6.1. The Belle Epoque
With the end of the immediate effects of the agrarian crisis and the ‘Great Depression’ which had hit Europe between the end of the 1870s and the first half of the 1890s, Europe, the United States, and Japan launched themselves into a new wave of economic growth which sustained its rhythm until the First World War, and was particularly notable for the number of technological innovations it produced.
Some scholars speak of a second industrial revolution, a revolution carried over the thousands of kilometres of telephone wires and electricity poles, on the wheels of millions of bicycle, motorcycles, and cars, and on the wings of the first aeroplanes, and which produced the mysterious concoctions of synthetic chemistry from carbon derivatives. The towns were bright with lights, and smooth roads were opened for the new means of transport. The mobility of the population inside and outside national borders increased enormously, almost as much as the mobility of capital, which, from the main financial centres of London, Berlin, and Paris, radiated to the most varied destinations.Countries which up to that time had remained at the margins of industrial growth—Sweden, Holland, Italy, Spain, Russia, Hungary, and Japan—leapt forward, while the European drive towards colonial expansion became more urgent, almost obsessive, even though it was not always economically profitable.
Although the trade union movements, by this time well organized in many countries, were quite militant, sociopolitical institutions had become sufficiently flexible, and economic growth sufficiently self-sustaining, to allow many concessions to the workers, especially in regard to wages and working conditions, without provoking dramatic breaks in the expansive trend. This was also a period, therefore, of improvement in the standard of living of the lower classes, of urbanization, and of changes in consumption patterns.
The simultaneous industrial growth in many economic areas necessitated some form of co-ordination of international trade and finance. This requirement was met by the Gold Standard, a monetary system that had evolved over the preceding centuries and that reached its high point in this period.
With the Gold Standard, the national currencies were freely convertible into gold and the exchange rates tended to oscillate within a very thin band around the levels determined by the gold parities. This discouraged shortterm capital movements, which are usually destabilizing, and encouraged, on the other hand, long-run foreign investments; at the same time it gave international trade the guarantee of safe and certain payments. It was not easy for individual countries to remain linked to the system, which required high levels of prosperity and sound monetary practices, but the periods during which this or that country left the system were brief. The Gold Standard was not such an automatic system as some literature has depicted it; but Great Britain had the financial resources and sufficient authority to put into practice the necessary adjustment mechanisms at the opportune moments.
Technological innovations, financial stability, and relative social peace produced an impressive cycle of capitalist growth that was only surpassed, in intensity, duration, and number of countries involved, by the expansion from 1950 to 1973. The large factory, the new machine age, and the aspirin won over the popular imagination. Colossal international exhibitions held in the main industrial cities of the world enjoyed enormous public success, and also influenced literature, art, architecture, and music. The belle epoque was a period of optimism and great economic transformation, even though it was marked, on the political side, by old and renewed national antagonisms; a situation that the new, potent military weapons made available by modern industry were to fuel until it exploded in an armed conflict of unprecedented proportions.
That conflict closed the belle epoque.The marginalist scholars working between the end of the nineteenth century and the early 1920s conquered the academic circles of almost all Western countries, and contributed to the creation of a new, dominant theoretical system. In Great Britain, Alfred Marshall, the most important figure of the period, established an authentic school of thought; but Francis Ysidro Edgeworth, Philip Henry Wicksteed, and Arthur Cecil Pigou also made first-rate contributions. In Austria, the rapid diffusion of the ‘Austrian’ approach was the work of Menger’s enthusiastic followers, Eugen von Bohm-Bawerk and Friedrich von Wieser. In Italy, Maffeo Pantaleoni, Enrico Barone, and, above all, Vilfredo Pareto developed and popularized Walras’s teachings. In Sweden, Knut Wicksell and Gustav Cassel tried to blend the Austrian approach with Walrasian theory, giving rise to an original Swedish School. Finally, the two most important figures in the United States were Irving Fisher and John Bates Clark, to whom we owe the diffusion of the neoclassical theoretical system within the American academic and cultural circles of the time.
The existence of various currents of thought and diverse national schools, often in bitter conflict among themselves, should not be undervalued. However, this should not prevent us from identifying a common denominator, a substantial unity of thought which, originating from the marginalist revolution, tended to emerge gradually and converge towards the construction of a unique theoretical system. As early as the beginning of the twentieth century, pure economic theory was able to present itself as a compact doctrinal corpus; the turning-point in the early 1870s had finally produced a new theoretical system which would soon dominate the scene.
6.2.