Vienna, part of an 18th century innovative public hospital complex

Proto-industrial Economies

At the beginning of the 18th century several regions in western Europe had acquired sizable concentrations of rural industry, especially textile industry, e.g. the linen industry in Flanders: rural, cottage-based, organised by entrepreneurs in Ghent and other market towns which exported their output. The workers – family units – usually cultivated small plots of ground and bought additional supplies. The entrepreneurs supplied the workers with raw material and disposed of their output: similar to the putting-out system, but the difference were the distant markets.

Other large-scale, highly capitalised industries producing capital or even consumer goods were the French royal manufactures: large factory-like structures, where skilled artisans worked under supervision but without mechanical power. Similar proto-factories were built by noble landowner-entrepreneurs in the Austrian Empire; they were also involved in the coal and mining industry. Iron works, lead, copper and glass works, shipyards often had large-scale organisations with hundreds or thousands of workers, e.g. the state-owned Arsenale of Venice. During the 18th century new forms of industrial enterprise developed.

Characteristics of Modern Industry

The difference between pre-industrial and modern industrial societies is the greatly diminished relative role of agriculture. The greatly improved productivity of modern agriculture was able to feed large non-agricultural populations. During the period of industrialisation, starting in the 18th century in Great Britain till the first half of the 20th century, the characteristic feature of transformation was the rise of the secondary sector (today the tertiary and quaternary sector) – mining, manufacturing and construction – according to the proportion of labour force employed and output.

Great Britain was the first industrial nation. But the term “Industrial Revolution” is misleading, as it was a gradual transformation characteristic of economic processes. The term overlooks the essential fact of continuity; also changes were not merely industrial, but social and intellectual, too. Capitalism had its origins long before 1760 and fully developed long after 1830 (end of the first phase of industrialisation).

Certain characteristics distinguish modern from pre-modern industry:

  • Extensive use of mechanically powered machinery
  • Introduction of new sources of power for energy production, especially fossil fuels
  • Widespread use of materials that do not normally occur in nature
  • Larger scale of enterprise in most industries

The most significant improvements were the use of machinery and mechanical power for tasks formerly done much more slowly and laboriously by humans or animals or were not done at all. Developments in the application of energy were the substitution of coal for wood and charcoal as fuel and the introduction of the steam engine for mining, manufacturing and transportation. The use of coal and coke in the smelting process reduced the cost of metals and multiplied their uses. The application of chemical science created a large amount of new artificial or synthetic materials.

Prerequisites of Industrialisation

England was the first nation not only to industrialise, but to increase its agricultural productivity. At the end of the 17th century only about 60% of its workers were primarily involved in food production and the proportion declined steadily to about 36% at the beginning of the 19th century and to 10 % at the beginning of the 20th century. Trial-and-error experimentation with new crops and crop rotation, fodder crops introduced from the Netherlands, “convertible husbandry” (the alternation of field crops with temporary pastures, also sown with the new fodder crops instead of permanent arable land and pastures) restored fertility to the soil, carried a larger number of livestock, producing more manure for fertiliser, more meat, dairy products and wool. Experiments with selective breeding of livestock were carried out. The traditional open field system was unsuitable for these innovations because no agreement could be obtained by the many participants. So strong incentives for enclosure were necessary, which were opposed by small cottagers who only had rights to a common pasture. In the 18th century more than half of the arable land had been enclosed (walled, fenced or hedged) by private agreement or parliamentary acts. A new agricultural landscape developed: enclosed farms of 100-300 acres with a tendency towards larger farms. Small farmers were owner-occupiers who farmed with the help of family labour, while larger farmers were capitalistic tenant farmers who rented their land for cash payment and hired landless agricultural labourers. Increasing productivity could feed a burgeoning population, yet only in the late 18th century did population growth overtake the increase of productivity. The rural population was more prosperous, more specialised and more commercially-orientated than on the continent and provided a ready market for manufacturing goods.

A general process of commercialisation of the whole nation started.At the end of 17th century English foreign trade per capita exceeded all nations except the Netherlands and Londonwas beginning to rival Amsterdam as a commercial and financial centre. Roman roads centring on London still served the English economy, as London was the highest point on the Thames for ocean-going ships. It was an important port and with an extremely rapid population growth became the largest city in Europe. The period was characterised by a fast development of the financial organisations. Since 1660 a number of prominent goldsmiths in London had started to function as bankers; issued deposit receipts that circulated as banknotes and granted loans to entrepreneurs. The founding of the Bank of England 1694 with its legal monopoly of joint-stock banking, forced the private bankers to give up issues of banknotes, but they continued to function as banks of deposits, accepting drafts and discounting bills of exchange. But no formal banking facilities existed outside London; also banknotes did not circulate outside London. The institution of country banks had its origin in the issuing of small coins by merchants or industrialists because the Royal Mint was extremely inefficient. After the Glorious Revolution of 1688 many joint-stock companies were created, some with royal charters and grants of monopoly like the Bank of England. The financial boom which followed the victory in the War of the Spanish Succession was called the South Sea Bubble, the name of which was derived from the South Sea Company, chartered in1711 with the monopoly of trade with the Spanish empire. Yet the real reason was raising money for war. The bubble burst and Parliament passed the Bubble Act in 1720, which was repealed in 1825. It prohibited the formation of joint-stock companies without the authorisation of Parliament and thereby created a legal barrier against the joint-stock form of business organisation at the beginning of the Industrial Revolution. So most industrial enterprises had to be partnerships or simple proprietorships. This did not hinder English industrialisation due to the reduced cost of public borrowing which freed capital for investment into industries. Most enterprises grew from small beginnings by means of reinvested profits.

Improved transportation facilities were a key driver of industrialisation. The movement of large quantities of bulky goods, such as grain, timber, coal and ore required cheap and dependable transportation. The island position protected Great Britain from continental warfare and the long coastline offered excellent natural harbours. Furthermore many navigable streams eliminated much of the need for overland transportation. Nevertheless England undertook river and harbour improvements by acts of Parliament and a network of canals was built to connect rivers with each other or mines with markets. Sophisticated canal constructions with aqueducts, subterranean tunnels were constructed. All the major centres of production and consumption were connected together and with the important ports. Canal companies were organised as profit-making companies which collected tolls. The canal network was extremely efficient, but the maintenance of roads was the responsibility of parishes, so their condition was deplorable. Parliament created turnpike trusts that undertook the building and maintaining of good roads and charged tolls, which eventually formed a dense network until the railway made them and canals obsolete.

Industrial Technology and Innovation

  • Process for smelting iron ore with cokereplaced charcoal with coal in the blast furnace. Ironmasters achieved economies of scale by integrating all iron making operations in one location at or near the site of coal production. The total iron output and proportion made with coal accelerated dramatically. By the end of the 18th century Great Britain had become a net exporter of iron and iron wares.
  • Steam power: It wasfirst employed in the mining industry for pumping water from ever deeper mines. In the 1760s James Watt, a technician at the University of Glasgow, vastly improved those first machines, obtained a patent and began commercial production of steam engines with a partner. One of his first customers was John Wilkinson, an ironmaster who used the engine to operate the bellows for his blast furnace. Later such engines were used for flour milling and cotton spinning
  • Spinning machines and power looms (mechanical weaving) for the growing cotton industry were invented.The rapid increase in the demand for cotton accompanied the technical innovations. Cotton production began in Britain’s Caribbean Islands and the American South. The high cost of separating the seeds from the fibres, even with slave labour, promoted the invention of the mechanical “gin” engine which was so effective that later the United States became the leading supplier of raw cotton and cotton became Great Britain’s leading industry. Innovations in spinning, weaving and the “gin” became the most important innovations in the cotton industry, which resulted in drastic reductions in price and a growing percentage of output was exported.

Cotton, iron and steam power were the nucleus of early industrialisation, but there were also other industries involved, especially those engaged in the production of consumer goods from simple wares like pots and pans to sophisticated ones as clocks and watches. Adam Smith noted the great increases in productivity obtained in a pin factory by specialisation and division of labour.

The manufacture of pottery created a profitable business line. The introduction of fine porcelain from China (“chinaware”) was triggered by the popularity of tea and coffee and the increasing income of the middle classes. The industry was concentrated in areas with coal, such as Staffordshire. The masters there relied on division of labour, more progressive ones even used steam engines to grind and mix the raw materials, for example Josiah Wedgwood.

Another important sector was the chemical industry. The progress of chemical science and empirical experiments of the manufacturers of soap, paper, glass, paints and dyes created new synthetic products, for example the Lever Brothers in Liverpool.

The coal mines were responsible for the building of the first railways in Great Britain. As mines were dug deeper and deeper with long underground tunnels, coal was brought to the main shaft on sledges pulled by women and boys. By 1760s ponies were used underground for pulling wheeled carriages on tracks of metal; later on rails of cast and wrought iron were used. Rails were laid from the mines to the wharves on the rivers or the sea to which coal carts descended by gravity and were pulled back by horses. The steam locomotive was the product of a complex evolutionary process starting with Watt’s steam engine. Many engineers contributed to the development, but George Stephenson, a Scottish autodidact, was the most successful. He persuaded the promoters of the projected Stockton-Darlington Railway, a colliery line, to use steam instead of horses and the first steam-driven line opened there in 1825. Only five years later the line Liverpool-Manchester was completed in 1830.

Social Aspects of Early Industrialisation

The fast population increase in the 18th century was a European phenomenon. There might have been earlier marriages and therefore higher birth rates because of the growth of cottage and factory industries that enabled young couples to set up households earlier without waiting for a farmstead or completing an apprenticeship. Death rates might have declined because of the inoculation against smallpox, an improvement in medical care and a rise in living standards due to economic growth. Agricultural progress brought an abundance of food, a formerly unknown variety of foodstuffs, soap production, coal for heating and overall higher standards of cleanliness.

Immigration and emigration affected the amount of total population. Irish and political and religious refugees from the continent, for example the Huguenots, came to England and Scotland, more than a million English, Scottish and Welsh left for overseas in the18th  century, some of which were forcibly deported. Even more important was internal migration from the countryside to the growing industrial areas. This produced a shift in density from the southeast to the northwest of the island and increasing urbanisation. In 1700 London had half a million inhabitants and in 1800 over 1 million. The next cities in size were Liverpool, Manchester, Birmingham, Glasgow and Edinburgh which had more than 70,000 inhabitants. All cities were growing fast. Around 1850 half of the population was urban; by 1900 three quarters.

Cities contained huge areas of ramshackle tenements and miserable cottages for the working classes, with four and more persons per room and non-existent sanitary facilities. The drainage consisted of an open ditch in the middle of the street where refuse and wastewater were left in pools and piles, a breeding ground for cholera and epidemics. Streets were narrow, unlighted, unpaved and full of refuse and vile odour. The deplorable conditions resulted from rapid growth, inadequate administration and an absence of planning. That people consented to live under such conditions is evidence of the great economic pressure that forced them to move. The increase of rural population could not be absorbed in the countryside. The employment of women and children in agriculture and domestic industry was adopted by the factory system. Factories could even pay higher wages because of higher productivity. There might have been a slight improvement in the standard of living of the working classes up to the middle of the 19th century, but the inequality of the distribution of income and wealth became even greater than in pre-industrial times because the incomes of those who lived on rent, interest or profit rose enormously.


Cameron, Rondo, & Neal, Larry, A Concise Economic History of the World, Oxford University Press 2002