token, this movement of capital represents a dividing-up of the total capital among the various branches of production, a division that corresponds to the needs of society.
Volume 2 of Capital breaks down into two parts.4 It5 gives special treatment to the conditions [necessary] for the realization of the commodities produced by capital to be carried out smoothly.
It turns out that the content of this volume mainly provides material for solving the question of crises, although Marx seldom mentions the term “crisis” in this volume.6
As an introduction to Volume 2, then, [I will say] a few words about the history of crises and an overview of the crises that happened in the nineteenth century.
The economic crisis of 1815 in England provided the impetus for a theory of economic crises to be developed.
That crisis is not a characteristic crisis of modern society; it does not belong among the crises that grew out of economic conditions. The series of [periodical] economic crises in modern times therefore is usually dated from 1825.
The crisis of 1815 was the consequence of [Napoleon’s] Continental System, and thus it came about for political reasons. The Continental System was imposed in 1806 against England. It lasted until 1812–13. It was supposed to destroy England. It forbade the import of English goods into any country on the Continent of Europe. English subjects living in countries that were part of the Continental System were declared to be prisoners of war and their fortunes were confiscated.
Actually the result of this blockade was the following: it gave rise to a huge smuggling industry. America brought in English goods under the American flag. Also, industry in Europe developed as a result of the absence of English competition. The spinning mills in Vogtland date from this time.
During the blockade England calculated that after the lifting of the blockade a huge new market would open up. For this reason it built up large stocks of goods. When the blockade was lifted, however, things turned out differently from what England thought.
Demand was not as large as England had expected. This resulted in 1815 in the first crisis to occur in England, mainly in the cotton industry.
This occurrence in and of itself provided the impetus for a major disagreement and dispute between English and French economists.
The theories of Malthus, Say, and Sismondi now come under consideration.
The first person who looked into the question of economic crises from the standpoint of the working class was Robert Owen. In his writings of 1815, 1818, and 18237 he sought to explain the crises by the contradiction between rising productivity from the introduction of machinery and the lowering of wages, which was also caused by the introduction of machinery. This explanation is very interesting. Owen derived it independently of Ricardian theory. As a remedy for the crises Owen called for employment of the workers by the state.
That was the first democratic and socialist theory about economic crises.
Malthus came out against that and Sismondi followed along with him.
Malthus derived the source of crises primarily from the division of income and the urge to economize on the part of the industrial capitalists. He saw as the reason for the crises the fact that, owing to the capitalists’ drive to economize, consumption did not increase satisfactorily, which produces nothing. As a remedy Malthus called for an increase in the large number of unproductive consumers (the nobility, the court, etc.) and a higher level of expenditures for the military, the navy, the bureaucracy, and so forth.8
The theory of [Max] Schippel shows up as a minor reflection of this theory [of Malthus].9
According to Malthus, improving the conditions of the workers is not a remedy for the crises. Because, as Malthus explains, the workers consume only as much as they earn in wages. Thus they can only replace capital with capital.
Sismondi takes the same point of departure as Malthus.10 However, he also sees the remedy as being to increase the purchasing power of the working masses. Thus he finds himself in a contradiction from which he cannot extricate himself. This is shown by the fact that he himself concedes: if one increases purchasing power and improves the condition of the workers, that will have a blunting effect on the capitalists’ drive for accumulation. And then production will not be able to expand. He seeks the middle ground in his truly petty bourgeois approach: not such a rapid accumulation of capital, but on the other hand an improvement in the condition of the workers.
Say came out in opposition to all of these. He attached himself likewise to the theory of value of the classical political economists. But he applied the theory in such a way that it was a slap in the face to the Smith-Ricardo school. This is what Say said:
Exchange consists of exchange between economies of equal value. Money is only an intermediary. How can one speak of the possibility of a crisis when each commodity represents nothing other than a demand for other commodities, but rather also [MS. Missing words]
According to Say’s theory, a general condition of overproduction is impossible; only a partial overproduction.11 If overproduction begins [in one area], that is only proof that there is underproduction in other branches [of the economy]; therefore the remedy for crises is an increase of production in those branches of the economy where underproduction exists.
The critique made by Say is based on a misjudgment about the actual conditions, which made universal barter12 impossible and made the development of money necessary.
After Say came the agrarian reformers. They derived the causes of crises from private ownership of the land.
Thus we see, on the one hand, the derivation of crises from the unequal distribution of income.
The democratic trend sees, as the means for eliminating crises, increasing the purchasing power of the masses.
The other trend hopes to eliminate crises by increasing capitalist production.
Then came Marx. He said that crises are a result of the unregulated mode of production that is capitalism.
Professor [Heinrich] Herkner at Zurich University has learned a lot from Marx. In the fifth volume of the Handwörterbuch der Staatswissenschaften there is a treatment and discussion of crises by him. But in this treatment he introduces other conceptions as well.13
In 1866 a special inquiry was authorized to investigate economic crises in America. This investigation named 180 causes of crises.14 Numerous individual factors were named that certainly were correct. But only when the particularities are all brought together can we see where the responsibility lies for crises: namely the entire unregulated system of capitalist production.
[Mikhail Ivanovich] Tugan-Baranovsky, who had earlier been a Marxist and is now a revisionist, once commented as follows on Marx’s theory of crises:
The breeding grounds from which crises originate are in the so-called heavy industries: the iron, coal, and machine industries. These industries are the direct producers of means of production. According to Tugan-Baranovsky, crises originate out of a disproportion, that is, the lack of a proper ratio, or relationship, between the different branches of industry in which the means of production are made and those in which the means of consumption are produced.
As far as recent years are concerned, what Tugan-Baranovsky said is right. But what does this deficient relationship signify? If Baranovsky wants nothing more than to particularize it more exactly and establish it more precisely, he is right. But that does not bring us one single step further. However, if Baranovsky wants to say by this that on the basis of present-day society a means exists for the establishing of a correct relationship between these branches of industry, that is a purely utopian bit of imagining.
Thus Baranovsky’s attempt is quite equivocal and unclear.
Despite its fuzziness this theory has been welcomed by the world of learned German gentlemen. In particular Professor [Werner] Sombart dealt with it in a lecture he gave in 1903 at the Thirtieth General Assembly of the Association for Social Policy.15 In this lecture he accepted Tugan-Baranovsky’s theory on behalf of German science. But he did try to modify it. He said that crises actually arise from a deficient relation between branches of production that produce inorganic materials, on the one hand, and the branches that produce organic materials on the other. By organic materials Professor Sombart apparently means food products, and by inorganic he means coal, etc. This attempt of Sombart’s is not to be taken seriously because it is no longer in the realm of political economy.
The Succession of Crises
1. 1815 in England
2. 1825 in England
3. 1836–39 in England and the United States (some call this the Panic of 1837, but it actually lasted three years)
4. 1847
5. 1857
6. 1864–66
7. 1873
8. 1882
9. 1891–92
10. 1893 (this was especially an American crisis)
11. 1895
12. 1900/1901
13. 1907
Crises are a fundamental ailment of present-day society. And no cure for them has been cultivated in present-day society.
The question, however, arises of how one is to understand this theory [of crisis]. One may draw different conclusions from it.
In our agitation [in the SPD] one argument is used very widely—that crises arise as a result of insufficient purchasing power among the workers, because of low wages.
It is not only that this argument does not belong to Marx’s theory, which is that crises are the result of the present-day mode of production; it is not only that but also the way in which this theory is presented.
Marx begins first of all with the fact that he envisions a society that does not produce on a capitalist basis.
In earlier years one of the most important aspects of crises had to do with the building of railroads.
Let us imagine therefore a society based on planning. It adopts an undertaking similar in kind to the large-scale building of railroads. (This is historically valid: for example, in Egypt the building of the pyramids and canals, also in Peru the building of roads, and so forth. It is not relevant whether the project is useful, but simply that it is a large-scale project in which large numbers of people work together and are concentrated in one place.)
Such an undertaking requires large quantities of labor power to be brought together in one arena of labor, and the society does not have the use of that labor for a longer stretch of time. During this whole time, however, this many-headed workforce has to be maintained. This implies that food, and other means of subsistence, as well as the means of production and [appropriate] management have to be provided.
Such an undertaking, in a society based on planning, cannot come into existence if society does not have excess labor power, labor power that can satisfy needs above and beyond current, day-to-day needs. Therefore in the past we see such large-scale undertakings only by way of exception.
A primitive communist society can only put such an undertaking into operation if it is actually in a position to assign a portion of its workers [to this task] and to maintain them regardless of [the amount required for] their daily consumption.
In cases where a class society already exists, no consideration will be given to this. A large mass of workers will be gathered together and thrown into a task even at the expense of a lowering of their living standards, and they will be maintained by the labor of others, for example, in Egypt.
In both cases, an approximate calculation of the labor power that society can spare and the quantity of means of subsistence necessary to maintain such masses of workers—such calculation would have to be done in advance.
The result of this would be a reduced standard of living and [greater] suffering for the masses of the population …
For the workforce assigned to such a large-scale project, there is an unusually hard and heavy burden of labor. The result might perhaps be that in the course of a year a product has come into existence that is of absolutely no use to society, such as the pyramids.
After the completion of this project, the living labor power would be sent back to its old work assignments, and so nothing like a [modern-day economic] crisis would result from that sort of event.
When the undertaking had ended the earlier standard of living, with living conditions at the same level as before, would be resumed.
Now let us imagine such an undertaking in a capitalist country, for example, the building of railroads.
As soon as the decision is made to found a railroad company, the first necessity is a relatively large quantity of money capital. In order for this to be possible, it is necessary that the prospects exist for capital to obtain a high profit [from investment] in railroad construction.
Capital flows in from all possible spheres of production, and in particular this is done on an international basis. The building of a railroad has never been carried out exclusively, with the national capital of one country alone.
The very fact that the resources for building a railroad in one country flow in from another country shows that there is no precise [i.e., planned] coordination here. This fact completely excludes the general assumption that can be made when we view any primitive society.16
As soon as capital flows in and concentrates at one particular point, the immediate result is that a large quantity of labor power, plus means of subsistence and means of production, follow along in the wake of that capital.
When there is a demand for money it will be impossible to control all the means that might be available for obtaining money.
As soon as a relatively large mass of workers finds in one location a relatively large availability of employment then wages consequently go way up, this labor power represents a large demand for means of subsistence. The further consequence is a rise in prices in agriculture. Agriculture [in one country] is not in a position to satisfy such a growing demand.
Consequently, the strong demand results in intensified importing of food from other countries. This massive influx of food and other means of subsistence from other countries causes a substantial rise in prices in those other countries, along with an increased desire to export [from those countries].
This results in a boom even in countries that, to begin with, had nothing to do with the railroad construction.
Now the project is carried out. The masses of employed workers disappear. In the meantime a whole series of branches of production have been established on the basis of the railroad construction and alongside of it. They bring their supplies to market at a time when the demand has already disappeared.
From this there arises a crisis. The large market has now been cut off. Then comes a crisis in the countries that were providing goods for the construction of railroads, and then a collapse on the money market and in credit relations on an international basis.
That is approximately a schematic outline of the crises that occurred in the first half of the nineteenth century, which were played out back and forth between England and America.
In the old days people said that crises were the result of overproduction. That is merely a description of the state of affairs. The real answer is: since no one knows how much society needs, too much is produced.
But the correct answer is this: Every relatively large undertaking in society must inevitably bring a crisis in its wake. Because branches of industry have been built up, which then become superfluous after the project is over.
Why is production not expanded to an extent sufficient to meet the demand—why doesn’t that take place? Because, after all, it is known that the undertaking will come to an end some day.
Once production has been expanded it cannot just shrivel up artificially. Or if it does, the result is a crisis.
If production is expanded [to a large extent], and then a transition is made [back] to a smaller basis—that will mean a crisis in capitalist society.
Such a state of affairs is inevitable nowadays.
The only means for raising profits is progress in technology, increasing productivity. Raising the level of technology is linked with the expansion of production facilities.
How do the capitalists operate in response to a campaign for wages to be raised, and so forth? With an expansion of technology. And this [in turn] finds expression in an expansion of production.
Again, capitalist production responds to the discovery of new markets with expansion of production.
Its perennial method is the expansion of production.
From this it becomes clear that the actual feature of capitalism that contributes toward crises is that the capitalist mode of production has an inherent tendency toward the constant expansion of production.
What has now happened to the assumption that underconsumption by the masses is to blame for crises, and that therefore the purchasing power of the masses must be increased? What is incorrect about that?
Let us assume that the workers manage to keep their wages at a very high level. The result would again be a large-scale expansion of production. To satisfy the higher level of demand, supply would be raised to an even higher level.
The capitalist mode of production has the tendency to hastily pass beyond every limit, because profit is the only thing it takes into consideration.
What about the assumption that if unproductive expenditures are increased, crises can be avoided—what happens to that assumption? The same thing would then occur as with the raising of wages. The supply would then be increased much more than the higher level of demand by unproductive consumers.
Russia shows that it is precisely very large orders by the state that can immediately call forth a colossal expansion of production, which has the tendency to go speeding past and beyond the increased demand.
The number one necessity for the worker is to make use of every boom in order to get prepared and fitted out as well as possible for the next crisis.
Here is another example of how capitalist society creates crises out of everything and anything, whereas in some other society there would not be the remotest chance that such things would cause a crisis.
What used to happen in any society based on natural economy in the past when an especially rich harvest occurred? Consumption could be increased, depending on the make-up of society. If it were communist, an equal raising of the standard of living for all members would be the consequence, and at the same time a building up of reserves, that is, raising the capacity for maintaining the means of subsistence in the future.
Or if it were a class society: taxes would reach an especially high level [and there would also be] a certain, even if small, increase in the standard of living of the peasants.
In 1906 and 1907 Brazil had a colossal coffee harvest.17 The effect was that from month to month the alarming news spread, and panic occurred on all the stock exchanges. Instead of prosperity being increased, the cries of woe in Brazil rose higher because its capital was mainly invested in coffee plantations and now there was a plunge in prices. In order to try to prevent this, the capitalists forced the Brazilian government, at its own expense, to buy up huge quantities of coffee, to hold it in reserve, to withdraw it from the market in order to keep prices at a high level. That was called an act of valorization. This sounded quite outlandish, and was deliberately meant to [do so]. The ordinary person would be unable to make any sense of it.
The state had to buy the coffee. It gave the capitalists a large quantity of money in return for the coffee it was forced to buy up. Naturally this was mainly in government bonds or securities. But interest had to be paid on these securities. Where would the government get the money for that? Naturally from taxes. A monstrous tax burden was placed on the middle class and on the working classes, and the result was a general depression in the country, a colossal wave of layoffs, the firing of workers in Brazil, and businesses in Europe were [also] drawn in [to the crisis] because they had made it possible for the Brazilian government to obtain loans.
In general Brazil was shaken to the core, and that situation has continued up to the present. Sooner or later the government will have to sell the coffee. And then the sword of Damocles will fall, sooner or later the crisis will occur. Or else: voices are already being raised suggesting that the government dump the coffee in the ocean. That is the same method that grain dealers used in the Middle Ages in order to prop up grain prices. Bourgeois historians usually cite this as an example showing how high we have risen above the ancient world and the Middle Ages.
In capitalist production every unusual turn of events in production—whether it be a bad harvest or a bountiful one, whether there is railroad construction going on or stagnation and absence of any such undertakings—all of it leads equally to a crisis.
Marx speaks out strongly against the concept that overproduction or underproduction is to blame for crises. See Volume 2 of Capital, this page [of the first German edition].18
The first effects of any crisis are always felt in the luxury industries and by their workers.
Robertus derives the source of crises mainly from the underconsumption of the masses. He proposed that profits be shared with the workers engaged in production.
If the raising of wages was an effective means against crises, then no crises would happen. Because the fact of the matter is that in every boom wages go up, and every crisis is preceded by a boom.
The crisis of 1815 was characterized by the destruction of machinery and great tumult.
The first periodic crisis was in 1825. It was preceded by a strong economic upturn in England after the crisis of 1815. There was a big upswing of business activity: the building of canals, the building of roads, installing gasworks for the purpose of lighting (as early as 1814 gas was used for lighting in the streets in the cities of England), and then the founding of banks and speculation in securities.
England’s relations with South America played a large role in all of this. Many of the countries there had recently won their independence. Argentina, Brazil, Central America, and so on had constituted themselves as independent states. This was important in part because some of those countries were major suppliers of gold and silver.
The new states began taking out large loans. The [corresponding government bonds] were mainly bought up on the London Stock Exchange. In 1824–25 the governments of South and Central America paid out more than 20 million pounds sterling [in interest on loans]. In addition a large number of shares were traded on the London Stock Exchange, in particular those of mining companies. The stocks, or shares, of joint English-Mexican companies for the exploitation of mines rose in price by 2,500 pounds sterling from December 1824 to January 1825. The shares of another mining company went up 800 pounds. Everything was thrown into speculation on these mining shares. This was facilitated by the fact that payment of only 5 or 10 percent was sufficient to buy a share. Thus even the poorer classes could participate in this giddy craze.
That was the first great speculative craze in paper securities on a stock exchange.
The nominal capital of the stock exchange at that time supposedly amounted to 372 million pounds sterling.
But companies only worth a total of 102 million were present on the stock exchange. Everything else was pure speculation.
Together with this speculation, prices of goods rose to a very high level. Cotton prices rose by 109 percent, prices of pig iron by 77 percent, and sugar by 99 percent … In connection with all this there was a hasty rush to build new cotton mills in Lancashire, along with the expansion of old mills using bank credit.
Also in South and Central America a large increase in demand for commodities arose.
In 1821 England’s exports to those [countries was] … 2.942 million pounds sterling; in 1825 it was 6.442 million …
The main export was cotton fabrics.
But these goods were purchased with English money, because that money traveled from the London Stock Exchange to the Americas, and there it was used to buy English goods.
The enlivening of the cotton industry and the raising of prices attracted massive imports from the European countries to England. There was a rapid outflow of gold.
Then suddenly there was a backlash. Prices fell very quickly in London, and the South American countries provided the impetus for the crash by the fact that they did not pay the hoped-for interest on their bonds. They were entirely incapable of doing so.
At that point a panic broke out. The joint-stock companies and the mining industry were not paying the expected dividends, and that spread such a panic that the Bank of England itself in London had to post an extraordinarily high bank rate and refuse to grant credit. That intensified the general turmoil even further, and within six weeks 70 provincial banks crashed, and a whole mass of smaller entrepreneurs and speculators went down with them.
The consequences of the crisis of 1825 are also characteristic. It led to a general cleaning-out, or purge, of industry in the sense that an entire large number of backward manufacturing techniques were abandoned.
Soon after 1825 [there occurred] the universal introduction of the steam-powered loom, along with drastic changes in [the technology of] the iron industry.
After ten years came the crisis of 1836. Extraordinarily good harvests from 1832 to 1836, four years in a row, provided the impetus. Grain imports to England dropped off, because England was able to get by with its own grain. England ended up with 4 percent of its former exports.19 The cheapness of food lowered the price for labor.
Together with this there was an external phenomenon: a strong outflow of English capital to North America. Investments of capital were traveling on a massive scale to America, and consequently a demand for English goods arose there, so that those in turn were paid for with English gold.
In North America [there was] intensive economic activity involving means of transport and [new] industrial enterprises. The shares, or stocks, for these companies were for the most part sold in England.
New banks were founded, 61 of them with a capital totalling 52 million dollars. At the same time as this animated activity involving industrial enterprises there arose a large demand for government-owned land for expanding agriculture, but even more than that for speculation based on the rising prices of land.
All this gave rise to highly intensive demand in America for European goods. England in particular exported to America [on an increasingly large scale].
| English Exports to: | 1832 | 1836 |
| America, the United States | 5,46820 | 2,486 |
| Northern European countries | 9,897 | 10,000 |
| Southern European countries | 5,867 | 9,001 |
| Asia | 4,235 | 6,751 |
| Central and South America | 4,272 | 5,955 |
That is all in thousands of pounds sterling.
In 1833 and 1834 Spain and Portugal became heavily indebted by taking out loans from England. As a result the prices on the stock exchanges rose to an extraordinarily high level.
In 1836, 48 banks were founded in England. The nominal capital of the banks founded between 1832 and 1836 in England amounted to 105.2 million pounds sterling. Of that 69.6 million [was invested] in railroads; 23.8 million [went to] institutions connected with banking; 7.6 million to insurance companies; 7.0 million to mining enterprises; 5.4 million [was invested in] canal building, and so forth.
The impulse that set off the crisis came from the United States. Speculation in land had gone so far in that country that the government at that time had to impose some regulation. It was forbidden to purchase land in any other way than by cash payment. Of course a panic broke out on the stock exchanges in America as a result. The American banks frantically sought to obtain gold from England, and consequently panic broke out in England as well.
In 1837,21 there were 618 bank failures in the United States … In England there were no bank failures, it’s true, but there were great difficulties, and it was the cotton industry that suffered most from this economic collapse, because it was the main industry exporting to the United States. Great unemployment resulted, with downward pressure on wages, and this crisis contributed very strongly to the activation of the Chartist movement.
Ten years later there followed a third crisis, the crisis of 1847.
A very bad harvest was the initial impulse [for this crisis].
After the crisis of 1837 a depression lasted and reached its bottom in 1842; then the depression tapered off and an upturn began. In 1843 and 1844 there were two good harvests [which meant] cheap food and [increased] demand for manufactured goods. In addition, 1842 saw the opening of the Chinese market. This was connected with the opium war [of 1839–42]. The main [economic] result was that five Chinese ports were declared open to free trade, without any customs duties having to be paid; also the island of Hong Kong was surrendered to England.
In 1844–45 boom times prevailed in England. The cotton industry once again took first place. Large numbers of new cotton mills were founded, very high wages. In addition, there was massive railroad construction in England.
[The following table shows the value of] the total number of licenses for railroad construction granted by Parliament, up through December 1849 [with figures in millions of pounds].
| Licenses granted | Railroads built | |
| 1843 | 81.9 | 65.8 |
| 1844 | 20.4 | 6.7 |
| 1845 | 60.5 | 16.2 |
| 1846 | 131.7 | 37.8 |
| 1847 | 44.2 | 40.7 |
| 1848 | 15.3 | 38.2 |
| 1849 | 3.9 | 29.6 |
This railroad construction created a huge demand for workers as well as for goods. Prices for iron increased enormously. From 1844 on, there was madder and madder speculation on railroad construction. In 1845 and 1846 two bad years occurred in agriculture. The potato crop failed. So did the grain crop.
In Ireland universal famine broke out, so that Parliament had to send relief [payments] to Ireland [of] 8 million [pounds sterling].
The rise in prices led to wild speculation by grain dealers. That is, massive amounts of grain had to be imported from abroad, and prices rose steeply.
In the United States the cotton crop failed. From 1844 to 1847, prices rose by 65 percent.
In spite of this, the prices of cotton yarn and cotton goods did not go up at all.
The consumption of cotton fabrics in England in 1845 fell by [a quantity worth] 21 million pounds sterling, and in 1846, by 13 million pounds sterling.
Cutbacks in the cotton industry were the necessary consequence. On top of that came business failures on a large scale as a result of grain speculation.
In April and May 1847, English grain traders had purchased enormous quantities of grain in European countries at the very highest prices, grain meant for England. It was delivered in July and August. But meanwhile, in England a very good harvest had come in. Prices fell, and the grain speculators saw themselves ruined. Their bankruptcies brought bank failures in their wake, [including] many banks in Liverpool, and after those a general panic broke out. Then the prices of railroad stocks fell, very suddenly and steeply. A few figures will show this [as follows]:
| In December 1845 | In December 1849 | |
| Capital invested in railroad construction: | 100 million pounds sterling | 230 million pounds sterling |
| The stock exchange price that could actually be obtained for RR shares amounted to: | 160 million pounds sterling | 110 million pounds sterling |
| Profits and losses amounted to: | Profits in 1845: 60 million pounds sterling. | Losses in 1849: 120 million pounds sterling. |
This meant ruin for the owners of stocks in railroad companies, followed by a general collapse of prices.
The cotton industry suffered the most from this.
Among others, coal and other mining companies suffered in particular.
The Crisis of 1857. The First Big Worldwide Crisis.
In 1854 and 1855 [there was] the first big Australian crisis—a consequence of the feverish gold rushes of 1850–51. [There was also] colossal emigration from Europe to Australia, [along with a colossal] demand for goods, and speculation in mining.
The factors that paved the way for the 1857 world crisis were the following:
A large role [was played by] the abolition of the corn laws22 and of other [protective] tariffs; in short, England’s transition to free trade.
The assumption that the elimination of tariffs would slow down or eliminate crises corresponded to the theories of Say.
The English advocates of free trade said that if the corn laws and other tariffs were eliminated, crises would end. In 1844, England began to eliminate the corn laws. England abolished almost all protective tariffs. With that, economic activity in England was enlivened in every area, all products became cheaper, and there was a colossal upturn in production.
As a recoil there came the worldwide crisis of 1857. [Leading up to it was] the discovery of gold in California and Australia. In 1850 the annual average extraction of gold in the whole world was worth 150 million marks. In 1853, thanks to the new discoveries, it was 760 million marks.
For the entire world in 1909, the annual extraction of gold amounted to [only] 420 million dollars.
The end of the Crimean War coincided with the crisis of 1857. The holding back of Russian exports of hemp and flax products created the possibility for the crisis to be prolonged.
The era of free trade, the building of railroads, and the profusion of liberal reforms in Russia—all opened the way for the inflow of English products into Russia.
After 1848, France and Germany became powerful participants in the capitalist mode of production. Also contributing to that was: The bourgeoisie [was] on the upswing, [and] the proletariat had been beaten down.
There was a flow of European capital to the United States, which seemed to be the safest place for investments.
According to an estimate by Professor [Albert] Schäffle, in the years 1849–54, a thousand million guilders, that is, one billion, were invested in American securities. A guilder at that time was worth about two marks, and so this was approximately two billion marks.
In 1857, England had possession of American securities worth 80 million pounds sterling.
The Crimean War very much suited the United States. It interrupted the … At the same time, in the late 1840s and early 1850s, there was massive emigration to the United States from Germany and from Russian Poland.
In the United States, in connection with grain exports, there began a colossal speculation in government-owned lands. In 1852–53 in the United States, public lands worth 1.7 million dollars were purchased as pieces of land to be used for the cultivation of grain. Because America was now exporting grain to Russia.
In the years 1852–54, the value of the public lands that were purchased was 20.4 million dollars.
Along with that, [there was] an impressive amount of railroad construction. In 1856, the rail network in the United States was enlarged by 4,250 miles. A mile is approximately 1.6 kilometers.
The prices of goods rose rapidly, which attracted imports from Europe. In 1857, the import of goods into the United States increased by 32 million dollars. At this same time there was a failure of the cotton crop, and [therefore] very high cotton prices. In spite of that, the cotton industry was greatly expanded. In addition, American banks and import-export dealers engaged in colossal speculation on imports from Europe.
In 1857, [there was] an exceptionally good grain harvest in Europe.
That caused a series of bankruptcies among grain-exporting businesses in America. These bankruptcies brought bank failures in their wake. The failure of one small bank gave the signal for a general panic among all the banks in America.
In December 1857 in America, prices plunged universally by 20 to 30 percent.
The bankruptcy of America meant the immediate bankruptcy of England.
In October, there was a suspension of payments by one Liverpool bank. Thereupon, universal panic [broke out] in England.
From there the crisis was transplanted to France. During the entire nineteenth century [until then] the bank rate of the Bank of France had stood at 4 or 5 percent, but in December 1857 it soared to 10 percent.
The higher a bank rate goes, the harder the bank has to work. An increase in the bank rate is a storm signal.
Then Germany followed, Hamburg in particular.
The bankruptcy of several German commercial firms in England, which engaged in business with Sweden and Denmark, had repercussions in Hamburg. From Hamburg the crisis spread to the main centers of Prussia and at the same time to Sweden and Denmark, as well as to South America.
The collapse in Sweden and Denmark had a recoil effect on Hamburg. And Hamburg is the place in Germany where world trade had its earliest foothold.
Almost all commercial activity in Hamburg came to a stop. Only through some desperate salvation attempts, some very strained efforts by the banks, was a little bit of help forthcoming [for the economy].
The “Cotton Famine” of 1861. This crisis only affected the cotton industry; it was not a general crisis. And indeed it was mainly a local crisis, an English crisis. [This is] an indication that not only worldwide crises come along now.
[Let us take] a closer look at this crisis, because it is very important. The cotton famine began with the breaking-off of the import of raw cotton [from] the United States as a result of the Civil War.
In 1860, the cotton industry in England consumed 1,840 million tons of cotton; in 1862, this consumption fell to 452 million tons.
There was a corresponding drop in overall exports from England to the United States, also because of the Civil War.
In 1861, such exports were worth 23 million pounds sterling; in 1862, 11 million pounds sterling.
The cotton shortage meant tremendous enrichment for the industrialists.
According to a calculation that was made in England, the factory owners and cotton traders earned over 19 million pounds sterling from the raw cotton they had previously stored up. And from [the sale of] cotton fabrics [they made] over 16 million pounds sterling. In total, they gained more than 35, almost 36 million pounds sterling.
Certainly a painful blow was also struck internally, inside the cotton industry: that is, the small manufacturers immediately went kaput.
| Number of cotton mills in England | Number of spindles in England | |
| 1862 | 2,887 | 30,387 |
| 1867 | 2,549 | 32,000 |
This means [that] a big concentration of production [took place].
The only ones who suffered from the crisis were the workers. For the industrialists this crisis meant big business. The workers had to bear all the costs of the crisis.
The county of Lancashire23
Manchester
The workers of Lancashire stood at the highest point among workers generally. They had the highest wages, and were the most intelligent and best-organized workers. In the whole region, working conditions were held to firmly established standards. Many workers were so well off that they even had some savings and owned their own small houses.
The percentage of those on relief was lower than anywhere else in the entire country. That is attributed not only to their prosperity but also to the pride of the workers in Lancashire.
This was the flower of the English working class. But because of the cotton famine it was denied the very means of existence for several years and was ruined completely.
Joblessness grew so much in the fall of 1861 that charity, both public and private, had to step in strongly and take a hand.
In January 1862 the spread of joblessness became [truly] menacing. Cutbacks in production in the spring of 1862 were so large that by April, out of the 47,504 workers who had earlier been employed in the cotton industry in Manchester, only 23,722 remained fully employed, as against 15,393 on half-time, and 8,369 completely unemployed. These figures apply only to the city of Manchester.
In another center of the cotton industry, in Blackburn and its surrounding areas, 8,459 were completely unemployed out of 40,000 workers, and most of the rest worked only two, three, or four days a week. The workers had to sell their furniture, including their beds, and the wives and children of these very proud working-class men had to go begging from house to house.
All of this was described in workers’ letters published in the bourgeois newspapers.
In May of 1862 the number of jobless workers in the county of Lancashire had reached 58,000, but according to others, the number was as high as 100,000.
After the workers the small shopkeepers in the entire district were also ruined, since they were linked with the workers for their existence. The local relief effort was inadequate. A central relief committee was set up in London under the chairmanship of the Lord Mayor.
At the same time there began a highly characteristic struggle by the jobless workers with the local officials in charge of charity for the poor. Relief was provided only if the recipient submitted to work out of a workhouse. This meant the most demeaning and crudest kind of dirty work: sweeping the streets and breaking rocks. It is very interesting and instructive for us to follow the course of this struggle through the length of the crisis. The Lancashire workers did not want to submit to this condition. They explained that they did not want to be reduced to performing this kind of work, for which they were not suited. The greatest physical strength was required for such work, and that was not the kind of work they did in a spinning mill.
The workers engaged in a bitter struggle with the local poor-relief officials. The outcome was this: (1) Relief was paid in money, not in goods. The workers said, “We are not beggars, asking for food.” They wanted the right to dispose of their money as they saw fit. (2) Forced labor from workhouses was abolished.
The workers were so stiff-necked and persistent about this that they developed a magnificent plan of action. In one city after another they held huge gatherings at which the question of jobless relief was discussed. At these they always explained that they were not beggars, that they had been removed from their jobs by the actions of others. They wanted assistance for the unemployed to be organized on a public basis, corresponding to their own sense of honor and self-worth. They demanded that, instead of forced labor, workers’ schools should be established so they could study during their time of unemployment. And they won this demand. Schools and courses for the workers were set up.
They marched in the streets, and in a number of cities they began doing some vandalizing. They won their demands all along the line.
Especially characteristic throughout this crisis was the behavior of the free-trade advocates, those widely renowned gentlemen, Mr. [Richard] Cobden and Mr. [John] Bright. As early as the 1840s they had been in the forefront of agitation for free trade, and at that time had turned to the workers [for support].
Now [let us look at] the behavior of these gentlemen in the big cotton crisis [of the early 1860s]. Mr. Bright was concerned above all to minimize the extent of the disaster. They lied [outright] about its extent. The explanation for their taking this position was that the real state of affairs dealt a stunning blow to the whole free-trade movement. He [Bright] said that the impoverishment was much less than it would have been if free trade had not existed. He defended the local poor-relief officials with whom the workers were embroiled. While the workers were demanding public assistance, Parliament and the central authorities urged the workers to exert pressure on the local authorities. Bright said that it would be wisest for the central government to undertake the least possible interference in the sphere of jurisdiction of the local authorities. He opposed all large-scale relief action, because in his view that would only increase poverty.
The free-trade advocates actually represented the mill owners. Cobden and Bright were mouthpieces for the cotton mill owners of Lancashire.
The only ones who spoke up for the workers in this crisis were members of the landowning nobility, who had also pushed through the demands of the movement for the ten-hour day. They did what they could for the workers. This was an expression of the old battle between rent for land and profit for capital.
The landowners, particularly in the House of Lords, that is, in their own chamber of Parliament, defended quite warmly the demand of the workers for the elimination of forced labor.
The workers’ struggle with the local poor-relief authorities continued. In Blackburn a thousand unemployed workers refused to work at breaking up rocks.
In July [1862], out of the 355,000 workers in the textile mills of the county of Lancashire, 80,000 were completely unemployed, and the others were employed only part of the time. Charity contributions however flowed in abundantly from all directions.
The behavior of the workers, their stiff-necked, proud, and stubborn struggle, and their rampaging, caused the government and society as a whole such great anxiety that they took action at least to appease the hunger of these people.
The entrepreneurs, the millionaires in Lancashire, for the most part refused to give any relief payments. Even in the [main] conservative newspaper, The Times, they were often stigmatized.
In Parliament, Cobden spoke out very sharply against the formal proposal that relief in the counties of England be organized on a broader basis so that one community could send aid to another, to wherever the need was greatest.
In his speech he spoke as though the most unfortunate people in the crisis were the mill owners. [He argued that] relief should not be organized on a wider basis, because then the mill owners would have to pay the most, and that should not happen, because then the mill owners would not have enough money when the upturn came. Lord Palmerston, who spoke against Cobden in parliament said: “In reality they want to shift the entire burden from the wealthy to the poor.” Palmerston was the leader of the land-owning nobility.
At that point the free traders and the mill owners were victorious. The proposal was changed, despite the greatest protests of the House of Lords that relief payments did no harm to the mill owners.
Meanwhile poverty and need were such that in Manchester the mortality rate was 60–70 percent higher than in the rest of the country.
At the same time, however, through their struggle the workers achieved [victory] in the fall of 1862. By means of the most energetic struggle, they won their demands that relief was to be paid entirely in money and not in kind. Forced labor was also replaced by instruction at schools.
Special schools were established for the workers, where they learned reading, writing, and arithmetic. Sewing schools were established for women, and it was precisely this latter development that the factory inspectors mentioned as being especially healthy for the living conditions of the workers. Most of the wives and daughters of the workers, in particular those who were still employed, had not actually been able up until that time to take needle in hand [and learn how to sew].
December 1862 was the high point of the crisis. In Lancashire and Cheshire [counties] at that time 271,983 persons were receiving public assistance. Out of those 271,983 relief recipients, only 12,500 were working. All the others had been let go.
[Here are] statistics for joblessness at the end of January 1863. In the cotton-industry districts the total number of those completely unemployed was 247,230, of those who were employed part time the number was 165,600, and those employed full time, 121,129.
After the mill owners had enriched themselves enormously by raising the prices for raw cotton and cotton fabrics, they took the opportunity to drive wages down in Lancashire by 10–20 percent, and in this way again were able to put enormous profits in their pockets.
At the end of 1862 a remarkable movement for emigration began. This is also of great interest in that it shows the proud spirit of the workers at that time.
They made the simple decision to emigrate en masse. It happened that at that time offers had come from Australia and in particular from New Zealand to accept emigrating workers from England. Of course the best conditions were promised. One province in New Zealand even offered 10,000 pounds sterling for emigrants from England, to cover the costs of emigration by English workers.
Again large gatherings of workers began to be held, where they discussed the question of emigration. It was from these meetings that the decision was reached to emigrate en masse [first of all] and second to demand that Parliament provide the means to cover the expenses of emigration. They demanded this on the basis that it was rightfully due to them. Since England was not able to employ them, England should provide the means for them to go elsewhere to work. The large landowners also supported this emancipatory movement, but the factory owners did not. They were overcome by terrible fears, and at that time produced the memorable document in which the workers were described as living machines, [and they argued that these machines] should not be allowed to go wandering off. You will find this document quoted in Volume 1 of Marx’s Capital.24
When the mill owners saw that in spite of everything the workers were emigrating, they demanded that Parliament take out a public loan to initiate a program of public works. Parliament gave in on this point also.
On the front line of opposition to the movement for emigration and in support of the demand for public works there once again appeared Mr. Cobden. Under pressure from the mill owners the government provided credit amounting to 1.2 million pounds sterling to provide work for the unemployed.
These public works consisted included road building, canal building, the building of aqueducts, and the laying out of parks, all of this being mainly in the provinces. In this way the English provinces of that time acquired the most beautiful parks. But these public works came into existence at a time when the greatest need had already passed. In this way England, at ridiculously low wages, had an entire range of public labor performed. Nevertheless, this did contribute to the well-being of the workers.
A laughable number of workers were employed on these public works—8,324. Counting their families that meant 30–40,000 persons benefited somewhat from that.
Toward 1864 the economic conjuncture gradually made an upward turn again, and the workers again found employment.
The reserve stocks of raw cotton and woven goods had long since been sold off, and cotton was being imported from India and Egypt. A few statistics about that:
In 1860, from India 15 million pounds sterling
from Egypt 10 million pounds sterling
In 1864, from India 52 million pounds sterling
from Egypt 20 million pounds sterling
There then began a boom for the cotton industry, and as early as in the following year complaints could be heard from the mill owners of Lancashire about the shortage of labor power.
That was how the crisis of 1861 was overcome.
Scarcely had the upturn begun, however, than a new crisis, that of 1866, made its appearance.
A severe monetary crisis in England. It was the consequence of the powerful influx of imports from the Orient, the main element being cotton. [There was] a colossal inflow from the East, from India. In exchange for this inflow England was not immediately paid in cash, but with an exchange of goods, and so forth. On the other hand, however, England was paying in cash.
Currency based on the silver standard prevailed for the most part in India and the East, and consequently there was a massive outflow of silver from England to India and the East. Thus by 1864 there was a colossal emptying out of the coffers of the Bank of England, which caused great turmoil on the money market, so that the Bank of England found it necessary to sharply raise the bank rate in order to attract money to England.
This did not affect commerce and industry [at first]. In 1864 a major upturn [in the economy] set in. Once again the founding of joint-stock companies flourished.
From 1863 to 1865 the joint-stock companies founded in England had a total nominal capital of 582 million pounds sterling. (Nominal capital is what is printed on paper. On the money market this capital is worth much more.)
The founding of these companies shows that even then speculative fever existed in England.
A new impetus to England’s industry resulted with the end of the Civil War in the United States in 1864. There was a new demand for English goods and therefore a new upswing in English industry.
England’s exports to the United States rose as follows:
In the year 1864 exports were worth 16.7 million pounds sterling.
In 1866 they were worth 28.5 million pounds sterling.
The following table shows the prices of commodities during the boom and during the bust:
By 1866 all this led to a crisis in England, and the high point of the crisis was 1867.
An outbreak of panic followed, as ever, from some particular event, and indeed in this case it was a bankruptcy of Overend & Co.25 The consequence of this bankruptcy was a frightful panic. In two weeks the reserves of the Bank of England were almost completely emptied.
Banks that functioned as joint-stock companies failed massively, as did railroad companies.
(From now on the railroads played a huge role in crises generally.)
Those hit hardest by the crisis were the iron industry, the machine industry, and shipbuilding.
(From now on, after the second half of the nineteenth century, so-called heavy industry took the dominant position, which up until then had been held by the cotton industry. That came about as a result of constantly expanding progress and technology; more and more machines and means of transport were being used.)
In 1869 there was a severe money and credit crisis in the United States.
A second world crisis in 1873.
Germany played the leading role in this [crisis].
The years 1871–73 were an era of extraordinary upswing in industry throughout Europe. This came after the end of the Franco-Prussian War and the suppression of the Paris Commune. After its suppression a feeling of calm and reassurance set in [for the bourgeoisie], and of joie de vivre. Especially for Germany there came into consideration the influx of war reparations, which France had to pay, [5] billion [francs].26 The elimination of the national debt, and as a result the freeing up of a large amount of capital, now searching for investment opportunities, and consequently the striving for the founding of new companies, and in addition the establishment of freedom of trade, standardization of bourgeois laws, and of the tariff structure, and so forth. All of this was conclusively accomplished by the political unification of 1870–71.
Along with this there was an upturn in Austria. The end of the War of 186627 and the beginning of the constitutional era in Austria in 1867 contributed to the fact that a great enlivenment [of economic activity] began in Austria. Germany and Austria in those years constituted the main arena for stock market speculation. There was the construction of new railroads, feverish housing construction, in particular in Vienna, and in connection with that [extensive] real estate speculation.
In Germany there was a fever for the founding of new companies:
According to the statistics of [Ernest] Engel,28 in Prussia alone:
From 1800 to June 30, 1870, 410 joint-stock companies were founded with a total capital of 1,026,172,455 talers; [in contrast,] from July 1, 1871 to 1874, 857 joint-stock companies were newly founded, with a total capital of 1,429,925,925 talers.
According to [Richard] Vanderborght,29 in all of Germany:
| Number of newly founded joint-stock companies | Capital worth (in millions of marks) | |
| 1871 | 207 | 757 |
| 1872 | 479 | 1478 |
| 1873 | 242 | 544 |
| 1874 | 90 | 106 |
| 1875 | 55 | 46 |
| 1876 | 42 | 18 |
| 1877 | 44 | 43 |
| 1878 | 42 | 13 |
From here on the figures are in five-year periods
| Number of newly founded joint-stock companies | Capital worth (in millions of marks) | |
| 1871–75 | 1073 | 2,931 |
| 1876–80 | 270 | 223 |
| 1881–85 | 620 | 595 |
| 1886–90 | 1061 | 1,100 |
| 1891–96 | 814 | 824.8 |
The table above is based on data from the Imperial Statistical Office for 1906.30
| Amount (in start-up | Equity in Millions of | |
| companies) | Nominal Capital | |
| [1906] | 5050 | 13,767.7 |
| 1907 | 5147 | 14,218.3 |
| 1908 | 5184 | 14,634.6 |
In England the capital worth of joint-stock companies amounted to 2 billion pounds sterling.
The building of railroads played a big role.
The following table shows the length (in kilometers) of standard-gauge railroads in Germany.
| Total length in kilometers | |
| 1845 | 2,143 |
| 1855 | 7,826 |
| 1865 | 13,900 |
| 1875 | 27,981 |
| 1880 | 33,645 |
| 1890 | 41,818 |
| 1904 | 53,822 |
In Austria, in the years 1867–73, among the newly licensed businesses were 175 [regular] banks, 34 railroad enterprises, 645 industrial companies, 104 banks [Baubank]31 concerned only with lending for [home] building purposes, 39 insurance companies, and 8 shipping companies, with a total amount of capital involved, all together, of 4 billion guilders.
Indicative of the craze for founding new companies and the speculative fever in general is the fact that out of all this, only 682 companies actually came into existence, with joint-stock share capital worth 2,577 billion guilders. A large number of these of course went bankrupt later in the crash [of 1873].
The craze for the founding of new companies also spread to the United States, where a new economic upturn had followed the end of the Civil War. This was also expressed in the founding of new railroad companies, in other words, the most modern means of transport. In the years 1870–73, in the United States, a network of new railroad lines of 23,406 miles was built. (An English mile is about 1.6 kilometers.)
A new era began in 1864 after the Civil War in the sense that the expansion of indirect taxes was undertaken on a colossal scale, along with [the imposition of] high protective tariffs. That led to the amassment of substantial resources by the government and to colossal undertakings [such as railroad building].
In England at the same time there was an unheard-of prosperity, which was expressed especially in the upturn of the iron, steel, and coal industries, which were necessary for the building of railroads in other countries.
[The value of] exports from England to the US:
| 1870 | 28.3 million pounds sterling |
| 1872 | 40.7 million pounds sterling |
| 1873 | 14.6 million pounds sterling (showing the effects of the crisis [of 1873].) |
Total exports of iron, steel, and hard coal from England:
| 1868 | Iron and steel together | 17.6 million pounds sterling |
| 1868 | Exports of hard coal | 5.4 million pounds sterling |
| 1873 | Iron and steel | 37.7 million pounds sterling |
| 1873 | Hard coal | 13.2 million pounds sterling |
Total exports from England of cotton, wool, and linen fabrics:
| Cotton | Wool | Linen fabrics | |
| 1868 | 53 million pound sterling | 19.6 | 7.1 |
| 1873 | 81.5 million pound sterling | 25.4 | 7.3 |
Statistics on pig iron production in England:
(The price rose so high because the expansion of production could not keep pace with the growing demand, caused by the increasing needs of railroad construction.)
Speculation on foreign loans also developed on the London Stock Exchange.
Again this gives us an overview of the international connections [existing at that time] and the role of the state.
In the years 1870–75, foreign loans taken out in London amounted to a value of 260 million pounds sterling. Oriental governments played the main role in this. Since they needed money to finance their military establishments, and the like, they promised to pay high interest rates, but in the meantime it turned out that these governments did not yet have a sufficiently solid foundation. Therefore [there was] only partial repayment of the loans, and bankruptcy followed.
In the 1870s [MS. Missing words] Turkey, Egypt, Greece, Bolivia (South America), Costa Rica, Ecuador, Honduras (Central and South American states), Mexico, Paraguay, Uruguay, Peru, Venezuela, and Santo Domingo [took out loans].
And the capitalists in London went along with that.
The following figures give us an overview of [capital] movements [involving] government loans, and what a very lively effect they had upon the playing that took place on the stock exchanges:
The total value of securities issued on American and European stock exchanges:
| 1870 | 4,560 million marks |
| 1871 | 12,560 million marks |
| 1872 | 10,110 million marks |
| 1873 | 8,722 million marks |
| 1874 | 3,368 million marks |
The years 1871 and 1872 were the two high points in the issuing of securities. These are not exact statistics, [merely] estimates, but the estimates were made by recognized statisticians, so that they do have great significance.32
Then came the crash [of 1873], although the crashes in the United States and in Europe occurred independently of one another. [In Europe] this time the panic hit the Vienna stock exchange first, and spread out from there. In the United States, the collapse began with a company that had invested in the building of railroads. Then the crisis transmitted itself further, of its own accord. In Europe the crash came to the Vienna33 stock exchange on the memorable day of May 3. By May 28 there were already 100 bankruptcies in Vienna. And by then, shares [on the stock exchange] in Vienna alone had lost 300 million guilders in value. In June the panic was transplanted from Vienna to Berlin. The value of securities suddenly fell by 30–50 percent. The American crash had a reciprocal effect on Germany and Austria, naturally, and that intensified the general collapse.
Then England followed [with] a severe commercial crisis. In the years 1873–75 and even beyond that, bankruptcies kept increasing more and more. The crisis of 1873 was notable for its long-lasting effects. As late as 1878, banks of the top rank continued to fail in England, as an effect of the crisis [of 1873]. In 1878 in particular a very severe crisis developed in England for the cotton industry, the iron industry, and coal mining. The crisis reached its high point in England only in 1879. Then, until 1880, it spread little by little across Italy, Russia, Holland, Belgium, South America, and Australia to all the major branches of industry.
That is the picture of the crisis of 1873.
Not even a decade had gone by when a large-scale crisis broke out in France. This was the French crisis of 1882. France had overcome the crisis of 1873 earlier than all the other important countries. It had not been disturbed very greatly by that crisis. After the reestablishment of the bourgeois republic an economic upturn had begun in France. The Paris Commune had been suppressed in 1871. The war [with Prussia] had ended, and war reparations were paid. Then there began an upturn. Here as everywhere, together with that upturn, there was a great craze for founding new companies on the stock exchange. Joint-stock companies, the founding of new banks, the most daredevil and foolhardy ventures, [anything] in order to put new capital to use.
Central to all this was the founding of a company with the name Union Générale. At the head of the founders of this company stood a certain [Paul Eugene] Bontoux.34 The crisis in France [of 1882] is often also called the Bontoux crisis. Bontoux headed a group of capitalists. They had declared that they wanted to bring Christian-Catholic capital properly to the fore, in order to drive Jewish capital from the field, Jewish capital being to blame for all troubles. By Jewish capital they meant the Rothschild group.
The Bontoux group also found protection from various dukes and duchesses in Austria from the royal house of the Hapsburgs. As an expression of this movement there occurred in Vienna the founding of the Vienna Agricultural Bank, which worked with Catholic capital and knew how to obtain great privileges from the government for the Bontoux group. The activity of the Union Générale was expressed in two ways. First, it stepped up its activity on the stock exchange in order to drive the value of its own capital upward, [that is,] to drive up the value of its own shares on the stock exchange. They purchased their own shares in order to create an [artificial] bull market. French legislation allowed joint-stock companies to periodically purchase their own shares. Thus they created an artificial demand for their own securities, and the value of their shares was driven up. In this way they enticed money out of various hiding places, particularly from among the petty bourgeoisie.
Now they had to employ this capital. A massive craze for founding new companies began, with immediate undertakings. New enterprises were founded on such a massive scale: gas works, coal mines, insurance companies, railroads, and so on and so forth. It was characteristic that the Union Générale also provided itself with a string of newspapers in order to systematically influence public opinion.
In 1882 there followed the collapse of this entire operation. To begin with, the crisis broke out in Lyon, then a sudden plunge in stock prices on the stock exchanges both in Paris and in Vienna by way of the agricultural bank, and on January 29, 1882, the bankruptcy of the entire Union Générale occurred. Monsieur Bontoux was at first imprisoned, because there was dreadful fury among the petty bourgeoisie over the fact that Catholic capital had let them down. The authorities had to set Bontoux free, however, because he had not in any way violated the laws governing joint-stock companies.
Among the newly founded companies were total phantasms, figments of the imagination, for example, coalmines that hardly existed in the real world. Some name would be announced, but no one knew where in the world this mine might be located.
This crisis had an echo in other countries, especially where there had been speculative crazes on stock exchanges.
Scarcely had this crisis been overcome when again the build-up to a new economic upturn began. In some countries the new upturn started as early as 1879. In the United States at the beginning of the 1880s there was a railroad fever once again. In the years 1880–82 the railroad network of the United States was enlarged by an additional 28,240 miles.35
As a result, there was increased exports from England to the United States and in 1878 the value of such exports was 14.6 million pounds sterling. In 1882 the value was 31.6 million pounds sterling. That refers to total exports from England to the United States.
The following table shows the role of heavy industry [in these exports]
Exports from England to the United States:
| Iron and steel | 1878 | 18.4 million pounds sterling |
| Machines | 1878 | 7.5 million pounds sterling |
Exports from England, in general:
| Iron and steel | 1882 | 31.6 million pounds sterling |
| Machines | 1882 | 11.9 million pounds sterling |
Exports of England’s Textile Industry, in general (in millions of pounds sterling):
| Cotton fabrics | Woolen fabrics | Linen fabrics | |
| 1878 | 52.9 | 16.7 | 5.5 |
| 1882 | 62.9 | 18.8 | 6 |
As a result of this situation, in 1884 there was again a severe crash in the railroad industry in the United States. There naturally followed from that a general collapse of prices in England of 15–20 percent. Here, however, we must direct our attention to a particular phenomenon, which had general significance. The general collapse of prices in England is not merely a consequence transmitted from the crash in the United States; rather, it was a sign of an overall drop in prices, first of all a drop in the price of grain on the world market. This decline of prices, especially of the price of grain, has brought an enormous literature into existence, both in England and in other countries. In this literature people take up this question: Where does the explanation lie for why prices fell?
What phenomenon was it in Western Europe and especially in Germany, dating from this time of the sharp plunge in grain prices, about which people have spoken so much? [It was] the so-called agrarian crisis. That refers to nothing other than the sharp drop in prices for agricultural prices. What were the causes? The main cause was the import of American grain. Why did that bring about a sharp fall in prices? It was incomparably cheaper to grow grain in America. Not that the fertility was so great. Not at all. Agriculture was not even half as productive as in Germany. The intensity of agriculture [in Germany] was the reason for that.
Another reason was the great extent of railroad construction. It was not the result of economically necessary factors, but on the contrary there was great activity in founding new companies for the benefit of rising industrial capital, especially English capital. The result was the building of railroads across the West [of the United States] on a colossal scale. Along with that, the flood of emigration pushed westwards. This led [eventually] to the flooding of American grain onto the European market.
When a great hue and cry about a sharp drop of prices in England was raised, the calculation was made that income from agriculture in England in the 1880s had been reduced by 42.8 million pounds sterling.
The Agrarian Crisis
Comrade Luxemburg read aloud36 from a book by Tugan-Baranovsky about commercial crises in England,37 quoting some statements made by a commission that was assigned to investigate this phenomenon in England. Tugan-Baranovsky ascribes these crises to intense competition, the large-scale founding of new joint-stock companies, and the creation of new means of transport.
But the main cause of the crisis [of 1884] had to do with agriculture.
Below are some statistics for Prussia. By the term world market the entire world is meant here. But in the narrower sense it means the English market.
The table shows average prices on the most important markets for agriculture (Danzig, Königsberg, Mannheim). The prices are shown per ton (1,000 kg.) and in marks. These statistics were assembled by Professor [Heinrich] Dade and published by the Association for Social Policy.38 This table covers four eight-year periods.
| 1868/69–75/76 | 1876/77–83/84 | 1884/85–91/92 | 1892/93–99/00 | |
| Wheat | 223 marks | 207 marks | 181 marks | 155 marks |
| Rye | 173 marks | 166 marks | 156 marks | 131 marks |
| Barley | 165 marks | 158 marks | 148 marks | 138 marks |
| Oats | 160 marks | 148 marks | 142 marks | 138 marks |
| Potatoes | 56 marks | 59 marks | 53 marks | 49 marks |
| Straw | 46 marks | 50 marks | 48 marks | 43 marks |
| Hay | 72 marks | 65 marks | 60 marks | 59 marks |
This shows a steady fall in prices. After that [came] a rise in prices, inflation.
After 1886 a new industrial upturn begins.
In this upturn South America plays a big role, especially Argentina.
This [leads to] a peculiar crisis, mainly played out between England and South America.
After 1886 England’s exports increased in general, above all iron, machinery, and coal.
In 1886 England’s exports of iron were worth 21.8 million pounds sterling, of machinery, 10.1 million pounds sterling, and of coal 9.8 million pounds sterling.
In January 1890, England’s exports of iron were worth 31.6 million pounds sterling, of machinery, 16.4 million pounds sterling, and of coal, 19 million pounds sterling.
[Now let us look at] the exports of the three most important textile industries: cotton, wool, and linen fabrics. In 1886, England’s exports of cotton fabrics had a value of 57.4 million pounds sterling, of wool fabrics, 19.7 million pounds sterling, and of linen fabrics, 5.3 million pounds sterling.
In 1890, England’s exports of cotton fabrics had risen to 62.1 million pounds sterling, its exports of woolen fabrics was now worth 20.4 million pounds sterling, and its exports of linen fabrics, 5.7 million pounds sterling.
The textile industry was making smaller and smaller leaps forward, as the figures show. This applies in particular to the cotton industry, because this is the industry that was most successful in finding its way into other countries. The wool industry still maintains itself for the most part. That is because, to this day, English sheep breeding plays a foremost role on the world market, especially for the finer types of wool.
Argentina plays a special role. At the end of the 1880s a mad craze for founding new companies developed in Argentina. In the years 1887–89, 250 joint-stock companies were founded in Argentina with a nominal capital of 764 million dollars. In addition to that there was also Argentina’s government debt. In 1874 it amounted to 10 million pounds sterling, but in 1890 [it had risen to] 59.1 million pounds sterling. We speak in terms of pounds sterling because it was English capital that financed Argentina’s national debt.
From government loans and the founding of new joint-stock companies the main investments of capital in Argentina shifted to the building of railroads. In 1883, the railroad network in Argentina amounted to 3,123 kilometers; in 1893, it was 13,691 kilometers. That was how much was actually built at that time. But much more was licensed, and that also became the object of speculation. In 1889 [new] railroad construction was licensed for a total length of 12,000 kilometers. Of course these licensed railroad lines were not built [because] the crash came the following year.
Thus, in 1890 [there was] a tremendous crash, accompanied by a civil war in Argentina.39 Upheavals of this kind are very characteristic for the situation in newly established countries. The crash in Argentina was immediately echoed in England. The impetus for this came in November 1890 with the collapse of the largest English private bank: Baring & Co. This collapse naturally brought a whole series of further business failures in its wake.40
After that the crisis spread outward from England, resulting in a crash in Transvaal [South Africa], one in Mexico, and one in Uruguay.
In connection with all this there was a severe cotton crisis in England in 1890, because the countries involved [in the crisis] did not yet have their own cotton industries.41
Barely three years went by, and in 1893 there was a huge crash in the United States and in Australia.
The immediate cause in both countries was a railroad-building frenzy.
In Australia, for example, it was again primarily English capital that was at work. The investment of this capital was first of all in government loans. English capital was tied up in Australian government loans to the sum of 112 million pounds sterling. Of that, 81 million pounds had been put into the building of railroads and streetcar lines. The following statistics show how the railroad network in Australia took shape.
In 1880, it was 4,900 miles long; and in 1895 it was 15,600 miles long.
Along with that there was a wild craze for investing in real estate and housing construction in all these new countries. As early as 1891 the collapse of the housing bubble began, and that was followed in 1895 by a general collapse in Australia. Almost all the states of Australia stopped making any further payments.
At the same time things were developing in the United States, although along different lines. The main problem was overly rapid railroad construction. In addition, trusts were already playing a role, which contributed to price increases, speculation, and so forth, in the most varied spheres of the economy.
There were scandals involving trusts, especially the whisky trust, which bought up the entire reserve supply of grain in order to drive prices up extravagantly.42 There were also battles over currency in the United States, because at that time the advocates of placing currency on a silver standard [rather than the gold standard] came to the helm.
The approximate cause of the crash [of 1893] that took place generally was the collapse of the “wheat ring” on the stock exchange.43
A massive quantity of bankruptcies followed in the United States, and commerce came to a complete standstill. In August 1893 there were 600 bank failures in the United States.
In 1890 there had been a total of 7,538 bankruptcies with liabilities amounting to a total of 93 million dollars.
In 1893 there were 11,174 bankruptcies with liabilities totalling 324 million dollars.
Seventy-four railroad companies collapsed with 29,000 miles of railroad still under construction.
Pig iron production declined in the United States as follows: in 1892 it amounted in total to 9,157,000 tons, but in 1893 it was only 7.124 million tons.
In May 1893 shares in trusts lost 25–50 percent of their value in general.
There now took place something that was very characteristic of the crisis. There was a colossal amount of unemployment, and poverty was rampant. Then the unemployed from different regions decided to submit a so-called living petition to the American Congress, that is, to set out on a journey together and march on foot to Washington. And that is what they did. They demanded that Congress provide jobs through public works, road building, and so forth. This march was led by a certain [Jacob] Coxy, a farmer.44 He was not lacking in all sorts of mystical accessories; his movement took the name of something like Christian Brothers (perhaps that was the name).
The first troops [of Coxey’s Army] set out on Easter Sunday in 1894. Twenty marches met up [or were supposed to] and arrived in Washington on May. When they arrived they demonstrated in Washington in front of Congress.45 This march caused a big sensation throughout Europe because for the first time the bourgeoisie in Washington were stricken with great fear. Also the unemployed had to make great sacrifices along the way; it was a difficult journey. Naturally they did not have any results [from their protests]. They had to wait until an economic upturn came again. According to Rosa Luxemburg’s personal recollection, the newspapers [in Europe] at that time estimated that there were half a million people involved.46
The [1893] crash in the United States and the one in Australia had a combined effect and gave rise to a major depression for the world economy as a whole.
As early as 1895 there was another new crisis. Again this was a crisis that occurred mainly on the stock exchanges, resulting not from the conditions of production, but from speculation on South American gold mines. (The beginning of gold extraction [on a really large scale] dates from the mid-1880s.)
A postlude [to all this] was the Boer war [in South Africa]47 and the taking of the gold mines by the British.
How intense the speculation was at that time is shown by the fact that in the year [MS. Missing words] In the case of 25 mining companies that paid dividends, the face value of their shares amounted to 6.55 million pounds sterling, but the market value was 38.52 million. If this increase in value is calculated as a percentage—it is an increase of 588 percent. In the case of the 133 mining companies that did not pay dividends, because they were not yet profitable, the face value of their shares amounted to 27.73 million pounds sterling, but the market value was 113.23 million. Calculated as a percentage, this was an increase of 409 percent.
The Land Speculation Company and others [like it] in Transvaal were likewise able to increase the value of their shares by speculative operations. The nominal value was 15.87 million pounds sterling, but the value of those shares increased above the nominal value by a factor of 401 percent. Some shares on the stock exchange stood at a level 600 percent or even 900 percent above their nominal value.
The collapse of prices on the stock exchanges: On October 1, 1895, the market value for the shares of 146 gold trusts was 5,095 million marks. On February 28, 1897, in contrast, their market value was only 1,960 million marks.
After the crisis of 1895, a general economic upturn began. A role in this was played by the ending of the Sino-Japanese war, which expanded the market and then [brought] European exports [to Asia], followed by Siberian railroad building, which opened up Russia’s North and East, [and led to] trade treaties with Russia.
After this economic upturn [after 1895] there followed the crisis of 1900–01. Then the crisis of 1907, and so forth. We have the most precise data about these [most recent] crises from the trade unions. Up until then, we never had such [exact] material.
With regard to the upturn that began after 1895, there is a good pamphlet by Comrade Parvus [Alexander Helphand], published in Dresden in either 1896 or 1897. Its title is something like Aufschwung und Gewerkschaften (Economic Upturn and the Trade Unions).48
Statistics on the [number of] bankruptcies in Germany from 1896 through 1909 [are] in the pamphlet by [Max] Schippel, Hochkonjunktur und Wirtschaftskrise (Economic Boom and Economic Crisis).49 There are also good numbers in that pamphlet.50
Bankruptcy Statistics, 1898–1909:
| 1898 | 7,364 |
| 1899 | 7,220 |
| 1900 | 8,547 |
| 1901 | 10,566 |
| 1902 | 9,801 |
| 1903 | 9,609 |
| 1904 | 9,499 |
| 1905 | 9,329 |
| 1906 | 9,388 |
| 1907 | 9,886 |
| 1908 | 11,581 |
| 1909 | 10,998 |
Nowadays the distinction between boom and bust is much less sharply defined than before, because no uninterrupted boom can occur anymore, and thus we no longer experience an actual boom in the earlier sense of the term.51