The Beginning of the Industrial Revolution



“The age is running mad after innovation.” Samuel Johnson

In the Beginning

Why study economic theory and analysis, read economic history, and make economic forecasts? The short answer is because of the Industrial Revolution and the attempt to understand its dynamics and structure. Economics is an attempt to understand the material world we live in, the environment created by the Industrial Revolution.

THE BEGINNING OF THE INDUSTRIAL REVOLUTION

The Industrial Revolution began in England in the late 1700s. It then spread to America and western European countries. This tutorial will summarize its origins in England and describe the early decades of the Industrial Revolution in America.

The Industrial Revolution was a radical break in history. But in England, many of the preconditions were already in place, as can be seen by the history of the Wedgwood 
company.

The revolutionary generation that first adopted steam engines saw the following trends and changes:

Manufacturing was being modernized by a small group of entrepreneurs. Much of the new raw material processing and manufacturing was concentrated in a small area in the middle of England, away from London. These modernizing entrepreneurs formed a new economic, intellectual and social network.

Modernizing entrepreneurs like Wedgwood tended to be members of Dissenting sects (not members of the Church of England), Whig (liberals) in politics, and believers in “progress.” They were optimistic about the future, influenced by the ideas of Hume, Rousseau, Locke and Adam Smith. They believed their society could be reformed and they were active agents for improvement.

They believed in studying and understanding the material world through reason, data, experience, and experimentation. They had personal ties with scientists and intellectuals. 

Like Wedgwood, many came from poor backgrounds. Because of their backgrounds and religious beliefs, they could not attend Oxford or Cambridge. They were cut off from the traditional avenues of social advancement - government official, army officers, and the Church of England. The Industrial Revolution gave them opportunities for economic success denied them under a pre-industrial society. Entrepreneurs could develop these opportunities because of a long political struggle in England to establish the rule of law, individual rights, property right and limits on governmental power.


The Industrial Revolution began when steam power was applied to drive newly invented metal machinery. This became the starting point for the development and mass production of everyday products and services. The motivation was private profit.

The building housing power-driven machinery was the beginning of another innovation – the modern factory with a disciplined industrial labor force. Advancements in production planning, management and control exploiting the new production technology led to increased output and lower unit cost.  

The most important discovery of the Industrial Revolution in England – what made it a revolution – was the invention of…invention. But inventions then had to be turned into innovations, the design of power-driven machinery and large-scale production of useful products and services that people besides the rich could afford. Final products had to be continuously improved from prototypes to commercial products that customers found to be valuable (however defined), easier to use, and cheaper. Capital inputs and production methods changed together to mass-produce the products at lower real cost.  New markets were created. Companies competed on coming out with new and better products. 

A detailed look at the early years of the Industrial Revolution in Great Britain reveals a hurricane of inventive activity. Hundreds of mechanics, engineers and tinkerers attempted to improve on the new and existing technology, develop variations, solve specific technical problems, propose new applications, and apply for patents to protect their ideas. Better machine tools and larger, faster machines were invented. New production systems and methods produced large quantities of new and improved goods at lower and lower real cost. The main reason for this explosion was the opportunity to profit from the sale and application of technical knowledge.

The first industry to be transformed was the cloth industry. Cotton cloth, an expensive luxury product before the Industrial Revolution, was mass-produced by power-driven iron textile machinery. Huge increases in productivity led to a large fall in price and increased demand. Cotton cloth became England’s largest export throughout the 19th century. Power-driven metal machinery would transform the production of many traditional industries.

We can measure the long-run results of ceaseless innovation in the weaving of cloth. A weaver today using modern looms can produce 100 times the amount of cloth per hour produced by a hand-loom weaver 200 years ago.

Many of the advances came together to create the railroad. Railroad locomotives were make possible by the development of high-pressure steam engines, an improvement James Watt decided to ignore and denounce. It took 25 years of experimentation and development to work out the technical details of an efficient locomotive and a practical railroad. Even failures often showed at least one technical improvement, solving one technical problem.

The first general-purpose railroad was built in 1830 between the port of Liverpool and the new manufacturing center of Manchester. The railroad’s main function was to transport imported cotton to Manchester and cotton cloth back to Liverpool for export.

PRECONDITIONS OF THE INDUSTRIAL REVOLUTION IN AMERICA

Before industrialization began in the 1820s, there was a set of political institutions and cultural values, mostly inherited from England, that encouraged profit-seeking individuals to start new companies.  They included fairly secure property rights, increasing legal limits on monopolies, an independent judiciary that enforced contracts, emphasis on individual rights rather than social obligations, patents, tolerance of markets, and less government regulation of markets than in the past.  Much of this was stated or implied in the Constitution; an activist Supreme Court under John Marshall extended these trends. The Constitution also helped to create a national market and reduce transaction costs by mandating a national currency and limiting states’ ability to make economic policy that favored their own residents.

What America did not inherit from England was important. Unlike England, the new United States did not have a king and a landowning nobility to siphon off capital. Settled by members of dissenting sects and persecuted religious minorities, there would be no state-supported national religion. As a consequence, capital would not be diverted to royal palaces, aristocratic castles, or cathedrals.

Economists interested in economic development often advocate land reform in a traditional agricultural society as a necessary first step to modernization. This breaks the power of the conservative landlord class. America did not have to go through this step. Laws were passed even before the Constitution that made free and cheap land available to everyone. America began as a national of landowning farmers. Thomas Jefferson saw independent farmers as the foundation of a democratic society.

By winning the American Revolution, the new United States retained from England the political policies and ideas that would encourage individual economic “striving” and reject most of the English institutions opposed to progress and change. America was fortunate that it created a political structure, a democratic society and an ideology that would support the coming Industrial Revolution. 

In the early period of industrialization (1820-1870), a rapidly growing population (from 3 million in 1790 to almost 10 million in 1820 to 30 million in 1860) created an increased potential demand for new consumer products. Western expansion generated an agricultural surplus of commercial crops that were exchanged for cash to buy manufactured goods. Exports of cotton helped pay for imports of machinery, locomotives and manufactured goods.

These conditions together could encourage economic growth but not necessarily industrialization, the large-scale production of capital goods (machinery) and consumer goods using inanimate power (steam engines and waterwheels) to drive faster, more powerful machinery. For that to happen, mechanics, tinkerers, investors and entrepreneurs had to invent, innovate and organize new finance, production, distribution and marketing methods. Economic development drove economic growth.

THE BEGINNING OF THE INDUSTRIAL REVOLUTION IN AMERICA

A key factor explaining why America industrialized so early and so quickly was the country’s continuing ties with England after the American Revolution. Americans quickly understood the profitable opportunities of the new production methods being created in England. Americans also had access to much of the scientific and technical knowledge being created and applied in England. Ambitious Englishmen with technical knowledge, like Samuel Slater the founder of the American textile industry, came to America because they had more opportunity here to get rich. Americans read English scientific and technical journals; often, American like Robert Fulton went to England to see the new methods and machinery. The future Baltimore and Ohio Railroad sent an engineer over to England to find out about English railroad technology even before England had completed its first general purpose railroad.

One reason industrialization spread was the association of entrepreneurs with investment capital looking for new profit opportunities with mechanics interested in designing and developing new power-driven machinery, especially metal-working machinery.  In the beginning, many of the machine tools and power-driven machinery could be built using traditional craft skills, using traditional materials like wood and hand (or foot) operated tools. The power sources to drive the machinery were not a problem. Waterwheels had been used for hundreds of years in Europe; steam engines could be imported from England. They would soon be designed, improved and produced in America. 

There were inspired geniuses like James Watt in England and Oliver Evans in America who greatly improved the steam engine, which had been in use in England since the early 1700s. Then modifications and adaptations of existing power-driven machinery and machine tools like lathes often led to large increases in productivity of particular products. In one early example, an American axe manufacturer hired a mechanic to design and development a die forging machine to produce axe heads. His machine increased the productivity of a single skilled striker and an assistant from 12 to 300 axe heads per day. It was these kinds of innovations that drove the Industrial Revolution.

Americans often surpassed the English in their ability to mass-produce products at a lower cost. American products were generally not as good as English products but their lower cost, plus constant improvement, led to a great deal of innovation and high growth rates. Americans developed a reputation of making it fast, making it cheap today and improving it tomorrow. 
                                                                                                             
LABOR

There was no labor shortage for the factories and mines because of high birthrates, high rates of population growth, open immigration, and the use of women in the industrial workforce. This was also a high quality labor force with high literacy rates among native-born workers. Also, there were no entrenched guilds of craft workers to discourage introduction of new production techniques or influence the organization of work in the factories.

ADVANCES IN RAW MATERIAL PRODUCTION

The Industrial Revolution would have been a limited affair if not for the huge increase in the production of metals, especially iron. The new steam engines, machine tools and machinery were made out of iron and other metals. Fortunately, much of the new production technology - smelting iron ore with anthracite (hard) coal or coke and puddling pig iron to reduce the carbon content for forging - had been worked out in England and Wales in the 1700s. Americans had access to or knowledge of this technology when the demand for iron skyrocketed after 1820. Entrepreneurs built larger furnaces, brought over the new Welsh technology of smelting iron ore with anthracite coal, installed steam engines to heat and blow air into the furnace, and recycled waste heat to raise temperatures. The result was a big increase in iron production at a lower cost per ton. The increasing production of iron for casting and forging eliminated a potential bottleneck to rapid industrialization.

Large amounts of iron would be vital to the development of the railroad industry.

TRANSPORTATION COSTS

The single largest transaction cost at the beginning of the Industrial Revolution was transportation costs. High overland transportation costs limited the size of markets and made products expensive.

These high costs were first attacked on a large scale with the building of canals, inspired by the spectacular success of the Erie Canal (fully opened in 1825). Overland transportation costs fell by about 80%. At the same time, steamboats on Western rivers reduced costs and permitted upstream navigation. Then, starting in the 1830s, came railroads, another new technology developed in England. Within two years, American mechanics and engineers were modifying English designs to match American conditions. American companies began producing locomotives and other rolling stock. American railroad companies figured out how to lay down track quicker and at a lower cost than the better built railroads of England. This was an early example of the American business ethos – build it fast, build it cheap, get it up and running, generate revenue, then fix it.

Compared to canals and steamboats, railroads offered huge increases in total carrying capacity, year-round operation, lower cost, greater flexibility and reliability, and big savings in time moving people and information. The explosion of needed information to run a large railroad created serious management problems, to say nothing of trains crashing into each other. The problem was partly solved by the creation of the telegraph. Railroads financed many of the early telegraph lines, often strung alongside of railroad tracks. 

Railroads also pioneered the decentralization of operations management into divisions that suggested the organizational structure for later industrial corporations.

Throughout the Industrial Revolution, America had by far the largest railroad transportation system in the world. It overcame large distances and supported western expansion. Railroads moved agricultural goods to urban markets and ports, and manufactured goods to rural areas. They were vital to the creation of a national market.

THE SPREAD OF THE INDUSTRIAL REVOLUTION

The thinking of Francis Cabot Lowell, a Boston merchant, was indicative of a new kind of mentality that was crucial to the success of the Industrial Revolution in America. He was a newly rich merchant looking for new investments. Lowell saw cotton textile production as an integrated system in one factory. He thought about how the different production steps could be coordinated to reduce handling costs and increase overall productivity. Lowell raised the investment funds from fellow Boston merchants to pay for the high upfront capital costs of constructing large buildings and textile machinery. He is the founder of America’s first large-scale manufacturing industry – cotton textiles. He is also famous because he went to England to steal the design of power-driven looms.

What mill managers and mechanics subsequently learned from experience was that whenever they increased the productivity in any part of the production system it created bottlenecks elsewhere in the system. Better, faster machines would then have to be designed for other stages of production. This would create new bottlenecks; the process was one of continuous improvement in the production flow.

Back to the axe example. When die-forging machines made many more axe heads per hour, this created a serious bottleneck problem in the milling (or grinding) of the head into the right shape.  New power equipment was invented to plane (or sand) the heads faster than the old technology. This, in turn, put pressure on the methods to temper (or harden) the heads; innovative new specialized ovens were designed to increase the product flow and improve quality. This same process worked in all successful companies in all industries that adopted power-driven machinery.

Americans like Thomas Jefferson, Eli Whitney, and the technically trained officers of the army realized early the potential of the mass production of interchangeable parts that could be fitted together quickly by unskilled labor to produce and repair guns. Interchangeable parts, when fitted together with other interchangeable parts, eliminated the slow and expensive need for hand filing and fitting to make metal parts fit together. It took over 30 years to make the system operational. It made possible the mass production of new metal products such as sewing machines, typewriters, and automobiles. This new manufacturing process was so radical that English engineers called it the American System of Manufacturing.

The cumulative effect of this industrializing process was increasing productivity, higher volume of output, better quality and lower unit cost. This trend spread to other industries with the application of general-purpose machine tools to new uses. Itinerant mechanics adapted their knowledge and experience to modernize the production of new products. Techniques developed in one industry were often transferable to new industries. Success in one industry inspired entrepreneurs to apply the same methods in other industries.  This is how the Waltham Watch Company got started; the founder was inspired by a visit to the Springfield Armory, famous for the mass production of rifles. Sometimes this occurred in the same company; Remington went from producing guns to producing sewing machines to producing typewriters.

At first, industrial products were familiar products just produced at a lower unit cost by power-driven machinery in factories. Examples included cloth, shoes, paper, nails, clocks, and guns. Lower prices had the same effect as higher income; consumers had money left over to buy more of other products. But as production technology advanced - new and more specialized machine tools, the mass production of steel and the ability to work new materials - it became possible to design and produce new, complicated metal consumer and producer durables. New production techniques developed, such as the stamping rather than the grinding of parts. This led to the mass production of the automobile.

=========================================================



Related Blog Posts:


Adam Smith's Pin Factory. At the beginning of the Industrial Revolution. How pin and nail production then evolved.


A Cautionary Tale - England and the Industrial Revolution. How England lost its economic and technological leads. Moral - keep innovating or fall behind.

This post is also Economics Tutorial 3. The Economics Tutorials attempt to describe and analyze the dynamics and structure of a modern industrialized economy. For a list of all the tutorials, see Pages or the Guide to Pages and Posts.

============================================================

In 

Go back to the Guide for Pages and Posts.

For a list of all posts and pages (economics tutorials), see Guide to Pages and Posts.
Economics tutorials in total are the equivalent of a course in economics. No graphs or equations. But the content is different than that in a typical course or textbook.



Comments

Post a Comment

Most Popular Posts

Adam Smith's Pin Factory

Image
ADAM SMITH VISITS A PIN FACTORY   Adam Smith’s description of a pin factory is on the first page of  The Wealth of Nations .  (Chapter 1 – “Of the Division of Labour”)  Drawings of pin factories of this period show workers using hand tools. Smith says the process can be broken down into 18 distinct steps, including packaging the pins. Smith mentions that pin factory workers were poorly paid, despite their high productivity.    Adam Smith says he visited a pin factory employing 10 men who produced 48,000 pins per day.  If each of the ten workers had done all the steps themselves, Smith says each worker could produce only 10 or 20 pins per day.  So the pin factory replaces 2,400 to 4,800 pin makers. The increase in labor productivity (output per person per day) is as high as 50 times that of individual pin makers.     This reduction in unit cost or average cost (AC) and the huge increase in quantity produced do not just replace older methods of organization and production.  They increa
Read more

The Structure of the Economy: Bilateral Oligopoly

Image
DEFINITION OF A BILATERAL OLIGOPOLY Models of market structure assume that the demand side is represented by a large number of buyers.  The structure of the market, and the assumed market outcomes, depends on the number of suppliers and how they compete.  Suppliers either post one price or exploit their knowledge of buyer categories by using price discrimination.  Despite the comments about the key role of consumers in determining economic performance, consumers are fairly passive when the discussion focuses on imperfectly-competitive industries.  But many markets are not structured this way; the buyers are not passive consumers but large corporations that do not passively accept suppliers’ prices.  Net prices are actively negotiated.  These markets are often bilateral oligopolies. In a bilateral oligopoly the buyers are not an undifferentiated mass of consumers but rather a small number of purchasing agents or professional buyers representing large purchasers.   T
Read more

The Stock Market Crash of 1929 and the Beginning of the Great Depression

Image
Famous Headline Introduction The usual reasons given for the Great Depression – the stock market crash of 1929 and the later collapse of the banking system – do not tell the whole story. Available economic data indicate (there were no national income accounts in 1929) that a recession had already begun before the stock market crash. The crash of October and November of 1929 was a catalyst that made the recession worse but the partial stock market recovery in early 1930 did not end the recession. Industrial production continued to fall quickly and unemployment rose rapidly in 1930. Continuing farm and businesses failures over the next two years wiped out thousands of small rural banks and threatened total financial collapse in early1933.  For a fuller explanation, we have to go back to the 1920s to see additional reasons for the origins and the rapid decline in output at the beginning of the Great Depression. We have to look at the internationa
Read more

Guide to Pages and Posts

PAGES - ECONOMICS TUTORIALS This set of economic essays in Pages are equivalent to a course in economics. They emphasize the dynamics of economic growth and development, and the role of information in the functioning of modern markets. BASIC CONCEPTS AND THEORY Chapter 1 - Introduction and Summary The Beginning of the Industrial Revolution Chapter 3 - Economic Development and Economic Growth Chapter 4  - Production Functions and  Supply Chains Chapter 5 - Demand, Income and Consumption Chapter 6 - Competition, Strategies and Structure Chapter 7 - Imperfect Competition: How Large Corporations Compete Chapter 8  - Case Study:  Parker Hannifin Chapter 9  - Bilateral Oligopoly Chapter 10 - Examples of Bilateral Oligopoly Chapter 11  - Critique of Basic Economic Theory MARKET DYNAMICS AND INFORMATION:  HOW MARKETS WORK Chapter 12  - Introduction to Information and Economic Structure Chapter 13  - How Markets Work:  Transaction Costs and Market-Makers Chapter 14  - Asymmetric
Read more

Explaining Derivatives - An Analogy

Image
You go around to farmers with cows. You buy all the cows and pay the farmers a small fee to milk the cows and sell the milk. You pay for the cows with ass(et)-backed securities called MBSs (Milked Bovine Securities) that you tell investors are udderly safe. But some of the cows don't give enough milk (cow flow problem) or give no milk at all. You take some of the asset-backed securities, say they're backed by the subprime cows, and use them as collateral to sell another set of securities called CMOs (Cow Milk Obligations). Then you buy CDSs (Cow Dried-up Swaps) from AIG (Angus Insurance Company) to insure the CMOs when the cows stopped giving milk. If you work it right, you collect more on the CDSs than you pay out to retire the CMOs. The money you get from selling the dead cows go to pay the CLOs (cow leather obligations). You could also sell CDOs (cow dung obligations) that depend on how much cow dung is produced. This is a typical Wall Street product - turning sh
Read more

Government Finance 101: Welcome to Alice in Wonderland

Image
    Fiscal Policy   Some basic definitions:   Deficit.    The difference between the federal government’s spending and its revenue in one fiscal year.   The fiscal year starts on October 1.  So fiscal year 2024 started on October 1, 2023. You know right away this is going to be confusing. Yearly deficits before the coronavirus were around $1 trillion per year. For fiscal year 2021, the deficit was $2.8 trillion. Total stimulus spending and tax cuts were around $4 trillion. The Congressional Budget Office’s latest projection is an average yearly deficit of $1.5 trillion for the next 10 years. This should be viewed as a minimum.   Social Security and Medicare are funded by their own taxes and working down their trust funds (selling government bonds). Subtracting Social Security and Medicare taxes from the Federal budget, other revenue covers about 50-60% of all other government spending; the other 40-50% is the deficit and financed by borrowing.   Debt .  Short for national debt.
Read more

John von Neumann Sees the Future

Image
John von Neumann JOHN VON NEUMANN CREATES THE FUTURE If you want to understand the world we live in, you have to know about the thinking of three men – Alan Turing, Claude Shannon and John von Neumann.   I’ve talked a little about Alan Turing in an earlier essay.   All three men knew each other, discussed their ideas with each other and promoted each other’s ideas. John von Neumann has been called the smartest individual of the 20 th Century.   Even an outline of his accomplishments, which you can read about in  Wikipedia, is hard to believe.   He invented game theory, which I discussed in two earlier posts.   He headed up a group of mathematicians who invented new statistical techniques at Los Alamos that made the atomic bomb possible.   In 1944, he wrote a memo that outlined the structure of the modern computer.   He then managed the design and building of a modern general computer and consulted on the building of virtually all the early computers. JOHN VON NEUMANN
Read more

The Roman Republic Commits Suicide: A Cautionary Tale for America

Image
Why Study Rome? Americans have focused on comparisons between Rome and America twice in American history.  The first time was during the period from before the Revolution to after the ratification of the Constitution and Bill of Rights, when the founding fathers and others looked to the Roman Republic for ideas and inspiration on how to structure the new government. After the American Revolution, the founding fathers, having read the Roman authors detailing the collapse of the Roman republic, worried about internal threats to the survival of their new republic.   The second time was when the United States became a superpower, especially after WWII, and then again after the collapse of the Soviet Union in 1991. Commentators compared America to the Roman Empire at the height of its power. There was some discussion about how America becoming a permanent warfare state would affect democracy and civil society. And now a third time. Have Americans an
Read more

“Pax Americana”: The World That America Made

Image
There are two kinds of empires: the kind that rules through ruthless exploitation, and the kind that seeks to induce allies into defending themselves through economic incentives. (George Friedman) INTRODUCTION America's power and influence in the world rests on three broad, interrelated bases: 1) Overwhelming military power that can be projected anywhere in the world,     supplemented by security arrangements with allies and supporters. 2) A large, innovative, dynamic domestic economy as the basis for global economic and technological leadership. The economy provides the resources and technology to support the military and a global foreign policy. 3) Claims to moral and ideological leadership and influence, particularly the promotion of liberal democratic societies and supporting political institutions. This post will discuss the economic aspects and related security objectives of American foreign policy. It will focus on the structure of the global
Read more