Chapter 5 - European economic developments

The six stages development of capitalism has made western civilization the most prosperous society in history. Each stage created the conditions necessary to bring about the next stage. The agrarian system brought surplus to the landlords so that they began to trade necessary goods for luxury items, giving rise to commercial capitalism. In this second stage, mercantile profits and growing markets created such a demand for goods that only industrial capitalism could satisfy. This gave rise to demand for capital to develop industry, capital that individual proprietors alone could not provide. Thus, new financial instruments came into existence in the form of limited-liability corporations and investment banks, which rose to a position of control over the industrial system by funding industrialization. Hence rose financial capitalism. Finnicization of industry made possible an increase in profits, resulting in the industrial system becoming able to finance its own expansion from its own profits, weakening financial control and giving rise to the stage of monopoly capitalism. In this fifth stage, great industrial units, working together either directly or through cartels and trade associations, were able to exploit most of the people. The result was a great economic crisis which soon developed into a struggle for control of the state—the minority hoping to use political power to defend their privileged position, the majority hoping to use the state to reduce the power and privileges of the minority. But this struggle faded with the rise of economic and social coexistence after 1945. 

As a stage of economic organization reaches its end, a depression takes place. This happens because the previously novel system becomes a web of vested interests of adherence to the current stage. This is inevitable in any social organization especially in capitalism. 

Capitalism       

Capitalism incentivizes economic activity through self-interest. This is a strength, but also a weakness. Self-centered motivation can hinder economic coordination since someone driven by profit alone may ignore the effect of his economic activity on other areas of society unless it's driven by enlightened self-interest. 

Commercial Capitalism 1300-1815      

Money and goods are exactly opposite things. Most confusion in economic thinking arises from failure to recognize this fact. Goods are wealth which you have, while money is a claim on wealth which you do not have. Thus, goods are an asset; money is a liability. If goods are wealth; money is not wealth, or negative wealth, or even anti-wealth. They always behave in opposite ways, just as they usually move in opposite directions. If the value of one goes up, the value of the other goes down, and in the same proportion. The value of goods, expressed in money, is called "prices," while the value of money, expressed in goods, is called "value."     

The different stages of capitalism produced profits by different kinds of economic activities. Commercial capitalism produced profits by moving goods from one place to another so that goods moved from low-price areas to high-price areas and in turn, money moved from high-price areas to low-price areas.

Commercial capitalism arose when merchants, carrying goods from one area to another, were able to sell these goods at their destination for a price which covered original cost, all costs of moving the goods, including the merchant's expenses, and a profit. This development, which began as the movement of luxury goods, increased wealth because it led to specialization of activities both in crafts and in agriculture, which increased skills and output, bringing into the market new commodities.   

At some point it became apparent that commerce led towards equalization of prices between two areas through the reciprocal movement of goods and money. This hurt profits for merchants, however much it may have satisfied producers and consumers at either end. To maintain the price difference, and thus their profits, merchants restricted the flow of goods. They achieved this by institutionalizing commerce into the system known as mercantilism. The merchant's interest in profit led them to manipulate the market for prices to remain high and they could do so because they stood in the middle of producers and consumers. In other words, commercial capitalism was productive until corruption and monopolization transformed it into its monopolized form- mercantilism. This is telling of the nature of economic systems and of human psychology.   

Eventually, some merchants began to shift their attention from the goods to the monetary side of the exchange. They began to accumulate the profits of these transactions, and became increasingly concerned, not with the shipment and exchange of goods, but with the shipment and exchange of moneys. In time they became concerned with the lending of money to merchants to finance their ships and their activities, advancing money for both, at high interest rates, secured by claims on ships or goods as collateral for repayment. 

In this process the attitudes and interests of these new financiers became totally opposed to those of the merchants (although few of either recognized the situation). Where the merchant wanted high prices and low interest rates, the banker wanted a high value of money (low prices) and high interest rates.

Eventually, there were three kinds of economic actors: producers, exchangers, and consumers. There were two kinds of exchangers (merchants and financiers), with almost opposite, short-term, aims. The problems which inevitably arose could be solved only by changing the system. Unfortunately however, while production, transfer, and consumption of goods were concrete and clearly visible so that almost anyone could grasp them simply by examining them,  the operations of banking and finance were purposefully concealed, scattered, and abstract so that they appeared to many to be difficult.

Hence, the central fact of the developing economic system, the relationship between goods and money, became clear to mostly financiers alone. This relationship, reflected by the price system, depended upon five things:

• The supply of goods
• The demand for goods
• The supply of money
• The demand for money 
• The speed of exchange between money and goods. 

An increase in demand for goods, supply of money, speed of circulation, would move the prices of goods up and the value of money down. This inflation was bad for bankers, although desirable to producers and merchants (today inflation is raging because corporations are in control of the economy). A decrease in the same three items would be deflationary and would worry producers and merchants, and delight consumers and bankers. 

Such changes of prices, either inflationary or deflationary, have been major forces in history for the last six centuries at least. Their power to modify men's lives and human history has been increasing. For example, rises in prices generally encourage an increase in economic activity, especially the production of goods as well as redistribute wealth within the economic system. Another example is that a slow and steady rise in prices, encourages producers because they can pay for costs of production at a lower price than the finished product for sale. Meaning that the time of production is profitable under inflation.

Inflation benefits debtors and injures creditors, while falling prices do the opposite (therefore interest rates are high on inflation and low on deflation). Under inflation, a creditor, such as a bank, which has lent money—equivalent to a certain quantity of goods and services—on one price level, gets back the same amount of money—but a smaller quantity of goods and services—when repayment comes at a higher price level, because the money repaid is then, less valuable. Therefore bankers, as creditors, have been obsessed with maintaining the value of money.

This became evident hundreds of years ago, when bankers began to specialize in foreign trade and foreign-exchange transactions, becoming the financiers and financial advisers of governments and using their power and influence to do two things: 

• Get all money and debts expressed in terms of a strictly limited commodity—ultimately gold.
• Get all monetary matters out of the control of governments and political authority, and into the hands of private banking.     

These efforts were accelerated with the shift from commercial capitalism to mercantilism which became prevalent by 1815 after the series of wars which ravaged Europe from 1667 to 1815. Comercial capitalism went through two periods of expansion each of which deteriorated into a later phase of war, class struggles, and retrogression, one that ended at 1300 and one that began at 1440 ending at the end of the 16th century.      

The commercial capitalism of the 1440-1815 period was marked by the supremacy of the Chartered Companies, such as the Hudson's Bay, the Dutch and British East Indian companies, the Virginia Company, and the Association of Merchant Adventurers (Muscovy Company). 

Industrial Capitalism 1770-1850

Britain's victories over Louis XIV in the period 1667-1715 and over the French Revolutionary governments and Napoleon in 1792-1815 had many causes, the financial and economic ones were the discovery of credit and the Industrial Revolution respectively. 

England began to issue receipts for gold with the establishment of the bank of England. Because of the superior convenience of the receipts, they were used for transactions instead of gold, giving bankers the idea to issue more receipts than they had gold reserves. This practice is called fractional reserve banking. It results in damaging the trust that people have on the institution responsible, leading to events like bank runs, hyperinflation, and collapse of currencies. In effect, this creation of more bank notes than there are reserves available means that bankers are creating money out of nothing. The same thing could be done, not by note-issuing banks but by deposit banks by issuing loans based on fractional reserve banking (like today). 

This organizational structure for creating means of payment out of nothing is what credit is. It was not invented by England but was developed by it to become one of her chief weapons in the victory over Napoleon in 1815. They used it as a countermeasure to their enemies' attempts to bankrupt them under the assumption that no one would use credit to finance war. 

Britain's victory over Napoleon was helped by two economic innovations: the Agricultural Revolution (1720), and the Industrial revolution (1776), when Watt patented his steam engine. The Industrial Revolution was characterized by the development of cities, a new working class, the labor market, and the transition from tools to equipment owned by entrepreneurs. But, the essential feature of industrialism, was in fact, automation achieved using energy from machines rather than living bodies. 

Britain's early industrialization was possible to be financed domestically thanks to the profits acquired through comercial capitalism, increased value of lands and mines, and short-term loans. 

This early stage of industrial capitalism, lasted in England from about 1770 to 1850 and was shared to some extent with Belgium and even France, but developed differently in the United States, Germany, and Italy, and almost totally different forms in Russia or Asia because of their need to raise capital for industrialization. Northwestern Europe, and England, had large savings. Central Europe and North America had much less, while eastern and southern Europe had very little in private hands. 

At about 1850 England was moving towards financial capitalism whereas Germany and the US were just beginning to industrialize. This new stage of financial capitalism came to answer the need for capital of the countries that wanted to industrialize. It began at about 1830 and continued even after 1930. At first, Investment bankers concentrated almost entirely on international flotations (IPO's) of government bonds. But the need for capital, incited them to invest in limited liability stock corporations to provide capital to industrializing countries. This practice extended from railroads into steel manufacturing and coal mining. 

Financial Capitalism, 1850 - 1931       

This third stage of capitalism organized the old, localized methods of handling money and credit, by integrating them into an international system, that worked smoothly for many decades. The center of that system was in London, with major offshoots in New York and Paris, and it has left an integrated banking system and a heavily capitalized framework of heavy industry. Its center was in London for four chief reasons:

1) The savings acquired through commercial and industrial capitalism by England. 

2) England's inequitable distribution of incomes leaving most wealth with a small oligarchy. 

3) The oligarchy was based on traditions rather than birth and thus was willing to recruit both money and ability from lower levels of society and even from outside the country.

4) The english oligarchy’s skill in financial manipulation, especially on the international scene.  

The merchant bankers of London had in 1810-1850 the Stock Exchange, the Bank of England, and the London money market. In time they integrated into their financial network the provincial commercial banks, savings banks, and insurance companies, forming a single financial system on an international scale which manipulated the quantity and flow of money so that they were able to influence, if not control, governments on one side and industries on the other. The men who did this, had their roots in monarchy and aspired to establish dynasties of international bankers, and they succeeded at this at least as much as the political rulers. The greatest of these dynasties, of course, were the descendants of Meyer Amstel Rothschild (1743-1812) of Frankfort, whose male descendants, for at least two generations, generally married first cousins or even nieces. Rothschild’s five sons established branches in Vienna, London, Naples, and Paris, as well as Frankfort, which cooperated together in ways that other international banking dynasties copied but rarely surpassed. 

The international bankers were, especially in later generations, cosmopolitan rather than nationalistic. They were usually highly civilized, cultured gentlemen, patrons of education and of the arts, so that today colleges, professorships, opera companies, symphonies, libraries, and museum collections still reflect their funding.     

The names of some of these banking families include Raring, Lazard, Erlanger, Warburg, Schroder, Seligman, the Speyers, Mirabaud, Mallet, Fould, Rothschild and Morgan. Even after these banking families became fully involved in domestic industry by the emergence of financial capitalism, they remained different from ordinary bankers in distinctive ways: 

(1) They were cosmopolitan and international. 

(2) they were concerned with questions of domestic and foreign government debts.

(3) they dealt almost exclusively in bonds rather than commodities or real estate. 

(4) they were, accordingly, devotees of deflation (high value of money) and of the gold standard. 

(5) they were devoted to the secret use of financial influence in political life. 

These bankers came to be called "international bankers", "merchant bankers" in England, "private bankers" in France, and "investment bankers" in the US. 

International banks are not the same as savings banks or commercial banks. International banks remained private unincorporated firms, usually partnerships. This provided them with anonymity regardless of their social power. This changed eventually for tax evasion over inheritance. J. P. Morgan, like others of the international banking fraternity, constantly operated through corporations and governments, yet remained itself an obscure private partnership until international financial capitalism was passing from its deathbed to the grave. J. P. Morgan and Company, originally founded in London as George Peabody and Company in 1838, was not incorporated until March 21, 1940, and went out of existence as a separate entity on April 24, 1959, when it merged with its most important commercial bank subsidiary, the Guaranty Trust Company. 

International bankers felt politicians could not Be trusted With Control of the Monetary System. Thus, they misled governments and the people as of the nature of money into accepting bankers as the solely controllers of monetary policy and the establishment of the gold standard.

Exchanges were stabilized on the gold standard because by law, in various countries, the monetary unit was made equal to a fixed quantity of gold, and the two were made exchangeable at that legal ratio.

These relationships were established by the legal requirement of gold convertibility having no cost. As a result, on a full gold standard, gold had a unique position: it was, at the same time, money, and wealth. If we regard the relationships between money and goods as a seesaw in which each of these was at opposite ends, so that the value of one rose just as much as the value of the other declined, then we must see gold as the fulcrum of the seesaw on which this relationship balances, but which does not itself go up or down. 

Since it is quite impossible to understand the history of the twentieth century without some understanding of the role played by money in domestic and foreign affairs, as well as the role played by bankers in economic and political life, we must take at least a glance at each of these four subjects. 

In each country the supply of money had a hierarchy of soundness. The soundest forms of money were: 

(1) deposits - debts owed by the bank to depositors.

(2) loans issued by the banks using the deposits in their vaults. 

Both provided useable claims on money, which is why they form part of the money supply. This hierarchy, however, did not protect the banks from failure since banking activities were regulated by statues of law. Apparently, to cease compete control over the supply of money "issuing" bankers congregated and convinced governments to free them from legal regulation over banking (read the creature from Jekyll Island), through the establishment of a central bank, (which remains a private corporation), like the federal reserve giving these private financial corporations full control over the “business cycle”. Ever since, inflation has been prevalent in the United States. Federal Reserve Notes were backed by gold to 40 percent of their value, but this was reduced to 25 percent by 1945 and eventually reduced to zero in 1971. 

Deposits, as a form of savings are deflationary while created loans, being an addition to the money supply, are inflationary. The volume of the money supply depends mainly on the rate of interest (the cost of loans) and the demand for credit because the supply of money is determined by the amount of deposits available for loans which is determined by fractional reserve policy. The demand for credit raised in times of economic booms and diminished in times of busts. This to a considerable extent explains the so-called "business cycle". 

During the nineteenth century, the financial system assumed the structure of a solar system. A central bank surrounded by financial institutions. In most countries the central bank was surrounded closely by the almost invisible private investment banking firms which controlled it. Outside the central core of a central bank surrounded by private investment banks, are the commercial banks. Outside this secondary ring, operate Savings Banks, Insurance Funds and Trust Companies. A close observer could notice the close private associations between these private, international bankers and the central bank. In France, for example, in 1936 when the Bank of France was reformed, its Board of directors was still dominated by the names of the families who had originally set it up in 1800. 

The source of power in finance is the fact that allocation of money shapes society. This outer circle has the task of investing and thus, of engineering the order of a society whereas the banks determine the amount of money that is to be allocated. Thus, banks create money and investment houses manage it. Influence of banking and its functions were different in all countries. In France and England, the private bankers used the central bank to influence the government and foreign policy rather than industry. This is because in these two countries, industrialists had the capital they needed unlike Germany, Italy, the United States, or Russia. In the United States much industry was financed by investment bankers directly, giving them power over industry and eventually government with which they established the central bank in 1913 to advance inflation and maximize profits from consumerism.  In Germany industry was financed and controlled by the discount banks, while the central bank had little significance before 1914. 

The supply of money was not centralized in most countries over recent centuries. Furthermore, the tendency of the financial system was deflationary since the supply of gold requires resources to increase. Today, the tendency is inflationary because the money supply can be increased with almost no cost by printing paper currency or typing numbers into a digital account.

Deflation is when money is worth more over time incentivizing savings. Inflation is when money is worth less and less over time incentivizing spending. In a deflationary economy the biggest savers are the richest, in an inflationary one the greatest spenders are the richest. The gold standard caused deflation because the supply of gold and hence, of money was slower than the pace of production of goods. Throughout history, inflation has been present only in times of war and sudden booms of gold mining. 

The international bankers were obsessed with maintaining the value of money during financial capitalism because their profits lied in loans and not sales of goods. And even though the price of money rises in deflation, interest rates tended to fall because excess profits of finance, incentivized making money easy to get. The bankers concentrated investments in foreign government bonds rather than private stocks up till the end of financial capitalism. Reflecting the merchant bankers' obsession both with government influence and with deflation. 

In short, banking policies can lead to Inflation or Deflation. By controlling accessibility to money bankers can inflate the money supply with loans and then, perform margin calls to secure the collateral people and/or businesses risked for the loans if they can’t pay the loan back in money.      

The quantity of money could be changed by changing reserve requirements; The velocity of transactions by changing interest rates since Interest rates control the incentive to invest, consume and loan.

Central banks influence the quantity of money in circulation by buying or selling government bonds in the open market (this practice is called tapering). Furthermore, commercial banks take loans from central banks and pay an interest on those loans, this is the prime interest rate. The central banks can influence interest rates on the loans that comercial banks give to the public by altering the interest that they pay to the central bank, or by changing reserve requirements. Interest rates influence the demand for loans and hence the money supply and reserve requirements influence the ability of commercial banks to give loans. 

Governments affect the money supply by using:

1. Monetary policy. 

2. Taxation

3. Public spending

The government could change the value of the currency by reducing or even suspending its convertibility to gold. In 1971 for example, Nixon suspended "temporarily" the convertibility of the dollar to gold effectively plundering the gold from its owners, the people. Yet, silent acceptance of a law is equivalent to contractual consent. Taxation and public spending are relatively independent from the banking practices since not all the money supply is provided by the banks, some of it is actual wealth produced by work of the citizens. As to public spending, the government decides how much to borrow from the central bank and indebt the taxpayers.  

The power of investment bankers over governments lies mainly on the need of governments to issue short-term treasury bills as well as long-term government bonds. Just like business owners go to commercial banks for loans to pay for discrepancies between regular costs/expenses and irregular profits. Thus, it became evident that the government was subordinated to international bankers since if they refused to buy government bonds, the whole system would be disrupted and probably cause massive unrest among people who don't know how money works, ultimately risking the government's stability.

In addition to the bankers influence through funding, most government officials felt ignorant of money and thus asked for advice from the bankers. Advice that history shows was beneficial for the bankers but disastrous for society. This way financial capitalism collapsed into a monopolization of the control over money. The tools to implement the advice of bankers were manipulation of: 

• *Exchanges, (Injecting currency into a sector or a company inflating the economy and creating bubbles.)
• *Gold flows. (Suspending gold-dollar convertibility.)
• *Interest rates,
• *Levels of business activity. (Lockdowns for example.)

International Investment Banks also influence if not dominate business. The international bankers provided funding for industrial enterprises securing seats in the boards of directors of industrial firms, as they had already done on commercial banks, savings banks, insurance firms, and finance companies. Thus, through interlocking directorates they engineered monopolies that provided even more profits, enough to take over the control of the money supply apparently through the establishment of the central bank system beginning with the federal reserve bank.

Financial capitalism peaked in 1931, leaving its throne to monopoly capitalism. The influence of the money powers was evident in the influence that Morgan had over public relations by manipulating the financial system and through it, governments.To summarize, the financiers funded business and government or just government, where business couldn’t be bought, and used the law to crush private businesses. This practice effectively transformed financial capitalism into monopoly capitalism.   

Monopoly Capitalism      

The evident conflict of interests between bankers and business (bankers wanted deflation and business inflation) resulted in the subordination (or recruit) of the bankers either to business or to the government (after 1931). Subordination was accomplished through manipulation of the law. This shift by which bankers were made subordinate (or accomplices) reflects the start of monopoly capitalism. This took place in Germany by 1926, in Britain after 1931 in Italy in 1934. 

When the economy followed the gold standard, international commerce was done through importers, exporters, and their banks. The service they provided was making transactions without carrying gold from one country to another. This was done by inserting money in one currency and withdrawing the same amount in the other currency. The supply and demand for currency of any country in terms of the currency available in the foreign-exchange market determined the value of the currencies to one another. These values could fluctuate widely for countries not on the gold standard, but only narrowly for those on gold. 

The Foreign Exchange Market a regulated international trade through the supply and demand of currencies. This is because supply and demand of a currency incentivizes or discourages economic activity in that area. For instance, a first world country’s salary buys more in a third world country than in a first world country. Thus, the foreign exchange serves as an indicator of ideal money flow to achieve international economic equilibrium. When countries are not on the gold standard, this foreign-exchange disequilibrium can go on to very wide fluctuations—in fact, to whatever degree is necessary to restore the trade equilibrium by encouraging importers to buy in the other country because its money is so low in value that the prices of goods in that country are irresistible to importers in the other country. 

Furthermore, when countries are on the gold standard, the value of a country's currency will never go below the amount equal to the cost of shipping gold between the two countries. This is because at the point that paying in gold and shipping it for payment becomes cheaper than currency exchange, though less convenient that's what merchants will do for the profit.

The situation in practice is made more complicated by factors like: 

(1) middlemen buying and selling foreign exchange for present or future delivery as a speculative activity (called options trading today). 

(2) the total supply of foreign exchange available in the market depends on much more than the international exchange of commodities. It depends on the sum of all international payments, such as interest, payment for services, tourist spending, borrowings, sales of securities, immigrant remittances, and so on. 

(3) the total exchange balance depends on the total of the relationships of all countries, not merely between two. 

In 1931 the gold standard began to be gradually abandoned because it restricted the fluctuation of prices of goods. Meaning that goods could only get cheap in some countries and expensive in others to an extent. This restricted the profitability of importers and exporters. In other words, merchants, businessmen, wanted to buy cheaper and sell more expensive to maximize profits of international commerce. The gold standard obstructed this to an extent and therefore it was abandoned gradually from 1931 until it was abandoned altogether in 1971.

The Situation before 1914 was characterized by the dominant position of Great Britain. This position was achieved in fields such as naval or financial. The achievement of this position goes back to the sixteenth century, when the discovery of America made the Atlantic more important than the Mediterranean as a route of commerce and a road to wealth. Britain's position was unique, because of her westernmost position, and much more because it was an island. This gave her freedom to exploit the new worlds across the seas. On this basis, Britain had built up a naval supremacy by 1900. Britain's merchant shipping gave her control of the avenues of world transportation and ownership of 39 percent of the world's oceangoing vessels (three times the number of her nearest rival). Furthermore, in 1815 Britain attained the industrial revolution developing the railroad and the steamboat; the telegraph, the cable, and the telephone; and the factory system. Giving her supremacy in transportation, communication, and industry.

The Industrial Revolution existed in Britain for almost two generations before it spread elsewhere. It gave a great increase in output of manufactured goods and a great demand for raw materials and food; it also gave a great increase in wealth and savings. As a result of the first two and the improved methods of transportation, Britain developed a world trade of which it was the center, and which consisted chiefly of the export of manufactured goods and the import of raw materials and food. At the same time, the savings of Britain tended to flow out to North America, South America, and Asia, seeking to increase the output of raw materials and food in these areas. By 1914 these exports of capital had reached such an amount that they were greater than the foreign investments of all other countries put together. In 1914 British overseas investment was about $20 billion (or about one-quarter of Britain's national wealth, yielding about a tenth of the total national income). The French overseas investment at the same time was about $9 billion (or one-sixth the French national wealth, yielding 6 percent of the national income), while Germany had about $5 billion invested overseas (one-fifteenth the national wealth, yielding 3 percent of the national income). The United States at that time was a large-scale debtor. 

The dominant position of Britain in the world of 1913 can be seen in that the greatest commercial markets were in Britain and the silent effects of her military presence. British naval vessels in the Indian Ocean and the Far East suppressed slave raiders, pirates, and headhunters. Small nations like Portugal, the Netherlands, or Belgium retained their overseas possessions under the protection of the British fleet. Even the United States, without realizing it, remained secure and upheld the Monroe Doctrine (a decree of non-tolerance of colonization attempts from Europe.) behind the shield of the British Navy. Small nations were able to preserve their independence in the gaps between the Great Powers, kept in precarious balance by the Foreign Office's rather diffident balance-of-power tactics. Most of the world's great commercial markets, even in commodities like cotton, rubber, and tin, which weren’t produced in quantities in England, were in England, the world price being set from the auction bidding of skilled specialist traders there. If a man in Peru wished to send money to a man in Afghanistan, the final payment, as like as not, would be made by a bookkeeping transaction in London. The English parliamentary system and some aspects of the English judicial system, such as the rule of law, were being copied, as best as could be, in all parts of the world. 

Britain became the center of world finance and trade because of its export of both capital and people made possible by the system of financial capitalism. But the system of financial capitalism required for its existence a very special group of circumstances that could not be expected to continue forever.  Among these were the following: 

(1) all the countries concerned must be on the full gold standard. 

(2) prices must be free to rise and fall in accordance with the supply and demand for both goods and money free from public or private manipulation. 

(3) there must also be free flow of international trade so that both goods and money can go without hindrance to those areas where each is most valuable. 

(4) There must be a synchronized international system of bookkeeping so that it would be possible to cancel out international claims against one another. 

(5) the flow of goods and funds in international matters should be controlled by economic factors and not be subject to political, psychological, or ideological influences. 

These conditions, which made the international financial and commercial system function so beautifully before 1914, had begun to change by 1890. The fundamental economic and commercial conditions changed first and were noticeably modified by 1910; the group of secondary characteristics of the system were changed by the events of the First World War. As a result, the system of early international financial capitalism is now only a dim memory. Imagine a period without passports or visas, and with almost no immigration or customs restrictions. Certainly, the system had many incidental drawbacks, but they were incidental. Socialized if not social, civilized if not cultured, the system allowed individuals to breathe freely and develop their individual talents in a way unknown before and in jeopardy since.