Karl Wittgenstein, 1908

Karl Wittgenstein, Business Tycoon and Art Patron

by Jorn K. Bramann, Frostburg State University
and John Moran, Manhattan College

There is a considerable discrepancy between Karl Wittgenstein’s historical importance and the scant space devoted to him by historians, especially in contrast to the huge corpus devoted to his philosopher son, Ludwig Wittgenstein. None of the leading histories of business and industry in the Austro-Hungarian monarchy describes Karl Wittgenstein’s preeminent role in its development; few even mention his name. Nor is he mentioned in any of the leading histories or biographies of the Viennese Secession, despite his generous financial support of that artistic movement.[1] Yet Karl Wittgenstein’s rise from a self-educated engineer to one of the most powerful industrialists in the Habsburg empire was intimately intertwined with the development of the iron and steel industry in the monarchy and consequently with the industrialization of Austria-Hungary. His career and activities exemplified all the contradictions involved in the industrialization of Austria. Besides being one of Europe’s foremost engineers, Wittgenstein lavishly supported the Viennese Secession Movement and was the major financial backer of its famous exhibition hall. Moreover, he consciously engaged in an ideological struggle against the established economic and cultural institutions of the monarchy as well as against the growing socialist movement.
Karl Wittgenstein, the son of a wool merchant, was born on April 8, 1847, in Gohlis, near Leipzig. In 1851 his parents emigrated to Vienna, where he grew into manhood. (His mother came from the old Viennese family of Figdor, the family to which Johannes Brahms’ violinist Joachim belonged.) The writers of several biographical sketches say that he attended the famous Akademische Gymnasium, whose later pupils included such celebrated figures as Arthur Schnitzler and Hugo von Hofmannsthal. However, his name does not appear in the school’s records. All that we can say with certainty is that he was apparently expelled from some secondary school or another for indulging in pranks. His father wanted him to study for a diploma through private tutors, but Wittgenstein fled to the United States, using a passport he had bought from a student who needed money.
He arrived in New York in April, 1865, with only his violin. He survived the first few weeks by working as a waiter and an entertainer. When public entertainment was forbidden after President Abraham Lincoln’s assassination on April 14, Wittgenstein had to seek other employment. He joined the crew of a canal boat carrying pressed hay to Washington, D.C. In Washington he “became a barkeeper in a bar that had a section for whites and one for blacks.” As he wrote in his memoirs, he worked “first in the white section; then, because I was useful there, in the niggerbar. There I had my first chance to make good money.”[2] Late in the fall he returned to New York where he held several teaching positions. After about a year his sister arranged a shaky reconciliation between him and his father, whereupon he returned to Vienna early in 1867.
He enrolled in the Polytechnik as a part-time student and took part-time employment in the shop of the Austrian State Railways. After a year he gave up his studies and occupied himself with a number of jobs that took him to various parts of the monarchy. He worked in a shipyard at Trieste, in a construction office at Budapest, on a rail construction site in northern Hungary, and in a turbine factory in Vienna. The decisive step in his early career was taken when he applied for a job as a draftsman in a company that was commissioned to build a steel mill in northern Bohemia. His employer and future friend Paul Kupelwieser wrote that he

hired him as a draftsman in 1872 for the construction of the Teplitz Rolling Mill, but I did not expect much of a performance from this restless young man, whom I did not know, but who had become the brother-in-law of my brother Dr. Karl Kupelwieser. How pleasantly surprised I was when I found in him an extraordinarily able and industrious draftsman, who could do the work of two such employees and who could overcome all kinds of difficulties in the best of spirits (and who was in love, and perhaps already bound to his future, excellent wife).[3]

During the next two years Wittgenstein favorably impressed everyone who worked with him. After the mill was built he was put in charge of the repair shop and the foundry. But Kupelwieser also used him extensively in various commercial capacities. Wittgenstein proved extremely successful in finding buyers for the mill’s products at a time when most of the iron and steel industry was suffering from the great economic crises of 1873. At the same time, he started buying stock in the mill, using the financial resources of his mother and his wife, whom he had married in 1874. However, after he sided with Kupelwieser, the director of the mill, in a dispute with the company’s president, he quit his post at the Teplitz Rolling Mill and found a position as a draftsman in a technical office in Vienna.
The friction between the director of the Teplitz Rolling Mill and the president of the company continued until 1876, when Kupelwieser demanded that the owners choose between him and the president. The president finally resigned, along with several board members – a move that necessitated the coopting of new members, who happened to be friendly to Wittgenstein. The new board appointed him assistant director of the mill and charged him with the responsibility of representing the company commercially in Vienna. In 1877, when Kupelwieser accepted the post of director general of the much more prestigious Witkowitz Mill in Moravia, he was succeeded as director of the Teplitz Rolling Mill by Wittgenstein. Meanwhile, Wittgenstein had increased his stockholdings in the mill to two-fifths of the total shares.
Like so many mills in the monarchy, the Teplitz Rolling Mill had been built in response to the rapidly increasing demand for rails occasioned by the great surge in railroad building. The crisis of 1873 put a temporary end to this boom, and many mills had to close. Although the Teplitz Rolling Mill escaped this fate, business remained sluggish.

War Profit

The mill finally emerged from the slump when Wittgenstein seized an opportunity to profit from the war between Russia and Turkey in 1878. As part of its war effort, the Russian government was planning to build a railroad in the Balkan Peninsula. When it became known that Russian Counselor of State Poliakoff planned to purchase rails for the road, many European industrialists hastened to negotiate with him. Wittgenstein pursued him to Kiev and then to Bucharest before he succeeded in contacting him. Counselor Poliakoff was already negotiating with such powerful competitors as Krupp, but Wittgenstein managed to convince him of the advantages that could be gained by purchasing rails from his own mill. The Russians were seeking heavy-gauge rails, like those normally used on the Russian railroads, for delivery at Bucharest by a given date. Since they planned to use the road for only a few months, Wittgenstein suggested that they could save money by laying lighter rails. After calculating for Poliakoff the money that could be saved by doing so, Wittgenstein received the order. He was able to make an attractive proposal because the Teplitz mill had already stocked a large inventory of light rails that had been ordered by the Austrian State Railways for delivery by an agreed date. To meet the Russian deadline, Wittgenstein’s associate, Isidor Weinberger, who had close government connections, arranged a postponement of the Austrian delivery with the secretary of commerce. For several weeks the Teplitz Mill produced rails day and night for both the Russian and Austrian railroads.
Not only did Wittgenstein profit by selling light rails to Russia, but he also gained enormously by acquiring the right to utilize the Thomas-Gilchrist process of steel manufacturing, which made possible the smelting of phosphoric iron ore. Since most European iron ore is phosphoric, the new smelting process greatly reduced the cost of producing high-quality steel; moreover, since phosphoric slag is a rich fertilizer, it made formerly useless iron ore deposits potentially more valuable than those of non-phosphoric ore.
The process had been patented in England in 1878; in 1879 the patent rights for Austria were owned by the director general of the Hoerde Mill near Dortmund, in Germany. Wittgenstein bought the rights for the Teplitz Mill in 1880; a few months later he sought a license for all Bohemia, intending to acquire a monopoly for the use of the process in the northern part of the monarchy. He went to Hoerde, where Director Josef Massenetz informed him that he was already negotiating with Jan Dusanek, the director of the Bohemian Mining Company. All Wittgenstein could get from Massenetz was a signed contract to sell the license to the Teplitz Rolling Mill if Dusanek failed to buy it before a specified date. Upon learning that Wittgenstein was in Hoerde, Dusanek accused him of driving up the price for the license by competing with the Bohemian Mining Company. He elicited Wittgenstein’s promise to refrain from further negotiations with Massenetz and suggested that the two of them could agree to share the license in the future. Wittgenstein remained silent about his contract with Massenetz. The apparently overconfident Dusanek protracted his negotiations with Massenetz, missed the deadline, and lost the license to Wittgenstein’s company.
The consequences of this coup were enormous. Without a license for the Thomas-Gilchrist process, the Bohemian Mining Company was no longer a serious competitor, and eventually its owners were forced to sell to Wittgenstein. Negotiations on behalf of the Bohemian Mining Company were conducted by Dr. Jakob Rappaport. Wittgenstein treated him imperiously. First he demanded that he sell all the stock of the Bohemian company. Then on another occasion when he felt slighted because Dr. Rappaport had kept him waiting fifteen minutes, he arrogantly ordered Rappaport to take him to dinner at the luxurious Sacher restaurant in Vienna and refused to be satisfied with several alternatives that Rappaport suggested. To appreciate the impudence of his demand, one should recall the importance of social position in the semi-feudal Habsburg monarchy. As Stefan Zweig related in his memoirs, his father, although wealthy, avoided mixing with the nobility at Sacher, for “it would have seemed to him improper or embarrassing to sit across from Prince Schwarzenberg or Lobkowitz.”[4] The incident not only illustrates Wittgenstein’s aggressiveness but also indicates the power he wielded even before he became the undisputed leader of the Bohemian iron and steel industry.
The last phase of the Bohemian Mining Company’s acquisition brought the story to an almost farcical conclusion. Wittgenstein and Rappaport agreed on a price of 400,000 guilders, which was far beyond Wittgenstein's means. But that did not faze him. Because he was acquainted with the Bohemian Mining Company’s practices through his past dealings with it, he knew that Dusanek was overcautious and always kept a large financial reserve fund at the company’s office. So, after the negotiations were completed he immediately went to the main office of the mining company to arrange some technical changes. While there he casually mentioned to the bookkeeper that 300,000 guilders were to be transferred to the office of the Teplitz Rolling Mill. Thus he bought three-fourths of the company with that company’s own money.
Shortly thereafter, Wittgenstein obtained control of the Prague Iron Industry Company, a competitor of considerable size and potential and the only firm that had acquired rights to the Thomas-Gilchrist process before Wittgenstein secured them for the rest of Bohemia. Because the Prague Iron Industry Company was faring poorly under inept management, its owners offered Wittgenstein the post of central director. Wittgenstein agreed to accept it on condition that the company buy the Teplitz mill, paying Wittgenstein and his associates in shares of Prague Iron Company stock. Upon completion of the merger, Wittgenstein became the major shareholder and central director of one of the country’s largest companies. Mainly through his vigorous leadership, it became a highly profitable enterprise, enabling him to amass one of the greatest fortunes in the monarchy.

Vertical Integration

Wittgenstein’s approach to business matters was atypical of the industrially underdeveloped monarchy. His approach combined the rapid introduction of technical innovations and the acquisition or establishment of new facilities with the rigorous closing of unprofitable works. He had purchased the Bohemian Mining Company to produce pig iron, which he could use in his Teplitz Rolling Mill. To use the steel produced in Teplitz, he bought and built several hardware factories. To use the byproducts of his blast furnaces, he built a cement factory. To secure a sufficient supply of coke for the production of pig iron, he bought and developed several coal mines. In this way Wittgenstein controlled a process that extended from the mining of coal to the selling of scythes, thus achieving a high degree of what is now called “vertical integration.”
Of course, such an important entrepreneur had close connections with major financial institutions. Wittgenstein served on the board of the K. k. priv. Oesterreichische Credit-Anstalt fuer Handel und Gewerbe, one of the most powerful banks of the monarchy,[5] as well as on those of the Boehmische Eskomptebank, and the Niederoesterreichische Eskomptegesellschaft. He consolidated his control over the Bohemian iron and steel industry by organizing a number of cartels over which he exercised great influence. The first cartel established in the monarchy was the rail cartel, which Wittgenstein had founded in 1877. By dividing markets, limiting production, and maintaining artificially high prices, it contributed greatly to the prosperity of the Wittgenstein enterprises. A few years later Kupelwieser initiated a much more comprehensive cartel, which later came to be regarded as Wittgenstein’s creation. As he described it, “The Teplitz Rolling Mill, the Bohemian Mining Company, and the Prague Iron Industry Company united under Karl Wittgenstein’s direction. This was a superpower in the Austrian iron industry, which of course, I could not oppose, but with which I had to seek some kind of agreement.”[6] What was established was the powerful iron cartel, dominated by Wittgenstein, which effectively controlled the basic iron and steel industry of the entire monarchy.

Merge, Downsize

With the acquisition of the Bohemian Mining Company and the Prague Iron Industry Company, particularly the latter, which owned the famous iron ore deposits of Nusice, near Prague, Wittgenstein gained control of one of the two centers of the iron and steel industry in the monarchy. With the acquisition of the Alpine Mining Company, which owned the famous Erzberg, a mountain consisting entirely of high-quality iron, he gained control of the second one. After the introduction of the Thomas-Gilchrist process in the enterprises controlled by Wittgenstein, Bohemia surpassed the Alpine region in iron and steel production. For a while Wittgenstein spent most of his energies developing his Bohemian holdings. In 1896, however, he secretly began acquiring stock in the Alpine Mining Company, both for himself and his business associates. Since that company was doing poorly, its shares could be bought at extremely low prices. After Wittgenstein and his associates acquired a solid majority of the stock of the Alpine Mining Company, the names of the new owners were made public, and the various facilities of the company were rapidly reorganized.
One reason for the Alpine Mining Company’s poor performance under its previous owners was that they had not shut down unprofitable works, because closings threatened to rouse public concern over the hardships that would be suffered by the workers who would be laid off. Wittgenstein did what he considered necessary to resuscitate the company. The resulting mood of many people is well reflected in a series of articles entitled “Pictures from the Styrian Ironworks of the Alpine Mining Company,” which were published in the Oesterreichische Metallarbeiter between the time Wittgenstein acquired the Alpine Mining Company and his retirement. In the October 6, 1898 issue, one reads:

Since the genius of Mr. Wittgenstein has been in charge of the Alpine Mining Co., there have been endless complaints by the workers about overly intensive work, the reduction of piecework wages, arbitrary distribution of work, etc., and it seems almost as if everything is to be turned upside down, with the old way of doing things changed completely. To avoid misunderstandings, however, mention should be made of the fact that there was nothing heavenly about the old condition.…Things have just become so much worse.

The rest of the article outlined the major managerial changes made since Wittgenstein had taken control of the Alpine. Before then, the writer explained, wages for piecework had been determined by the director general of the whole company. After Wittgenstein took over, such wages were determined by the directors of the individual plants. As a consequence, piecework wage reductions became widespread because each individual director was pressured by the need to reduce his labor costs as much as possible.
The October 27 issue mentioned Wittgenstein’s reputation as someone who knows how to put the right man in the right place. The secret of his practice, the Metallarbeiter opined, is to create a hierarchy in which everyone is encouraged to squeeze the most out of his subordinates. The article stressed the fact that in such a system productivity is not increased by introducing better machinery but by intensifying the exploitation of labor power. The November 3 issue reported that workers who wanted to do piecework were often prevented from doing so by being assigned to unrelated tasks, that workers had to start paying rent for company-owned houses, and that they were told to work without protective gloves, even though the wearing of gloves was prescribed by law.
Under Wittgenstein’s control, the Alpine flourished beyond all expectations. The market price of the company's shares rose to more than ten times their former value. But dissatisfaction over Wittgenstein’s way of doing business steadily increased, not only among the workers but particularly on the part of the industrialists who had suffered from Wittgenstein’s monopolistic practices. The industrialists complained that, because the iron cartel charged such exhorbitant prices for iron and steel, their own industries could not prosper. They sought to convince the government to lower protective tariffs, since the iron cartel was charging artificially inflated prices. The growing opposition influenced Wittgenstein to resign his post as central director of the Prague Iron Industry Company in the summer of 1898 and to go on an extended tour.

Controversy

The discontent over Wittgenstein’s operations broke out into the open at the end of 1898 and the beginning of 1899, when Wilhelm Kestranek, a close friend and protégé of Wittgenstein, who had been made central director of the Prague Iron Industry Company in the summer of 1898, proposed at a conference of that company’s board the following December that an extraordinary meeting of shareholders should be held on March 1, 1899, to distribute several special reserve funds to the stockholders, since the company had much more cash than it needed for present and future operations.[7] While most of the board (who belonged to the so-called “Wittgenstein clique”) supported Kestranek’s recommendation, two members representing the Credit-Anstalt disagreed and proposed that a committee be appointed to study the proposal in detail. When the bank representatives were overruled, they resigned from the board of the Prague Iron Industry Company. Wittgenstein, in turn, resigned from the board of the bank. The alienation between what was then the biggest iron and steel company and the biggest bank in the monarchy provoked considerable alarm in the business community and called widespread attention to Kestranek’s suggestion. Various newspapers hinted that the proposal was really a scheme to drive up the market value of the Prague Iron Industry Company’s stock – a belief that apparently was shared by the government. On December 12, a semi-official “communique” appeared in the Wiener Abendpost in which the government expressed its satisfaction over the fact that the press had condemned Kestranek’s plan and hinted that legal action might be taken to prevent Kestranek’s recommendation from being carried out.
After the government expressed its concern over the plan to distribute the company’s special reserve funds among the shareholders, Wittgenstein’s actions became the topic of even more heated debates not only in the press but also in parliament and in the diet of Lower Austria. Personally offended by the semi-official “communique” in the Abendpost, he avenged himself in 1899 when Baron Joseph di Pauli von Treuheim, the secretary of commerce, invited him to a conference at the ministry of commerce by curtly informing the messenger bringing the invitation that he had an office where the secretary could contact him during regular business hours.[8]
The most important consequence of the whole affair was that it prompted Wittgenstein’s enemies to demand a reduction of protective tariffs on iron and iron products and protection of the public against the abuses of the iron cartel. An article in the first supplement of the Fremden-Blatt of December 18, 1898, pointed out the connection between Kestranek’s claim that Prague Iron had a surplus of cash at its disposal and the company’s extensive utilization of the protection offered by tariffs and cartels. The writer of the article maintained that the

report of the Prague Iron Industry Company concerning the utilization of its surplus millions displays such embarrassment that one could almost conclude that the company will be forced, like Egyptian Pharaohs, to build pyramids if the government does not give its permission to distribute its special reserve funds….The company has proved more than it wanted to prove, for it has proved that the serious accusations leveled against it on the occasion of the last official inquiries into industry and export were entirely justified. A reduction of the tariff on pig iron is, therefore, an unavoidable conclusion. The helots of the iron industry, and that includes almost all branches of industry that need pig iron or half-finished products for their production, clamor for liberation from oppression by the iron cartel. Their protest has been heard in public as well as in parliament. The cartel and tariff question has become an issue, and this issue will not go away until satisfactory answers have been found.

On January 23 and 24, 1899, the ministry of commerce conducted an official inquiry into the condition of the iron and steel industry. Representatives of the iron cartel as well as of iron-consuming industries were present. The participants agreed to keep the proceedings secret, and minutes were distributed only among those present. Essentially the same arguments were exchanged between the basic iron and steel producers and the consuming industries that had previously been exchanged in the press. One consumer representative maintained that since the iron cartel (the producers) represented capital of 50 million guilders, while that of the iron-consuming industry amounted to 2,870 million, the branch of the economy in which much more capital was invested was being exploited and oppressed by the industry with much less but more highly concentrated capital. Pointing to the spurious nature of the cartel’s talk about the interest of the iron industry, he maintained that whenever such issues as raising or lowering tariffs came up it “is always the iron producers who raise their voice in the name of the entire iron industry, whereas in reality they further their own interest alone and treat that of iron-consuming businesses like that of outlaws."[9]
Nothing came of either this inquiry or the public debate preceding it. Wittgenstein’s position of power was unassailable.[10] His retirement from active business life by no means signified a fall from power, as some observers maintained. The empire founded by him changed but little when he nominally ceased to head it. During the last decade of his active career he had carefully groomed a staff of managers who ran his enterprises entirely in his spirit and just as efficiently as he did.[11] The fact that Wittgenstein’s enterprises functioned as well even at the time of his death on January 20, 1913, as they had during his active involvement prompted the Arbeiter-Zeitung to say in its obituary:

This unprecedented and successful career [of Karl Wittgenstein] is, incidentally, one of the strongest arguments against the bourgeois-capitalist order. If he, who is called the creator of these giant companies, could retire from them without jeopardizing their further development – is this not striking proof that socialized production is possible and that private ownership of the means of production only an obstacle in the way of making a more social use of industry?[12]

Published Works

Wittgenstein wrote a number of articles, speeches, and letters, that were collected and published in book form shortly after his death.[13] The most important of these writings was translated into English and published separately under the title The Causes of the Development of Industry in America.[14] His articles, speeches, and letters covered a variety of topics, including a trip to the United States, the problems of the Austro-Hungarian tariff union, the management of the state-owned Austrian railways, the doctrine and practice of free trade, emigration, cartels, and the Viennese press’s treatment of Theodore Roosevelt’s address to Congress in 1901. These disparate topics are united by a single theme: Wittgenstein’s belief that the growth of private industry assures the general prosperity and moral health of society.
Wittgenstein tried to provide reasons to support this belief, which formed the basis for all his disputes with persons from various political quarters. In regard to the United States, for instance, he tried to show that the Americans were right in asserting “that, in truth, the working classes in the United States are culturally and materially better off than those in countries where industry has not made such advance.”[15] A higher standard of living is possible, Wittgenstein argued, if productivity and wages increase. A “rich country is distinguished from a poor country through its greater production and higher wages.”[16] In turn, greater production is achieved by an increase in the investment of capital. “The augmentation of capital invested per unit of commodity produced,” he insisted, “must precede an increase of production;”[17] consequently, there must be opportunities for profitable investment and the movement of capital should be as unrestricted as possible. Wittgenstein enthusiastically described the “complete freedom of movement of people and commodities” in the prosperous United States[18] – a freedom that inevitably leads to the formation of large, financially strong, enterprises that produce goods at low cost.[19]
Wittgenstein was not blind to the negative implications of “the sovereign rule” of capital, but he ostensibly considered hardships for some to be a necessary price for the future prosperity of all. “A state that wants a large and wealthy industry,” he emphasized, “must accept the association of capital on the most liberal and modern basis, and it must accept its dark sides as well;”[20] therefore, he strongly opposed legislation that would protect consumers from fraudulent businessmen[21] or instigate legal actions against trusts.[22]
Wittgenstein’s belief in the sovereignty of capital sometimes developed into a kind of Social Darwinism. Not only did he repeatedly eulogize the daring and aggressive entrepreneur; he also used survival-of-the-fittest idiom in discussing the fate of lower-class emigrants. As he put it, “Only those most favored by nature will overcome all obstacles in building for themselves a better life in the West, among strangers with whose language and customs they are unfamiliar. The ailing and the weak are unfit for this, and they are left behind.”[23] It was Wittgenstein’s admiration for the reckless vigor and success of such industrialists as Andrew Carnegie that disposed him favorably toward Bismarck’s heavy-handed treatment of parliament,[24] the successes of the “Aryan race” in settling the American continent[25] and defending itself against “the rapacity of the Indians,”[26] and the “English cannons and soldiers” that maintained “exemplary order” in the colonies[27] and allowed the rapid accumulation of wealth.[28]
Wittgenstein’s allusions to the philosophy of Social Darwinism were not entirely coincidental. For one thing, he was a friend of Andrew Carnegie, whose guest he was in the United States and whose host he was in Vienna.[29] Carnegie, in turn, was an ardent admirer and personal friend of Herbert Spencer.[30] It is not surprising, therefore, that many of Wittgenstein’s views were identical with those expressed by Carnegie and Spencer; especially since Social Darwinism was a perfect expression of and apology for the aspirations and practices of industrialists such as Wittgenstein. Spencer opposed poor laws, the regulation of sanitary conditions and of housing, the protection of the ignorant from medical quacks.[31] If people were poor, Spencer maintained that they should be eliminated, since they were unfit for survival. As he put it, “the whole effort of nature is to get rid of such, to clear the world of them, and make room for better.”[32] Such a harsh attitude toward the poor and unfortunate was justified in the name of progress. In Carnegie’s words, “It [the great law of the survival of the fittest] is here; and while the law may sometimes be hard for the individual, it is best for the race, because it insures the survival of the fittest in every department.”[33] The similarity between such statements and comparable ones in Wittgenstein’s writings suggest that the survival-of-the-fittest idiom in Wittgenstein’s thought was not a mere coincidence but a frame of reference within which he tried to understand and justify his activities.
It is clear that Wittgenstein’s convictions brought him into open conflict with many Austrian conservatives. The usual foil for his criticism of conditions in Austria was his enthusiastic praise of conditions in the United States. Thus, a good index of Wittgenstein’s scale of values is what he found praiseworthy in the United States. About the Americans in general he wrote: “Two hard centuries taught the American nation diligence, perseverance, and great frugality, imbued it with a healthy, if you like, relentless egoism, a desire for education, a speculative spirit and a great love of liberty.”[34]
The “speculative spirit” he attributed to Americans is particularly noteworthy. A “speculator,” according to him, is a man willing to risk much in a situation characterized by great uncertainties. “Industry knows no finality, and cannot reckon with any finality,” he argued. “The manufacturer must not only be a mechanician and merchant, and as such able to follow the fluctuations of the market for his products but he must perceive the demand for new articles in time, must recognize the value of new methods of working, and also have the courage to adopt them; in a word, he must take into consideration a whole series of factors that are not definable, not tangible and often dependent on chance; he must be also a speculator.”[35] Wittgenstein considered the United States an ideal environment for such men. “But crisis follows speculation as shadow follows light, and the intenser the one, the darker the other,” he wrote. “That is the reason why there is no country in which crises are so frequent and so serious as in America; I should well nigh say that the crisis is permanent in America.”[36]
Since this situation demands the utmost from the entrepreneur, rapidly improving technology, introduced to reduce production costs, demands the utmost from the workers. Nothing “urges on human activity as much as the precise and rapid working of machines,” Wittgenstein wrote. “The mental and physical exertion of the driver of an express train is much more intense than that of the driver of a freight train, or indeed of the driver of the diligence in olden times.”[37]
Wittgenstein maintained that in the United States workers exert themselves more than elsewhere; they are more alert, versatile, and intelligent. Consequently, the productivity of labor there is considerably higher than in other countries. “In the United States, 7 hours of labor are necessary for the production of 100 kilograms of rail, in Germany 13 hours, and in Austria 33 hours.”[38] For this reason, wages are also higher in the United States, and American workers can enjoy a much higher standard of living, i.e., consume considerable more goods than workers in the Old World. “The American workman is used to a large quantity of meat, and to a greater variety in his diet. Meat three times a day is not rare, twice a day is the general rule.”[39] “Children, especially girls, are better dressed, and…wear what we should consider finery; the outward differences between the workman and the petty bourgeoisie are disappearing more and more.”[40]

Free Trade

There is no need to compare Wittgenstein’s image of the United States with actual conditions in that country. He focused mainly on the bright side of things, while treating problematic aspects rather superficially. Whatever the distance between image and reality, there are clearly many apologetic elements in Wittgenstein’s writings. Especially interesting are certain policy recommendations that seem to contradict his praise of the daring “speculator” and the unrestricted movement of capital. Wittgenstein pointed out that if capitalistic development had been allowed to occur without interference, England undoubtedly would be the world’s manufacturer, while the rest of the world would serve only as the supplier of raw materials and markets for manufactures. Such a development was prevented because other countries, among them the United States, abolished free trade and built domestic industry behind the walls of high protective tariffs. Wittgenstein urged Austria to shed the remnants of free trade because he had come to appreciate the American way of fostering prosperity. Maintaining that English “free trade was the freedom to force other people to buy English commodities,”[41] he insisted that “English free trade was rather like the freedom of someone who permits himself to shoot at the house of his neighbor, who cannot shoot back because he has no gun.”[42]
Thus, while Wittgenstein opposed governmental protection of consumers against fraudulent businessmen and big trusts, he strongly urged the government to protect domestic entrepreneurs against powerful foreign competitors, for he was aware that it would be suicidal to be too daring a “speculator” in an open world market. For this reason, he argued the necessity of “security” for the industrial entrepreneur. In his words, “Industry as well as agriculture in the United States and Germany have, under all circumstances, permanently and independently of the grace or lack of it of particular governments the security to serve a market for a profit. With such security, the entrepreneurial spirit, said to be lacking in Austria, will come. Only such security will produce courage and justify the large investments needed for further specialization, the use of machines, the exploitation of all technical progress – even by the smallest factories.”[43]
To ensure security for the entrepreneur, Wittgenstein defended in theory what he had always applied in practice: the establishment of cartels. After describing in detail how steel producers had almost ruined each other by competing for orders in an open market and relating the events in response to which he founded the first cartel in the Austrian iron and steel industry, he asked rhetorically: “Should we have done anything else? Should we have continued any longer the battle that brought us all to the brink of bankruptcy? It was inconceivable that one of us would have succeeded in continuing it to the point where the rest would have given up producing rails.”[44]
Since Wittgenstein was aware of the widespread opposition to his monopolistic practices and the growing hostility toward him personally, he tried to label criticism of cartels as socialist.[45] He was wrong, for opposition to cartels came less from socialists or workers[46] than from leaders or iron-consuming industries, from entrepreneurs who would like to develop their potential as “speculators” but found themselves thwarted under conditions established and maintained by Wittgenstein and his group.

Philanthropy

Wittgenstein was not only a controversial “captain of industry” in the Austro-Hungarian monarchy during the latter part of the nineteenth century; he was also a significant patron of the fine arts.[47] It is well known that musicians such as Johannes Brahms, Pablo Casals, and Josef Labor frequented his palace and that he collected works of such sculptors and painters as Francois Auguste Rodin, Gustav Klimt, and Franz Hohenberger. He lavishly supported the Austrian version of Art Nouveau, the Viennese Secession, when it was still an insurgent movement around the turn of the century, and he was the leading financial backer of the Secession’s famous exhibition hall, which was designed by Joseph Maria Olbrich in 1898.


Olbrich's design for the Exhibition Hall of the Vienna Secession

Wittgenstein’s support of the insurgent movement in the fine arts was consistent with his general outlook. Since he was highly anti-traditionalist in the field of industrial development, an art movement whose major task it was to combat the revival of older styles had a strong appeal to him. But Wittgenstein’s progressivism had very clear limits, which were graphically represented by the high degree of exclusivity entailed in the refined culture of the Viennese Secession.
Wittgenstein commissioned a prominent Secession artist, Josef Hoffmann, to decorate two rooms of his country estate, the Hochreith. Hoffmann’s working conditions were ideal. He advocated stylistic unity to the utmost detail, and Wittgenstein put no limits on the resources at his disposal. Hoffmann’s technique and style muted the effect of his sumptuous materials. In an article describing his work in the two rooms, Franz Windisch-Graetz quoted the following excerpt from a letter written by a visitor to the Hochreith:

Absolutely unostentatious: the gold of the ridges is hardly noticeable by itself. I can easily imagine someone attentively looking around the room and saying, when asked how he liked the gold ridges, that he had not noticed them at all. The carpet [is] splendidly warm, and the whole thing just as I would imagine the private rooms of a Fugger in the middle ages.[48]

The subdued gold ridges testify to the refined taste of the artist and the patron, but, like the comparison with the Fuggers, they also indicate how much the ovation of such artistic endeavors depends on the accumulation of wealth by a minority, and how the majority is excluded not only from refinement of taste but also often from much more fundamental things. In his famous poem, “Manche Freilich,” [49] Hugo von Hofmannsthal fastidiously voiced a refined bourgeois regret over the contrast between high culture and its material base:

Granted, some must die below deck,
Where streak the ship’s heavy oars.
Others dwell above at the helm,
Knowing flights of birds and realms of stars.

Some lie forever with heavy limbs
At the roots of confused life.
For others are seats prepared
With sibyls and queens.
And there they sit as if at home
With light heads and light hands.
Yet a shadow from those other lives
Falls into these lives,
And the light are bound to the heavy
As to the air and earth:
My eyelids cannot shed
Quite forgotten people’s weariness,
Nor my terrified soul fend against
The silent falling of distant stars.

Many fates weave beside my own,
Life entangles them all,
And my part is more than this life’s
Slender flame or slim lyre.


Labor

Apparently unheralded by the Sibyls, Wittgenstein’s weary oarsmen below were beginning to find their own voices and to murmur against the helmsman’s enrichment through their own impoverishment. In the fall of 1891, for instance, the St. Poeltener Zeitung printed the following article, not penned by a professional journalist:

Hohenberg, October 26. Today the strike in the Fuerthofer works ended. More than 300 file makers have been without work since October 1 – i.e., for more than 3 weeks! The factory in spector considered their demands unjustified, and Witkenstein [sic], therefore, did not give in. The file makers regarded the sudden lockout [ordered by management on October 1 in response to the strike threat] as unjust. Their support from Austria and from abroad soon proved [to be] insufficient; many workers, particularly those who are married, started to lose courage, etc. In short, everyone was feeling very gloomy. It is probable that the factory has not gained anything during the strike, but it is certain that the savings of many workers have decreased; and it goes without saying that many local businessmen have suffered as well. On October 22 posters were suddenly nailed to the doors of the workers’ quarters, saying ‘Work will start tomorrow.’ By this measure Witkenstein [sic] wanted to end the strike in a simple and peaceful manner. However, only a few followed the invitation! Then a second poster announced: ‘Either work or leave the quarters!’ I withhold any judgment concerning Witkenstein’s [sic] actions and the demands of the workers. In honor of the latter it should be said, however, that they kept exemplary order among themselves during the entire strike period. One saw no drunks, heard of no brawl but, instead, they [the workers] sat down near the forest in groups of 8-10 – and there was fine weather all the time. Well, God bless work! [50]

Another article describing the same strike in the Arbeiter-Zeitung, on December 12, related the following details concerning the expulsion of workers from company-owned living quarters: The director came “with a lot of policemen, and the latter began the expulsion. The head of a family with four children was expelled late at night, when the children were already asleep in their beds. Sergeant Werner, a well-known enemy of the workers, mercilessly dragged them out of their beds, and they were made homeless.”
The bitterness aroused by Wittgenstein’s strike-breaking actions was fervently expressed in the following editorial in the January 26, 1899 issue of the Oesterreichischer Metallarbeiter, which was sarcastically entitled “Mr. Wittgenstein – a Friend of the Worker:”

We must confess unreservedly that we have done Mr. Wittgenstein a great injustice in this paper by repeatedly calling him an exploiter, who tries to use the workers employed in his factories in a most reckless way. We plead guilty to the charge of unjustly calling Mr. Wittgenstein – a man who has in a short time sucked several millions from the marrow of his workers – a heartless and reckless man. . . . We rub ashes on our heads and beg forgiveness, for Mr. Wittgenstein is a great philanthropist. The workers at his plants in Fuerthof and St. Egyd have now been freed of all sorrows. Now the proletarians, who are not entirely unrelated to the creation of Mr. Wittgenstein’s tremendous wealth, can look calmly to enjoying the same bleak future as before, for Mr. Wittgenstein has made the unique and unprecedented decision to donate the huge sum of one thousand guilders to the workers in these factories.

According to the writer of the above editorial, the employees of the two plants were told on January 17 “that Mr. Wittgenstein had donated 1,000 guilders for the needy workers of Fuerthof and St. Egyd, because he was bidding them farewell and wanted to show his heartfelt gratitude for their support throughout the past years. A committee had to be elected to identify the needy. It was not difficult to find them,” the Metallarbeiter assured its readers, “for the generous donor had seen to it that the workers of Fuerthof and St. Egyd had to endure many hardships and great misery. It was much more difficult to proceed according to the donor’s specifications, for there were many more needy than those for whom funds were provided. Thus many miserable heads of households had to be turned away. Considering all this, it is not surprising that the workers of Fuerthof and St. Egyd believe that Mr. Wittgenstein intended to cap the end of his career as an exploiter of workers to satiate his greed for profits by earning the derision of the workers of the whole area.”

[Reprinted, with minor stylistic changes, from The Austrian History Yearbook, Vol. XV-XVI (1979-1980).]

Endnotes

[1]Biographical material can be found in Georg Guenther, “Karl Wittgenstein und seine Bedeutung fuer den Aufbau und die Entwicklung der oesterreichischen Volkswirtschaft,” Neue Oesterreichische Biographie, edited by Anton Bettelheim (10 vols., Vienna: Wienerdrucke, 1923-35); Paul Kupelwieser, Aus den Erinnerungen eines alten Oesterreichers (Vienna: Gerold & Co., 1918); obituaries in the Neue Freie Presse and other journals; and Karl Wittgenstein, “Lebenserinnerungen” (unpublished notes covering the period from 1847 to 1884 dictated to one of his daughters shortly before his death).
[2]Wittgenstein, “Lebenserinnerungen.”
[3]Kupelwieser, Aus den Erinnerungen eines alten Oesterrcihers, p. 61. In 1874 Wittgenstein married Leopoldine Kallmus (1850-1916), an “amiable and well-off girl,” according to Kupelwieser. See ibid., p. 85.
[4]See Stefan Zweig, Die Welt von Gestern. Erinnerungen eines Europaeers (Frankfurt:Suhrkamp, 1949), p. 36.
[5]Wittgenstein’s involvement with this bank is described in Eduard Maerz, Oesterreichische Industrie- und Bankpolitik in der Zeit Franz-Josefs I. Am Beispiel der k. k. priv. Oesterreichischen Credit-Anstalt fuer Handel und Gewerbe (Vienna: Europa Verlag, 1968).
[6]Kupelwieser, Aus den Erinnerungen eines alten Oesterreichers, p. 156.
[7]See Prager Eisen-Industrie-Gesellschaft, Geschaefts- und Betriebs-Bericht fuer das Geschaeftsjahr 1898-1899 (Vienna: Prager Eisen-Industrie-Gesellschaft, 1899).
[8]Wittgenstein’s relations with the imperial government were never cordial. The government was conservative, semi-feudal, and Catholic; Wittgenstein was progressive, bourgeois, and Protestant. Wittgenstein never sought nor received any of the many decorations awarded by the imperial government. He was never knighted, although many men of far less importance attained that distinction. His cool relationship with the government may help to explain why historians generally have paid little attention to his important role in the economic affairs of the Habsburg monarchy.
[9]Protokol ueber die am 23. und 24. Jaenner 1899 in k. k. Handelsministerium abgehaltene Eisenexpertise, Allgemeines Verwaltungsarchiv (Vienna), File No. PZ 368-99/Handels-Ministerium.
[10]The distribution of the special reserve funds was postponed until a later date. Prager Eisen-Industrie-Gesellschaft, Geschaefts- und Betriebs-Bericht fuer das Geschaefstjahr 1898-1899. The motives for this action are not entirely clear, but Wittgenstein and Kestranek were clearly employing techniques characteristic of American corporate finance. Distributing the surplus funds would help them achieve leverage for corporate control with a minimum of capital investment, while improving their cash position for investment elsewhere. By claiming that the funds should be distributed because they were not needed for operational purposes they contradicted their own argument for the need for a protective tariff--a form of government subsidy. The “surpluses” in question apparently were derived, in part at least, from earlier tariff subsidies. To his antagonists it seemed that Wittgenstein was asking for additional government money while saying that he had more than he knew what to do with.
[11]That none of his sons succeeded him as an entrepreneur to continue his work was one of the great disappointments of his life. Information from Dr. Thomas H. W. Stonborough. The fact that Wittgenstein desired an heir for his empire, while all of his sons were interested in the fine arts, as well as his rather dictatorial behavior, seems to explain a good deal about his sons’ suicidal tendencies. Three of them committed suicide and Ludwig, the fourth son, repeatedly thought about doing so.
[12]Arbeiter-Zeitung, January 21, 1913.
[13]Karl Wittgenstein, Zeitungsartikel und Vortraege (Vienna: Gottlieb Gistel, 1913). Cf Politico-Economic Writings: An Annotated Reprint of 'Zeitungsartikel und Vortraege', edited by J. C. Nyri; Viennise Heritage, Wiener Erbe 1 1984.
[14]The Causes of the Development of Industry in America. A Lecture delivered before the Association of Engineers and Architects on November 5th 1898 (Vienna: Spies & Co., n. d.).
[15]Ibid., p. 4.
[16]Wittgenstein, Zeitungsartikel und Vortraege, p. 122.
[17]Ibid.
[18]Ibid., p. 98.
[19]Ibid., p. 97.
[20]Ibid., p. 159.
[21]Ibid., pp. 65-66.
[22]Ibid., pp. 174-175.
[23]Ibid., p. 3.
[24]Ibid., p. 92.
[25]Ibid., p. 49.
[26]Ibid., p. 50.
[27]Ibid., p. 17.
[28]Ibid., p. 15.
[29]Information from Dr. Thomas H. W. Stonborough. The relationship between the two industrialists, of course, had nothing to do with Wittgenstein’s earlier trip to the United States.
[30]See the chapter on “Herbert Spencer and His Disciple” in Andrew Carnegie, Autobiography (Boston, Mass.: Houghton Mifflin, 1920).
[31]Richard Hofstadter, Social Darwinism in American Thought (Boston, Mass.: Beacon Press, 1944), p.41.
[32]As quoted in ibid.
[33]Ibid., pp. 45-46. See also “The Bugaboo of Trusts,” in Andrew Carnegie, The Empire of Business (Reprint of the 1933 ed., New York: Greenwood Press, 1968), p. 135.
[34]Wittgenstein, The Causes of the Development of Industry in America, p. 21.
[35]Ibid., p. 24.
[36]Ibid., p. 25.
[37]Ibid., p. 17.
[38]Wittgenstein, Zeitungsartikel und Vortraege, p. 81.
[39]Wittgenstein, The Causes of the Development of Industry in America, p. 15.
[40]Ibid., p. 16.
[41]Wittgenstein, Zeitungsartikel und Vortraege, p. 131.
[42]Ibid., p. 132.
[43]Ibid., p. 85.
[44]Ibid., p. 180
[45]Ibid., p. 190.
[46]A lengthy article on “The Cartels and the Workers” in the Arbeiter-Zeitung of June 22, 1900, indicates that the question of cartels and their significance for workers had been almost entirely ignored by the Austrian socialists.
[47]See anonymous, “Karl Wittgenstein als Kunstfreund,” Neue Freie Presse, January 21, 1913.
[48]Alte und Moderne Kunst, Vol. XCII (1967), p. 31.
[49]Translated from German by the authors.
[50]St. Poeltener Zeitung, November 1, 1891.

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