Review: Imperial Germany and the Industrial Revolution, by Thorstein Veblen

C. Wright Mills has celebrated Thorstein Veblen as "The best critic of America that America has produced," but Veblen did at times turn his attention to the life of other nations, notably Germany, to which he applied the considerably body of theory he had amassed (most pointedly in his Theory of Business Enterprise). He read Germany as something of a paradox--in respects the most modern of states (as in its industry), in others among the most backward of the major powers (in its dynastic, war-like character). How could the two characteristics be present in the same country? Veblen asked.

In trying to answer that question Veblen relied on a comparison of Germany with that first scene of the Industrial Revolution and, in conventional thinking, counter-example to Germany, un-Germany, England, comparing the two countries. (Indeed, rather than "Imperial Germany and the Industrial Revolution" he would have done well to title the book "England, Germany and the Industrial Revolution.") He began that comparison by probing deep into the historic past, devoting his first two chapters to the racial heritage and early history of the "North Sea-Baltic peoples" from whom both England and Germany derive their ancestry--essentially, to rule out the idea that this was a matter of race (he debunks the idea of race purity, and in any event, shows that with regard to heritage Englishman and German are pretty much the same), or of very early cultural antecedents, before turning to the real heart of the matter, more recent, and more economic and political, history.

Veblen argues that in England the Medieval heritage was less strongly rooted than elsewhere in Europe, and from the sixteenth century began to wither with the increasing mercantile-industrial turn of English life, a process enabled by England's insular position sheltering it from the wars raging across the continent, and the country's combination of peacefulness and backwardness relative to other parts of the continent (England less advanced than, for example, the Netherlands, while its stability made it attractive to skilled continental emigrants). Altogether these factors (and only these) created a culture that was more materialist (in the philosophical sense of the term), empirical, "matter of fact," individualist and modern-liberal, a trend accelerated and deepened by the rise of a machine industry in that part of the world.

By contrast Prussia was essentially the product of the Teutonic Knights' secularization in comparatively underdeveloped and turbulent northeastern Europe. The Medieval heritage, and especially the predatory ethos of that earlier era, with its stress on war-like values, hierarchy and personal subordination (exalted as "duty" and a cult of the State), was stronger to begin with, and endured longer--and with them the turn of thought in the opposite direction from England's, away from the materialistic and matter of fact toward the "transcendental," the "ideal," the "Romantic." Subsequently, Prussia's unification of Germany transmitted this ethos to the rest of the German Empire (in particular through its education system and compulsory military service, the latter in his analysis a powerful inculcator of subordination).

Still, if Germany's ethos was more Medieval than "modern," the country's leaders saw the necessity of development, and the country was far from unequal to the task. As Veblen explains it Germany's resource situation was mediocre but not unworkable, especially given the advantage it had in a large supply of cheap but capable labor with a scarcity of alternative outlets for its energies. (Where the well-born, well-educated Englishman might become a leisured "gentleman," or perhaps go to the City, and in either case exist as simply a charge on his nation's economy, in Germany he was apt to become an engineer instead and contribute to its industrial development.) Germany also had the advantages of backwardness--the fact that where in Britain industrialization was, due to its being first, ad hoc and relatively impure, mixed up with much pre-industrial practice that held it back; and at the same time was also suffering from its own maturity (like a capital that became obsolescent; rising, wasteful consumption; the inefficiencies entailed by a hyperdeveloped financial sector); Germany was starting from scratch, quite deliberately, and so could build its plant along the most thoroughly industry-oriented lines, minus unnecessary encumbrances.1

However, Veblen did not see this arrangement as somehow enduring forever. As Britain's economy had matured, so was Germany's already doing. As he noted, the costs of labor and the fixed charges of capitalization rose; while as the country became more thoroughly industrialized the share of capital investment inevitably declined, to the cost of Germany's hugely important capital goods sector. At the same time Germany's industrial output outstripped both the growth of foreign demand, and the locally available natural resources, forcing it to look abroad for more expensive foreign supplies to sustain that production. Meanwhile, Germany's plant became obsolescent in its turn as its equipment appreciated and its own growth and development meant that its earlier arrangements were becoming suboptimal from the standpoint of efficiency and growth.

Veblen also argued that as Germany developed industrial life would erode its Medievalism, but that this had been slowed by the country's intensive militarization, and so as of the early twentieth century the process had not gone so far as it might have done. Indeed, he holds that basically World War I was a matter of a Medieval dynastic state equipped with extraordinarily modern industry and military forces threatening the peace of the world.

With the hindsight of a century it seems to me that Veblen's analysis definitely has its shortcomings. The most obviously dated feature is the long discussion prompted by the racialist pseudoscience of his day, which will try many a contemporary reader's patience. However, there were other ways in which his discussion struck me as less convincing than it might have been. Certainly he underrates the natural assets that enabled Germany to industrialize so speedily and robustly--its coal and iron riches, water transport and the like less ample than Britain's, but still rather more impressive than those of any other continental state, while the country occupied a unique position in the heart of Europe (between east and west, north and south) at a moment when Europe was fast becoming the center of world economic life. (You can see my case here.) It struck me, too, that he overrated the modernity of the German economy, especially in comparison with the United States.2 (As Adam Tooze's Wages of Destruction points out, for all Germany's very real cutting-edge achievements, the Fordism that would change everything was not born there, but across the Atlantic.) Finally Veblen goes too far in chalking up Germany's aggressive behavior to irrational dynastic aggrandizement when much else was at fault--not least, economic imperialism driven by stresses that Veblen himself discusses so ably, and which Fritz Fischer was, a half century later, to provide such robust coverage of in his classic diplomatic history, Germany's Aims in the First World War.

Still, as is often the case when great thinkers ask large questions and provide answers that do not fully satisfy us, Veblen managed to produce a great many compensating insights--not least into that question of the contrasts between German and English culture and history, and the economic stresses that helped put Germany on the path to war. Moreover, the principal reason for the book's still enjoying status as a classic, its pioneering treatment of the matter of the "advantages of backwardness"--those ways in which less-developed countries manage to achieve faster rates of industrial expansion and economic growth, or develop more thoroughly their industrial bases, than more developed countries--is lucid and robust, justly essential reading for students of the subject. And in the end what was worthwhile greatly outweighed what has lost its interest.

1. German industrialists, as Veblen noted, did not enter business by way of "the training school of a country town based on a retail business in speculative real estate and political jobbery managed under the rule of 'prehension, division and silence' . . . [but] under the selective test for fitness in the aggressive conduct of industrial enterprise." Nor were they "committed to antiquated sites and routes for . . . industrial plant; the men who exercised the discretion were free to choose, with an eye single to the mechanical expediency of locations for the pursuit of industry." German industrialists "were also free to take over the processes of the new industry at their best and highest efficiency, rather than content themselves with compromises between the best equipment known and what used to be the best a few years or a few decades ago," while finance was not yet in a position to divert them from "the production of merchantable goods and services."
2. Veblen, identifying American business with his reading of the country town ethos, seemed much more oriented to what he called "business" (the pursuit of "net gain in dollars," and above all speculative "pecuniary strategy" founded on "patiently wait[ing] on the chance of getting getting something for nothing") than "industry" (the technical problem of enlarging output). Indeed, he specifically characterized as averse to innovation with "untried, unstandardised industrial projects and expedients . . . anathema" to such a degree that it "rejects such candidates as are endowed with technological insight or . . . aggressive curiosity in matters of industrial innovation." For a fuller discussion of his thought on these matters, see his Theory of Business Enterprise and his later Absentee Ownership.

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