There are two moments in human history after which everything changes. Someone born prior to these events would be unable to recognize the world that would come thereafter. The first of these was the Neolithic revolution, which expanded tribes from a few hundred people, into towns and cities of a few thousand, via agriculture.

Prior to this, there were cavemen scraping by in a nomadic existence, going from place to place according to the seasons. Thereafter, it was aristocrats and serfs. Someone transplanted from ancient Mesopotamia 6,000 years ago may not understand the gods, language, and culture in Medieval Europe, but they would understand the social dynamics at play.

Then, much more recently, in the 19th century came the Industrial Revolution, where raw muscle was substituted for machine labor, and suddenly humanity could begin to conceive of the day when they might become obsolete.

Capital and property became much more important than having control over laborers, and thus the era of kings and serfs died and was replaced by the Bourgeoisie and Proletariat - the owners, and people who were paid to work with the capital and business structures owned by them.

This is the sixth chapter in our History of Finance series and will explore the Industrial Revolution and the changes that occurred. Each article is written to be self-contained - you can jump in and out at your own pace, but you're welcome to start from the beginning.

This is the tale of how and why the Industrial Revolution happened at all, and what economic consequences this had on our modern world.

Demographics are destiny

The Industrial Revolution is a strange little historical event in the grand scheme of things. In hindsight it seems so obvious, yet if it was so evident, why didn’t it happen sooner?

Mythology is littered with the idea of robots, automation, and advanced technology. In Buddhist legends, it's said that the Buddha’s relics were protected by bhuta vahana yantaor “spirit movement machines” until they were beaten by King Ashoka [1]. Then there’s the Greek God Hephaestus building automatons to help him, or the Golem of Jewish folklore being programmed through what could charitably be called punch cards.

In the verifiable history and realistic end of the spectrum, there’s Heron of Alexandria holding autonomous puppet shows in the Roman Empire with carefully engineered machines, the Antikythera mechanism which is considered the first analog computer and is over 2,000 years old, the Diolkos 'railway' (which worked similar to the modern Panama canal), etc. [2] 

Steam Engines were nothing new 2,000 years ago. There have even been scholarly proposals of how Romans could feasibly have developed and used the core principles of what underpinned the Industrial Revolution [3]. All the factors for an Industrial Revolution were there, they just weren’t properly put into practice. 

With extensive access to slave labor, the underlying motivations to push for automation are much fewer, as powering the machines is expensive when life is cheap. Innovation is always less important than the adoption of innovation. Just because something is possible, doesn’t mean it is probable. Culture and society can often determine the fate of a technology irrespective of technical and practical considerations. 

Out of the ten thousand years of recorded history, and thousands of powerful civilizations, why was it that the Industrial Revolution began in Britain, a dreary island in the North Atlantic Ocean? 

This is a question that many academics have built their careers around answering. There are dozens of theories - some very flattering ones penned by the Brittish, others dismiss that Anglo-Saxon culture had anything particularly unique, arguing they simply won the luck of the draw.

Our version of events will fall somewhere between these two opposite views. The UK did have many unique factors going for it, but it’s not inconceivable that the Industrial Revolution might have happened elsewhere.

As we’ve alluded to in prior articles, the UK had extraordinarily well-developed financial markets, thanks to their close connections with the Dutch, who were pioneers in developing the stock market and many financial institutions. This, among many other factors, allowed them to have more dynamic societies than other competing powers, which had social structures reminiscent of the Feudal era.

Excess manpower, including slave labor, was primarily pushed to the colonies. This led the UK to have access to abundant raw materials but comparatively expensive workers. In the late 18th century, on a relative basis, the average British worker was costly - over a third more expensive than an equivalent French one. This afforded Brits the ability to purchase non-essential and even luxury items [4].

Britain’s natural resources in the form of coal were also quite substantial at the time, so energy was comparatively cheap. 

You had a labor pool that was more expensive than its competitors, a growing consumer demand for products beyond subsistence levels, well-developed financial markets, abundant material wealth from the colonies and cheap energy - so the path of least resistance is to mechanize and do more with fewer workers by utilizing the cheap resources [5]. 

This all happened in the backdrop of the Enlightenment, where the constraints of prior eras seemed laughable, and everything was up for discussion. The Industrial Revolution was also in no small part the beneficiary of the communication revolution that happened with the invention of the printing press.

In the Roman era, authors would gift their friends copies of their books. It was unusual for someone to receive a book if they weren’t on a first-name basis with the author. If you still wanted a copy, you would have to borrow it from someone who had one, and you would have to hire a scribe for a year to painstakingly copy it [6].

With the invention of the printing press, while certainly still not cheap, books and by extension ideas, had a much easier time being spread. The intellectual class expanded, now it was not just aristocrats who could afford such pursuits, but common people.

It must be stressed that while the Industrial Revolution was influenced by prevailing scientific knowledge, it did not spring directly from it. It came about through normal people tinkering with new ideas & gadgets and being financed in their crazy ventures. Perhaps this lesson is best captured in the life of someone who could well be called the father of the Industrial Revolution - Michael Faraday.

A tinkerer’s revolution

Michael Faraday is one of those names that you don’t hear about enough. He discovered the principles underlying electromagnetic induction, which in turn allowed for the invention of electric motors and generators, thereby underpinning every modern device we use today. And that’s just one of the hundreds of ways in which he contributed to science and technology!

Perhaps it’s fitting that Faraday’s contributions are understated. Late in life when Queen Victoria offered him a knighthood he declined it and said that he preferred to remain "plain Mr Faraday to the end." [7]

Despite what his origins might have led one to believe, his life was anything but plain. He was born into a poor family who survived due to the charity of the Christian sect that they followed. 

Faraday only had basic schooling and was the son of a blacksmith. At the age of fourteen, he became an apprentice to a local bookbinder and bookseller. For the next seven years, he would have a world-class education for free as he browsed the different books.

Through this random process, he discovered natural sciences and began his own experimentation - and to abridge a long and storied career - these self-made projects eventually caught the eye of English chemist Humphry Davy, one of the great scientists of his day. Through this connection, Faraday managed to properly start one of the most important scientific careers in history [8].

Lest we get swept up in the story of this great man, let’s first consider that this rise from obscurity would’ve been impossible in most other times. Prior to the modern era, social classes were fixed, to the point where sometimes your surname was your profession (for example, “Smith”).

This centuries-long ossification of society was on its last legs by the early nineteenth century. Across the English Channel, French citizens were decapitating aristocrats and holymen during the French Revolution. More importantly, for the purposes of our tale, was Britain’s increasing aversion to inherited privilege in general.

Since the English Civil War in 1642, monarchy in Britain came with caveats. More recently, King George IV was in money trouble and kept giving Parliament royal privileges and rights in exchange for bailouts. To this day, the British crown is relatively defanged because of the effects that the dynasty of Georges (I-IV) had on UK politics - but that’s a story for another day.

While by no means egalitarian, the Britain in which Faraday grew up was one that was open to new possibilities. Hence, when curious minds used their higher than average income to fund non-essential spending and hobbies, rather than being scorned, they were encouraged.

Among those interests were watches, clocks and other such items. In order to maximize profits, the factories producing those clockwork devices standardized the gears inside them - through this method they could produce more and cheaper. Rather than purely an artistic piece, watches became a commodity like any other.

In the late 18th century, most of the world's watch movements were made in one place - southern Lancashire. It’s been theorized that this is why southern Lancashire was also the first area to mechanize cotton production - cheap gears to make machinery with were far more available than elsewhere, as was the supply of skilled workmen to assemble them, so it was only a matter of time before they were put to more uses [9].

As such, simple people like Faraday with an interest to tinker began experimenting with new playthings, and soon they came up with never before seen devices. Each area in the increasingly industrialized Britain would have different business interests and thus different resources that could be used. With impressive rapidity, the innovations would spread and inspire new ideas. 

Standardization shifted the economy as a whole from artisan workshops to factories, as all of a sudden people had access to near identical tools, and one innovation could easily be slotted on top of another, instead of having to search for similar replacements before even starting experimentation. 

Besides that, standardization made goods cheaper by reducing customization and focusing on automating the bare essentials. In the words of Henry Ford, one of the great heirs of the lessons of industrialization: “You can have any color of car you want, as long as it's black.”

Standardization’s blessings and curses

Throughout most of history, everything was measured and done in human and bespoke terms.

If we go for Bible-era measurements, a cubit was the length of the forearm from the elbow to the tip of the middle finger. Similarly, a foot was the length of, well, a foot. Naturally, your modern sensibilities bristle when you read that, as everyone’s feet and forearms are of different lengths. How could it possibly make sense as a unit of measurement?

That much is true, but such millimetric precision was mostly of academic, or engineering, importance. Most people’s day-to-day lives worked without the need for such accuracy. And so these measurements would be slightly different from town to town, from profession to profession, and might not even be comparable - as the units used for cutting cloth to size might have no reason to be used for measuring the size of a property, for example.

However, once there started to be sufficient economic complexity and competition, entrepreneurs looked for every advantage that they could find. There are fixed limits on how efficiently people can perform a task, even if a businessman only hires top-of-the-line workers - picking up a tool, putting it back down, and placing the produced item elsewhere, all takes time.

As Adam Smith pointed out in the Wealth of Nations in 1776, businesses soon began to realize it was far more efficient to break the production of an item down into several steps, and then have individuals perform one specific task during their whole shift. This not only reduced the skill ceiling required of each worker (as they would only need to do one step of the process), but it made production more efficient and made every item that a factory produced nearly identical to each other.

To further add to this, businessmen soon realized that even more bespoke items could be standardized as well. In clothing, for example, it was discovered that while everyone had slightly different body sizes, there were certain proportions that broadly fit large portions of society.

Hence, from a possible infinite variety of clothing proportions, you instead reduced it to a handful of sizes with specific ratios. The caveat is that nobody would perfectly fit into the clothes, but they would be close enough to do the job.

The range of consumer items exploded with the advancements of industry, and due to the already mechanistic production process prior to heavy industrialization, machinery was able to slot into the regimented factories quite easily. 

Further improvements would come from the likes of Henry Ford and his ilk who would discover that the arrangement of the factory itself could have a drastic impact on the efficiency of the whole operation.

Yet for all the benefits that the principles of standardization brought to the production inputs and the goods that the Industrial Revolution created, there were downsides. The new world that came about was not meant for human comfort - this was an afterthought if it was considered at all.

It was a cold machine world, ruled by the spreadsheet, efficiency ratios, managers, and petty bureaucrats. Artists fled this inhuman world into their own art movement that emphasized the spiritual and the incalculable - this came to be known as Romanticism. Petty laborers, on the other hand, realized that their bosses would soon try to replace them if they could and that their very humanity was a hindrance to economic progress. This anger would take shape over the coming decades and materialize into communism - a force that would topple empires and change the course of history.

The consequences of the Industrial Revolution are still being wrestled with to this day, and we’re yet to find a proper balance between automation and human wellbeing. On the one hand, we seek technological advancement as we’ve seen the material abundance it can bring; while on the other, we are fearful of the day when we might be replaced.

That is both the blessing and curse of the Industrial Revolution: If it succeeds in its aims, humanity might prove to be unnecessary in the production process. 

Conclusion

In recent years it has become popular to separate the different eras of the Industrial Revolution as their own movements - by some estimates, we’re currently undergoing the fourth Industrial Revolution. 

The Industrial Revolution, as a historical force, had the possibility of happening several times over the course of human history. 

Economic and technological developments are not set in stone though, the potential for something to happen might be there, but it might just not be explored. For instance, in our current era, there’s bound to be the potential for extraordinary developments in bioengineering, cloning, and nuclear fission, but due to cultural taboos, we don’t venture into those areas.

The underlying culture and the economic incentives of an era play an enormous role in the course that history takes. In the case of the British Industrial Revolution, labor was very expensive, while energy was quite cheap, and the pursuit of knowledge was encouraged. So the forces of history pushed toward automation.

It’s difficult not to compare elements of our current era with those of the early Industrial Revolution. There is, after all, the trope of the tech entrepreneur starting their business from their garage. Then there’s the widespread availability of knowledge through the web and widespread means to automate labor through computation. 

The crypto industry at large are the heirs to the tinkerers of the Industrial Revolution who became industrialists, and of Silicon Valley who then became the tech giants. Our time as an industry has yet come, but it is definitely coming!

Bibliography

1 Strong, John. Relics of the Buddha. Princeton University Press, 2007. p.133-134

2 Lewis, M. J. T. (2001), "Railways in the Greek and Roman World", in Guy, A.; Rees, J. (eds.), Early Railways. A Selection of Papers from the First International Early Railways Conference, pp. 8–19

3 Morley, Neville. "Trajan's engines." Greece & Rome 47.2 (2000): 197-210.

4 Allen, Robert C. "Why the industrial revolution was British: commerce, induced invention, and the scientific revolution 1." The Economic History Review 64.2 (2011): 357-384.

5 ibid

6 Grafton, Anthony, Glenn W. Most, and Salvatore Settis. The classical tradition. Harvard University Press, 2010. 

7 West, Krista (2013). The Basics of Metals and Metalloids. Rosen Publishing Group. ISBN 1-4777-2722-1. p. 81.

8 Chisholm, Hugh, ed. (1911). "Faraday, Michael" . Encyclopædia Britannica. Vol. 10 (11th ed.). Cambridge University Press. pp. 173–175.. the 1911 Encyclopædia Britannica.

9 Allen, Robert C. "Why the industrial revolution was British: commerce, induced invention, and the scientific revolution 1." The Economic History Review 64.2 (2011): 357-384.