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# The Preconditions of Capitalist Transformation

The decades that followed the momentous revolution of 1848 witnessed the disappearance of the economic system born of feudalism, the burgeoning of a bourgeois society, and the foundation of a capitalist economy. For a long time yet, the social and economic systems would remain hybrids of the old and the new, with the increasingly dominant capitalist mode of production assimilating the structures of an earlier age. By the end of the century, Transylvania had become integrated into the international market economy.

From the start,the moving force of development was the steady demand for agricultural products and raw materials, in the monarchy and especially in the European market, and Transylvania's concomitant need for the means of production — capital, modern equipment, and expertise.

Transylvania was one of the most disadvantaged regions of the monarchy. Market-oriented production of agricultural goods developed only sporadically before 1848, and the level of education, industry, and urbanization was lower than in the western regions. The road network and river transport were rudimentary. In 1868, the railway that was being built to link Transylvania to the west stretched only as far as Nagyvárad, Temesvár, and Arad; by the time the railway reached Transylvania's most productive farming regions, the grain market's boom was fading and could give little impetus to the economy. The slow pace of modernization in the age of absolutism had long-term consequences.

{3-460.} The Saxon banks of Brassó and Nagyszeben heralded the arrival of a modern financial system; their loans to landowners boosted their importance in the early years of this period. At the same time, large and small manufacturers commonly deposited their stocks of finished goods with pawnbrokers in order to raise cash. The Austrian National Bank introduced the discounting of bills at Brassó in 1854, but the development of a market in bills of exchange was hindered until 1866 by the government's deflationist policy. The spread of mortgage credit was delayed by the slow pace of cadastral surveys and a politically-motivated postponement of land registration. In 1857 the Viennese Creditanstalt opened a branch in Brassó; in 1865 a small credit bank was established in Kolozsvár, as was a savings bank in Marosvásárhely. After 1867 the financial system began to expand, and the pace picked up towards the end of the century, so that by 1914, twenty-one banking and savings institutions were functioning in Kolozsvár, with a fixed capital of 11 million crowns. Transylvania counted 20 such institutions in 1873, 85 in 1894, and 223 in 1909, by which time there were also 497 credit unions with a combined membership of 110,000. In 1910, mortgage loans secured by landed property amounted to over 100 million crowns, and the volume of credit granted to district and municipal administrations, and to public utilities, grew at a rate superior to the national average.

Crop rotation remained the dominant mode of cultivation. In 1869, the intensive farming sectors (grain, market gardens, vineyards, hayfields) accounted for 43.7 percent of agriculture, scarcely higher than in Croatia. Independent peasants far outnumbered wage-labourers. In 1872, only 38 steam engines were in use in the entire agricultural sector, half as many as in Komárom County (central Hungary); and the number of horse-drawn farm machines was one seventh of that in Transdanubia. In the 1850s, the ratio of harvested to sown grain was six to one, and in the best case, eight to one; in more developed countries, the productivity in soil of comparable quality was far higher.

{3-461.} Industrial development was somewhat more dynamic than agriculture in the absolutist period. There is some evidence that between 1857 and 1869, industrial production in Transylvania began to move closer to the national average for Hungary; the number of independent manufacturers grew by 21.2 percent, and of those employed in industry by 96.3 percent, rates that were higher than the national average. At the time of the 1867 Compromise, blue-collar and white-collar workers in industry accounted for 3.9 percent of Transylvania's population. Owing to climatic conditions and historical factors, the geographic distribution of industry was uneven: Brassó and Nagyszeben were two of the country's most industrialized towns, whereas in northern Transylvania — with the exception of Kolozsvár — there were comparatively few craftsmen. Before the Compromise, mechanized power was utilized in iron and metal production, in milling, and in distilling, but the level of mechanization was one tenth of that in Transdanubia. Transylvania did not benefit much from the first stages of industrialization; after Pest, it was the Banat that became a major manufacturing centre. Although a single customs area was established in 1850, Transylvania had to await the extension of the railway network before it could take full advantage of the expanding market economy. Moored to traditional structures, its economy stagnated, in a pattern similar to that of the northeastern counties and Croatia.

For most of this period, the supply of labour did not meet the needs of a modern market economy, least of all in industry. There was a shortage of skilled and semi-skilled workers and a surplus of unskilled workers. The problem was aggravated by population growth, for by 1851 the natural rate of increase already surpassed the national average. Progress in literacy and education, essential for the creation of a modern labour force, was slow. In 1869, only 21.7 percent of males could read and write, while 56.7 percent of the population over six years of age remained illiterate. Fifty-nine percent of school-age children did not attend school, and at the end of century, the proportion fell to a still high 30 percent.

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Table 13: The spread of literacy, 1880–1900

Year | The population according to their native language | Literate (can read and write) | Illiterate (containing those who can only read)
1000 people | 1000 people | % | 1000 people | %
1880 | Hungarian | 630 | 198 | 31,4 | 432 | 68,6
Rumanian | 1185 | 106 | 8,9 | 1079 | 91,1
German | 212 | 134 | 63,2 | 78 | 36,8
Others | 57 | 6 | 10,5 | 51 | 89,5
Total | 2084 | 444 | 21,3 | 1640 | 78,7
1900 | Hungarian | 815 | 418 | 51,3 | 397 | 48,7
Rumanian | 1397 | 279 | 20,0 | 1118 | 80,0
German | 233 | 171 | 73,4 | 62 | 26,6
Others | 32 | 6 | 18,7 | 26 | 81,3
Total | 2477 | 874 | 35,5 | 1603 | 64,7
1910 | Hungarian | 918 | 550 | 59,9 | 368 | 40,1
Rumanian | 1472 | 410 | 27,9 | 1062 | 72,1
German | 234 | 178 | 76,1 | 56 | 23,9
Others | 54 | 10 | 18,5 | 44 | 81,5
Total | 2678 | 1148 | 42,9 | 1530 | 57,1

Source: 'A magyar korona országaiban az 1881. év elején végrehajtott népszámlálás főbb eredményei megyék és községek szerint részletezve' (Budapest, 1882) In: M. Stat. Közlemények. Új sorozat Vols. 61 and 64.

{3-463.} Economic growth and the development of infrastructure and manufacturing were marked by a technical modernization peculiar to central and eastern Europe. Although the liberal revolution had provided the necessary framework, it did not automatically generate a process of modernization. The modernization of agriculture after the abolition of villeinage proceeded at a very slow pace. The economic activity of peasants, wealthy landowners, and craftsmen alike was marked by ingrained habits and attitudes. The modernization of agriculture was most successful on the latifundia, but, in general, the profit motive remained weak. The weight of tradition and a lack of education conspired against the modernization of peasant farms. The small scale of peasant farming was unsuited to production for the market. When a farmer managed to save money, he would invest it in land rather than in the new implements that could improve productivity. Likewise, most small-scale manufacturers continued to serve traditional needs by old-fashioned methods instead of seeking a better living by the adoption of new methods of production.

Manufacturing developed thanks to a variety of interconnected factors. Between 1849 and 1865, the state, which was normally a important promoter of industrialization, largely gave up on its attempts to introduce new technologies and even disposed of some its holdings. Only in the dualist era did the state resume its promotion of industrialization and technological modernization. The growing influx of foreign investment in the 1880s did stimulate — to an extent that has yet to be ascertained — the introduction of modern production methods. To be sure, social change after 1848 favoured entrepreneurial initiative, but, until the end of the century, the clusters of manufacturing and mining enterprises tended to be isolated from an environment that preserved traditional human relations and values. The adoption of new techniques required expertise and capital, and recognition of this need emerged more slowly in Transylvania than in the more developed regions. One circumstance that did favour modernization was the spread of small-scale {3-464.} manufacturing activity among peasants. Saxons towns were comparatively well-endowed with small-scale manufacturing, and by the 1850s some of the workshops were becoming mechanized. Nevertheless, technicians and skilled workers had to be brought in from distant regions to start up foundries, smelters, and mining operations, even though some of these activities had a century-old tradition in the area.

After the Compromise, Transylvania's economy derived some benefit from Hungary's higher level of development and more favourable heritage. The country drew more foreign investment, and its expanding banking system and railway network facilitated the development of industry. Domestic capital (including some from Transylvania) did play a part, although the low level of capital accumulation precluded major investment projects, and more than one investment ended in bankruptcy.

The situation changed radically after the turn of the century. Even in Transylvania, by 1910 domestic capital could make a major contribution to economic development and industrialization. The host of entrepreneurs and experts who flooded into the region from other parts of the monarchy were now joined by a growing number of locals. The quality of secondary and higher education improved markedly, and the old technical academy at Selmecbánya, along with Budapest's technical university (which was the best in eastern Europe after the German and Austrian polytechnics) graduated engineers who ensured that the country's industry was open to technological developments in Germany as well as other countries. By the turn of the century, massive investment — around a quarter of all investment — in education and training was beginning to pay off, for the country became self-sufficient in trained engineers. New technologies were introduced in Hungarian, including Transylvani-an, industries with only a few years' lag, and sometimes even earlier than in Austria. Domestic innovations followed, signalling the readiness of Hungarian society to adopt modern technology.

{3-465.} The integration of disparate elements into a national market helped to overcome economic backwardness. In Transylvania, the accelerated development of a modern transport system and financial market were both cause and effect of the development of market-oriented agriculture and of a manufacturing industry.