The Industrial Revolution Myth
Posted May 5th, 2012 at 07:31 PM by Guaporense
It has been a common theme among forum members and even among professional historians the idea of the industrial revolution as a well defined type of social process: a social situation requiring a certain set of conditions that, if satisfied, will trigger an "industrial revolution" in the society.
An "industrial revolution" is generally defined as being a radical discontinuity in the previous economic history of a society. It would be characterized by a shift from manual labor to the general use of machinery in production, a large increase in energy capture made possible by industrial automation (usually fossil fuels and specially requiring coal) and a much faster rate of technological innovation.
Various sets of conditions for an industrial revolution have been proposed, one example would be:
1 - Large reserves of coal nearby
2 - A scientific revolution
3 - Well developed systems of financial intermediation
4 - Large, well developed trade networks
5 - A large amount of surplus extracted from elsewhere ("primitive accumulation")
My goal in this essay is to demolish this whole concept that there exists such clearly defined "industrial revolution" and a clearly defined set of conditions that induces into a clear discontinuity in the economic history of society. This is a modern myth, created on the actual historical experiences of the past 250 years of the history of Western civilization.
First I will give a basic layout of the theory of economic growth, since this is basically the whole deal with this myth: that modern economic growth was triggered by a set of conditions and that past societies never enjoyed fully this set of conditions and because of it never had access to the possibility of modern economic growth. Also, some argue that past societies had reached nearly this set of conditions and were near the "breakout point" to an "industrial revolution". I will show that there isn't anything like "modern economic growth" as a special category: production functions in past societies were the same as in modern societies.
Theory of Economic Growth
Economic growth can be generally understood as a process of increased improvement in the general welfare of the population in the sense that people have access to a greater amount and diversity of goods than previously: individuals at date t+1 can consume a basket of goods x_{t+1} such that is strictly preferred to any of the baskets of goods x_{t} that they could consume at date t. I will divide this theoretical analysis of growth in two sections: growth in equilibrium and dynamic growth, the meaning of these two terms will become clear as we proceed.
a)Equilibrium growth
Suppose that there is one good, denote it's quantity by x. The output of good is a function of labor and capital: greater quantities of both will increase output, and naturally doubling both quantities will double output (x = f(l,k), 2x = f(2l,2k), l = labor, k = capital). Labor can be understood as the quantity of human effort invested into the production of the good while capital represents the abstract quantities of the material means of production, tools, equipment, education, machines, etc, used in production (I will also include "land" into the abstract k). Note that economics requires a good deal of abstraction.
Economic growth in this setting, with only one good, means an increase in the quantity is this good per unit of labor minus the cost of maintenance of the capital stock. Let's fix the quantity of labor. Capital is not eternal: a proportion of the existing stock of capital will wear out as result, to maintain the existing capital stock a proportion of current output will be set off to replenish the existing stock of capital for the next period.
Let's maximize the growth: assume that the whole output x is allocated to the increase in the stock of capital in the next period. Will the output per unit of labor increase forever and tend to infinity? No, if the quantity of capital doubles the output will not double, as labor is fixed, but the cost of maintenance will double. Hence the proportion of output required to maintain the current aggregate level of output increases. Eventually it will not be possible to increase output as the whole output will be employed the maintenance of the capital stock. This will be a situation where output is constant every period, which economists call steady state. Also, net consumption will be zero: actual standards of living will be zero.
There exists an optimal amount of savings that will maximize the net quantity of consumption in the steady state, which is the state the economy reaches after an infinite number of periods: it is called golden rule by economists. This means that the total amount of x that can be consumed given a unit of labor invested in production (i.e. the actual productivity) and not invested is the maximal possible amount in a steady state.
So, how sustained economic growth is possible if the economy tends to converge to a steady state? We will now turn to the "real stuff".
b) Dynamic growth
The the previous section we assumed, implicitly, that economic actors had a fixed knowledge about the possibilities for production. Now, loosening this assumption, we can understand the driving force for sustained progress in the material conditions of mankind.
Let's start out with a case of a self sufficient producer: imagine a subsistence farmer in an island. He lives from the hand to mouth. The analysis of the previous section is perfectly valid for the subsistence farmer: he can work up to 16 hours a day and can choose how much time he will spend making agricultural implements that will improve his productivity in the next days/months/years.
The farmer also can learn new things every day about how to better manage his farm, increasing his steady state level of output gradually. However, the capacity of this single individual for learning information about the methods of production is clearly bounded: after several years he will run out ideas of improving his standard of living.
If we introduce a new individual in the island, the actual potential mental capacities of both will double. One can specialize in a certain set of activities while the other specializes in another set of activities. If we drop this new individual in the island, what will happen? Assuming that both cooperate and neither kills the other. The supply of labor will double, while the stock of capital goods will stay constant, reducing the output per worker. Though with the additional laborer and the reduction of the supply of capital per unit of labor the economy will grow faster and reach the same steady state, assuming that knowledge stays fixed.
However, with the additional worker and the added mental powers, the information that can be gathered by the economic system doubles and a possibility for reaching a higher steady state level of income arises. With the specialization of each individual in a subset of the tasks performed by the single individual previously is becomes possible for both to benefit by constantly exchanging the outputs of these subsets of activities as each individual will learn how to perform each subset of the tasks better than the single individual could.
We can represent this increase in productivity in the production function by F(A,l,k) = Af(k,l), where A is the "total factor productivity" as it is called by economists (note, there are currently several different competing theories of how exactly the total factor productivity changes, this is the theory that I find the most attractive and it is quite old, I think that it's first articulation is dated from 1912).
Now let's go to a more "developed" world: If in an economic system with a certain population at a certain date t, there exists unexploited possibilities of increasing productivity by reallocating current resources (such as workers in their tasks, as in the case analysed above), them at the next period a certain individual, let's call him entrepreneur, perceiving the possibility for increasing production and at NO cost whatsoever, will purchase the means of production and recombine them to sell the additional output for a greater amount than the amount initially invested, thanks to the improved efficiency. This entrepreneur has achieved innovation, which can be technological in nature (representing the use of new methods of production or new product) or it can represent the discovery of a new market. He extracts his pure entrepreneurial profit from seeing what others failed to see. And thus the total factor productivity of society increases which increases the rate of growth and the steady state level of consumption.
However, this innovation also disrupts the currently existing pattern of production and consumption, creating bankruptcies in existing firms and unemployment among workers. That's why I called it "dynamic growth" as opposed to "equilibrium growth" which is capital accumulation. Also, note that learning in this sense, the discovery of new opportunities, is not similar to "education", which is a category of capital accumulation: the investment of time and resources for the accumulation of human capital, in this case however, we have spontaneous learning by the economic actors: learning that was no ex-ante planned.
This process of innovation and continually shifting patterns of production and consumption is what Schumpeter called "creative destruction". A process of innovation that continually raises the output of society while continually transforming the organization of the economic system.
The number of decision makers operating in the economic system is crucial in the sense that a single farmer, as we have seem, has bounded capacities for knowledge accumulation, while a market economy with thousands of even millions of interacting agents, has a much greater possibility for sustained growth as the discovery capacities of these thousands of actors can be harnessed by the economic system though the profit motive. As Adam Smith said over 200 years ago: "the division of labor is limited by the extent of the market."
The profit motive is the mechanism in which markets achieve improvements in efficiency by incorporating dispersed information as the initial owner of the resource that is employed inefficiently doesn't need to know how it can be employed better: if somebody else discovers how to better employ this resource this somebody else will purchase the from the initial owner from the lower use value that the owner thinks it values and make profits out of it.
Economic growth and institutions
Most pre-19th century societies were societies where the vast majority of the population worked as self sufficient producers and a proportion of the population did not work as producers at all. These were the members of the government and they functioned as elite caste that only taxed the producers and lived off the extract rents. As result, the scope for sustained economic growth was limited in these societies: the output reached a steady state given by the bounded learning capacities of individual agricultural laborers.
In these societies the capacity for discover of the individuals was actually allocated not to create innovations but for rent seeking. For example, in pre-modern China the smartest members of society wasted their intellectual energies in memorizing Confucius for passing in the imperial exam which was a way to capture the rents extracted from the self sufficient agricultural producers by becoming public officials. Another, more extreme, example would be for the
most talented individuals to allocate their efforts to military conquest.
But why in these various historical societies with millions of individuals they were not integrated into a dynamically evolving market economy instead of a static society of millions of self sufficient farmers? I give two main reasons:
1 - Institutions.
Economic outcomes are ultimately the result of millions of individual decisions. Individuals make decisions based on the information and the incentives that they have. Institutions are fundamentally the rules of the game in which individual economic actors operate. Changing the rules you change the incentives and changing the incentives you change the choices and changing the choices you change the outcomes.
These societies didn't develop the institutions to protect the property of individuals against the arbitrary actions of the government, elites, robbers, wars, barbarian invasions, etc, or contracts against fraud and the previous reasons. Most of the time it was because the governments were too weak to exert themselves as the legitimate monopolies in the use of coercion.
Also, in some societies that had actually developed robust government institutions had regulations that heavily restricted the freedom for economic actors to trade with each other, creating incentives for people to continue to live as self sufficient producers. Historically very few societies had governments that actually worked to protect the individual rights of the population: most of the time governments were simple rent extraction mechanisms for the elites.
Here that enters the concept of citizenship and democracy: in a democratic society the political power is dispersed throughout the population. As result it become less likely for governments to arbitrarily violate the rights of the citizens, which means that these types of political organization have greater capacity for generating the conditions for sustained economic growth. In other words, democracy minimizes state predation.
2 - Culture.
Culture is linked with institutions in the sense that the culture of society determines what's accepted, what is not accepted and therefore influences greatly the design of policy makers and the actions of those that apply laws. But also, culture has other very important influences other than the indirect influences on institutions.
A society whose culture is inconsistent with entrepreneurial activity is a society that tends to stagnate or at least to grow at much slower rates if entrepreneurial activity is shunned upon. This applies to the ancients: in Classical Thebes to participate in the government one had to stay 10 years without participating in any commercial activity. In Greece, non agricultural production, i.e. economic activity involving the purchase of inputs and the selling of the output at higher amounts, was generally viewed with disrespect as this type of activity was considered "exploitation" (source: Pseudo Aristotle). However, entrepreneurial activity is essentially included in the set of "exploitative" activities, which means that the culture of Classical Greece was not fully compatible with entrepreneurial activity and hence did not maximize the exploitation of opportunities for innovation and hence the possibilities of economic growth. Archaeological evidence indeed shows that there was some economic growth in Classical Greece, but not to a comparable degree to the scale of economic growth achieved in modern times. It was more like the growth in Early Modern Europe.
Economic history of the last 500 years
It is plain nonsense to claim that the European economy was in the centuries stagnated before the "industrial revolution". From at least the 9th-10th centuries AD onwards, capital accumulation, technological innovation and market innovation clearly happened in Western Europe while there was a clear increase in exchange and in the diversity of goods available for consumption.
One of the best quantitative indicators showing economic growth before the "industrial revolution" is merchant shipping tonnage:
European merchant shipping tonnage, (carrying capacity)
date ----- size -------- annual rate of growth
1470 AD - 220,000 tons -------- n.a.
1570 AD - 580,000 tons -------- 0.97%
1670 AD - 1,450,000 tons ------ 0.92%
1780 AD - 3,800,000 tons ------ 0.96%
1820 AD - 5,800,000 tons ------ 1.06%
This is an overall indicator of market activity as it shows the carrying capacity of merchant fleets in terms of tons, which basically a thermometer of the volume of exchange existing in European society during the Early Modern Period. It showed a constant and nearly uniform rate of increase until the end of the Napoleonic Wars by 1815 AD. European civilization was gradually moving from a society based on self sufficient production to a market economy over these several centuries.
By individual countries, note how concentrated the Dutch merchant fleet was in Europe and the Mediterranean, the rest of the world had smaller economic significance to the Dutch:
From that point onwards the world's merchant fleet (which is basically the same as the European merchant fleet in 1820 AD) started to increase at a much faster rate:
date ------ size -------- annual rate of growth
1820 AD -- 5.8 mt ------ 1.06%
1850 AD -- 14.9 mt ----- 3.19%
1913 AD -- 170 mt ------ 3.94%
By the late 19th century the world's merchant marine increased a 4-5 times the rate it was increasing from the late 15th century to the early 19th century. So there was a clear structural break in the economic trajectory of Western civilization (and therefore the world, most of it was already under the rule of the west by 1820 AD) by the early 19th century.
Of course, nobody would deny this great fact: that economic progress in the last 200 years was much faster than ever before, faster than in any previous civilization at any historical period. The reason for the increase in the rate of economic growth was that there were massive cultural and institutional changes in Western Europe from 1700 AD to 1850 AD. Changes even in the way people use words that involved entrepreneurial activity, indicating cultural change in favor of a entrepreneurial society. Economics as a science really began in the late 18th century, while there are fragments of what today we would call economics even in the writings of the ancients the systematic scientific inquiry into the nature and causes of the wealth of nations. The enlightenment and the french revolution were symptoms of this great change in culture and institutions that occurred over most of western civilization (Portugal and Spain mostly managed to escape "unscathed" from the enlightenment and only really became modern economies in the 20th century).
This "industrial revolution" was not caused by the coal deposits in England, nor by the invention of the steam engine: these innovations were caused by the "industrial revolution" and not causes of the industrial revolution: Coal was not used in Britain for the many thousands of years before the 18th century, as oil was not refined in Arabia until the 20th century. Now, with a highly dynamic entrepreneurial economy, the western civilization quickly develops new ways of extracting energy from the environment: in previous history many ways of extracting energy from the environment were developed but never in such fast rate of succession. The development of financial intermediation played a role as entrepreneurial activity is clearly augmented by the availability of financial intermediation. The scientific revolution of the 17th century was more of a consumer good derived from the early modern economic growth than a cause of economic growth: science only began to have direct economic applications in the late 19th century and even today most technological innovations are not dependent on modern science: engineers use Newtonian science to make stuff, not string theory. Scientific progress has never been a direct cause of economic growth, only indirectly scientific discoveries now centuries old are used to produce new innovations.
Industrial revolution and Anti-European ideology
The mechanistic concept of the industrial revolution is also advocated by the set of people that have a general anti-european or anti-western bias: it is a model of economic history much more aligned to this set of ideological concepts than the fact that the structural change in the economy growth trajectory of the western civilization was caused by endogenous institutional and cultural change in the 18th and 19th centuries.
That's because this concept allows for economic stagnation in pre-modern societies to not be caused by the predatory nature of their institutions and culture being hostile to entrepreneurial activity (which they were, even in Classical Greece, which is one of the most prosperous pre-modern societies, culture was generally hostile to "business") but simply the lack of "luck" in having the "material conditions for a industrial revolution".
Also, the industrial revolution is used as a postulate to create a total discontinuity between 19th century history and earlier history. By the mid 19th century it had become incredibly obvious that European civilization dominated the planet. However, thanks to the postulate of the "industrial revolution" one can have a model of pre-19th century history to suit any of his or her ideological needs.
An "industrial revolution" is generally defined as being a radical discontinuity in the previous economic history of a society. It would be characterized by a shift from manual labor to the general use of machinery in production, a large increase in energy capture made possible by industrial automation (usually fossil fuels and specially requiring coal) and a much faster rate of technological innovation.
Various sets of conditions for an industrial revolution have been proposed, one example would be:
1 - Large reserves of coal nearby
2 - A scientific revolution
3 - Well developed systems of financial intermediation
4 - Large, well developed trade networks
5 - A large amount of surplus extracted from elsewhere ("primitive accumulation")
My goal in this essay is to demolish this whole concept that there exists such clearly defined "industrial revolution" and a clearly defined set of conditions that induces into a clear discontinuity in the economic history of society. This is a modern myth, created on the actual historical experiences of the past 250 years of the history of Western civilization.
First I will give a basic layout of the theory of economic growth, since this is basically the whole deal with this myth: that modern economic growth was triggered by a set of conditions and that past societies never enjoyed fully this set of conditions and because of it never had access to the possibility of modern economic growth. Also, some argue that past societies had reached nearly this set of conditions and were near the "breakout point" to an "industrial revolution". I will show that there isn't anything like "modern economic growth" as a special category: production functions in past societies were the same as in modern societies.
Theory of Economic Growth
Economic growth can be generally understood as a process of increased improvement in the general welfare of the population in the sense that people have access to a greater amount and diversity of goods than previously: individuals at date t+1 can consume a basket of goods x_{t+1} such that is strictly preferred to any of the baskets of goods x_{t} that they could consume at date t. I will divide this theoretical analysis of growth in two sections: growth in equilibrium and dynamic growth, the meaning of these two terms will become clear as we proceed.
a)Equilibrium growth
Suppose that there is one good, denote it's quantity by x. The output of good is a function of labor and capital: greater quantities of both will increase output, and naturally doubling both quantities will double output (x = f(l,k), 2x = f(2l,2k), l = labor, k = capital). Labor can be understood as the quantity of human effort invested into the production of the good while capital represents the abstract quantities of the material means of production, tools, equipment, education, machines, etc, used in production (I will also include "land" into the abstract k). Note that economics requires a good deal of abstraction.
Economic growth in this setting, with only one good, means an increase in the quantity is this good per unit of labor minus the cost of maintenance of the capital stock. Let's fix the quantity of labor. Capital is not eternal: a proportion of the existing stock of capital will wear out as result, to maintain the existing capital stock a proportion of current output will be set off to replenish the existing stock of capital for the next period.
Let's maximize the growth: assume that the whole output x is allocated to the increase in the stock of capital in the next period. Will the output per unit of labor increase forever and tend to infinity? No, if the quantity of capital doubles the output will not double, as labor is fixed, but the cost of maintenance will double. Hence the proportion of output required to maintain the current aggregate level of output increases. Eventually it will not be possible to increase output as the whole output will be employed the maintenance of the capital stock. This will be a situation where output is constant every period, which economists call steady state. Also, net consumption will be zero: actual standards of living will be zero.
There exists an optimal amount of savings that will maximize the net quantity of consumption in the steady state, which is the state the economy reaches after an infinite number of periods: it is called golden rule by economists. This means that the total amount of x that can be consumed given a unit of labor invested in production (i.e. the actual productivity) and not invested is the maximal possible amount in a steady state.
So, how sustained economic growth is possible if the economy tends to converge to a steady state? We will now turn to the "real stuff".
b) Dynamic growth
The the previous section we assumed, implicitly, that economic actors had a fixed knowledge about the possibilities for production. Now, loosening this assumption, we can understand the driving force for sustained progress in the material conditions of mankind.
Let's start out with a case of a self sufficient producer: imagine a subsistence farmer in an island. He lives from the hand to mouth. The analysis of the previous section is perfectly valid for the subsistence farmer: he can work up to 16 hours a day and can choose how much time he will spend making agricultural implements that will improve his productivity in the next days/months/years.
The farmer also can learn new things every day about how to better manage his farm, increasing his steady state level of output gradually. However, the capacity of this single individual for learning information about the methods of production is clearly bounded: after several years he will run out ideas of improving his standard of living.
If we introduce a new individual in the island, the actual potential mental capacities of both will double. One can specialize in a certain set of activities while the other specializes in another set of activities. If we drop this new individual in the island, what will happen? Assuming that both cooperate and neither kills the other. The supply of labor will double, while the stock of capital goods will stay constant, reducing the output per worker. Though with the additional laborer and the reduction of the supply of capital per unit of labor the economy will grow faster and reach the same steady state, assuming that knowledge stays fixed.
However, with the additional worker and the added mental powers, the information that can be gathered by the economic system doubles and a possibility for reaching a higher steady state level of income arises. With the specialization of each individual in a subset of the tasks performed by the single individual previously is becomes possible for both to benefit by constantly exchanging the outputs of these subsets of activities as each individual will learn how to perform each subset of the tasks better than the single individual could.
We can represent this increase in productivity in the production function by F(A,l,k) = Af(k,l), where A is the "total factor productivity" as it is called by economists (note, there are currently several different competing theories of how exactly the total factor productivity changes, this is the theory that I find the most attractive and it is quite old, I think that it's first articulation is dated from 1912).
Now let's go to a more "developed" world: If in an economic system with a certain population at a certain date t, there exists unexploited possibilities of increasing productivity by reallocating current resources (such as workers in their tasks, as in the case analysed above), them at the next period a certain individual, let's call him entrepreneur, perceiving the possibility for increasing production and at NO cost whatsoever, will purchase the means of production and recombine them to sell the additional output for a greater amount than the amount initially invested, thanks to the improved efficiency. This entrepreneur has achieved innovation, which can be technological in nature (representing the use of new methods of production or new product) or it can represent the discovery of a new market. He extracts his pure entrepreneurial profit from seeing what others failed to see. And thus the total factor productivity of society increases which increases the rate of growth and the steady state level of consumption.
However, this innovation also disrupts the currently existing pattern of production and consumption, creating bankruptcies in existing firms and unemployment among workers. That's why I called it "dynamic growth" as opposed to "equilibrium growth" which is capital accumulation. Also, note that learning in this sense, the discovery of new opportunities, is not similar to "education", which is a category of capital accumulation: the investment of time and resources for the accumulation of human capital, in this case however, we have spontaneous learning by the economic actors: learning that was no ex-ante planned.
This process of innovation and continually shifting patterns of production and consumption is what Schumpeter called "creative destruction". A process of innovation that continually raises the output of society while continually transforming the organization of the economic system.
The number of decision makers operating in the economic system is crucial in the sense that a single farmer, as we have seem, has bounded capacities for knowledge accumulation, while a market economy with thousands of even millions of interacting agents, has a much greater possibility for sustained growth as the discovery capacities of these thousands of actors can be harnessed by the economic system though the profit motive. As Adam Smith said over 200 years ago: "the division of labor is limited by the extent of the market."
The profit motive is the mechanism in which markets achieve improvements in efficiency by incorporating dispersed information as the initial owner of the resource that is employed inefficiently doesn't need to know how it can be employed better: if somebody else discovers how to better employ this resource this somebody else will purchase the from the initial owner from the lower use value that the owner thinks it values and make profits out of it.
Economic growth and institutions
Most pre-19th century societies were societies where the vast majority of the population worked as self sufficient producers and a proportion of the population did not work as producers at all. These were the members of the government and they functioned as elite caste that only taxed the producers and lived off the extract rents. As result, the scope for sustained economic growth was limited in these societies: the output reached a steady state given by the bounded learning capacities of individual agricultural laborers.
In these societies the capacity for discover of the individuals was actually allocated not to create innovations but for rent seeking. For example, in pre-modern China the smartest members of society wasted their intellectual energies in memorizing Confucius for passing in the imperial exam which was a way to capture the rents extracted from the self sufficient agricultural producers by becoming public officials. Another, more extreme, example would be for the
most talented individuals to allocate their efforts to military conquest.
But why in these various historical societies with millions of individuals they were not integrated into a dynamically evolving market economy instead of a static society of millions of self sufficient farmers? I give two main reasons:
1 - Institutions.
Economic outcomes are ultimately the result of millions of individual decisions. Individuals make decisions based on the information and the incentives that they have. Institutions are fundamentally the rules of the game in which individual economic actors operate. Changing the rules you change the incentives and changing the incentives you change the choices and changing the choices you change the outcomes.
These societies didn't develop the institutions to protect the property of individuals against the arbitrary actions of the government, elites, robbers, wars, barbarian invasions, etc, or contracts against fraud and the previous reasons. Most of the time it was because the governments were too weak to exert themselves as the legitimate monopolies in the use of coercion.
Also, in some societies that had actually developed robust government institutions had regulations that heavily restricted the freedom for economic actors to trade with each other, creating incentives for people to continue to live as self sufficient producers. Historically very few societies had governments that actually worked to protect the individual rights of the population: most of the time governments were simple rent extraction mechanisms for the elites.
Here that enters the concept of citizenship and democracy: in a democratic society the political power is dispersed throughout the population. As result it become less likely for governments to arbitrarily violate the rights of the citizens, which means that these types of political organization have greater capacity for generating the conditions for sustained economic growth. In other words, democracy minimizes state predation.
2 - Culture.
Culture is linked with institutions in the sense that the culture of society determines what's accepted, what is not accepted and therefore influences greatly the design of policy makers and the actions of those that apply laws. But also, culture has other very important influences other than the indirect influences on institutions.
A society whose culture is inconsistent with entrepreneurial activity is a society that tends to stagnate or at least to grow at much slower rates if entrepreneurial activity is shunned upon. This applies to the ancients: in Classical Thebes to participate in the government one had to stay 10 years without participating in any commercial activity. In Greece, non agricultural production, i.e. economic activity involving the purchase of inputs and the selling of the output at higher amounts, was generally viewed with disrespect as this type of activity was considered "exploitation" (source: Pseudo Aristotle). However, entrepreneurial activity is essentially included in the set of "exploitative" activities, which means that the culture of Classical Greece was not fully compatible with entrepreneurial activity and hence did not maximize the exploitation of opportunities for innovation and hence the possibilities of economic growth. Archaeological evidence indeed shows that there was some economic growth in Classical Greece, but not to a comparable degree to the scale of economic growth achieved in modern times. It was more like the growth in Early Modern Europe.
Economic history of the last 500 years
It is plain nonsense to claim that the European economy was in the centuries stagnated before the "industrial revolution". From at least the 9th-10th centuries AD onwards, capital accumulation, technological innovation and market innovation clearly happened in Western Europe while there was a clear increase in exchange and in the diversity of goods available for consumption.
One of the best quantitative indicators showing economic growth before the "industrial revolution" is merchant shipping tonnage:
European merchant shipping tonnage, (carrying capacity)
date ----- size -------- annual rate of growth
1470 AD - 220,000 tons -------- n.a.
1570 AD - 580,000 tons -------- 0.97%
1670 AD - 1,450,000 tons ------ 0.92%
1780 AD - 3,800,000 tons ------ 0.96%
1820 AD - 5,800,000 tons ------ 1.06%
This is an overall indicator of market activity as it shows the carrying capacity of merchant fleets in terms of tons, which basically a thermometer of the volume of exchange existing in European society during the Early Modern Period. It showed a constant and nearly uniform rate of increase until the end of the Napoleonic Wars by 1815 AD. European civilization was gradually moving from a society based on self sufficient production to a market economy over these several centuries.
By individual countries, note how concentrated the Dutch merchant fleet was in Europe and the Mediterranean, the rest of the world had smaller economic significance to the Dutch:
From that point onwards the world's merchant fleet (which is basically the same as the European merchant fleet in 1820 AD) started to increase at a much faster rate:
date ------ size -------- annual rate of growth
1820 AD -- 5.8 mt ------ 1.06%
1850 AD -- 14.9 mt ----- 3.19%
1913 AD -- 170 mt ------ 3.94%
By the late 19th century the world's merchant marine increased a 4-5 times the rate it was increasing from the late 15th century to the early 19th century. So there was a clear structural break in the economic trajectory of Western civilization (and therefore the world, most of it was already under the rule of the west by 1820 AD) by the early 19th century.
Of course, nobody would deny this great fact: that economic progress in the last 200 years was much faster than ever before, faster than in any previous civilization at any historical period. The reason for the increase in the rate of economic growth was that there were massive cultural and institutional changes in Western Europe from 1700 AD to 1850 AD. Changes even in the way people use words that involved entrepreneurial activity, indicating cultural change in favor of a entrepreneurial society. Economics as a science really began in the late 18th century, while there are fragments of what today we would call economics even in the writings of the ancients the systematic scientific inquiry into the nature and causes of the wealth of nations. The enlightenment and the french revolution were symptoms of this great change in culture and institutions that occurred over most of western civilization (Portugal and Spain mostly managed to escape "unscathed" from the enlightenment and only really became modern economies in the 20th century).
This "industrial revolution" was not caused by the coal deposits in England, nor by the invention of the steam engine: these innovations were caused by the "industrial revolution" and not causes of the industrial revolution: Coal was not used in Britain for the many thousands of years before the 18th century, as oil was not refined in Arabia until the 20th century. Now, with a highly dynamic entrepreneurial economy, the western civilization quickly develops new ways of extracting energy from the environment: in previous history many ways of extracting energy from the environment were developed but never in such fast rate of succession. The development of financial intermediation played a role as entrepreneurial activity is clearly augmented by the availability of financial intermediation. The scientific revolution of the 17th century was more of a consumer good derived from the early modern economic growth than a cause of economic growth: science only began to have direct economic applications in the late 19th century and even today most technological innovations are not dependent on modern science: engineers use Newtonian science to make stuff, not string theory. Scientific progress has never been a direct cause of economic growth, only indirectly scientific discoveries now centuries old are used to produce new innovations.
Industrial revolution and Anti-European ideology
The mechanistic concept of the industrial revolution is also advocated by the set of people that have a general anti-european or anti-western bias: it is a model of economic history much more aligned to this set of ideological concepts than the fact that the structural change in the economy growth trajectory of the western civilization was caused by endogenous institutional and cultural change in the 18th and 19th centuries.
That's because this concept allows for economic stagnation in pre-modern societies to not be caused by the predatory nature of their institutions and culture being hostile to entrepreneurial activity (which they were, even in Classical Greece, which is one of the most prosperous pre-modern societies, culture was generally hostile to "business") but simply the lack of "luck" in having the "material conditions for a industrial revolution".
Also, the industrial revolution is used as a postulate to create a total discontinuity between 19th century history and earlier history. By the mid 19th century it had become incredibly obvious that European civilization dominated the planet. However, thanks to the postulate of the "industrial revolution" one can have a model of pre-19th century history to suit any of his or her ideological needs.
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