Backstory to the industrial revolution: conclusion

Part 1

Part 2

Part 3

So, to sum up this rather long series, in which I gave a selective history of pre-industrial, post-medieval Europe, focussing on two phenomena: colonialism, and the ‘scientific revolution.’

What do those two things have to do with the Industrial Revolution?

Practical innovation

I’ll start with the scientific revolution, where the connection is easier to see. This was where the practices of modern science were born. For the first time in human history, people were developing a detailed and accurate description of how nature works.

I feel that, to some extent, the scientific breakthroughs of the 17th century and the technological breakthroughs of the 18th-19th centuries had a shared cause: that it was increasingly socially acceptable for very smart people with free time on their hands to devote their energies to practical, technical endeavours. The same spirit of discovery that produced the theory of vacuum, also produced the steam engine.

But the scientific breakthroughs themselves certainly impelled the technological breakthroughs. Without theoretical understanding, invention can only proceed by slow trial and error. Understanding guides discovery. For instance, the physicist Carnot demonstrated that there is an absolute limit on the amount of useful energy that can be extracted from a heat engine; a discovery that surely headed off a lot of wasted effort on impractical steam engine designs.

Thermodynamics you can use: the Carnot cycle. Source: Wikipedia

Britannia rules the waves

What’s the significance of colonialism? I found myself asking that when I started to write this summary. ‘Why did I spend so much time talking about colonialism, again?’

One thing is just that it sets the scene for European dominance in the wake of the IR. It’s hard to imagine the effects of the IR in a world where the colonial era had never taken place. Industrialization stimulated a huge demand for raw resources, and produced an immense backflow of manufactured goods; the channels for this exchange were already in place thanks to colonialism, and for the vectors of exploitation and domination that rode along with the exchange.

Colonialism also gave rise to a fair amount of international trade already prior to the IR. The book Power & Plenty highlights the importance of trade as a cause of industrialization. In the book, economists Ronald Findlay and Kevin O’Rourke tell a nice story invoking the concepts of elasticity of demand and elasticity of supply. They focus on Britain where the IR started, and particularly the first industry to be mechanized, the production of cloth.

Demand is elastic when it is relatively sensitive to price: that is, more people will buy your thing, if you can sell your thing more cheaply. This gives you an incentive to bring down the cost of your thing. Conversely, inelastic demand means that lowering price won’t get you many more customers. If you’re a shoemaker living in an isolated mountain village, and every soul in the village already gets their shoes from you, then cutting your prices isn’t going to bring in more business; demand is inelastic.

Findlay & O’Rourke argue that you need elastic demand to drive major innovation. There’s no point in all that bother to come up with a more efficient, cheaper process unless you can actually move more units and make more money in a substantial way. Luckily for Britain, they had a large market for manufactured goods right next door: the wealthy cities of continental Europe. The burgeoning European middle-class provided elastic demand for the products of industrialization.

Elasticity of supply looks at the other end of the production process: how does the supply of your inputs respond to price? That is, if you want more of something, will you have to pay a higher price?

As consumers we’re used to elastic supply: if I go to the store to buy cereal, I expect to pay the same, whether I buy one or a dozen boxes of Croque Matin. But inelastic supply is common at commercial scales. A striking recent example is provided by the ‘rare earths,’ a group of chemical elements that, as the name implies, are available in scarce quantities. Rare earths turn out to be essential to making a smartphone, (amongst other technological marvels.) Between 2000 and 2010, as demand rocketed, the prices of rare earths jumped tenfold, because supply couldn’t keep up.

Inelastic supply, iPhone edition. Source: The Economist

Inelastic supply, iPhone edition. Source: The Economist

Elastic supply is just as crucial as elastic demand for innovation. Say you’re an 18th-century businessman, let’s say hypothetically in the business of making cloth. You have new technology for more efficient spinning and weaving; you have a large market waiting for your cheaper products. But your production requires a supply of raw goods, in this case cotton. If that supply is inelastic – if the price of your inputs is going to jump up when you ramp up production – then it’ll kill your margins and kill your newborn golden goose.

Fortunately for your hypothetical 18th-century business, you do have an elastic supply of cotton. The tendrils of Britain’s maritime trade empire literally encircled the globe. Britain maintained strong economic ties with its former colony, the United States of America, where cotton-growing land was plentiful. In a darker side to the story, Findlay & O’Rourke argue that the labour to grow the cotton was also in elastic supply: via the trans-Atlantic slave trade. As industrialization swelled, the Virginian plantation-owners cleared more cotton fields, the slaveships brought more slaves to plant them, and the cotton mills of northern England kept churning out cheap cloth for the cities of Europe.

A similar dynamic applied for other manufactured goods: the European continent provided ample demand for cheaper wares, and Britain’s vast trade empire provided the supply of raw inputs.

Conclusion

In effect, the scientific revolution made the IR possible, and colonial trade made it desirable. The scientific insights and the doctrines of empirical investigation of the 17th century made possible technical advances such as the steam engine. The flows of international trade made for ample rewards for those who undertook the risky and expensive challenge of putting the new technologies to work.

Hopefully this series of posts has raised more questions for you than it’s answered, as it has for me. Why exactly did the IR go down in Europe, and not anywhere else? What about all that stuff economists love: institutions, property rights, and so on? What about less tangible factors, like cultural change, that have shaped the modern world?

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