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It didn't start in five places, it didn't start in eight places.
It wasn't separate discoveries. It started in England.
We can watch it.
And therefore we can understand how this came about.
I sometimes feel it's a little bit like a
biologist being able to watch the start of life.
The first bit of life that emerges that gives rise to all the rest.
What's so interesting about life and one of the reasons
why I view it as an analogy for an economy is that we know that every kind of
life on this planet shares some basic metabolism and DNA structure.
And so the biologists have said life appeared once and from there it has
evolved and it has created a biosphere, a world of millions and
millions of species. It all started, presumably,
from a cell. Modern economic growth also has a
kind of DNA. It also came together from a number of
different materials and viola, something took off.
Also, in a way, a living property because a growing economy gave rise to forces
that continued the economic growth once it took off.
If it were so easy to create economic life, it would've happened many places.
We would have records of long economic growth in
China, long economic growth in different parts of the world.
But as John Maynard Keynes rightly pointed out, we did not see that in human history.
So what happened in the Industrial Revolution
as we call it, in the middle of the 18th century in England, in my view was
a unique coming together of various forces, that
allowed life in the economic sense to take off.
That first cell of a modern economy that became replicating
and that eventually spread to the entire world economy
took off.
Well what is it about the Industrial Revolution?
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This required a fundamental change of know-how,
of technology, of technical advance. But just like life
itself requires a lot of interaction of the components of the cell, so
too the life of an economy requires many things to come together.
Technology is certainly a core part but connecting the
different parts of the economy, the rural area where
people are growing food, the factory towns where workers are working in factories
producing textile goods, steel new output,
those interconnections are needed as well. The food has to get to the city.
The manufactured goods, the shirts and clothing are sold back to the farmers.
That requires transport,
that requires a market, that requires exchange.
And so for the Industrial Revolution to come together in
England in the 18th century many things had to be present.
First agricultural productivity starts to rise.
I wouldn't call it yet scientific farming, but
I would call it very systematic and evidence-based farming.
Farmers learning, better rotations for
crops, how to replenish the soil nutrients.
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There was more urbanization, more trade, a market economy taking
hold, property rights, rule of law beginning to take hold.
Of course, there was the wonder of the scientific revolution.
Isaac Newton had shown that our world in physical terms is governed
by natural laws. This opened up a completely new way of
understanding things and it opened up new avenues of practical exploration as well.
One of the great breakthroughs came from 1712, even before the Industrial
Revolution but maybe you can say it was the start of it.
The invention of a steam engine by Thomas Newcomen.
The first steam engine,
burning coal to create motive force, was used to pump water
out of the shafts of mines. It was the beginning of the revolution
of steam engines and of, of technology. And then came a,
wonderfully creative targeted
genius who working in a university
lab in Glasgow in, in Scotland realized that Newcomen
had made a couple of design mistakes even though it was a great breakthrough.
James Watt looking for profit as well as for glory, said, I can
improve on that steam engine and the Watt steam engine in
1776 came to life. I think it's fair to say this
was the breakthrough from a technological point of view of the industrial era.
And in a way, it was the technological trigger of all that followed.
Because now it was possible to harness massive amounts of energy
efficiently, economically, effectively, to make profits.
These are the components that come
together in England uniquely.
But of course, we have to understand always that
without nature playing its helpful role, it would have
been impossible for all of the genius of Newcomen
and, and Watt if there were no coal in England.
And there never would have been a steam engine or Industrial Revolution.
Coal, iron ore deposits that could be turned into
a modern iron and steel industry. Wonderful transport conditions on
rivers on flat land the proximity of the coal fields to London.
The ability to build canals to connect the coal fields with
the, the new factory towns and allow for low-cost barge traffic.
All of this is an example
of the very special conditions in which nature and nurture, you could
say, the human ingenuity, the spur of profits, the
patent law, the rule of law, the market economy
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came together to make possible this industrial revolution.
Have a look at the first individual who gave a modern
description of this even though he did not
mention industry itself all that much especially not
the steam engine because it was occurring exactly
the same year he published his wonderful work.
You're looking at Adam Smith, the author of The Wealth of Nations.
I think rightly called the father of modern economics.
Think James Watt produces the modern steam
engine in 1776.
Adam Smith publishes The Wealth of Nations in 1776.
The American colonies declare their independence and the inalienable right
to life, liberty, and the pursuit of happiness in 1776.
Quite a year for a takeoff. Putting together the concepts
of a modern economy governed by market institutions,
technological advance, the availability of crucial natural
resources, making possible the birth of a new kind of economic life.
Adam Smith explained the workings of a modern economy.
He gave us the idea of the invisible
hand of market forces helping to spur inventors,
manufacturers, farmers so that working together, not through literal cooperation
but by trading in the market place, could bring about a modern market economy.
And one of Adam Smith's wonderful lines from The
Wealth of Nations explains, and I quote, it is not
from the benevolence of the butcher, the brewer, or
the baker that we expect our dinner, but from their
regard to their own interest.
We address ourselves not to their humanity, but to their self-love.
And never talk to them of our necessities but of their advantages.
In other words we buy from the baker, the brewer, the butcher.
It is through market transactions that have
them producing their products, buying from the farmers.
It is from the manufacturers selling their goods,earning and looking for profits
that make the modern world economy work. And we know
the images of that early modern era.
James Watts, steam engine. The new factory towns with the coal
burning and, and the smoke coming out of the high chimneys.
The new modern form of transport in the early 19th century,
the steam engine pulling railroads and transforming
transportation around the world. The steam ship and the new
factories that are now powered by not
human or animal traction as was before people pulling and
pushing machines or animals pulling plows, but now
steam providing a massive, unprecedented amount
of energy. To drive the new industry to make possible
an unprecedented rise of a modern world economy
combining the natural resource base, the technological
knowhow and a spreading market economy. Now one of
the stunned observers of this, one of the critics of of some of
the harshness of early industrialization of course was none other than Karl Marx.
And Marx and his co-author Friedrich Engels wrote
in the Communist Manifesto in 1848 a kind
of ironic tribute to the power of this new, modern economy driven
by these breakthroughs in technology, changing the world in a unique way.
They caught that mood, even if they didn't like
it or fully understand of course what would evolve.
And even if they rightly pointed out some of
the harsh downsides, especially in that era, it's worth listening
to Marx and Engels, how they describe this new world in 1848.
And I quote.
Modern industry has established the world market, for
which the discovery of America paved the way.
This market has given an immense development
to commerce, to navigation, to communication by land.
This development has in its turn reacted on
the extension of industry and in proportion as industry,
commerce, navigation, railways extended in the same
proportion, the bourgeoisie, the new capitalist class developed,
increased its capital and pushed into the background
every class handed down from the Middle Ages.
A new world indeed had arrived.
The Industrial Revolution had brought form, forth
a new kind of economic life indeed.
A unique form that created
the modern era of economic growth.