Economic Developments of the Late 19th Century

It is exciting to look at the economic developments in the 19th century. Especially when we consider the events of the first quarter of the 21st century and make comparisons, we have the opportunity to delve deeper into the reasons for the results that emerge today. Studying history is both important and exciting for better understanding today.

Between 1870 and 1890, the total production of the five most important iron-producing countries more than doubled from 11 million tons to 23 million tons. Steel production increased from 500 thousand tons to 11 million tons. The production data for this commodity provide an important idea of the extent of industrialization.

Again, between 1870 and 1890, the US and German economies were making great strides. Alexander Hamilton was behind the economic developments in the US, and Franz List was behind the developments in Germany.

The last quarter of the 19th century was a period in which many countries integrated into the world economy. The level of foreign investment in Latin America increased rapidly in the 1880s. For example, the size of Argentina's railway system doubled in the space of five years.

The high scale of production suppressed the general level of prices, interest rates and profitability. The period between 1873-1896 was deflationary. During this period, the general level of prices in England fell by 40%. Agriculture was the sector with the greatest decrease in profitability. The situation was similar both in Europe and in the countries to which Europe exported. In 1894, the price of wheat was slightly above 1/3 of its level in 1867. Iron prices fell by 50% between 1871-1894.

Deflation has a decreasing effect on profitability rates. The way to eliminate the unprofitability that occurs for companies is to make moves that will grow the market. However, it is not possible to grow the market fast enough. There are three main factors that stand out behind the market not growing fast enough. With the technological developments recorded in the industry, there is a huge increase in production. The number of producers and industrial economies that are competing with each other is increasing and therefore their production capacities are increasing rapidly. Finally, the consumer goods market is not growing enough.

Production costs have lower elasticity in the short term than the market prices of goods. Because wages do not fall at the same rate as the market prices of goods fall. In addition, the costs of adapting to new technological developments also put pressure on the producer's costs.

One of the important features of the 19th century was that the amount of national currencies in circulation depended on the amount of precious metals. Exchange rate stability was important for the healthy operation of the international payment mechanism, and this was achieved by linking currencies to precious metals.

Some countries determined the amount of their national currencies in circulation by using only gold, some countries only silver, and some by using a method where gold and silver were evaluated together. In this case, the value between gold and silver also had an importance for the healthy functioning of international payments.

Until 1872, the value of 1 unit of gold, which was equivalent to almost 15 units of silver, began to change and become unstable. Gold was particularly important, and the lack of supply on a global scale made it difficult to increase the amount of national currencies, and thus the deflationary process could not be prevented. In other words, the fact that the amount of gold was not increasing prevented the amount of national currencies from increasing, and monetary expansion that would end the deflationary process could not be provided. The instability of the exchange rate between gold and silver and the lack of gold supply led countries to tie the amount of their national currencies in circulation to the amount of metals other than gold and silver.

Deflation, low interest rates and profit rates resulted in each country evaluating its own economic advantages differently. The US was under the influence of George Hamilton's ideas. According to Ricardo's theory of comparative advantage, George Hamilton thought that instead of an economic model based on international specialization, the US should create an economic power within itself. The basis of his ideas were the US's own geographical conditions and production and market structure. Doing international trade with a far-off Asia on the western front and a far-off Europe on the eastern front did not offer the US an economic advantage under its own special conditions and low prices, low interest rates and low rates.

Unlike the US, England was increasingly becoming an export-oriented economy, and its economic policies followed the ideas of Ricardo. In the 1870s and 1880s, England was in a position to export more capital and more financial, commercial and logistic services. Countries such as Belgium, the Netherlands, Switzerland and Denmark were also implementing similar policies, except for Germany.

The last quarter of the 19th century was a period in which trade and production increased rapidly. However, it was also a period in which protectionist international trade tariffs came into play intensively from the late 1870s onwards.