Global Conflict and Elite Integration in the 19th and Early 20th Centuries

Posted: June 14, 2010 in Bilderberg, Bohemian Grove, Brainwashing, CIA, Conspiracy, Federal Reserve, Freemasonry, General Arcanum, Georgia Guidestones, Illuminati, Media Control, NWO, Rockefeller, Rothschild
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Crystal Palace, London

Crystal Palace, London

by Global Elites Research Group

Introduction

National and international elites have in significant ways shaped each era of world-systemic transformation (Lachmann 2000, 2003; van der Pijl 1998).

During the nineteenth and early twentieth centuries—a period marked by the formation and ongoing development of British hegemony—rapid financial, political, and technological changes allowed for unprecedented growth in international trade, investment, and global integration (Bairoch 1996; Haggard 1995; O’Rourke and Williamson 1999).  Technological innovations in water transport (steam power and canals), communications (telegraph, overseas cables), and rapidly expanding railroad systems altered long-standing meanings of time and geography. In addition, emergent and efficient organizational forms, such as cartels and centralized banks, re-concentrated the fresh glut of wealth and influence among ruling elites—despite lower-echelon incursions by the rising middle-classes and entrepreneurs. Furthermore, the era was clearly marked by an increasing trend in not only the magnitude, but also the density of world commerce.

The convergence of these transformations created the possibility of global integration of states and their representatives for the first time, and the degree of elite integration and cooperation in this period was indeed unprecedented. The elites did not always act in unison; the relationships among elites were often marked by conflict and struggle over divergent interests. Accompanying that growth were inequalities, uneven development, and repressive elite reactions in response to shifting class boundaries as massive economic changes and technological developments occurred concurrently with the clashing global groundswells of capitalism, nationalism, liberalism, and secret accords, often culminating in violent domestic and international conflicts (Arrighi 1994; Polanyi 2001 [1944]; Snyder 1991, 2000). We contend that the patterns of global conflict and cooperation, and the related waves of globalization, were partial products of elite action because the nature of the relationships among the elites and the interests they represented were embedded in the structure of the world-system as a whole.

This paper presents vignettes drawn from our ongoing project on global elite integration to present a tentative description of the structure of relations among the various elites. In particular, we draw our narratives from case studies of elite networks in Great Britain, France, Germany, Russia, and the United States; all major rivals for world-systemic hegemony in the nineteenth and early twentieth centuries.[2] We argue that understanding the elites in each of these countries, and their relationships to other elites at a national and international level, is critical for understanding the contours of world-systemic conflict and cooperation in the years leading up to WWI.

Theoretical Framework

This paper is part of our broader research project focusing on global class formation, conflict, and integration.  Here, we focus on national and international elites, their networks, and the relationships of both to the instances of conflict and cooperation in the second-half of the nineteenth and early twentieth centuries. While our research agenda draws on several theoretical perspectives to delineate the relationship between elites, hegemony and global conflict, we rely heavily on the world-systems framework, which maintains that societies are subsystems within a larger single system; therefore, in order to understand historical societal development we must take a multi-level approach by focusing on localities, regions, and the world-system as a whole. A world-system is defined as a mesh of intersocietal networks in which the interactions are important for the reproduction of the internal structures of the constituting units, affecting in important ways changes occurring in the affiliated local structures (Chase-Dunn and Hall 1997).

Our research on national and international elites and elite networks reveals that the relationships between and among various elites, and the states they were linked to, were sometimes mutually beneficial, often asymmetric, and in many cases decidedly exploitative. From a world-systems perspective, the outcomes of elite activity in micro-level encounters and in meso-level networks have macro-level implications—what could be considered a bottom-up flow of effects. The reverse flow, in which macro-level events, institutions, and processes shape the meso- and micro-levels, is also assumed. Applied to our project, we contend that local and international elites are the embodied nodes of elite networks. We argue, then, that understanding elite activity, and mapping elite networks and assessing their degree of integration and fragmentation, are important and necessary in generating an understanding of world-systemic history.

Another focus of this project is on the relationship between international trade and conflict. Here, we problematize the long-standing liberal view that international trade promotes social benefits such as economic prosperity, political negotiation, and, in particular, peace. The groundwork for a challenge to the assumed trade-peace linkage has already been laid, as scholars have specified boundary conditions that have helped determine if and when trade promotes peace versus when it creates situations of dependence, asymmetricality, or exploitation, and thereby fosters conflict (Boswell and Dixon 1990; see also Rueschemeyer, Stephens and Stephens 1992, chap. 5). In addition, other scholars have taken a critical approach to the assumed connection between trade and peace (Barbieri 2002; Rosencrance and Thompson 2003).

For our purposes, the perplexing relationship between trade and conflict calls for building on the extant research by generating a deeper understanding of both processes. In this paper, we will discuss the preliminary results of our research on elite networks. This qualitative research was undertaken in response to our belief that an analysis of the breadth and depth, as well as the meanings and types, of elite integration may provide insight into the trade/conflict relationship. That elites would know one another is not surprising and is therefore not the subject of this study; however, to our knowledge a nuanced understanding of elite networks and their functionality, or disfunctionality, and whether they affect, or effect, levels of conflict is currently not available.  We believe these facets of elite integration and conflict must be thoroughly analyzed in the development of any theory pertaining to the relationship between elite integration and conflict. That is the focus of this portion of the research project. A concurrent sub-project analyzes the correlation between trade and conflict.[3] A synthesis of the two works-in-progress will then be performed. The overall research project, in sum, will utilize both quantitative and qualitative analyses to reveal the true connections between elite integration, trade, and conflict.

We began our investigation in the early part of the nineteenth century, using this period as the base line from which to appreciate the rise of transnational linkages during the nineteenth and early twentieth centuries. This paper focuses only on key elite networks and institutions within the states competing for hegemony: France, Germany, Great Britain, Russia, and the United States. Since our intention in this part of the project is to illustrate particularly distinctive, crucial, and compelling dynamics within these countries, the elites discussed are by no means exhaustive; however, they constitute key components of the institutional networks they occupied. After completing our research on the years leading to WWI, we will continue with a similar analysis of the post WWI world-system.

Micro-Histories

The Cannon and the Kaiser

Modernization, liberalism, and nationalism were the three most potent factors affecting the lives of nineteenth-century Germans. Modernization was limited primarily to the economic sphere, with social and political adaptations lagging far behind. Innovations and development in business organization, industry, and finance propelled Germany to the status of a hegemonic contender. These economic changes also initiated an industrial bourgeoisie and attendant workers unions whose burgeoning power seriously threatened an ancient and rigid social order of landed ruling aristocrats (Junkers) and princes. Though the world revolution of 1848 was largely defeated in Germany, the aristocrats developed an enlightened conservatism that allowed them to stay on top while coopting segments of the rising classes. Taken together, Germany’s meteoric economic emergence provided the means for simultaneously upsetting the European balance of power and fragmenting its own social bases of domestic power.

Liberalism’s tenets of fraternite, liberte, and equalite posed challenges and opportunities to both the time-honored social standing of the ruling elites and the newfound affluence of the industrial bourgeoisie. Like Russia, the ossification of Germany’s social hierarchy had no easy or ready means by which to adapt to the ideology of liberalism. German elites chose the strategy and tactics of repression and minor concessions throughout the nineteenth century. Yet domestic tensions increased dramatically from their point of view – requiring the influence of elites if the status quo was to be preserved.

A solution came in the form of conflict. After two hundred years of being Europe’s battleground and buffer zone, it won several wars in quick succession. The defeat of Austria-Hungary settled the issue of Protestant Prussian primacy in German affairs. The defeat of its archenemy France led to German unification and a Prussian Hohenzollern on the throne. The speed and decisiveness of these victories had far-reaching effects within and without Germany. First, the victory was seen as accomplished by military elites and “great leaders” whose prominence was re-established just as their position had been waning vis-à-vis an emergent bourgeoisie. Second, in addition to its late but rapid economic development, Germany became a geo-political power virtually overnight. The previous European system of alliances shifted uneasily into a newer and more precarious balance. Third, similar to developments in other countries during the nineteenth century, national pride swelled as Germans realized a long-sought unification. While nationalism developed relatively late in Germany compared to other powers, it became the key to maintaining the status quo for German elites. In addition to the calming effects nationalism had on the lower classes, to a certain extent, the aristocracy and the bourgeoisie whose support they needed (but detested) closed rank. Together they formed a relatively small cadre of individuals embedded within an elite network that connected them to each other and to key elites in other countries.

The German formula of military might and strong leadership coupled with key industries were embodied in elites such as its three rulers (William I, Frederich III, William II); four Chancellors (Bismarck, Caprivi, Hohenlohe, Bulow); and three military General Chiefs of Staff (Moltke the Elder, Schlieffen, Moltke the Younger) (Blackbourn 2003; Calleo 1978; Craig 1983; Feuchtwanger 2001; Kehr 1977; Kennedy 1987; Mommsen 1995; Rèohl 1994; Rosinski 1966; Snyder 1991; Wehler 1985). In addition, two exemplars from the rising bourgeoisie were especially connected with the military: Siemens (electrical power, engineering, and telegraphs) and Krupp (steel, railroads, and armaments) (Feldenkirchen 1999; Manchester 1968; Modelski and Thompson 1996). In the discussion that follows, relationships among these elites will be briefly characterized below by looking in more detail at Kaiser William II, Moltke the Elder, Krupp the cannon-king, and Siemens.

Working both in concert and in opposition to one another, the actions of these elites led to compartmentalization (Hughes 1987; Kitchen 1968; Rosinski 1966; Vagts 1959) and coalition politics (Calleo 1978; Kehr 1977; Kehr, Anderson, and Anderson 1973) steering German policies up to WWI. Prussia became the command center of Germany after its unification; the Prussian King was also the German Emperor, and the “supreme commander of the German Army in both war and peace” (Chickering 1996:460). The King’s army was led by an elite cadre of officers and staff drawn almost exclusively from the ranks of the Junkers (Kitchen 1968). Key industrial giants such as Krupp (Manchester 1968) initially produced the steel and railroads that made German victories possible. Krupp’s armaments were finally preferred by Kaiser William II over the objections of the military, and he provided the bulk of their heavy munitions, armor plates, and weaponry from 1890 on. Krupp and other industrialists were grudgingly admitted but not necessarily accepted into higher social circles as their usefulness increased. Tradeoffs of wealth and name in the guise of intermarriage among German aristocracy and bourgeoisie became increasingly common as the century wore on.

Connections of kinship and honor served to integrate the ruling classes in Germany with each other and to Europe as a whole. Kaiser William II had an extended European family; and marriages among European royalty had followed a fairly detectable pattern across the past several hundred years. German Emperors and Kaisers almost invariably married other Germans; if not, then English and northern Europeans were most popular. The English and Russians most commonly married Germans, or Danes, when they didn’t marry partners from their own country. A Hanoverian, King George III of England (until 1820) had a granddaughter: Victoria Saxe-Coburg Windsor. She ruled as England’s Queen (1837-1901); her daughter’s husband was a Hohenzollern (Frederick III) and their son was Germany’s Kaiser William II. He visited her regularly until tensions between the two countries over the Baghdad railway began to emerge in 1910 or so.

General Von Moltke was an exemplar of the most critical considerations for upward mobility in the German military: honor and aristocracy as evidenced by birth, political views, and religious affiliation. Descended from thirteenth-century Teutonic knights, Moltke served as a page to the King of Denmark; trained in Clausewitz’s army as a surveyor under the military Chief of Staff von Moffing; performed exemplary service as Prince Charles’ tutor and escort, and was consequently favored with the delicate task of aide-de-camp to the dying Prince Henry of Prussia (brother of King Frederich William III) (Whitton 1972:54). Following two promotions in the same year, Moltke was commissioned to Constantinople as military advisor to Chasref Pasha, the right-hand man of Sultun Mahmoud II. Returning to Germany, he was made First Adjutant to Prince Frederick William (nephew of Frederick III), and appointed as military Chief of Staff when von Rehler died in 1857 (Whitton 1972:64 and 68 respectively). As Instructor-in-Chief, Moltke oversaw the training, made nominations and promoted the core nucleus of Army officers himself (Whitton 1972:71).

Social networks played a similar role for those Germans without blue blood, affording opportunities for bourgeois advancement. Krupp’s steel business originated with his great-grandfather who began the family steel mill, doing business during the Napoleonic blockade of England. Alfred Krupp built a fledgling business into a global conglomerate of ore and coal mines, iron works, machinery, railroad equipment, and artillery. His sister and brothers were also involved. His son, Friedrich Alfred Krupp continued the expansion of the company into a horizontally and vertically integrated group, with its iron and steel mills; and with its production of armored plate, ships, submarines and diesel engines. Like his father and unlike most of the upwardly mobile bourgeoisie, Friedrich Alfred declined a title of nobility. He was however a temporary member of the Reichstag, as well as a supporter of Tirpitz’s fleet policies.

Werner Siemens (then in the military); Georg Halske (a mechanic), and Johann Georg Siemens (a counselor of justice, as well as Werner’s cousin and also the father of Georg von Siemens, founder of Deutsche Bank) co-founded the company in 1847 (Feldenkirchen 1999:15). Siemens & Halske specialized in electrical engineering and design, manufacturing, and installation of telegraphs, steam, gas, and (electric and conventional) railroad equipment before entering the heavy electric industry and later, automobiles. It enjoyed clear market dominance because “none of its competitors could approach Siemens & Halske with regard to size, capitalization, differentiation of production, technical knowledge, experience, qualifications, standing, contacts, domination of the market, and power” (Feldenkirchen 1999:15). Werner’s initial patent for the telegraph was intended for military use, but diplomats and businessmen soon followed and business boomed. He retained his military rank while simultaneously selling his product to the Prussian Army (Feldenkirchen 1999:35).

Unable to open a market in France, Siemens fared better in London, founding a branch in 1850; and in Russia, where a further branch office was opened in St Petersburg in 1853; and developed from there by laying (undersea and transcontinental) cables. (Feldenkirchen 1999:35-7). “Political, military, and economic considerations led the United Kingdom in particular to intensify its efforts to build up a global telegraph network” (Feldenkirchen 1999:37). A branch also opened in Austria (in 1879); later companies were formed in France, Spain, Belgium, and the United States. The US branch failed not long after its creation. The first supervisory boards consisted only of direct family members, despite Deutsche Bank’s objections of what was perceived to be a limited banking input.

Siemens’ main competitor was Emil Rathenau, who founded the Deutsche-Edison company (1883) that grew into AEG. Taken together, AEG and Siemens carved up Europe and parts of North America for the purpose of putting Edison Company patents and products to work (Feldenkirchen 1999:489). AEG eventually acquired companies and patents that permitted it to market General Electric products in some areas as well (Feldenkirchen 1999:491). By 1913, Siemens and AEG represented almost 70% of the electrical industry business (second and third only to Krupp AG in overall size) (Feldenkirchen 1999:26). The two companies founded a mutual wireless telegraph company at the request of Kaiser Wilhelm II for military purposes. Further cementing the ties, Walter Rathenau, brother of AEG’s founder, ran the Raw Materials Department for Germany during WWI.

During the nineteenth century and up to WWI, German advances in the geopolitical, industrial, and economic spheres placed modern Germany on a level unparalleled in continental Europe.  Hohenzollern Prussia won quick and decisive military victories over Denmark (1864) and Austria-Hungary (1866). With the defeat of France in the Franco-Prussian War (1870-1871), Prussia supplanted France as the premier military power in continental Europe. In 1871 Prussia also successfully united the German states under the Prussian aegis, placing the Kaiser on the throne of the German Empire. These victories were based firmly on Von Moltke’s leadership and effective industrialization and modernization of the army, especially his advocacy for an increasingly dense and pervading system of railroads. Germans led the fields of armament technology (especially artillery) and electronics/engineering with Krupp and Siemens dominating their respective domains. Krupp and its subsidiaries would provide arms (often impartially) for numerous conflicts including the Balkan and Boer Wars as well as both World Wars. Siemens remains today a sizable commercial entity. Such great success did not come to Germany naturally or by fate, but was the result of negotiation and networking by elites such as the Kaiser, Von Moltke, Siemens and Krupp.

Witte and Russia: Tradition in the Face of Development

For nineteenth century Russia, the changing nature of global production, led by Great Britain, strained the traditional relationships had allowed it to be so successful internationally.  Russia’s swift expansion throughout the seventeenth and eighteenth centuries had allowed it to rise to a position of prominence as a major geopolitical contender, as demonstrated by the “great game,” a cold war between Britain and Russia over the fate of Asia.  The shift within the balance of power system that would take place with Russia’s defeat in the Crimean War, a war hastened by the collapse of Russia’s long-time nemesis the Ottoman Empire, would illuminate the inability of the traditional institutions of expansion around which the Russian state had founded itself to continue to successfully operate in the world-system.  Russia’s traditional elite failed to maintain their power base—a function of their large estates—and develop the modern industrial system necessary to maintain a competitive navy and army.  The emperor had no clothes.

This struggle, between the traditional, landed and military elite and the almost non-existent bourgeoisie, would reveal itself most fully in the personage of Sergi Witte, the Minister of Finance responsible for Russia’s massive industrialization at the turn of the century.  It would be under his tutelage that the Russian economy would industrialize most, making his tenure as Minister of Finance one of constant struggle.  The examples of the Tariff war with Germany and the Russo-Japanese War will be used to highlight the contradictions growing between tradition and development, the central themes of this section.

The Russian economy of 1840-1880 was static, but from 1880-1917, however, change was exponential.  While the Emancipation of 1861 did not immediately create an urban proletariat, eventually some peasants did vote with their feet and make their way into the cities.  As their numbers began to swell, the Tsar, recognizing the importance of modern industry, began to encourage its development.  Often times such encouragement took the form of financing growth through foreign debt and outright state ownership.

It would be the Ministers of Finance, from Bunge—the first to give lip service to industrialization—to Witte, who would focus their efforts on Russian industrialization.  Under the direction of Sergi Witte, in the late nineteenth century, their efforts would begin to pay off and industrial growth would begin in earnest.  Such quick change did not go unnoticed, and those with different interests became uncomfortable as the methods employed by Witte caused much distortion in the economy, transferring wealth from peasants and the landed elite to a small but increasingly threatening class of industrialists.  This distortion of the economy was familiar to many in the west, as Witte was following the basic outlines of the modernization playbook developed by Frederic List, a German political economist who promoted autarky and protection of burgeoning national industry (List 2005).  Following the Listian path meant large tariffs and protection for Russian industry.

The costs of the tariffs imposed by Witte were enormous politically.  A tariff war with Germany, Russia’s largest trading partner, soon followed.  Bismarck, his hand forced by the Prussian agrarians, had gradually been raising the duties on Russian imports (Von Laue 1963).  With neither side willing to make concessions, both sides continued to trade tariff for tariff until Witte ended the stalemate by threatening to “stop the seasonal migration of farmhands from Russia into the Junker estates of Eastern Germany, which would have meant ruin to the latter” (Von Laue 1963: 110).  The Russo-German trade treaty of 1894 left Russia with a lighter tariff but a “more competitive position in the German grain market” as well (Von Laue 1963: 110).  Bismark’s caution allowed Witte to conclude a peace favorable to the Russian state.

The tariff spat was not the first instance of poor relations between Germany and Russia.  In 1887, in an attempt to strong arm Russia out of Bulgaria, Bismarck drove Russian government bonds out of Germany.  His hope was that this economic ploy would remind the Russians of their dependence on their western neighbor.  The ploy backfired, and French investors purchased the bonds at a lower interest rate.  This was a huge slip by Bismarck, who unwittingly laid the foundations for the French-Russian entente that would haunt Germany in WWI.

Exchanging German for French creditors “did not eliminate the basic fact of Russian dependence on foreign moneylenders (and their governments) or sweeten the humiliation of such bondage” (Von Laue 1963: 26).  This foreign debt is indeed significant when understood through modern theoretical perspectives such as dependency theory.  It has been firmly established (Bornschier and Chase-Dunn 1985; Dixon and Boswell 1996) that foreign investment is significantly less likely to promote growth than domestic investment. Russia was the extreme case of an economy influenced by foreign money flows, and it happened quickly:

Even as late as 1880 foreigners accounted for only about 17 per cent of all capital invested in industrial corporations operating in Russia.  Only in the last years of the century did foreign industrial investment reach higher and eventually startling proportions, accounting for an estimated 26 per cent of the Russian total in 1890, 45 per cent in 1900, and 47 per cent in 1914.  No other major European state even came close to having a comparably significant infusion of foreign investment. (McKay 1974: 340)

This documented growth reflects a switch in the logic of investment.  Prior to 1860, the emancipation, and a concerted effort to industrialize, most investment had been commercial (McKay 1974).  McKay writes, “as with the Dutch entrepreneurs of the seventeenth century, the foreign trade activities of leading merchants might lead to involvement in industrial pursuits, but for the most, commerce remained the primary focus” (1974: 340).

Because of the trends discussed above, Witte and his policies were under heavy attack from many directions.  His most outspoken and powerful opposition politically were the Ministers of the Interior, who represented the landed aristocracy.  Witte also faced criticism from many economists of the day.  P.V. Ol’, one such economist, documented foreign investment in Russia from the mid-nineteenth century to the 1917 revolution.  He included in his work the source of the investment, the amount, and where it went.  Geoffrey Jones and Grigori Gerenstain, in their English translation of Ol’s work, note one of the more important facts, “the greatest share of foreign capital was invested in State loans and government railway stock” (Ol’ 1983).  This focus on the railway should not be surprising, as Witte’s plan to expand the Russian economy depended upon the opening of East-West trade through the trans-Siberian railroad, a trade that would prove lucrative to the state in the form of tax revenue (Von Laue 1963).

The ability of the Russian state to continue to receive foreign investment depended heavily on a stable exchange rate, and therefore, the gold standard.  Of his many contentious policies, Witte’s implementation of the gold standard would be the one “most bitterly resisted within and without the government” (Von Laue 1963: 139).  Of course, such conflict did not stop Witte, and Russia went on the gold standard (again) in 1896.  With the return to the gold standard, balance of payments became a national necessity.  Despite the warnings of the critics, crisis did not emerge, and the gold standard weathered both the Russian defeat in the Russian-Japanese War as well as the 1917 Revolution.  Furthermore, the gold standard “served as a vehicle not only for foreign credit but for the Europeanization of Russia in general” (Von Laue 1963: 144).

Witte, whose long term plan for trade was nearing fruition, sought a secure hold in China where trade could begin to create a tax base capable of paying off the considerable loans of the state.  Loans that had been undertaken to build the railway (Von Laue 1963; see also Ananich 2005).  Pleve, the Minister of the Interior (1902-1904) and Witte’s political nemesis had his own agenda.  While Witte required trade with China to provide a tax base and pay off his loans and maintain the gold standard, Pleve wished to “rally the country to the flag and dampen the oppositional fervor that had engulfed most elements of the population since the turn of the century” (Manning 1982: 67).  For Pleve, whose largest concern was the emergence of liberal social movement headed by the zemstvo constitutionalists, foreign policy was less an economic lifeline and more of a political safety valve.  Obviously, the goals of both men were incompatible.  War would not create an environment in which trade would flourish.  In the end, Pleve emerged victorious in his efforts to control Russian foreign policy, but his safety valve didn’t have the desired effect.  He paid with his life on July 15, 1904.  Following his assassination, a moderate, Prince P.D. Sviatopolk-Mirskii, took control of the Ministry of Interior (Manning 1982).  Witte would also fall from grace, but not yet into the grave.  Eduard Pleske replaced him in 1903.  What marks Witte as remarkable among the many ministers to helm the Russian state throughout the years is his staying power.  As Russia began to loose battle after battle against the Japanese, and as the state began to get desperate for foreign loan monies, Nicholas III would, out of necessity, return Witte to a position of power as the chairman of the Council of Ministers.  Only Witte, it became clear, had the necessary relationship with French creditors required to secure the needed credit.

While it is dangerous to simplify the muddy waters of history in such a simple narrative, the limited space available limits our ability to address the full complexity of the period.  What is clear, however, is that the changes taking place in the world-system, themselves a result of the industrialization of Britain, were exerting pressure on the traditional structure of the Russian state and its people.  The stress this pressure caused manifested itself most clearly with the dominance of Sergi Witte, the first true “industrialist” to rise to power within the traditional system of power in Russia.  His network of power, which extended most importantly into the French financial system, ensured that even after his fall from grace in 1902 that he would continue to play a powerful role in Russian politics, and eventually be resurrected to an even higher position of power as the chairman of the Council of Ministers.

The Rothschilds: Financiers of the World-Economy

International finance had no bigger player throughout much of the nineteenth century than the House of Rothschild. A small businessman in the Jewish ghetto in Frankfurt around the turn of the eighteenth century, Mayer Amschel dealt with merchandise from rare coins to flour; Mayer would build on his business acumen and wealth to preside over the creation in 1810 of his namesake banking firm (Chernow 1997:9). The House of Rothschild was set up as a partnership in which each of Mayer’s five sons ran a house in one of the principal capitals in Europe: Frankfurt, London, Naples, Paris, and Vienna (Ferguson 1999:xxi). The firm would be spectacularly successful: “Perhaps the most important point to grasp about this multinational partnership is that, for most of the century between 1815 and 1914, it was easily the biggest bank in the world” (Ferguson 1998:3). The Rothschilds also maintained a nearly global network of agents who conducted business and gathered information on their behalf.  “The most international of all great banking houses” (Hobsbawm 1989:42), the House of Rothschild’s massive and diversified capital portfolio placed the family in key locations in elite networks. The Rothschilds individually, and through their firm, had a significant impact on global elite integration and had varying degrees of influence on both conflict and peace during the period of our study.

The Rothschilds’ ascendancy was the result of their development of a system to finance state debt by state-issued, fixed-interest, bearer bonds that were traded on international exchanges but that could also be traded privately. Indeed, the Rothschilds played a role in the financialization of the world, as they “destroyed the predominance of the land, by raising the system of state bonds to supreme power…endowing money with the same privileges as land” (Heinrich Heine, as quoted in Ferguson 1999:xxiv).

Rothschild coat of arms

In addition to their principal role in state finance, other Rothschild businesses included bullion brokering and refining, commercial bills, commodity trading, foreign exchange trading and arbitrage, insurance, personal banking to wealthy individuals, and rail financing in France, Austria, and Germany. The family also owned mercury mines in Spain (Almadén), and invested in oil fields and in mines producing gold, copper, diamonds, and rubies (Ferguson 1998:6-7). This diversified portfolio performed spectacularly; total wealth of the House of Rothschild during the late nineteenth century was estimated at over 400 million pounds (6 billion dollars) (Morton 1961:57).

Prices and yields of the state-bonds depended upon the debtor state’s ability to pay interest, which could be constrained by war and/or internal instability. In addition, the Rothschilds’ nearly global diversified portfolio was sensitive to possible causes of market shifts throughout the world. Mastering this system of international finance required access to the political and economic news that were critical in assessing risk, “this explains why,” as Ferguson notes, the Rothschilds spent so much time, energy and money maintaining the best possible relations with the leading political figures of the day” (1998:4-5). Participating in elite networks was therefore a key part of the success of the Rothschilds; as managers of the assets of elites and state debts, they played an important part in the politics that shaped the century (Corti 1928:109, 223). Indeed, the Rothschilds were very much at the center of political affairs: “True, no Rothschild yet occupied a throne, but when a throne became vacant they were asked to advise as to who should occupy it” (ibid:197). This political centrality, combined with an unparalleled international portfolio of financial and capital investments, would place the Rothschilds in nodal points in the elite networks that would impact the shape and duration of peace and war in the nineteenth century and in the years leading up to WWI.

Peace and War

The international movements of capital and of the financial groups who negotiated these movements are by some regarded as a leading cause of war, by others as a strong force for maintaining peace. During the period 1870-1914 they worked their effects in both directions, though seldom determining events in either. (Feis 1965:467)

Indeed, the Rothschild relationship to peace and war was complex; at times it seems they were providing the means for war while at other times they attempted to broker peace. This rather schizophrenic positioning has received divergent treatments in historical analysis. On one hand, the Rothschilds have been viewed as exploiting conflict for investment gain (Ferguson 1998:21). The Napoleonic Wars provided a particularly profitable opportunity. The London house, under the direction of Mayer’s son Nathan, helped finance the British government’s war against Napoleon (Ferguson 1999:xxi-xxii). The Rothschilds also profited by trading goods declared contraband by Napoleon’s trade blockade throughout Europe at premium prices (Morton 1961:40-1), by moving gold from England through France to Wellington’s armies fighting Napoleon (ibid:45-7), and also by making commissions acting as a clearinghouse for the British government’s advances to Austria, Prussia, and Russia in the later part of the wars (ibid:47-8). The period’s concluding battle at Waterloo would be a boon for the Rothschilds. Nathan, acting upon speculation of an English loss, sold immense holdings of consols, the English state bonds. When the market collapsed, in part due to the panic created from his firm’s bond dumping, Nathan bought heavily at the bottom. When England won the battle, and the market, as well as the British government, restabilized, the Rothschilds generated a profit of 250,000 pounds on the rise in bond prices (Ferguson 1999:xxiii, 42-44, 48-50).

The years of relative peace that followed revealed part of the reality of contradictions between peace and profit. Thus, while the Rothschilds have been characterized as seeking to maintain peace, both for ideological/moral reasons but arguably more importantly to ensure the stability necessary for investment predictability (Corti 1928:174, 177-94, 429; Ferguson 1998:20), they also knew that war was quite profitable. The “fundamental paradox at the heart of Rothschild pacifism” was that governments at peace have less need for military financing; therefore, in the period following the Napoleonic Wars, “all the major powers effectively ceased to be Rothschild clients. Peace seemed to be making the five houses redundant” (Corti 1928:379). Given this threat to their asset base, the Rothschilds acted quickly and the firm began financing the rearmament efforts of France and Austria (ibid:403). This reveals a potential hypocrisy that would continue for the Rothschilds; they funded preparations for war but were explicitly pro-peace in disposition. As tensions rose and conflict became increasingly likely, the Rothschilds worked to maintain the peace; a delicate balance typical of financiers during the years preceding WWI when “their interests in general disposed them toward peaceful arrangements…In times of crisis their weight was usually behind peaceful statesmanship” (Feis 1965:468). The Rothschilds were no different in that respect; after helping to provide the means to wage war and to pay the costs of its aftermath, wars occurred that they “found themselves unable, despite their best efforts, to prevent” (Ferguson 1998:xxx).

In the Crimean War of 1854-56, the Rothschilds underwrote the debt of France, Britain, Austria, and Turkey (Corti 1928:334; Ferguson 1999:75-6, 79). The war had a major negative impact on international finance (see table, Ferguson 1999:72), as did other wars from 1854-71; however, even as they fretted over political instability, the Rothschilds prospered relative to other financiers because of their international partnership structure, which created intra-firm diversification, and their dominance in the bond markets that governments needed to finance military costs (Ferguson 1999:72). Significantly, the Rothschilds outcompeted Barings, who lost a significant amount of political capital by issuing Russian government loans (Ferguson 1999:73).

In the Franco-Prussian War, the Rothschilds played a significant role in the peace process by negotiating peace with Germany on behalf of France and then underwriting loans to pay the French government’s indemnity to Germany (Corti 1928:395; Feis 1965:39). The Rothschilds were more directly involved in the profitability of conflict during the Boer War. Here, a brief elaboration of the Rothschild link is instructive.

In South Africa, the London Rothschilds’ provided extensive financial support for the merger of Cecil Rhodes’ De Beers diamond company, the second-largest company in the Kimberly mining region, with Compagnie Française, the third-largest. The Rothschilds then financed the merger of the newly merged firm with the previously largest firm, Kimberly Central. The end result was a new De Beers with ninety-eight percent control of South African diamond output. For their part, the Rothschilds became the second-largest shareholder in the new firm, and in 1899, Carl Meyer Rothschild was appointed to the board. While the Rothschilds were maintaining significant control, a syndicate was created to control the world diamond market, a move similar to the one the Rothschilds’ held in mercury and copper mining (ibid:356-9).

Nathan Rothschild’s support of Cecil Rhodes, who we will reveal in the next section to be a member of the powerful elite Round Table, developed from the 1882 contact between Rhodes and a Rothschild agent in South Africa. Rhodes surmised that the Rothschild political networks could be an asset in his financial and political aspirations. The Rothschilds did not disappoint and helped secure the De Beers merger through political connections in London. In 1889, Rhodes established the British South Africa Company to achieve his goals for gold mining and then colony-building in Central Africa. Notably, Rhodes assigned all of his assets, with the exception of 2000 of his De Beers shares willed to his siblings, to Nathan Rothschild, with instructions to complete his vision of a Jesuit society upon death (ibid:356-360).

The relationship between Rhodes and the Rothschilds became strained, however, as differences emerged between the two parties over plans for expansion beyond British territory, particularly with regard to the Boer republics. Rhodes was eager to mine for gold in the Boer republics and also in the Matebele Kingdom to the north; a plan that would certainly lead to conflict. The Rothschilds largely supported the mining plans, and were not unaware of the potential, and later actual, bloodshed that would emerge during attempts to stake claim to resources under African control. Yet, in following their precedent, the Rothschilds searched for the means to achieve profit amidst competing parties with minimal investment destabilizing conflict. In this case, the Rothschilds, in opposition to Rhodes who feared competition for gold acquisition, floated loans for rail expansion to the Transvaal government in Pretoria. When the Boer War broke out, following a failed attempt by Rhodes’ militia to overthrow the Transvaal government in the “Jamestown Raid,” the Rothschilds sought to minimize both casualties and the political fallout from a war that did not have public support and which was perceived by some to be based on a search for profit (ibid:361-64).

The most significant outcome of the Boer War for the Rothschilds was the loss of their position as primary lender to European states. Whereas in previous conflicts the British government turned to the Rothshilds for financial support, in the Boer War Great Britain utilized a combination of direct market sales and the banks of J. P. Morgan and Barings. This was a major blow to what had been a virtual Rothschild monopoly on state finance and would portend the concomitant decline in Rothschild power with the ascent of the US as the financial center in the century to follow (Ferguson 1999:366-68). We will return to this watershed moment in world-system dynamics later in this section.

South and Central Africa were not the only places in which the Rothschilds flirted with indirect support of conflict in the last part of the nineteenth century. In 1888, the London house issued securities to help finance the Naval Construction and Armaments Company, then the merger of the Maxim Gun Company with the Nordenfelt Guns and Ammunition Company that were used with deadly effect in multiple conflicts, including against British imperial efforts. Natty Rothschild, grandson of Nathan, was a principle shareholder in the merged company and exerted influence over its management (Ferguson 1999:412-13). In addition, the Austrian Rothschilds had a significant share in the Witkowitz ironworks which supplied iron and steel to the Austrian navy and bullets to the army. Thus, “if late nineteenth-century imperialism had its ‘military-industrial complex,’ the Rothschilds were unquestionably part of it” (Ferguson 1999: 413).  As important players in the “militarism of the bourgeoisie” that has been claimed by many to be a prime cause of WWI (Ferguson 1999:412), the Rothschild’s delicate position on peace and war grew more tenuous in the early twentieth century as heightened tension among the core of powerful states increased the likelihood of a devastating multi-national conflict.

World War I

The years immediately preceding WWI would find the Rothschilds seriously engaged in diplomatic efforts to maintain peace among the great powers. In 1912, Alfred de Rothschild sent a letter containing the following to German diplomat von Eckardstein, who forwarded it to Count Bulow, the Kaiser’s Chancellor:

…of recent years Germany’s policy toward England has been a kind of “pinprick” policy, and, although a pin is not a very impressive document, repeated pricks may cause a wound…I hope and pray with my whole heart that no serious wound my result. I have done everything possible over such a long period of years, and I feel now that you do not fully appreciate the great advantage of a genuine understanding with England….(Wechsberg 1966:363)

In 1912, Natty Rothschild continued the family’s attempts to establish peaceful ties between Great Britain and Germany, publishing an essay in which he stated:

What have we [Great Britain]…not got in common with Germany? Nothing perhaps except their army and our navy. But a combination of the most powerful military nation with the most powerful naval nation ought to be such as to command the respect of the whole world, and ensure universal peace. (Ferguson 1999:430)

This desire to facilitate a peaceful resolution to an increasingly combative situation did not cease. Additional correspondence from Natty indicates faith in peace until war was a certainty (Ferguson 1999:431-2). On July 1, 1914, less than a month before Austria declared war on Serbia, Natty wrote to the French Rothschilds in hope that French Prime Minister Poincaré would follow the German Emperor’s example of working diplomatically with Russia and Austria to find a peaceful solution to the rising tension and impress upon the Russian Tzar that:

France is Russia’s greatest creditor, in fact the financial and economic conditions of the two countries are intimately connected and we hope you will do your best to bring any influence you may have, to bear upon your statesmen even at the last moment, to prevent this hideous struggle from taking place, and to point out to Russia that she owes this to France. (ibid:432)

In an attempt to avert war, Natty sent an appeal for peace to the Kaiser, but no response was received (ibid:436).

A massive financial crisis emerged during the month of July when war became nearly certain. On July 27, the day before war was declared, Natty informed the Paris house that “all the foreign Banks and particularly the German ones took a very large amount out of the stock exchange today” (ibid:432). Natty turned down the Paris house’s request to sell British government bonds in an attempt to obtain gold since it would further destabilize the markets and send a strong message that war was going to occur (ibid:433). The bond market started to collapse as the notes of all the major powers slumped (although, interestingly, Germany’s less so than others, suggesting faith in the German war effort). Amidst a growing liquidity crisis as war broke, the stock exchange was closed on July 31. Despite the best efforts of the Rothschilds, World War I had begun.

As people searched for a way to make sense of what had largely been an inconceivable event, the role of finance received scrutiny. Writes the Nation in 1915, looking back on the causes of WWI:

The broad fact is that, whenever politics can be made the servant of trade, money is forced to develop a national personality. Finance may be in its essence cosmopolitan, but the modern world has compelled it to acquire nationality…In a world where the practice of Protection and the quest for places in the sun has obliged financiers to constitute themselves into national groups, it is clear that this economic rivalry makes for Imperialism, which itself underlies the whole struggle for a balance of power. The national groups of financiers may not desire war; but they do and must desire that the diplomacy on which they rely for their future expansion shall be strong enough to seize and hold the concession or the sphere of penetration which they desire. This rivalry helped to maintain armed peace, and in due course the armed peace broke out in the world war. (as quoted in Ferguson 1999:412)

War created significant hardships for the Rothschilds. Outside of the impact on business operations, a number of Rothschilds fought for their countries in WWI, including Britain, France, and Austria. A Rothschild would die in the war effort, as would two close relatives. The locations on opposing sides in the conflict were also reflected in the marriages of various Rothschilds from disparate national origins, creating strains within the family. In addition, the alliance of Britain and Russia created tension due to Russia’s treatment of Jews (ibid:446-448).

Financially, the London house took a beating, tallying significant loses for three straight years beginning in 1913. In 1914, the house lost close to ₤1.5million, or 23 percent of its capital (ibid:437). By 1915, the firm had fallen from first to the second largest bank in the city, behind Midland; by 1918 the London house would also fall behind Kleinworts Greenfell (ibid:454-5).

War also disrupted the world system that the Rothschilds had mastered so well in the nineteenth century. The ties between the Vienna house and the Paris and London houses, which had been shaky, were severed for good, and the relationship between the Rothschilds and the German banks including the Warburgs was severely damaged. The overseas trade that the Rothschilds had profitably financed was disrupted and the gold standard ceased to be operable. The tax structure in many countries also turned against the Rothschild’s favor as increasingly progressive tax systems, which Natty had strenuously lobbied against, hit their assets (ibid:414-27, 454).

These changes paled in comparison to the key blow to Rothschild dominance: the rise, without their participation, of New York to a position atop the world financial system. Prior to WWI, as discussed earlier, the Rothschilds held a virtual monopoly on state finance and had provided the funds for the war efforts and aftermath for most of the warring governments. World War I would complete the shift from Paris and London to New York that began in the Boer War. In WWI, while France borrowed 610 million pounds from Britain, they borrowed ₤738 million from the United States, while Britain borrowed ₤936 million from the burgeoning financial power (ibid:437). The Rothschilds were no longer the financier of choice for transfers between states; J. P. Morgan filled that role, although the further democratization of polities would restrict the ability of Morgan to leverage financial power to shape political policy in the manner the Rothschilds had 100 years earlier (ibid:455-6).

Taken together, the reverberations from the world-system-wide shock of WWI would rattle the foundations of the House of Rothschild. The decline of the symbol of international financial success in the nineteenth century was imminent:

Although there is no question that the Rothschilds gained in one or two isolated respects from the war—which boosted demand for Vickers’ guns, New Caledonian nickel, and De Beers’ diamonds—its net effect was unquestionably negative. It is only a slight exaggeration to say that the world in which the Rothschilds had thrived came to an end in 1914 (ibid:454).

World War I, then, was the exemplar of the outcomes of war that the Rothschilds sought to prevent. Not only did the family suffer personal and financial losses, the severity and reach of the war would radically change the social, political, and financial system that they had thrived upon. World War I marked the end of the Rothschild reign.

In conclusion, the Rothschilds leveraged technology, social networks, and exceptional business acumen to become the strongest and most international financial firm throughout most of the nineteenth century. Their power, and the resulting profit, was heavily reliant upon positive relations with the governments of the states in which their houses were based, a situation that at times created conflict for what was a truly multinational firm. While they profited from war, most notably in financing military build-ups, costs of operations, and post-war cleanups, they knew that large-scale war would destabilize the political and financial systems in which predictability was ultimately desired. While their role in the years leading up to WWI certainly provided some of the fuel for the calamity that would occur, the Rothschilds were clearly opposed to its outbreak, and for good reasons. World War I’s disruption of the political, social, and financial systems caused significant losses for the Rothschilds. More important, the War also marked what had been a decline in the Rothschild reign that coincided, and was precipitated by, the shift in the international financial center from Paris and London to New York. In the end, the House of Rothschild could not escape world-systemic dynamics.

Anglo-American Establishment: The Round Table

The nineteenth century was “Britain‘s Century,” the period when the United Kingdom achieved hegemony through its position as both the “workshop of the world” and the “commercial and financial entrepôt of the world,” with London as its great clearinghouse (Chapman 1984; Ingham 1984; Anderson 1987; Arrighi 1994; Rubinstein 1998). Up to the final days of the Great Depression (1873-96), Britain was the leading industrial manufacturing power in the world. Its textile industry, its machines, its shipping, its railways, shaped the economic networks that spanned the globe. Up to World War I, the City of London was the world’s leading financial center. Britain’s hegemony was marked by increasing international trade, investment and global integration that peaked in the late nineteenth and early twentieth centuries.

Great Britain’s ascendance to hegemony was in part due to its ability to reconstitute the global social order destabilized by the French Revolution and world-systemic conflict. The American Revolution, the French Revolution and subsequent wars against Revolutionary and Napoleonic France provided the structural context within which Britain was able to use its advantage to integrate and control the world economy. The French Revolution and the war against Napoleonic France forced Britain to search for new markets in Latin America, the Middle East, and Asia. Britain’s unilateral adoption of a free trade practice and ideology created worldwide networks of dependence on the expansion of its wealth and power. Britain’s hegemony was undergirded by its sea power and commerce. From William Pitt to the Rhodes-Milner Round Table Groups, the British elites envisioned a consortium of civilized nations with Great Britain at its core.

Crystal Palace Exhibition

The Cecil Bloc and the Milner Group

Robert Arthur Talbot Gascoyne-Cecil, who was the Viscount Cranborne and third Marquess of Salisbury, formed the Cecil Bloc that became the nexus of power in Britain.  Lord Salisbury was the foreign secretary under Disraeli in 1878 was his own foreign secretary during his own administrations as Prime Minister (1885–1892 and 1895–1902).  With respect to domestic politics, Salisbury was deeply suspicious of democracy and opposed the parliamentary reform of Disraeli. Grenville (1964) argued that an enlightened and progressive oligarchy would probably correspond to Salisbury’s vision of the ideal form of government. Lord Salisbury constituted the Cecil Bloc by

(a) a triple-front penetration in politics, education, and journalism; (b) the recruitment of men of ability (chiefly from All Souls) and the linking of these men to the Cecil Bloc by matrimonial alliances and by gratitudes for titles and positions of power; and (c) the influencing of public policy by placing members of the Cecil Bloc in positions of power shielded as much as possible from public attention. (Quigley 1981:15)

Members of the Cecil Bloc included his nephew Arthur Balfour, Baron Quickswood, Sir Evelyn Cecil and others who served in key secretarial positions under Lord Salisbury. Balfour had represented Britain in secret talks set up by the German Ambassador Count Hatzfeldt and Alfred Rothschild in 1898 when the conflict heated up between Britain and Germany over East Africa. Balfour was Prime Minister between 1902-1905.

The Secret Society of Cecil Rhodes

The South Africa Company was organized by Cecil Rhodes and a group of London capitalists with an initial capital investment of £700,000, most of which was set aside specifically for railway construction (Galbraith 1974:122).  The company acquired extensive mineral rights and administered the territories of Southern and Northern Rhodesia until 1923. Rhodes believed in the extension of British rule throughout the entire world. He modeled a secret society on the Jesuits, with the aim of promoting English ideals and federal imperialism (Quigley 1981). The secret society took form in 1891. The six initiates of Rhodes’ secret society were Lord Rothschild, Harry Johnston and Abe Bailey who were financiers of African and American ventures, the journalist William T. Stead, Reginald Brett and Alfred Milner (Quigley 1981; van der Pijl 1984). Reginald Brett, Lord Esher, was a lifelong friend of Arthur Balfour, Albert Grey, Lord Roseberry and Alfred Lyttelton. Lord Esher served as the secretary of the Office of Works (1895-1902), Lieutenant Governor and Governor of Windsor Castle (1901-1930), member of the Royal Commission on the South African War (1902-1903), and permanent member of the Committee of Imperial Defense (1905-1930). But more importantly, Esher was the most important political advisor to Queen Victoria, King Edward VII and George V (Quigley 1981:42). Rhodes and Milner aimed at uniting an English-speaking world in a federal structure with North America and Britain at its core (Marlowe 1976; van der Pijl 1984).

After the death of Lord Salisbury, the Milner group was formed out of the Cecil Bloc.  Alfred Milner had shifted the emphasis on family connections to ideological consensus in constituting the group (Quigley 1981:29). Through the influence of Stead, Brett and Rhodes, Milner was appointed as High Commissioner of South Africa. As High Commissioner, Milner gathered men who would subscribe to the ideology that the extension and integration of the Empire and the development of social welfare were crucial to the continued existence of the British way of life (Marlowe 1978). These men were known as the members of “Milner’s Kindergarten” (Marlowe 1978; Quigley 1981:52). Patrick Duncan, Phillip Kerr (later Lord Lothian), and Lord Robert Henry Brand were among the twenty-three members of the kindergarten. Sir Patrick Duncan was Treasurer of the Transvaal in 1901, Colonial Secretary of the Transvaal in 1903-1906, and Acting Lieutenant Governor in 1906.

The Rhodes-Milner Round Table Groups were founded in September 1909 in a conference at the Estate of Lord Anglesey, Plas Newydd in Wales. The Round Table Groups were designed to promulgate the idea of forming a World Federal Government, based on the unification of the British Empire and the United States. It could be argued that the Round Table Groups provided the blueprint for future organizations such as the Royal Institute for International Affairs, the Council on Foreign Relations and the Bildeberg group. The leaders were Philip Kerr, secretary of the London group and Lionel Curtis as organizing secretary for the whole movement throughout the world (Quigley 1981:117).  Curtis and others had set up local Round Tables in South Africa, Canada, New Zealand, Australia and India. The Rhodes-Milner, or Round Table groups existed in seven countries—England, South Africa, Canada, Australia, New Zealand, India and a rather loosely organized group in the United States. The backbone of this organization was built along the already existing financial cooperation running from the House of Morgan in New York to the group of international financiers in London led by the Lazard Brothers (Quigley 1966,1981).

Anglo-American Rivalry for Hegemony: Carnegie and the House of Morgan

While the traditional story emphasizes the role of the Robber Barons and US industrialists after the American Civil War, we argue that for some time US industry was largely subordinate to financial capital.  Only during the New Deal did capital groups, such as the Rockefellers and other industrial firms fully come to dominate the US economy.  In any event, after the Civil War, the core base of support for Anglo-American liberal internationalism was among the Anglo-American cosmopolitan financial houses that formed the transatlantic circuit of money capital that fueled US industrialization from the railroad boom to the rise of heavy industry (van der Pijl 1984: see also Adler 1970).  Two of the most important enterprises emanating from this Anglo-American process of class formation were Carnegie Steel and the House of Morgan, the importance of the latter standing in stark contrast to the limited role of the House of Rothschild in US finance, which stuck primarily to state and federal bonds, and even here ran into many problems (Ferguson 1999a: 117, 348-349; cf. Birmingham 1967: ch. 17).  German-Jewish investment banking firms, such as Kuhn Loeb, handled loans instead to Germany, while the Deutsche Bank signed an oil market agreement with Rockefeller as early as 1913 (van der Pijl 1984: 43-45; see also Gall 1995: 62-67).  Carnegie’s industrial efforts, in contrast, were facilitated by access to available European capital from the House of Morgan in London – often raised on the London capital markets – and from Drexel, Morgan and Co. in the Northeastern US.

During the worldwide depression and intensified inter-enterprise competition of 1873-1896, Carnegie used this moment of worldwide price deflation to vastly expand his industrial empire.  During these years of ruinous competition and falling profits, railroad consolidation grew by leaps and bounds.   Railroad companies increasingly turned to investment bankers, notably the House of Morgan, with its access to European capital markets, for stocks, bonds and corporate loans with which to consolidate the industry, which came under the control of the new financiers (Chandler 1977: 187). Starting in 1874, Carnegie traveled to London to negotiate a $400,00 bond issue with the House of Morgan for his Thomson steel mill (Misa 1995: 1330134). As for Carnegie, not only did he become one of the leading entrepreneurs in the US and indeed the world, he helped to weld together an Eastern Establishment, setting up the Carnegie Endowment for International Peace, composed of diplomats and businessmen straddling the transatlantic economy, that would eventually ally with a declining British hegemony as the US grasped the baton of world money and power.

In their discussion of  the early origins of the transatlantic ruling class and “Atlantic military empire,” Calleo and Rowland (1973: 46-47) note that the US “nucleus of this geopolitical tradition formed itself in the final quarter of the last century around a small circle of friends and relations drawn from the older American elites:  Henry and Brooks Adams, Henry Cabot Lodge, Alfred Thayer Mahan, John Hay and Theodore Roosevelt.”  This group of American elites knew Europe well and had especially close connections with England.  Although these elites favored an Anglo-American special relationship, they had viewed the United States as the heir apparent to Britain’s world position.

In the late nineteenth and twentieth centuries, the full development of material expansions gave way to periods of financial capitalism, with the “rise [of] a class of pecuniary experts whose business is the strategic management of the interstitial relations of the system” (Veblen 1958: 20).  Separate firms and “separate states had to compete for mobile capital, which dictated to them the conditions under which it would assist them to power” (Weber 1961: 247-249).  As accumulation flowed beyond the bounds of profitable investment in peaceful trade and production, mobile capital took flight towards zones with the highest rates of profit and lowest protection costs, fueling interstate and inter-firm competition as well as more pure forms of financial speculation.

The Great Depression of 1873-1896 dramatically illustrated these contradictions, as new states emerged, which with the space-time compression of the world system, were now able to overcome internal barriers and mobilize more effectively their vast geographic and industrial resources to compete with England on the world stage.  As economic depression and protectionism spread, power elites responded by incorporating workers into projects for militarized expansion into overseas markets, as an antidote to worker unrest, as well as excess surplus capital and productive capacity.  An integral aspect of this social imperialism was the formation of embryonic military-industrial-financial complexes in states such as the US, UK, Germany and Japan.  The obverse side of this turn-of-the-century financial expansion was thus the reciprocal stimulus of military industrialization and haute finance, which played seminal roles in this changing spatial configuration of the interstate system and restructuring of the global landscape of capital accumulation.

This was a crucial period in the formation of America’s WASP Establishment, as it was during this period that racial and class exclusivism at home was redoubled, while notions of white supremacy were forwarded as part of the formation of a hegemonic social bloc at home and the globalization of US business and state power abroad.  The emergence of the US as a global multinational military-corporate complex with its newfound naval-steel prowess, contributed decisively to the consolidation of the Anglo-American Establishment and alliance (see Hobson 1965: 57, 72-93).  This alliance was in fact premised upon the US great leap forward in US steel and naval power that came with the rise of vertically integrated firms such as Carnegie Steel.  The internalization of production costs through vertical integration and monopolization, however, created yet new problems of assuring steady demand for continuous production.  This process increased the importance of military spending and overseas expansion.  Here, the increase in US military power was instrumental both in the overseas imperialism which opened up states for foreign direct investment (FDI) and in subsidizing continuous production (cf. Hymer 1976, 1979: 45-48).   Arms spending supported technological innovation, which in turn allowed firms to garner lucrative superprofits and monopolize industry.

Steel was far from being the only important industry in which military demand stimulus played a growing role in the expansion of profits and power (Brady 1943). The development of military power provided power elites with the means to expand state and business power overseas.  This marriage of profits and power thus helped pave the way for a new alliance of business and governmental organizations that would give the American century its distinctive character.  Carnegie’s old firm became the world’s first billion-dollar corporation with the advent of JP Morgan’s US Steel in 1901, which provided for the consolidation of industry under the dominance of this towering firm of the Anglo-American Establishment, as part of the Money Trust (de Long, 1992, 1997).  Moreover, the superprofits provided to Carnegie helped his Foundation to finance the formation of the Anglo-American Establishment foreign policy network and the war preparedness movement (see Fabian 1985; see NSL, 1918, 1919).

With the ever-increasing burdens that came with the commercialization and industrialization of war, interstate capitalist classes were thus able to turn the intensified competition of states into engines for the expansion of their own profits and political-economic power, while states turned to wielders of money, industrial and commercial capital to fund and supply their power pursuits (cf. Arrighi 1994: 107).  The structural opportunities opened up to capitalist agencies in this process were nowhere better exemplified in the US than in the rise of Carnegie Steel and the House of Morgan.

George Peabody, an American who had turned from dry goods imports to diversified interest in trade and finance, organized a merchant bank in 1857 with its headquarters in London. Peabody and Baring Brothers & Company as well as other merchant banks invested in the railroads in the United States (Hidy and Hidy 1960). In the 1850s, a number of these houses including the The Rothschilds, Matheson & Company, Magniac, Jardine & Company, Frederick Huth & Company, Brown, Shipley & Company (Hidy and Hidy 1960). Peabody invested 10,000 in the Baltimore and Ohio railroad. Peabody also raised capital for the first and second trans-Atlantic cables.  Peabody brought in Junius Spencer Morgan as a junior partner and the two would create the financial empire that became the House of Morgan (Chernow 1990). The discovery of gold in California and the successful conclusion of the Mexican-American war contributed to the restoration of American credit between 1848-1852. Simultaneously British rail manufacturers were looking for new export markets. In 1847 N. M.  Rothschilds & Sons invested $4,000,000 in United States Treasury notes and converted a portion to United States bonds issued the same year (Hidy and Hidy 1960: 154). J.P. Morgan had offered Alfred Milner a partnership in his London branch in 1901.

Morgan’s first entree into the ranks of high finance came from the London firm’s massive loan of 250 million francs – roughly $50 million – to the French needed for the six month Franco-Prussian War of 1870-1871; a loan made while the Prussians were still attacking Paris.  The emergency loan provided the government with a source of funds for both the war effort and for the forces with which to crush the Paris Commune.  These loans netted the firm over a £1.5 million in profit and catapulted them to the top ranks of the world’s private international banking fraternity centered on London (Carosso 1987: 131-133; van der Pijl 1984: 41).

The House of Morgan, allied with like-minded of the world’s wealthiest Anglo-Americans such as Andrew Carnegie and the Astor family, were the leading players in the growing Anglo-American alliance solidified during the turn of the century.  William Waldorf Astor, son of John Jacob Astor, moved to Great Britain in 1890 (see Cowles, 1979: 148). William Stead, who was close to Andrew Carnegie and a member of the Cecil Bloc, facilitated the development of such corporatist social imperialist schemes in the US through his role in the formation of the Chicago Civic Federation, which gave way to the later National Civic Federation, funded primary by Carnegie, along with the House of Morgan and supported too by a host of other future National Security League leaders such as Elihu Root (van der Pijl 1998: 112-113; Weinstein 1968; Brown 1999: 142; Stromquist 1999: 183-184; Semmel 1960).  Tied together initially through international banking and finance, this intermarried international banking fraternity established networks of cooperation between British dominated Europe and the US-led Americas (see Quigley 1966: 951).

In June of 1898, a host of Britain’s leading men got together to build an Anglo-American League composed of over 1000 of the leading members of the Anglo-American Establishment was formed to strengthen Anglo-Saxon solidarity so as to support US efforts to conquer Cuba, Puerto Rico, the Philippines and Guam in its war with Spain (Reuter 1924: 160; cf. Allen 1954: 564; van der Pij, 1984: 39).  The General Committee of Britain’s Anglo-American League, printed in Century Magazine, “A Step Towards Universal Peace,” Volume LVI, September 1898 (794-796), came to include hundreds of the country’s most prominent individuals.  Fourteen days later on July 27, 1898, Americans formed the Anglo-American Committee based in New York.  Eventually well over 1,000 of the nation’s most powerful and prominent individuals from across the country, as listed in the Committee’s 1899 publication, An American Response to Expressions of English Sympathy, joined this group.

The group represented leading citizens of the nation, notably corporate elites and intellectuals throughout government, finance, industry, religious institutions and schools.  Thus was the American century ushered in through the overseas expansion of US economic and military power brought about by a politically organized militarist capitalist establishment working very hard to forward their interests overseas.  The Spanish-America War was a seminal event in this long-historical process, inaugurating the era of US overseas imperialism and extending the US “defense” perimeter out into the depths of the Asia-Pacific and the Caribbean.  The Anglo-American alliance that came with the War of 1898 was soon firmed up during the Boer War.

England’s own entrance into the interstate competition during this period, including for mobile capital, led to a tightening of the networks linking the British state, US political elites and haute finance, control of which was now shifting from the  Rothschilds to the Morgan bank.  This structural geoeconomic shift was understood by the crucial actors involved, who made their plans accordingly.  UK’s Clinton Dawkins, who had close ties to the London and British political elites and who played an important role in England’s military buildup during this time, was in fact offered a vast fortune to join the House of Morgan firm, an offer he accepted (Cassis 1994: 39-40).

Soon after Dawkins joined the firm, another Englishman, Edward Charles Grenfell, whose father was a director of the Bank of England, became a partner.  Edward soon became a Director of the Bank of England from 1905-1940 and the “resident senior” member of the Morgan firm, renamed Morgan, Grenfell (Burk 1989: 59; Cassis 1994: 242-243).  Earlier in 1889 Dawkins had taken over from his close friend Alfred Milner – both of them being Balliol, Oxford graduates – as private secretary to G.J. Goschen, during the time this leading financier served as Chancellor of the Exchequer from 1886-1892, after taking this position over from Winston Churchill’s father.  Goschen was one of the most influential members of the English Establishment.  As for Dawkins, he joined the House of Morgan in hopes of earning money to realize his dream of bankrolling his own public career and that of his friend Milner as well, in order to reorganize the British Empire and revitalize the Imperial ideal (Burk 1989: 59, 88).

Later Dawkins would relate to his longtime friend Cecil Spring Rice – dear friend of Teddy Roosevelt, Henry Cabot Lodge and JP Morgan, who became Ambassador to the US during WW I – that Arthur Balfour, soon to become British Prime Minister and Colonial Secretary Joseph Chamberlain, had ‘pressed’ the House of Morgan very hard to incorporate an important bona fide Englishmen into the great merchant banking house (quoted in Kynaston 1995: 190).  Dawkins went on to say that both Goschen and Milner, along with others in Britain’s inner circle of power, urged him to accept the offer (Kynaston 1995: 190; cf. Burk 1989: 58).  Dawkins did accept and from his new position seems to have played an instrumental role in convincing the British government to turn to the House of Morgan for overseas financing for the Boer War, just as British had provided informal diplomatic support for the US during the War of 1898 (Burk 1989: 59-60).

The new prominence and prestige the House of Morgan was enjoying was boosted by its financing of Britain’s war of conquest in Southern Africa, the so-called Boer War, while the firm reaped additional benefits from investments in De Beers and Anglo-American.  This tightened the connections of the House with the British upper classes, establishing the firm as the top lender to Europe’s foremost creditor state.  In the end, the House of Morgan financed a fifth of Britain’s Boer War, some $223 million dollars, as President Roosevelt stood ready to come to England’s aid if needed (van der Pijl 1984: 43; Beloff 1970: 76).  Significantly enough, this was the very first time since the Seven Years’ War (1756-1763) that the British government had to go abroad for foreign borrowings.  From 1900-1913, well over a $1 billion dollars worth of foreign loans – roughly 250 of them in all – “were placed in the United States,” including some $75 million in Japanese war bonds, by the German Jewish investment banking firm of Kuhn, Loeb, under Jacob Schiff (Carosso 1970: 81-82).

Britain’s turn to the House of Morgan for bond flotations during the Boer War thus “marked the beginning of the transatlantic transfer of financial power” from London to New York and helped sealed the future Anglo-American alliance of World War I, the second major act in this ongoing transfer of world money and power (Ferguson 1999: v).  The creation of this Anglo-American alliance of World War I, which continued the earlier rapprochement of 1898-1899, was a watershed event, as significant as Britain’s choice of free trade, to which it was indeed related.

The overlapping networks of money and power described above form the human counterpart to the unfolding structural logic of the world-system as it presented itself to men in power.  This growth of US enterprise in the cradle of English hegemony was a natural outgrowth of UK financing of US economic growth.  US leaders in this effort turned back to the old world to help finance and profit from its wars and conflicts, as the new world became a massive arsenal at the service of the old, but for the ultimate profit of the new.

Conclusion

In this paper, we have discussed a series of micro-histories; an archipelago of key national and international elites in the period from the early decades of the nineteenth century to the beginning of WWI. In Germany we focused on Von Moltke, Krupp, Siemens, and Rathenau in the context of an integration of the military, industry, and politics. In Russia, Sergi Witte received attention as the principal architect of industrialization amidst struggles to maintain the traditional socio-political structure that was under increasing pressure in a changing world. We then discussed the international financial and political power of the Rothschilds; whose strength was built upon their centrality in virtually global elite networks but a position that would generate many conflicts over their desire to maximize profit while maintaining peace. Finally, we emphasized the powerful, and secretive, groups of Cecil, Milner, and Rhodes in Great Britain and Carnegie and Morgan in the United States; groups of elites that would play an influential role in shaping the contours of geopolitics in the late nineteenth and early twentieth centuries. These individuals were exemplars of powerful, sometimes overlapping, elite networks that were governing, albeit in a de facto manner, a rapidly changing, consolidating, and increasingly globalizing, world-system. Together, although not always in unison, these individuals affected, and were affected by, the cycles of peace and war that occurred during the “long nineteenth century.”

Each little history, each slice of the history of elites describes not only the individuals but also the networks of their relationships and the social institutions in which they were embedded, and which they produced and reproduced. The development and interaction of this agent/structure interplay was possible for the first time on a nearly global scale in this period due to rapid technological and infrastructural growth as advances in rail, shipping, and communications undergirded an expansion of international trade. The individuals, then, provided an entry into the larger social structures that together impacted the events which emerged during the nineteenth and early twentieth centuries. The multi-level and multi-spatial analysis we undertook is therefore necessary for an adequate understanding of the key components of the world-system that characterized the history of this, and all, temporal periods.

We found that despite, and often because of, the increasing density, depth, and reach of the elite networks and their intersection with national and international social, political, military, and financial institutions, conflict was not reduced during this period; the Franco-Prussian, Crimean, Russo-Japanese, and Boer Wars, were only a sample of the many conflicts that presaged WWI. In addition, major social upheavals took place in this period, most notably in the revolutions of 1848, 1868, and in the depression of 1873-96. However, in the face of conflict periods of peace also occurred, and again, the elites, both as nodes in their networks, and as participants in the social structures they interacted with, played significant roles in the calm.

At this point in the research project, we are unable to make any sweeping claims regarding the relationship between conflict and elite integration. Elite integration was indeed occurring, as were peace and war; however, their relationship to each other eludes relatively simple characterization. We can say that the relationship is incredibly complex as the multi-faceted actions and interests of individuals and groups were often opposed to those emerging in the networks in which they were embedded. The goal, then, of our continuing research is to further map elite networks and their impact on social structures and historical events in order to untangle the complex web of interrelationships that shape world-systemic history.

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[1] This is a draft of a paper to be presented at the Annual Meeting of the American Sociological Association, in Montréal, Canada, at 10:30 am on August 11, 2006 at the session on World Systems organized by Farshad Araghi. It is a product of the Global Elites Research Group based at the Institute for Research on World-Systems, and has included among its members for 2005-06 Kenneth Barr, Anders Carlson, Christopher Chase-Dunn, Rebecca Giem, Shoon Lio, Yvonne Hsu, Linda Kim, Jonathan Krause, Kirk Lawrence, Richard Niemeyer, Thomas Reifer, Christopher Schmitt, Nuray Terzi, and Jessica Tiu.  The group has been supported by the Sociology Program of the National Science Foundation Grant # 0350819 (Co-PIs Chase-Dunn and Reifer).

[2] In addition to the countries listed, our research group is also engaged in case studies of elite networks in Austria-Hungary, Italy, China, Japan, and the Ottoman Empire.

[3] Thus far, analysis of the quantitative portions of this research project indicates a significant positive correlation between trade and conflict.  See Christopher Chase-Dunn, Robert Hanneman, Anders Carlson, and Richard Niemeyer, “Trade and the Flag: Integration and Conflict in Waves of Globalization and Deglobalization.” Paper to be presented at the Annual Meeting of the American Sociological Association, Montréal, Canada, August 11, 2006.

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