UNIT 10 INDUSTRIAL CAPITALISM IN FRANCE

AND GERMANY

Structure

10.1 Introduction
10.2 France
10.3 The Eighteenth Century Background
103.1 Agriculture
10.3.2 Trade, [ndustry and Manufacture
10.4 The Revolutionary and Napoleonic Period
10.4 1 The Attack on Privilege
10.4.2 The Impact of War and Tel~itorialExpansion
10.4.3 Protectionism and its Consequences under the Restoration and Orleanist ~ o n a r c h l e s(1815-48)
10.5 Industrial Capitalism 1848-70
10.6 Further Development of Industrial Capitalism 187 1- 1914
10.7 Germany
10 7.1 Agriculture in the 18IhCentury
10.7.2 Trade and Manufacture in the I 8LhCentury
10.8 Sources of Change
10.8.1 Legislation of the Rcvolutionaly and Napoleonic Period
10.8.2 The Zollvere~n
10.8.3 The Ra~lways
10.8.4 The Growth of Joint Stock Ranks
10.9 Growth after 187 1
10.10 LetUs SumUp
10.1 1 Key Words
10.12 Answers to Check Your Progress ~xercises

10.0 OBJECTIVES
After reading this unit you should be able to:

make out a different pattern of industrialisation in Germany and France as compared to

England,
make out that inspite of commercialization of agriculture both in France and Germany, the
marked feature here was a peasantry tied to the land. Thls definitely limited the mobility
of surplus population released from land for industry. and
make out that the emerging industrial bourgeoisie In France and Germany [Link]
dependent on the state.

1 0 . INTRODUCTION
The development of industrial capitalism in France and Germany in the eighteenth and
nineteenth centuries was directly influenced by the character of industrial capitalism in
England. However, in its intensity and in the factors wh~chwere crucial to it, there were
important variations. As in early eighteenth century England, major enclaves of commercial
activity existed in the territories of the French crown and in the German states in mid-
eighteenth century; and this was true of Spain, Italy and the Netherlands. These enclaves
must be associated with the processes generated by the commercial "world system" of the
previous three centuries and the complexity of material life, which had produced demands that
were being satisfied by production on capitalist lines. For various reasons, however,
industrial capitalisni in such "enclaves" did not develop as the equivalent in London,
Liverpool, Bristol and Manchester did, during 1740-1840, although, in the case of France. the
Netherlands, Rhineland, Germany etc., they were surrounded by agriculture which was as
specialized and sophisticated as English agriculture.
 Industrial Capitalism in
Several decades ago, as mentioned above, Alexander Gerschenkron attempted to detect France and Germany
general patterns in the manner in which such "backwardness" altered. He stressed the
continuous preoccupation with the state of "backwardness" in Europe, accompanied by the
emergence of certain special agents - initially the state, later major banks - which hastened
capitalist development. Although imaginative, there has been so much ground that
Gershchenkron's patterns did not cover in Continental industrialization that their importance
has not endured substantially. They remain, however, the only major attempt to devise a
special model for European industrialization; and they are, hence, (as they will be here) a
reference point still for discussions of the development of industrial capitalism on the
Continent.

Given the recent convincing stress, however, on the long term growth of industrial capitalism,
well before it acquired its authoritative position in mid-nineteenth century, discussions cannot
be confined to analyses of how European states responded to "backwardness" or inadequacy.
The development of industrial capitalism must,be seen in a broader perspective.

10.2 FRANCE
A number of features, which contrast with the conditions of 18th and 19th century England,
have traditionally been attributed to the character of the development of industrial capitalism
in France. Among these features, has been the association of the country, during the
formative period of the eighteenth century, with the habits of the "Ancien Regime", i.e. with
the prevalence of customs and conventions which were not strictly conditioned by productive
and commercial considerations. Linked to this was the association of France with "peasant"
agriculture, which survived the Revolution and Napoleon (1 789- 18 15): it stressed
immemorial custom and subsistence, rather than extensive commercialization. Further, it,
lacked certain resources like coal and iron, which underpinned the extension of the influence
of industrial capitalism in England.

In such circumstances, the economic historian Tom Kemp has argued, the slow growth of
industrial capitalism must also be linked to the character of the French bourgeoisie, which he
associates with preferences for rentiership [note to editor: special note in vocabulary], and
professional and bureaucratic position. Kemp contends that the ascendancy of this class in
Revolutionary and post Revolutionary France was crucial to the slow development of the
authority of industrial capital in France. Revolutionary land settlements, which prevented the
accumulation of land in the hands of great magnates, allowed such a situation to persist. The
land settlements also gave peasants a firm stake in small-scale proprietorship: a phenomenon
which acted as a brake on the formation of a pool of industrial labour and maintaining
extensive demand for the production of small workshops operating on backward technology
in small towns.

10.3 THE EIGHTEENTH CENTURY BACKGROUND

Like England. the territories of the French crown, in the eighteenth century, registered
substantial increases in population (between 1700 and 1770, population increased over the
country from 20 millions to 25 millions), considerable interest in commercial agriculture and
the t h r ~ v ~ ndevelopment
g of major centres of industrial production. However, the pace of
growth and the incorporation and scale of innovation, here, was not as substantial, and this
requires explanation.
10.3.1 Agriculture
The broad outlines of agricultural development and change would be as follows. At the time,
most land was in the hands of seigneurs or landlords who were sometimes powerful noble
magnates but who might equally be lesser squires with impeccable noble pedigree. Their
estates were divlded into two segments. one for direct cultivation by the nobleman using hired
labour, and the other, the area in the hands of their "peasants". These had no rights of
ownership, but had been associated with the estate for several centunes. Many of them had
rights of tenure which practically made them proprietors in their own right, especially in the
Alnine and Pvrenees revions: in other cases a fixed monetarv navment (cen.c.\ had to make to
Industrial Revolution the seigneur at fixed times as a form of quit-rent. Others, known as mainmortables could
in Europe pass on their land only to their direct heirs, but otherwise, their situation was like that of other,
more powerful peasants. Cultivation of land in the greater part of the northern reaches of the
country (from the south of the Cotentin peninsula, through Maine, Touraine, Orleanals,
Nivernais, Berry and into south Burgundy) was dominated by the open-field, although
rotation of crops varied. South of these reglons, most land was enclosed (both among
peasants and seigneurs). Some of the country was remote, yet sufficiently fertile to provide
adequate living; others were desolate unreclalmed bog and marsh, as in the case of the coast
of Gascony and Guyenne, or dominated by soil which was not very fertile, as in much of the
Central Massif; and still other land was immensely rich and commercialized, as in the
Garonne valley.

Major improvements in cultivation were introduced in many regions and especially in the
north east, i.e. Frcnch Flanders (where innovations in agriculture in Holland and Belgium had
initially made their way to England and were now quickly disseminated). Knowledge of
"improving methods" which were prevalent in England and elsewhere came to be known
through publications such as Duhamel du Monceau's 6-volume introduction to improving
agriculture (published 175 1-60), through cheap literature and by word-of-mouth. The
information was a focus of discussion in the learned soc~eties(academies) of provincial
France; and major royal officials, such as the Intendant of the Limousin, Tnrgot, and other
"physiocrats", who were concerned wlth improvement of agriculture, attempted to give the
details wide publicity.

Partly as a result of the application of "improvmg" techniques, a substantial increase (over

40%) in agricultural production was registered during 1725-1789. Le Roy Ladurie links the
development specifically to the increased cultivation, on reclaimed land, of food crops which
did not require that land be kept under fallow, and whose popularity increased with the
knowledge of improving agriculture. Such cultivation also released land for cash crops -
primarily fine cereals and vine, which were established products of cultivation in most of
France. This feature in turn increased commercialization in a rural economy where
specialization was already well-established and where regular exchange of goods between
regions was normal. Meanwhile, a number of major improvements in transport (in
Languedoc, Burgundy, Provence, Brittany and Auvergne), brought costs of commerce down
and intensified commerclalization further. These improvements centred around major works
such as the canal network of the south (the Canal du Midl).

The upshot of this range of changes, during the eighteenth centuiy, was a fall in prices of
agricultural goods across the territories of the French crown, of 60-80% during 1730139 -
1780189 for most goods, and in some cases of 100%. This was a development which
benefited the innovative landowner. The fall in prices and costs also benefited various types
of enterprising peasant cultivator, who had substantial fixity of tenure on seigneurial hold~ngs.
It could also benefit various mainmortables. For even here, where land tenure was relatively
secure, these least privileged of cultivators could, on the surface of it, benefit from low prices,
at a time of low costs, provided they interested themselves in intensive cultivation and
occasional involvenlent in agricultural or artisanal labour (where wages increased in the same
period by 25-30%).

A major problem, here, as Le Roy Ladurie points out with considerable documentation. was
that fixity of tenure could only guarantee a modicum of security to most French cultivators at
a time of population increase. True, only land in the seigneur's direct cultivation was subject
to direct proprietorial action and the majority of cultivators could not be dispossessed since
the signeur's control was indirect. However since much cultivation on peasant land was still
based on the thrce-field rotation in an open field, improvements were difficult to initiate on
smaller holdings and strips. Here, and on the standard and smaller peasant holdings of the
West, where the open field was less known, land was increasingly insufficient to provide the
requirements of a growing family. Peasants were driven to share cropping (metaynge) or to
renting lands under the seigneur's direct control. With population growth, rent rose about
142% for the period mentioned above. Tax and tithe increases (60% and 25-30%
respectively) increased the burden on peasant incomes still further.

As a consequence, although commercialization in agriculture was substantial, and major

surpluses of grain were available for growing urban populations, large fluctuations and
disparities in income levels were a feature of the French countryside, as was dire poverty in Industrial Capitalism in
certain quarters. This explains the two (apparently contradictory) features noticed by Arthur France and Germany
Young, the contemporary English traveller, and the historian and philosopher, Alexis de
Toquevllle, in his work of the 1850s. De Toqueville argued that on the eve of the French
Revolution (1789), the economic position of the French peasantry was improving, while
Young pointed to extreme poverty and backward agriculture by Young, for the same time in
entire reglons of the country.

Fig. 1 : Queing Up for Food : The Urban Poor in Early 19thCentury France

10.3.2 Trade, Industry and Manufacture

The marketing of agricultural products and their processing clearly generated centres of
employment outside the business of ordinary cultivation: in the rnllling of grain on a large
scale, the proc'dction of wine, the transport, storage and distribution of such products etc.
Although the intensity of market orientation varied across France, from high levels in the
north and east (the areas of the Nord and the Franche ConitC) to the low levels of Brittany,
and interior Gascony, far from the Ciaronne Valley, major cornmuriities and townships grew
around the trade in agricultural goods.

Major fortunes were to be made in this trade; to these were added tile prot~tsof tradc in such
products with Italy, Germany, Spain, or across the Meditrrrancan, from Marseilies, and aloug
the coast of the English Channel. French ports thrived on such exchange, and sllippirig
industries developed to further the trade. Clearly important here were towns such as
Bordeaux (which was crucial to the trade with Canada and the French West Indies) and
Marseilles (which took 011 the full range of trade with the Levant in particular and the
Mediterranean in general). The French crown, moreover, following mercantilist policies,
would only allow transport from its colonies in French shipping, which reillforced the strength
of this industry still further.

Other commerc~aland industrial centres, meanwhile, thrived, until the French lievolution and
beyond, around the production of iron, at Le Creusot (established with crown patronage in
1782), and around the great coal pits at Anzin on the Belgian border. Extens~vecoal mining
was also to be noticed in the upper Loire, near Lyons (where thz more substantial pits of this
time were established). The production of cotton piece goods, often with the use of T!nglisll
machinery, flourished during the eighteenth century in I,ille, Amlens and Si. Denis in the
Industrial Revolution north and northwest, at Lyons (on the Rh6ne/Sa6ne, in central-western France) and Mulhouse
in Furope
(in Alsace). 'Ihe production of fine wool (especially worsted) gathered pace following the
local breeding of merino sheep, in the area around Rheims. In the case of textiles, the bulk of
production formed around "putting out" arrangements that were customary in England earlier
in the century.

A rapidly-growing internal market for manufactured goods, though ,was not a feature of this
development; for this was prevented by major problems of trade within the country, and the
problems of industrial organization and capital availability (leave alone problems of low
peasant incomes). Such a situation, in turn, led to the persistence of small-scale m a n u f a c ~ r e
and regional markets for industrial products in the form of industrial capitalism that developed
in France during the 18th century.

The cardinal features of the problems here are well known. The country was far from uniform
in its administration, and could not strictly be treated as a well integrated market by traders
and producers. Some territories were subject to different taxes (e.g. for the payment of the
1
salt tax, they were divided into the areas of the grande and the petite gabelle) and also differed
in the very system of tax payment. Territorial rights were different (some areas having rights
to "estates" [note to the editor: special note], while others only had parlements [note to the
editor: special note]); and even legal arrangements were varied (Roman Law in the south of
the country, unlike the north and centre). Again, industry was curbed by guild restrictions,
whicli prevented the easy implementation of innovation in established manufacturing areas
Guilds had privileges in most central areas of towns, and they had ready access to markets,
while non-guild members faced discrimination in the location of their enterprises and in
attitudes of the royal administration. Finally, country banks were not available in the counhy.
as in the English case, and capital for industrial growth had to be found from established
traders or producers (which limited the scope of the vterprise)

An important additional problem which discouraged the fostering ot trade and manufacture in
such circumstances was the poor status enjoyed by its practitioners. Unlike England; the
practice of trade and manufacture attracted social disapproval among the French elite, among
whom status by privilege, either through venal office4 (i.e. official positions which 1,ould be
bought), or through titles of nobility. Communities such as the Quakers, who prided
themselves on their tightly-knitted quality and who were featured prominently among
capitalists, were not to be found in such authoritative number in French territories.

The significance of such cultural incentives and disincentives to enbepreneurship, however,

can be overstated. For the rich centres of Bordeaux, Marseilles and Paris were good
testimony to the response that trade and manufacture inspired at this time.

10.4 THE REVOLUTIONARY AND NAPOLEONIC

PERIOD
A considerable portion of the political and socia! .;,>nstruction of France during the 1789-
18 15 period had major economic repercussions, and affected the position of industrial
capitalism within the country. The broad contours of the changes have already been discussed
in the section on the French Revolution, however, and only certain salient iniplications require
to be drawn out here. Hence, although the matter had important results for the creation of a
national market, this section foregoes a discussion of the implications of administrative
reorganization (the abolition of the variety of legal and other distinctions over the country)
associated with French Revolutionary legislation and Napoleonic measures. The section also
bypas>es the introduction of the Code Napoleon, which gave the country a uniform legal
system. 2-spects of these issues must, however, be subsumed under the two major themes ot
the period which require some attention and must find discussion, since they were deci;~ve lo
the consolidation and extension of industrial capitalism. These include the attack on pri ~ i l e g e
and the consequent changes in land tenure, and the abolition of guild structures. x d , e q ~ a l l y
. important, the impact of war and expansion on trade and production.

10.4.1 The Attack on Privilege

The concerted legislative and social attack on privilege, during the Revolution, was ini:ial I \
characterized by the renunciation of privileges by the nobility (4th August 1792) and tk.c
violence in the countryside d u n g 1789. rhereafter, the decision of 10th August 1792, that Industrial Capitalism in
France and Germany
all seigneurial rights to monetary dues had to be backed by the evidence of charters,
intensified this attack; and the internal conflict in the country during 1792-94 carried the
attack yet further. These developments once and for all established the proprietorial status of'
wealthy peasants, and led to a major redistribution of property in the countryside.

The consequences of the emigration of the nobility, and the confiscation and sale of their
lands, added a further dimension to the redistribution of property, although the redistribution
here was not equal in any manner, since the sale of land primarily benefited bourgeois who
wished to invest in land and the wealthier peasantry. The decision to abandon the traditional
direct taxes of the Ancien Regime (the taille, the capitation and the vingtieme), which were
paid by the peasantry and the bourgeoisie primarily, improved income levels in the short term
among the peasantry. In the case of industrial enterprise, the ban on the guilds of the old
order loosened the restraints on innovation and enterprise in industry.

10.4.2 The Impact of War and Territorial Expansion

The benefits of much of this for the growth of industrial capital, however, were modified by
Inflation which resulted in the period 1789- 1797 from the crisis of the state's finances, as a
consequence of the bankruptcy of the Ancien Regime and the lack of revenues which was a
consequence of the reorganization of taxation. Enormous losses of life in the revolutionary
wars also led to shortage of labour, which was crucial to a labour intensive economy.
Manufacturers' attempts to resolve t h e i ~problems through the import of machinery from
England was made difficult by the hostilities between France and Britain. Much of this was
balanced after 1797 and the territorial expansion of the French state under Napoleon - an
expansion which not only ensured the flow of tribute to the country, linking its currency with
that of the conquered territories, but which also provided a preference for French
manufactures and producers in the Cisalpine Republic, the Melvatian Republic, the Batavian
Republic and their later successors in the Italian Kingdom, the Kingdom of Holland, and the
Napoleonic states of Germany. The imposition of the Continental System on Europe after
1806 further assisted French manufacture, especially as Napoleon ensured that this was
accompanied by measures to acquire machinery by overt and covert means from England.
British goods were excluded from continental markets, at the time of the ascendancy of
Napoleonic administrators, and hence French manufactures had a field-day. The debit side of
the system was the loss of American markets as a consequence of British blockade of
European ports, and the collapse of major centres of the Atlantic trade, such as Bordeaux.
Furthermore, innovation in various sectors of industry in England could not be introduced in
French industry as might have otherwise been possible. Hence, the country was poorly
prepared for the re-entry of British goods into Europe after 18 14.

10.4.3 Protectionism and its Consequences under the Restoration and

Orleanist Monarchies (1815-1848)
The sudden influx of cheap goods from England after the end of the Napoleonic Wars
immediately led to decline in demand for many items of French manufacture on the
Continent, and confronted producers with the possibility of bankruptcy. It was almost natural,
therefore, that the government of the country's Restoration rulers (Louis XVIII and Charles
X), turned to a continuation of Napoleonic and pre-Revolutionary policies to "protect"
national industry. A regime of high duties on goods of foreign manufacture was imposed by
the tariff of December 18 14. Substantial duties (which represented an increase of between
10% and 50% on previous duties) were imposed on linen, hemp, and iron. Import of cotton
goods was forbidden and special taxes were levied on the import of grain. In the colonies, all
trade with foreigners was forbidden, transport of goods was restricted to French shipping and
refining of raw materials (such as molasses) was banned to give French industry a monopoly
in the area. Various advantages were also given to the French merchant marine. The policy
was set in motion by the first Finance Minister of the restored Bourbon monarchy, Baron
LOUIS, and it was extensively justified by important theoreticians - Charles Ganilh, F.L.A.
Ferrier and Louis Say.

The consequence of such measures, clearly, was that the national market was "protected" for
French producers; but it made the lot of those who benefited from foreign wade difficult.
since they were unable to cope with the low prices of British goods. lmport of machinery
Industrial Revolution from Britain became a necessitj in the circumstances, and the dearness of such import led to
in Europe
major criticisms of the protective tariff from some quarters by 1828 on thls score. The fear of
British competition however, ensured that no steps were made for any broad-ranging
introduction of free trade.

It required the growth of industry, during the Orleanist monarchy, to make it that these
demands for relaxation of protection grew stronger. Such growth within the country's
protected market, began to look for technological improvement and cheaper iinports to
increase profits; and it also understood the possibility of using geographical advantages and
imported machinery to develop the foreign market for French goods m territories
neighbouring France. The leading arguments for the relaxation of protection came from
Frederic Bastiat (1 80 1- 1850), who organized the Association pour la Liberte des Echange~
(1845) [Association for Free Trade], with branches at Bordeaux, Paris, Marseilles. Le Havre
and Rheims; and the arguments were stated in the Journ(~1des Economistes (founded in
184 1). Demands for free trade coincided with the arguments of Comte, Proudhon, and LOUIS
Blanc that there should be a degree of state regulation of runaway market forces, but one
position did not always exclude the other, the period witnessed a distinct increase in the
prevalence of free trade opinion.

Industrial growth of the 1830s and 1840s underpinned this trend. This growth was connected
partly with the increasing mechanization of the textile industry both in Normandy and in
Alsace. In the latter, growth was more intensive, the new spinning industry counted 500,000
spindles in 1828 and 1,150,000 in 1847, and the power loom came to be used widely during
this period. Elsewhere, the coal industry, in its traditional centres on the Belgian border and
the upper Loire, expanded substantially. In the case of the iron industry, Le Creusot was
substantially reworked with English machinery by the Engl~shcompany of Manby, Wilson
and Co., between 1826 and 1836, and finally developed considerably by the Schneiders
thereafter. At Fourchamboult, the experience of [Link], who had wide knowledge of
English methods, was extensively applied after 1822 by a partnership, and at Decazeville (in
the far south), there was also substantial improvement in production.

Overall growth followed a greater flow of capital into industry after the establishment, from
1837, of societb en commandites, based on a form of limited liability, by the Caisse ge'ndr-a1
du commerce et de I'industrie, owned by the banker Lafitte. In the railway boom which
followed after 1842, and the supply by the government of land for private railway
construction, once companies guaranteed arrangements for building and rolling stock, under
the Dufaure law, these societes played a leading role, drawing increased shares and supplying
capital to railway companies. Traditional sources of capital also followed suit and contributed
to industrial growth, and the "conservative" bankers of Paris, the Rothschilds, controlled some
eight lines by 1848.

In all this much production still focused in small units, however, which explains the
popularity of protection until 1848; and that production was dependent on less productive
water power. Many of the old charcoal blast furnaces thrived in the 18 15- 1848 period, and
their number grew till 1839, since the fuel was in ample supply in contrast with the situation
in England. True, the manufactures on the English style registered impressive rates of growth
in terms of output and scale of employment, and they were an area where major investment
was to be found. But it is telling that the first railway lines could not in any way be built with
French home production, and either iron production had to proceed with construction, or large
amounts of rail had to be imported from England. The greater number of industrial units in
the country continued to be water-powered until 1848, even though there was a substantial
increasc in the application of steam power in the coal industry especially. John Clapham
points out that in 1839, the English cotton industry used 1641 steam engines and 674 water
units, while, a little later, the French used 243 steam and 462 water installations. Again, in
1839, the English textile mills used more steam power than all France used in 1848

10.5 INDUSTRIAL CAPITALISM 1848-1870

It was a consequence of the availability of gold throughout Europe during the period
following the revolutions of 1848, and a continuation of the railway boom until c.1860, that
extensive capital investment in the standard areas of growth at this time - textiles, coal anc
lron and railways - became possible in France. And this in turn stimulated the changeover Industrial Capitalism in
France and Gerniany
from water-power to steam power in large sectlons of French industry, and a general move
away from charcoal centred iron production to coal-based production. The period witnessed
the extensive exploitation of the coal deposits of the Nord and the Pas de Calais, which now
became the country's prime source of the fuel, although much of it was not suitable for
smelting since it could not produce coke. In 1852, of a total national coal output of 5,000,000
metric tons, the North basin produced 1,000,000 metric tons compared with 1,640,000 in the
upper Loire (Le Creusot and Blanzy produced 400,000 and ~mallerdeposits the rest). While,
in 1869, of a national production of 13,000,000 metric tons, the horth produced 4,300,000
compared with 3,100,000 in the upper Loire. Elsewhere, output of pig iron illcreased
dramatically (1,400,000 tons in 1869 compared with 600,000 tons in 1853); steel production
increased substantially to 1,000,000 tons in 1869, incorporating Bessemer techniques and
ranking second to international production to that of Britain. In the latter case, the main
production was at St. Etieme (the Terre Noire company and the enterprise of Petin Gaudet),
at Le Creusot (in the Schneider enterprise), in Lorraine (in the various enterprises of the de
Wendels) and in Niederbronn in Alsace (in the Dietrich enterprise). Established companies at
Cornmentry and Fourchambault (on the Belgian border) and Anzin and Denain in the north,
continued to concentrate on iron production.

In the case of the cotton industry, while the conditions of enterprise remained static in the area
of Normandy and the Lille district (where hand weaving predominated into the 1860s and
beyond), production in Alsace reached the same level of mechanization and sophistication as
Lancashire by 1870. Alsace produced improvised power machinery which could compete
with England's; and what held good for cotton also held good for wool, where expansion was
based in this period on imports of Australian clip.

Beyond international circumstances, though, much of the increase in production here was the
consequence of the interventionism of the Bonapartist state under the Second Empire. Here,
government encouragement of growth, prompted by Napoleon III's Saint Simonian principles,
was evident in the official assistance to the creation of the Credit Foncier (a national mortgage
bank) and the Credit Mobilier (a joint-stock bank dominated primarily by the Pereire
brothers). Both were set up shortly after Napoleon became President, and the latter speculated
extensively on the bourse and invested its profits handsomely in industry. Following their
example, a number of credit institutions wire born during 1850-1857, of which the Crtdit
Lyonnais was the most famous. As Gerschenkron points out, the activities of these state-
sponsored or state-encouraged banks brought more "conservative" banking houses, such as
the Rothschilds, which had hitherto dealt in government bonds and land mortgages, to take an
interest in industrial banking. This great period of economic growth, therefore. came through
the active interest of the state, even if it witnessed minor acts of free trade, in the Cobden
Treaty, which relaxed various duties on imports from England, to placate lobbies mentioned
in the previous section. The interest cannot be compared with that of the British government
of the end of the 18th century: for it was more forcible and well-directed. While hardly
"managerial" such interest was substantial and significant in the extreme.

10.6 FURTHER DEVELOPMENT OF INDUSTRIAL

CAPITALISM 1871-1914
Following the defeat of France in the Franco-Prussian War (1870-7 l), a general impression
prevailed for several decades that the country experienced a decline. However, the impression
always bore reference to comparisons with Germany and the United States (where
productivity rates grew more quickly and population increased more rapidly). Or it bore
reference to rates of growth of the past, when combined rates of growth for industry and
agriculture were higher for 18 15-1870 than for 1870-19 14.

At the time and thereafter, commentators understated the importance of changes in the French
economy and the strengthening of industrial and finance capitalism in the country. The
proportion of the labour force employed in agriculture and forestry fell from 53% in 1870 to
37.4% in 1913. The productivity of labour continued to rise and the national product
i n c ~ a s e d(after sluggishness until 1895, by 1.8% per annum during 1896-1913). Per capita,
the value of exports and imports increased two-fold. Savings in the country increased, while
the volume and investment of capital in enterprise outside the country grew considerably.
Industrial Re~oloutlon Much of this change integrated economic act~vityin A f i . ~ ~and
d South East Asia where France
in Europe
had co1on;es in West Africa and Indo-China.

General indicators of industrial growth are prov~dedby the following figures

Average annual rate of growth of output of specific industries in France (%)

Period Iron and Cotton

Steel

2.04

(Source S.B. Saul and A. Milward, The Development of the

Economies o f Cont~nentalEurope ( I 977)

In add~tion,it is worth mention that the country showed substantial headway in research and
development in the fields of chemicals' production and the electrical industries, which were
prominent areas of growth at this time in Germany and the USA. For soda and sulphuric acid
production, introduction of important innovation (e.g. the Solvay process for soda
manufacture) was standard, and the St. Denis company made significant strides in dyestuffs'
research and manufacture. In electricals, American and German companies such as Thomas-
Houston and Siemens undertook production in France, while the French firm of Breguet
undertook telegraph and telephone equipment manufacture. Herault's use of electrolysis for
the manufacture of aluminium was one of the many innovations of the time. A proportion of
electricals' production was used for motor car production, where the French firms of Panhard
and Peugeot competed with the German firms of Otto and Benz, and even withstood
competition from Ford until the 1900s.

In general, the loss of Alsasce and Lorraine in 1871 (to Germany) was less significant for
French industrial capitalism than may initially appear the case. True, the textile innovation of
Alsasce was now within the German tariff and territorial area. This led to a pass off of spin-
off effects in the region to Germany mainly. But firm links between erstwhile French
manufacturers in Lorraine, and other French companies, survived the integration of the area
into Germany. Hence, co-operation between the great steel and iron producers of Lorraine,
the de Wendels, and the Le Creusot company of Schneider, led to use of the Thomas-Gilchrist
process of steel manufacture on both sides of the border, despite de Wendels' possession of
the rights of the process from 1878 to 1895.

Check Your Progress 1

1) What is the major factor identified by the historian Tom Kemp as a cause of slow
industrial growth in France?

2) What were the early restrictions faced by trade & manufacture in France?
 3) What was the impact of the 'attack on privilege'? Industrial Capitalism in
France and Gcrman)

4) What were the reasons for the demand of relaxation of 'protectionism' during the
Orleanist Monarchy?

.......................................................................................................................................
5) How did Napoleon I11 encourage the growth of industry?

...............................................................................................................................................
6 ) What was the impact of the loss of Alsace and Lorraine to Germany in 187I?

10.7 GERMANY
The German states until 1871, and thereafter the German Empire, were another major focus of
the growing authority of industrial capital in Europe in the eighteenth and nineteenth
centuries. Here, there were major regions of industrial activity, which depended on master
craftsmen, the guild and the putting out system, during the eighteenth century. The region
also provided instances of innovative agriculture (especially in the Rhine valley). However,'
many circumstances hindered economic growth of a more substantial nature. Availability of
labour was poor for much of the eighteenth century in certain areas - the consequence of
heavy mortality during the wars of the time (the War of the Austrian Succession and the
Seven Years' War). The territory of the German states, moreover, did not provide
manufacturers with a well-integrated market, since each s ate had its tolls and duties, and
F
transit required the payment of these. In the eighteenth century, the mechanism of the Holy
Roman Empire did nothing to alleviate this situation; and the same must be said for the
German Bund after 1815. This was a formidable problem, given the existence of over 300
states of various types - although the extent of the problem was limited by the largeness of
some of these territorial units. Other problems were also of significance: the quality, for
instance, of the coal and iron deposits in the region (which were dissimilar to those found in
Britain, and which could not benefit as effectively from the development of the coking and
puddling processes). In the East of the region, labour mobility was severely restricted by the
prevalence of serfdom. Capital supply was, unlike Britain and like France, limited to the
Industrial Revolution wealth of pnwcrful traders and manujhcturers, and could not call on a wider network of
in Europe availability of cap~[Link], patelnalism in the German states, which, in order to prevent
destitution, restricted the residence-rights of those from outside a region and backed guild
arrangements, also limited labour mobility and inter-reglonal enterprise.

Such problems became of decreasing significance with the Serf Emancipati~nin the 800s,
the creation of the Zollverein (the Pmssia-centred customs' union) in the-1 830s, the
dismantling of paternalist conventions in 1848-49, and the creation of joint-stock banks on
French model in the 1850s. Together, these developments lay the foundation of the industrial
boom of the middle decades of the nineteenth century, and, following the formation of the
German Empire, industrial capital systematically developed on this basis.

10.7.1 Agriculture in the 18thCentury

In the greater number of the central and eastern German states, the War of the Austrian
Succession and the Seven Years' War severely depressed the production and productivity of
agnculture. Crops were lost, livestock destroyed and manpower severely affected: hence,
any improvement in cultivation that was to be noted in the pre-Austrian war period and durlng
the inter-war period, was wiped out d u r ~ n gperiods of conflict. It was after 1756 that major
increases in agricultural production without serious ruptures became noticeable. The figures
were almost wholly indicative of the reclamation of land and the settlement of migrants in
areas that had [Link] devastation. Such settlement was especially characteristic of the
policies, in Prussia, of Frederick 11, who encouraged the settlement of royal possessions,
giving the cultivators extensive rights. Meanwhile, settlement by free peasants in marshland
on the Baltic coast continued at this time; and similar settlement was to be found in the forest
colonies at the end of the North German Plain.

The,institution of serfdom, which conditioned control of much land-holding in the eastern

regions of the German states - the greater part of which belonged to Prussia - ensured that the
land that was recovered after the Seven Years War was regularly cultivated. The institution
established ownership of land in the hands of major lords of the manor (Junkers, or
Rittersgutsbezitzer), and required that peasants settled on the land obtain the permission of the
Junker to move away. Runaways who ignored these stipulations were efficiently pursued and
seized; but "running away" itself was not so common, since generous rights were conferred
by Junkers on the more competent and well-endowed among the peasantry. Junkers made a
distinction between those who had ploughing cattle (Spannfahig), those who tilled
systematically (Kossuth) and those who made do in various ways (as in the case of cotters, or
Hausler).

Ilnprovement in production in the latter half of the eighteenth century, though, was not wholly
a consequence of reclamation. It took place in the homesteads of the river valleys (the Mosel,
the Main, the Necker and the Rhine), and on major properties of the West and South West.
Here, proprietorship was comparable to France: i.e. it was confined to the nobility, but
peasants had fixity of tenure, and, in many areas, the right to inherit. In the south-west,
peasants were comparable to French censiers.

10.7.2 Trade and Manufacture in the 18thCentury

Small scale industry, based on putting out and guild organization was a feature of eighteenth
century industry in a number of regions of the German states. The major areas of
concentration were Berlin, the Rhineland and Silesia (with~nPrussian territory) and Saxony.
The state played a major role in encouraging the development of concerns in the Prussian
case; and, from about 1720 to about 1790 it recruited a small group of competent
businessmen as managers for industries which were of special interest to the government. The
king attended to industries such as cutlery, sugar refining, metals and munitions. Of the
concerns, Splitgerber and Daum of Berlin were the most important and dealt with war
industries, and, like other concerns of this type, depended substantially on state patronage and
demand.

In Silesia, the state appointed directors to boards of companies; and it retained substantial ,
control over mining especially, which was exercised by von Heinitz (head of the Prussian
industrial and mining agency) and Graf von Reden (who exercised charge of industry for
Silesia). Reden travelled extensively in Britain, and, thereafter, introduced the puddling
process in Silesia a little after it had come inlo use in Biitain. as well as coke ill-ilaces at other Industrial Capitalism in
production units and a steam engine at Friedrichsgrube (for a lead plant). Reden also brought France and Germany
the brother of the British iron manufacturer, J o h ~Wilkinsorl,
i to P~.ussia,to manage the
Silesian ironworks, the Malapane Hutte (established in 1753).
-

10.8 SOURCES OF CHANGE

The character of capitalism in the region was decisively influenced by oiiicial measures that
were taken in the area during the period 1789- 18 15. These meawres took t n e form of' c o p i e ~
of French legislation, in areas which were under the direct adininist~atioilof France's
revolutionary or satellite governments - such as the Rhineland, and lattr ~h:: Kirigdoln of
Westphalia. Or they were the result of attempts to alter the nature n?social relations in order
to withstand the Revolutionary and Napoleonic onslaught. Almost all a:r:as also benetited
from the exclusion of British goods froin the Continent during the ~ i ~ rof
i e ;he Continental
System and the British Blockade of Continental ports ( 1 506- i 3 13)'.

10.8.1 Legislation of the Revolutionary and Napoleo~~ic

Period
In the first case, the industrial settlements of the Rhinelanc! iluderwent the d~sniantlingof the
guilds, and the abolition of their pr~vileges- which ic'proved the status of compet~torsin a
number of industries and gave greater scope to innovation. The Continental systeni increased
demand for the products of this region, and, despite French esac'tlo~is,tlie towns of Julich,
Krefeld, Aachen, the Wupper Valley and the Lluchy of Berg, L\ I I I ~ L;I. t;i)oi~i , ~ ~ in ~ h e 1SOOs.
Trebilcock points out, in this regard, that between 180,,~ 2nd 1 SO';, t l ~ cn ~ ~ n b co rf .,aacheii's
woollen factories increased by a factor of five, and exported extens~velyto Russia 41iid Spain.

Emulation of Revolutionary practice in order to rescue a state of tlie Ancien Reyme, occurred
in Prussia, where serf emancipation was clearly designed to alter rrlatio!?s hetwcen lord and
peasant, and peasant and state. Despite their immediate impact, t l i ~institutional configuration
in Rhineland would ultimately be forced to coexist with guild:: elst where in Pr~!ssia after the
territory was restored to the kingdom in 18 15. The iinpact uk' :;c;f ci; .[Link]~on.i h o u ~ h ,in
Prussia was limited but decisive and ubiquitous.

Here, the Emancipation Ed~ctsof 1807- 180h (~nspiredby tht: mlnlsrer voii Stein) establ~shed

Fig. 2 : A (;ermar~ S ~ n a l l h o l d i ~ ~1897

g,
Industrual Revolution the serf as free, but gave him no rights to land. Further measures, taken under the supervision
in Europe
of minister Hardenburg, in 18 1 1, provided that serfs who had rights of inheritance on Junker
property would lose only one third of their holdings, while those who did not have such rights
would cede one half of their holdings; possessors of very little land were to pay rent. A
settlement process of several years, though, was established for fixing serf rights of property,
permitting the old dispensation to continue until such fixation should occur. In 1816, finally,
it was decided that regulations regarding property where peasants possessed cattle; and no
compulsion to regulate property arrangements was envisaged until 1850.

The legislative measures, however, coincided with the creation of Rentenbanken which
provided landowners with redemption payments and peasants with arrangements to pay over a
tolerably long period. Depression in agriculture, moreover, accompanied the fall off in
demand all round after 1816, and, hence, a certain amount of land did change hands. The
Emancipation decrees extended the impact of earlier measures to make an extended land
market possible, since their terms allowed rich tenants and others (hitherto "serfs" and
precluded from land purchase), to buy land. This in turn allowed greater commercialization
of agriculture than had been possible in the past. That commercialization in turn assisted the
improvement of agriculture in the eastern lands once the depression was over.

10.8.2 The Zollverein

6

Crucial also to economic growth after 18 15 was the gradual development of large regional
markets in the 1820s, before the formation of the Prussia centred Zollverein (Customs Union:
in 1834. This development removed the many hurdles facing distribution of manufactured
goods in the area of the German states - a phenomenon which dampened the growth of
industrial capitalism in the area since the only alternatives for producers was the protected
French market or the excessively competitive English market. The regional units created in
the circumstances were:

a) the Prussian market, under the tariff of 1818, which established low duties on raw
materials, heavy duties on "colonial goods" such as coffee or tea (of 20%), a low duty on
manufactured goods (lo%), and high duties on goods in transit

b) the South German League (formed 1928) of Bavaria and Wurternrnberg

c) the Central League (Saxony, Hanover, the Thuringian states, Coburg and the Hanse)

d) From 1834, Prussia, basing her initiative on a powerful geographic position (her
territories stood astride the highways into Poland and Russia and divided the fair towns of
Frankfurt and Leipzig, while she controlled both banks of the lower Rhine), persuaded
other states to form a larger market through customs agreements with her. All states, with
the exception of the Hanse towns, Hanover, Holstein, Mecklenburg and Oldenburg joined
this "Zollverein", which extended the terms of the Pmssian tariff of 18 18 (with minor
amendments) to all member states.
10.8.3 The Railways
Within such a system of trade agreements, the development of railways in the German states
acted as a major stimulus to production and innovation in the enclaves of iron and coal
production in Silesia and in the Rhineland. Railway lines allowed the extension of a home
market which was reasonably well-knit around the internal river system based around the
Rhine, the Elbe and the Oder, all of which had canal networks working off them.

Railwaj construction began in the 1830s, following extensive discussion of the subject in
Prussia and Saxony, with protagonists of railway construction ranged around Friedrich List
and Friedrich harkort of Wetter and antagonists centred around the advisor to the Prussian
King, Christian von Rother. Private lines dominated the development in Pmssia /.~ithlines
built in 1838, 1840, 1841, 1843 and 1848), while state construction of the railways was the
rule in Baveria and Baden. By 1850, 3660 miles of track were in operation, and the
expansion continued exponentially thereafter.

In the iron and coal industries, in such circumstances, growth with foreign assistance liow
moved ahead. The main centre of increased coal production was Upper Silesia, although the
 Industrial Capitalism in
state-managed fields in the Ruhr and the Saar were alsq,important. Iron ore output increased
France and Germany
during the period 1838-1850 from 266,000 tons to 545,000 tons.

10.8.4 The Growth of Joint-Stock Banks

R4uch of this expansion was possible because of the development of joint stock banks in the
German states on the model of the Credit Mobilier in Paris and the Societe Cienerale in
Belgium. Hitherto, industry had had to rely on plough back, merchant capital, or the
"conservative" banking houses of the area, who preferred to lend to the government or to
landowners (houses such as Schaffenhausen or Rothschilds). However, with the formation of
the Bank of Commerce and Industry, a new model for capital investment was established.
This was a banking house set up by Moritz von Haben, a banker from Karlsruhe, with backing
from the colog;ie" bankers, Oppenheim, Mevissen and Deichmann. It faced immense
opposition from the Rothschilds, who stood against it in the Frankfurt Senate; it also faced
discourgement from Prussian civil servants, who were content to see investment dominated by
the Schaffenhausen Bankverein in Cologne. Basic capital, though, came from the Pereires,
with whom a syndicate was formed, and thereafter, the bank undertook extensive investment
in the North German Lloyd Shipping Company, in Austrian railways and in state loans.
The formation of a number of enterprises followed:

a) the Diskonto-Geselleschaft under the leadership of David Hausemann (and later

Bismarck's banker Bleichroder, who played a substantial role in raising state loans to the
Prussian government through the "Prussian Consortium").

b) the Berlins Handels Geselleschaft, which brought Rhineland and Berlin bankers together
under the leadership of Bleichroder and Mendelssohn (Berlin) and Mevissen and
Oppenheim (Cologne). This handled extensive investments in railways.

c) the Dresdner Bank, the Deutsche Bank and the Darmstadter Bank

d) the Magdeburg Handels Geselleschaft, which focused on local markets

e) on a different scale the F . h . Raiffeisen rural co-operative banks (beginning in 1862) and
the Schulze Delitizsche Co-operative Bank (involving craftsmen and shopkeepers), which
operated primarily in Wurtemmberg and'more broadly in South Germany. .,
Check Your Progress 2

1) What were the initial limitations faced by Germany towards the growth of industrial
capitalism?

2) How did the measures taken by the German state between 1789-18 15 facilitate the
growth of capitalism?
Industrial Rekoluiion
io Europe
10.9 GROWTH AFTER 1871
After the creatlon of the ~ e A a Emplre
n in 1871, the steady growth in industrial productio~l
which followed the boom of 1852 continued unabated. The payment of the indernn~tyfrom
France after 1870 ensured high levels of public expenditure to reinforce the stinlulus provided
by the increasingly integrated market of the Zollverein. High rates of growth in net domest~c
product have been noted for the 1870-1874 period, the Gruntierjahre (foundation years) of the
Empire. The slump which followed the financial crisis of 1873, which affected Europe
generally, as well as the USA the Grunderkrise (foundation crisis), did not ultimately retard
economic expansion, although it lasted long (until 1879). Thereafter, demand for railway
equipment [Link] USA, which occurred at the time of the patenting of the Thomas-Gilchrist
steelmaking process, which allowed Germany to make extensive use of her phosphoric iron
ore resources, led a major period of growth, indicated by the following figures.

Annual average rate of growth of output in German industry 1870-1913

Industrial sector ( % growth of

output
Metal producing 5.
7 1
Iron manufacture
Steel manufacture
Metal working
Chemicals
Textiles
Clothing and'leather working
Gas, water, electricity

(Source: S.B. Saul and A. Milward, The Development of the

Economies of Continental Europe (1977) p 26)

It is recognized that, in much of this, the great joint-stock banking concerns acted as an
encouraging force, in industrial expansion, and also induced manufacturers to avoid
competition and establish cartels and syndicates arnong themselves, i.e. organizations which
established agreements on pricing and production policy in a particular area of manufacture.
In reaction to these pressures and other circumstances, the German Steelworks Association,
formed in 1904, regulated prices and production of four major steel companies, and a number
of other cartels and associations existed at t h ~ stime. Banking practice during this period was
to intervene directly in policy formulation through representatives who were present on the
boards of major companies. The ultimate consequence of this regulation was undoubtedly
positive in minimiz,ing competition and directing production with firmness - making German
industry decisively competitive in the international arena. It had a drawback, however, which
was to be felt deeply: it excited desperation in labour which often faced a stout wall in
negotiations. This, as scholars have pointed out, led to added violence in industrial conflict
and aggravated class tensions in the country by the turn of the century., Under Wilhelm 11, the
Imperial government attempted to curb the powers of finance capital and industr~alcapital
through direct intervention in economic activity and management: but the sole measure
before 19 14 was a failure: the government's abortive attempt to buy the Hibernia concern,
which was decisively defeated by indushy. The result was that, at the time of the outbreak of
the First Nrorld War, the problems of class coilflict generated by concentration did not show
any signs of solution.

10.10 LET US SUM UP

In this Unit we saw that :

the France and ~ e r m a industrial

n capitalism was collstrained by a peasantry t::; LO land
on thc one hand (fragmented holdiilgs held by customary rights in France and serfdom in
Germany) and the dominance of big landed institution, on the other,
as a consequence of the above, the state played a crucial role in (a) creating uniform
legislative measures, (b) financing of industry and (c) in creating a common market,
 in France however an important role was played by the period of French revolution when Industrial Capitalism in
France and Germany
the attack on privilege loosened the tight grip of nobility and the guilds.

10.11 KEY WORDS

Backwardness : A general term to define in condition of a society and economy which
has not yet become modem

physiocrats : writers and thinkers of France who looked at land as a major source of
, wealth of an economy. They also believed that the major agent of
improving the productivity of land was the landlord. Industry and trade
was secondary to land in providing wealth to an economy

Monetary Payments: Payments made in money

tenure : the time duration for which a cultivator could work and enjoy the land
which was not his own

Backwardness : A general term to define the conditions of a society and economy which
has not yet become modem.

Rentiership : income earned on investments and without engaging in any occupation

to continue receiving the income.

Physiocrats : writers and thinkers of France who looked at land as a major source of
wealth of an economy. They also believed that the major agent of
improving the productivity of land was the landlord. Industry and trade
was secondary to land in providing wealth to an economy.

Monetary Payments :Payments made in money.

Tenure : the time duration for which a cultivator could work and enjoy the land
which was not his own.

Paternalism : welfare by traditional social superiors, eg. Aristocrats, as distinct from

charity, philanthropy, and social welfare organized by modem
industrial firms or modem state.

10.12 ANSWERS TO CHECK YOUR PROGRESS

EXERCISES

Check Your Progress 1

1) See Section 10.2. You could elaborate as to slow growth of capitalism to the character of
the French bourgeoisie.
2) See Sub-sec. 10.3.2. You could mention lack of uniform administration, varying legal
arrangements, lack of status of trade and industry in France
3) See Sub-sec. 10.4.1. You could elaborate how this led to redistribution of property.
4) See Sub-sec. 10.4.3. You could elaborate on the needs of the growing French industry.
5) See Section 10.5. You could elaborate on the setting up of banking and credit facilities.
6) See Section 10.6. You could elaborate on how inspite of Alsace and Lorraine going to
Germany industry maintained its ties across the border.
Check Your Progress 2

1) See Section 10.7. YOUcould point to lack of integrated market, quality of coal and iron
deposits, serfdom as hampering labour mobility, limited capital supply, etc.
2) See Sub-sec. 10.7.1 to 1 1.