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Chapter 8: Plutocracy and the Industrial Revolution

From the thermodynamic perspective of civilization, the Industrial Revolution was the most important phenomenon since at least the Bronze Age.  If not ever.  A casual glance at any economic history will show what appears to be a previously steady increase in world GDP explode upwards during the 19th century.  According to Ian Morris’s estimates, Europe during this period was the first time that any civilization had managed to surpass the energy intensity achieved at the height of ancient Rome.

This feat was accomplished largely through the heretofore novel means of substituting fossil-fueled machine labor for human and animal labor on a mass scale.  The freed labor could then be recombined with more machine outputs to yield still more value in an ever-increasing virtuous cycle.  It’s this fundamental pattern that makes the economic growth rate (the first derivative of the state of the economy) the measure that is usually used to track economic health.  The assumption is growth.  Noticeable growth: in the ballpark of 2-6% per annum.  Growth that, if compounded, has a doubling time in the tens of years.  In practical terms, this means that a person living in the industrial era should expect that the conditions of life at the time of his death should be significantly different, if not almost unrecognizable, to the one in which he grew up in.

So, on the one hand, vast fortunes are being made in brand new, revolutionary, productive industries.  To get a flavor of it, here’s a non-exhaustive list of the major moneymaking industries of the period: railroads, textiles, energy extraction (coal and oil), industrial-scale steel, skyscrapers, steam power, electricity, telecommunications (including telegraphs, telephones, and wireless radio), automobiles, airplanes, and industrial chemicals.  On the other, the extensive changes to the social structure necessary to make the best use of these technologies give competitive advantages to the countries that can most quickly adapt.

These conditions are ripe for the emergence of plutocracy.  It’s much easier for people with non-merchant caste values to run established industries effectively than it is for them to make new ones, so the fact that the big money is being made in novel industries during this period is a boon to the merchant class.  The obvious competitive advantages to increased plutocracy, in both wealth and military capability, help plutocrats in caste struggles substantially.  Finally, the fact that the United Kingdom was the leading nation entering this period largely on the strength of their economy and financial system added to the prestige of plutocratic values.

This movement toward plutocracy can be seen all throughout Europe and America during the period.  The broad pattern in politics everywhere can be summed up pretty neatly like this: the landowners and traditional clergy are aristocrats and the industrialists are plutocrats.  Wherever political parties are interesting, the former are the Conservatives and the latter are the Liberals.  The former advocate for and tend to win elections when land ownership is the qualification for the vote, while the latter tend to win when wealth determines the electorate.

So, for instance, in Britain the big political controversy for the first half of the century was over the repeal of the Corn Laws.  These were, in effect, a tariff on agricultural products intended to support domestic landowners.  The laws were eventually repealed by the middle of the century at the behest of the industrialists.  This repeal was so controversial that it caused a split in the Conservative party, with the pro-repeal faction joining the pro-repeal Whigs to form the Liberal party.

In France, something similar was happening.  After Napoleon, the victors had restored the Bourbons to the throne in the person of Louis XVIII.  The new French monarchy was riven by conflicts between ultra-royalists and liberals.  The Revolution of 1830 replaced the old line of kings with a new one (King Louis-Phillippe, the “Citizen King”) who was more amenable to liberal interests and the idea of a constitutional monarchy.  He was then replaced in turn in by a short-lived republic which turned into an empire, both of which were committed to economic growth and industrialization.

In conservative Germany, the merchant ideals of free trade and international peace that were associated with the liberal parties were never ascendant.  But Germany did rapidly industrialize, especially after unification following war in 1870, and during the process the economic upper and middle classes in Germany gained influence and adopted the bourgeois, plutocratic values that were seen elsewhere.[1]

America is something of a special case.  Much of the traditional demographic (throne-and-altar landowners and clergy) that made up the backbone of the European aristocracy were branded “Tories” during the American Revolution and exiled to Canada, while provisions were written into the constitution to formally outlaw an aristocracy (the Title of Nobility Clause[2]) .  But that doesn’t mean that America didn’t have its share of influential aristocrats, by the caste definition, during the 19th century.

In fact, I argue that the American Civil War can be profitably viewed as a conflict between the traditional Southern aristocracy and the emerging Northern plutocracy.  If you knew nothing more than the caste distinction underlying the conflict, you could do a pretty good job predicting what the sides were.  For instance, most of the standing army, including all the good officers, declares for the agricultural Confederacy.  Meanwhile, the navy and the parts of the country with all the railroads and factories declares for the Union.

Then, after the battle lines are drawn, you see that the aristocratic South outfights the plutocratic North man for man.  The Army of Northern Virginia beats the Army of the Potomac over and over again, despite being outnumbered and outgunned on paper.  In theory, all the North has to do to win the war swiftly is to march the few miles from Washington to Richmond, but the Southern army makes this impossible.  At the same time, due to the weight of men and material arrayed against them, the South is not strong enough to embark on any sustained offensives in Northern territory.

So the eventual winning strategy for the North is to use their greater industrial and financial strength to gradually choke out the South (this is a good illustration of the idea:  It turns out this is done in three phases.  First, the North establishes, maintains, and continually strengthens their blockade around the entire coast of the Southern states.  This is possible because the North got the pre-war navy and the South can’t possibly build one big enough to compete.  Then, by capturing the key forts on the Mississippi River, the North is able to prevent supplies or reinforcements from coming from the West.  And then Sherman burns the Deep South, ravaging what’s left of the Southern economic base.  Only then does the Southern military effort finally collapse.

After the war, America is an unambiguous plutocracy.  Great industrialists like Rockefeller and Carnegie build massive new industries.  Interestingly, they spend a lot of their time deeply concerned about the economic power of their competitors, and they developed technology and made acquisitions accordingly.  For instance, Rockefeller’s Standard Oil Company invented the oil pipeline largely so that they’d have a way to ship oil that didn’t rely on using the railroads, which were owned by competing plutocrats.[3]  This is the age of vertical and horizontal integration, trusts, and monopoly economic power explicitly wielded by powerful merchants to humble their rivals.

Notably, it is also the most prosperous era in American history, in terms of thermodynamic growth rate and technical advance.  This is the time when America went from a relatively backwards colony of Europe to the leading economic power in the world, due entirely to the massive differential growth rate between the USA and the leading European nations.  And, remember, this is at a time when Europe as a whole is booming economically as well, so it’s not as if the US were the one-eyed man in the kingdom of the technologically blind.  No, the 19th Century was more like the Olympics of economic advance, and the USA won the gold medal.

It’s particularly difficult to describe this period in Western history accurately and dispassionately.  Officially, in textbooks and Wikipedia, the plutocratic period in the USA between the Civil War and the First World War is known as the “Gilded Age”.  The powerful merchants are known in the histories as “robber barons”[4], with Rich Uncle Moneybags from the Monopoly board game presented not as caricature but as a basically accurate depiction of the leading men of the day.  And even the very academic tools we use nowadays to measure economic growth, technical advance, and social well-being (GDP and GNP) have built-in to them the assumption that leaving merchants to their own devices is harmful.[5]

Similar terms are used for this period elsewhere, though the term of opprobrium is usually some flavor of “bourgeois” or “capitalist”.  This leads us right into the other major story of the latter half of the 19th Century: the rise of the socialists.  The most famous and influential socialist thinker was undoubtedly Marx, who did his fair share of attacking the bourgeoisie in the middle of the 19th Century, but at the time he was just one of a multitude of socialist intellectuals.  Socialism came in a million different flavors, with dozens of different schools of thought on the issue, and regular international meetings to talk about how best to organize the workers, revolt against the unjust system, and approach the glorious socialist future.

The key insight here is that, in caste language, the socialist intellectuals are militant priests.  Plenty of people before me have noticed the similarities between the faith of a committed Communist and a devoted, medieval Catholic – the eventual triumph of the proletariat and the withering away of the state maps pretty well to the eventual return of Christ and the establishment of Heaven on Earth, if you think about it.  The insistence on social justice as a cosmically-recognized righteousness, which if out of kilter yields inevitable resistance from the workers as a law of capital-H History, is another classic priestly pattern.  But non-Marxist socialists also shared this same idea of “progress”, coming from Hegel, as a function of History that was bound to eventually yield a better, more just world.

So the challenge to the new plutocratic order during its ascension in the latter half of the 19th Century and into the early 20th comes not from the old aristocrats, but from the new socialist theocrats.  As an aside, it’s worth mentioning that I think this shift is why all of our popular political-science language is so confusing.  Why is it that we have a “left” and a “right” everywhere, but people who take positions that would be considered “left” in one place are “right” in another, and yet at the same time you can generally figure out who’s more “left” as if it really were some sort of 1-dimensional measure?

The explanation is all tied up in the 19th Century experience of caste struggle.  The landowning aristocrats started out in charge of everything.  The challenge to them came from the wealthy plutocrats.  So the arguments that aristocrats use against plutocrats are rightist, while the arguments that the plutocrats use against the aristocrats are leftist.  So, for instance, repealing the Corn Laws and abolishing slavery are left-wing movements in the 1850s.  Similarly, expanding the franchise from landowners to include all wealthy individuals is a left-wing move.

Then the socialist theocrats come along, often emerging from or gaining converts from the same parties as the existing Liberals, because they were both against aristocracy to begin with.  But once the aristocrats were knocked off the apex of the social hierarchy and replaced with (or converted into) plutocrats, the theocrats started agitating against them.  And the same terms were used to describe this struggle as the last one, but now the plutocrats were on the other side.

So by the second half of the 19th Century, pro-theocratic arguments are leftist and pro-plutocrat arguments are rightist.  Sometimes the policies have the same valence, like the extension of the franchise (moving from wealth-based voting to universal suffrage is a leftist move).  But sometimes they have the opposite valence.  For instance, cutting taxes is left-wing when the action defunds an aristocratic military establishment, but it’s right-wing when it defunds a theocratic welfare program.  Or how state intervention in the economy is right-wing when it’s aristocrats granting royal monopolies, but it’s left-wing when it’s theocrats protecting trade unions.  The important insight needed to make sense of the pattern is to determine whose values are being validated by any given proposal and, thus, whose status is elevated.

The underlying dynamic is three-way.  But since the common pattern is for there to be one caste at the top and at most one other caste strong enough to potentially dislodge them, the “left” and “right” tags still have some value.  Which is why they’ve managed to last this long, even while insightful commentators continually complain about the paucity of their language in this matter.

OK, so back to the story.  It turns out socialism is a natural fit for Western people with priestly ambitions and values.  First, it provides a built-in reason why their opponents cannot rule justly: scientific socialism is rule by credentialed experts for the benefit of all.  Greedy merchants and violent, lunkheaded aristocrats are facially unqualified for high positions in the socialist state of the future.  Put another way, it is nigh-impossible to be declared an expert without going through priestly indoctrination and, in so doing, accepting the primacy of priestly values.

Second, it diffuses potential counter-attacks using a clever hack on the built-in human envy response.  Instead of declaring that they ought to rule directly, socialist priests argue that they rule on behalf of the people.  Before the French Revolution, Rousseau had supplied the necessary logic around the idea of the cosmic, aggregate “general will” of all the people which should be obeyed by the leadership of a country.

This is an interesting idea in and of itself.  It kind of has a “Wisdom of Crowds” vibe to it, like how a bunch of people guessing independently can accurately judge the number of jellybeans in a jar when each individual guess by itself is terrible.  But note the feedback loop that occurs when priests use it.  After all, by definition, it’s the vital and irreplaceable job of the priesthood to tell people what to think.  They are the shapers of each individual will, and thus necessarily the aggregate.  So, over time, if policymakers agree that they’re supposed to follow the general will, in effect they’re really just following the will of the priest caste at some delay, with some transmission noise.

Third, socialism speaks powerfully to most people’s inbuilt desire to build coalitions to tear down people who claim undue status.  In fact, akin to millenarian cults and movements throughout time, all the orthodox flavors claimed that after the final victory of socialism, the social hierarchy itself would no longer be necessary.  So, while socialism was out of power everywhere, the nascent theocrats felt free to attack or attempt to co-opt any institution they could that was run according to a different ruling caste’s value system.

And fourth, as a religion, socialism doesn’t have to be inconsistent with traditional Christianity, even if some of the most popular strains were militantly secular.  Socialist-compatible but still recognizable forms of all of the major Christian sects of the time were generated during this timeframe.  This was a significant advantage for its spread, given that Europe was nearly universally Christian during the entire period.

For all these reasons, a majority of the priest caste throughout Europe had converted to some form of socialism by 1914.  This led rather naturally to increasing social instability.  As a barometer of this, labor disputes were growing in frequency and violent intensity, with staunchly socialist trade unions generally taking the lead in demanding concessions from plutocrat-run industries and plutocrat-influenced governments.  But even if the ruling merchants sometimes felt like their world was crumbling around them, they still held the commanding heights of the social hierarchy.

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[5] GDP = Consumption + Investment + Government + Net Exports.  Money taken as taxes and spent by the government always raises GDP, by definition, because government is valued merely by resources spent, while private consumption and investment are valued at market prices.