The industrial revolution, a term under dispute but hard to avoid, refers to the economic transformation that began in northwestern Europe in the 18th century, accelerated in the 19th century, and then spread worldwide—with many diversions for war and socialism—in the 20th century. Such an industrial revolution was the cause in the world today of much of what is different from earlier times: poor people who are rich by historical standards, ordinary people in charge of their own politics, women with jobs outside the home, children educated into their 20s, retirees living into and beyond their 80s, universal literacy, and the flowering of the arts and sciences.

Fifteen or more is the factor by which real income per head nowadays exceeds that around 1700 in Britain and in other countries that have experienced modern economic growth. This increase in material wealth indeed is the heart of the matter. Economic historians in the 1960s have uncovered the fact that the average participant in the British economy in 2000 was 15 times better supplied with food, clothing, housing, and education than were her remote ancestors. If one’s ancestors lived in Finland, the factor is more like 29; the average Finn in 1700 was not a great deal better off in material terms than was the average African of the time. If one’s ancestors lived in the Netherlands, it is only a factor of 10 or so largely because in 1700 the Netherlands was the richest—and the freest and most bourgeois—country in the world, approximately 70% better off than the soon-to-be United Kingdom. If one were in Japan, the factor since 1700 is fully 35. If in South Korea, the factor is 18 merely in the past half century—since 1953—when income per head, despite access to some modern technology, was about what it had been in Europe 450 years earlier. The improvement has been crammed into 4 decades instead of, as in the British case, stretched out over 2 centuries.

These facts are not, in rough outline, controversial, although their magnitudes are not something that people suspicious of capitalism know on their pulse. The gigantic enrichment of all who allow capitalism and the bourgeois virtues to work—the average person as well as the captain of industry—is one argument to support them. The enrichment is, so to speak, a practical justification for the sin of being neither soldier nor saint. You may reply, and truly, that money isn’t everything. But as Samuel Johnson replied, “When I was running about this town a very poor fellow, I was a great arguer for the advantages of poverty; but I was, at the same time, very sorry to be poor.” Or you may ask the inhabitants of India (average per capita income in 2007 in U.S. purchasing-power-corrected dollars of $4,720) or China ($9,700) whether they would like an American per capita income of $47,700. Or you can note the direction of permanent migration. Immigrants from the developing world reveal their preferences quite clearly by coming to the United States and other rich countries.

Britain was first to achieve industrialization. Britain also was among the first in the study of economics, from the political arithmeticians of the 17th century through David Hume, Adam Smith, T. R. Malthus, David Ricardo, John Stuart Mill, and the British masters of the subject in the early 20th century. “The bourgeoisie,” wrote Marx and Engels in 1848, “during its rule of scarce one hundred years has created more massive and colossal productive forces than have all the preceding generations together.” It was a prescient remark. But the classical economists from Adam Smith to Marx and Mill were writing before the upsurge in real wages of British and American working people in the last third of the 19th century and long, long before the explosion of world income in the 20th century. They imagined a moderate rise of income per person, perhaps at the most by a factor of two or three, such as might conceivably be achieved by Scotland’s highlands becoming as wealthy as capital-rich Holland (Smith’s view), by manufacturers in Manchester stealing savings from their workers (Marx’s view), or by the savings generated from globalization being invested in European factories (John Stuart Mill’s view). But the classical economists were mistaken.

Why did the economy do so much better than the classical economists believed? The answer lies in new thoughts, what the economic historian Joel Mokyr calls the industrial enlightenment. What made the modern world was, proximally, innovation in machines and organizations, such as the spinning jenny and the insurance company, and innovation in politics and society, such as the American constitution and the British middle class.

Of course, if you conceive of a waterpower-driven spinning machine, you need some savings to bring the thought to fruition. But another of the discoveries by economic historians is that the savings required in England’s heroic age of mechanization were modest indeed, nothing like the massive “original accumulation of capital” that Marxist theory had posited. Early cotton factories were not  capital-intensive. The source of the industrial investment required was short-term loans on inventories and loans from relatives, not savings ripped in great chunks from other parts of the economy.

The classical and Marxist idea that capital begets capital, “endlessly,” is hard to shake. It has recently been revived even among some economists, in the form of so-called new growth theory, an attempt to present what the development economist William Easterly calls capital fundamentalism in mathematically spiffed-up form. You see capital fundamentalism in all the stage theories from Smith to Marx to Walt Rostow. “Accumulation, accumulation,” wrote Marx, “That is the law and the prophets.” The economic historians have discovered that it is not so.

One trouble is that savings, urbanization, state power to expropriate, and the other physical-capital accumulations that are supposed to explain modern economic growth have existed on a large scale since the Sumerians. Yet modern economic growth—that wholly unprecedented factor in the high teens—is a phenomenon of the past two centuries alone. Something happened in the 18^th century that prepared for a temporary but shocking “great divergence” of the European economies from those of the rest of the world.

Changes in aggregate rates of saving, in other words, drove nothing of consequence. No unusual Weberian ethic of high thriftiness or Marxian anti-ethic of forceful expropriation started economic growth. East Anglian Puritans learned from their Dutch neighbors and co-religionists how to be thrifty in order to be godly, to work hard in order, as John Winthrop put it, “to entertain each other in brotherly affection.” Although this philosophy is well and good, it is not what caused industrialization—as indeed one can see from the failure of industrialization even in the Protestant and prosperous parts of the Low Countries, or for that matter in East Anglia. The habits of thriftiness, luxury, and profit, and the routines of exploitation, are humanly ordinary and largely unchanging. Modern economic growth depends on ingenuity in crafting gadgets.

The gadgets—mechanical and social—appear to have depended, in turn, on free societies, at least when the gadgets need to be invented, not merely borrowed, as was later the case in the USSR and the People’s Republic of China. Such innovations of the 18th and 19th centuries in Europe and its offshoots came ultimately out of a change in what Adam Smith called moral sentiment. That is, they came out of a change in the rhetoric of the economy. Honest invention and hopeful revolution came to be spoken of as honorable, as they had not been before, and the seven principal virtues of pagan and Christian Europe were recycled as bourgeois. Holiness in 1300 was earned by prayers and charitable works, not by buying low and selling high. The blessed were those people “poor of the faith,” as the heretical Albigensians in southern France put it (i.e., they were rich people like St. Francis of Assisi who chose poverty). Even in Shakespeare’s time, a claim of virtue for working in a market was spoken of as flatly ridiculous. Secular gentlemen earned virtue by nobility, not by bargaining. The very name of gentleman in 1600 meant someone who participated in the Cadiz Raid or attended Hampton Court, engaging in nothing so demeaning as actual work.

The wave of gadgets, material and political, in short, came out of an ethical and rhetorical tsunami in the North Sea around 1700. This time was unique in world history, and the change had stupendous economic consequences. To put it in Marxian terms, a change in the superstructure determined a change in the base.

Away from northwestern Europe and its offshoots in the period around 1848, when revolution spread throughout Europe and when Marx and Engels published their Communist Manifesto and Mill’s Principles of Political Economy appeared, the economic virtues were still not respectable in the opinion of the dominant classes. Right up to the Meiji Restoration of 1867, after which things in Japan changed with lightning speed, leading opinion scorned the merchant. More widely, in Confucian cultures, the merchant was ranked as the lowest of the classes: In Japan, for example, the order of precedence was the daimyo, the samurai, the peasant, the craftsman, and, last, the merchant. A merchant in Japan, China, and Korea was not a gentleman, to use the European word, and had no honor—likewise, everywhere from the caves onward, and, likewise, too, circa 1600 in England.

Why, then, did the period from 1600 to 1776 in England witness what Joseph Schumpeter called the coming of a business-dominated civilization? Two things happened from 1600 to 1776, and even more so from 1776 to the present. The material methods of production were transformed, and the social position of the bourgeoisie was raised. The two were connected as mutual cause and effect. If the social position of the bourgeoisie had not been raised, aristocrats and their governments would have crushed innovation by regulation or by taxes as they had always done. The bourgeois gentilhomme would not have turned inventor.

Yet if the material methods of production had not, therefore, been transformed, the social position of the bourgeoisie would not have continued to rise. Without honor to the bourgeoisie, there could be no modern economic growth. (This last point is, in essence, a thesis put forward by the late Milton Friedman.) Without modern economic growth, there was no honor to the bourgeoisie. (This last point is, in essence, a view embraced by the economist Benjamin Friedman.) The two Friedmans capture the essence of freed men, and women and slaves and colonial people and all the others freed by the development of bourgeois virtues. The causes were freedom, the scientific revolution (although not in its direct technological effects, which were postponed largely until the 20th century), and bourgeois virtue.

What we economic historians can show clearly is that the usual suspects do not work. The slave trade, colonial exploitation, overseas trade, rising thrift, improved racial stock—no such material cause works to explain the modern world. We must recur—as economic historians like Mokyr are doing—to ideas, the ideas about steam engines and about the standing of bourgeois men and women who make the steam engines and the ideas about liberty that allow other ideas to change. The change in ideas arose perhaps from the turmoil of 17th-century Europe experimenting with democratic church government and getting along without kings. It certainly arose with the printing press and the difficulty of keeping Dutch presses from publishing scurrilous works in all languages. It also arose from the medieval intellectual heritage of Europe, free universities, and wandering scholars. In short, it was newly freed people who innovated and kept their just rewards.

Further Readings

Berg, Maxine. The Age of Manufactures: Industry, Innovation and Work in Britain 1700–1820. Oxford: Oxford University Press, 1985.

Easterly, William. The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics. Cambridge, MA: MIT Press, 2001.

Hudson, Patricia. The Industrial Revolution. Sevenoaks, Kent, UK: Edward Arnold, 1992.

Innes, Stephen. “Puritanism and Capitalism in Early Massachusetts.” Capitalism in Context: Essays on Economic Development and Cultural Change in Honor of R. M. Hartwell. J. A. James and M. Thomas, eds. Chicago: University of Chicago Press, 1994. 83–113.

Macfarlane, Alan. The Riddle of the Modern World: Of Liberty, Wealth, and Equality. Basingstoke, UK: Palgrave. 2000.

Maddison, Angus. The World Economy: A Millennial Perspective. Paris: Organisation for Economic Co-operation and Development, 2001.

Mathias, Peter. “Credit, Capital and Enterprise in the Industrial Revolution.” Journal of European Economic History 2 (1973): 121–144. Reprinted in Mathias, Peter. The Transformation of England: Essays in the Economic and Social History of England in the Eighteenth Century. New York: Columbia University Press, 1979. 88–115.

McCloskey, Deirdre N. The Bourgeois Virtues: Ethics for an Age of Commerce. Chicago: University of Chicago Press, 2006.

Mitch, D. Education and Economic Development in England. Princeton, NJ: Princeton University Press, 1992.

Mokyr, Joel. The Lever of Riches. New York and Oxford: Oxford University Press, 1990.

Pocock, J. G. A. “Virtues, Rights, and Manners: A Model for Historians of Political Thought.” Political Theory 9 (August 1981): 353–368.

Pollard, S. Peaceful Conquest: The Industrialization of Europe, 1760–1970. Oxford: Oxford University Press, 1981.

Pomeranz, Kenneth. The Great Divergence: China, Europe, and the Making of the Modern World. Princeton, NJ: Princeton University Press, 2001.

Rostow, W. W. The Stages of Economic Growth: A Non-Communist Manifesto. Cambridge: Cambridge University Press, 1960.