During the same period that these technical innovations were transforming the iron industry during the 18th century, England was experiencing changes in agriculture, in finance and banking, in law, in politics, even in peoples’ way of thinking about progress and change. All these changes would converge by the end of the century to enable the revitalized iron industry to grow exponentially. Together, these changes added up to more than the sum of their parts because in the fortuna timing of their confluence they made possible the Industrial Revolution.
Capital was needed to finance the expansion of the new iron industry. It was now feasible as well as practical to concentrate all the various processes on one site and to vertically integrate the business. The iron masters also saw an advantage in owning their own coal mines and to controlling the distribution system with their own barges and ships. Machinery such as steam engines, larger furnaces, workmen’s housing, and transportation systems were now a requisite.
It was not the role of the existing banking system to finance private capital investment. The Bank of England’s historic role in the 1700’s continued to be simply the handling of large sums for governmental purposes, facilitating loans to and from other countries, and meeting the foreign exchange needs of international trade. The Bank of England was, indeed, “The Bank of London” and had no provincial branches and no mechanism for making loans to private enterprises or even to provide them specie in small denominations for payroll purposes. As yet there was no retail banking as we know it and there was no “exchange” to provide easy liquidity for debt instruments.
To meet their working capital needs on a day-to-day basis, the new industrial businessmen improvised by issuing their own paper money or “bills of exchange” and resorted to rotating paydays when coinage was short or even minting their own company coins. Basically, they created their own in-house banks and sold their bills of exchange at discount through City banks having a relationship with the Bank of England. (A number of today’s banking institutions, Lloyds and Barclays for example, began as such in-house iron company banks).
For financing their capital needs they improvised several methods. They would self-finance improvements through the retention of earnings, paying the partners interest on their share of the deferred distribution. They borrowed from each other and later from merchants in other businesses who were sophisticated in international lending such as the tea merchants who financed the iron industry’s growth in South Wales or the tobacco merchants who financed the industry in the Clyde Valley. They formed joint venture companies and sold their stock into the new and growing market for debt instruments.
Parliament was financing the Continental and American wars by issuing government-backed bonds called Consols. These proved to very popular investments both domestically and abroad. In addition, new investment opportunities such as joint stock companies and Turn Pike Trusts were being created. The increasingly prosperous and growing middle class, having no retail banks to receive their savings, was learning to put their money to work earning interest from these debt instruments. This new source of private capital was now available to the enterprising young business ventures.
In 1760 there had been no market for buying and selling debt instruments, but in 1803 the stock exchange was opened and by 1830 market liquidity was achieved for debt instruments of all kinds and the capital markets were thriving.
Private retail banking on the local level was becoming available in the early 1800’s, but because these banks were prohibited from selling stock to raise capital for reserves, and because there was no limited liability available to private banks whose partners were personally liable for all funds received, they often failed when faced with a liquidity crisis. The surviving banks, however, received the savings from and made loans to the prospering middle class and small businesses.
The infusion of all this new money looking for investment opportunities as well as the new fluidity of capital through the buying and selling of consols and shares in joint venture companies meant that interest rates continued to fall. By 1757 Consols were paying 3%. Interest rates fluctuated but remained relatively low through out the 1700’s. It was an ideal financial situation for the entrepreneurial businessman.
Other barriers to new ways of doing business were falling as well. From the mid 18th century, emerging business concerns in the iron and mining and textile industries were avoiding the strict medieval regulation of most trades by guilds and government restrictions simply by locating their new enterprises in places where they were not in effect such as Lancaster, Yorkshire, Wales and Scotland, as well as in unincorporated towns such as Birmingham and Manchester. The medieval prohibitions on workers leaving their own parish had rarely been enforced since the Civil War in the mid 17th century and by the 18th century the resulting mobility of the labor force made industrial expansion possible.
There was a legal incentive to innovation that had actually been in place for some time but was only now being used to full advantage. Chief Justice Coke’s rulings during the Tudor dynasty had elevated property rights and suppressed vested interests and privileged monopolies. The Statute of Monopolies of 1624 also contained provisions for a patent law. Inventors and entrepreneurs could have exclusive rights to their inventions for a set period of time, although piracy continued and patent lawsuits were common. Parliament, as an incentive to act in the public interest, offered awards for those who were willing to make their inventions available to all.
All these factors taken together helped make the Industrial Revolution possible. But the greatest contribution came from the men who were leading these new ventures and the new ways of thinking who had seen the possibilities and seized the opportunity. It is they that actually made it happen.
Although a few of the landed gentry were involved, for the most part these were ordinary men who came from the traditional trades of wheelwright, stone mason, instrument maker, pharmacist but who, self-educated in the new scientific ventures, became proficient in many “new” specialties known today as civil engineer, chemist, mathematician, and physicist. There were several reasons why this unprecedented collaboration came about between the pragmatic tradesmen and the university-educated beneficiaries of the “natural philosophy” experiments and teachings of Sir Francis Bacon (1561-1626) and of Sir Isaac Newton (1643-1727).
English society, exhausted by the religious wars of the previous two centuries, was willing, as the price of peace, to practice the religious tolerance now allowed under the Settlement Act of 1689. Many sects who dissented from the established Church of England such as the Puritans, the Quakers, the Methodists, the Presbyterians, Baptists and Congregationalists became leaders in the new industries and financial institutions. The Quaker families of Darby, Reynolds, Wilkinson, Lloyd, and Huntsman dominated the early iron industry.
T.S. Ashton observes: “Many explanations have been offered for this close association between industry and Dissent. It has been suggested that those who sought out new forms of worship would also naturally strike out new paths in secular fields. It has been argued that there is an intimate connection between the tenets peculiar to Nonconformity and the rules of conduct that lead to success in business. And it has been asserted that the exclusion of Dissenters from the universities, and from office in government and administration, forced many to seek an outlet for their abilities in industry and trade. There may be something in each of these contentions, but a simpler explanation lies in the fact that broadly speaking, the Nonconformists constituted the better educated section of the middle classes.” (The Industrial Revolution 1760-1830 TS Ashton p. 14-15)
Ashton then goes on to note the contribution of men educated in the dissenting primary academies and the University of Edinburgh and the University of Glasgow in Presbyterian Scotland who came south to England to found industries and new technologies such as James Watt, John Roebuck, Joseph Priestly, Matthew Boulton, Thomas Telford, John McAdam to name only the ones we shall meet.
Dissenting academies were established by nonconformist sects in Bristol, Manchester, Northampton and elsewhere which were open to students of all creeds. Their curriculum included not only religion but mathematics, history, geography and “natural philosophy” or science. They were incubators of scientific thought.
The spirit of discovery and invention was furthered by associations such as the Royal Society, the Society of Arts and the Lunar Society where like-minded men of all occupations and social classes came together to share scientific discoveries, improved methods of production, and new ideas in general. There were all kinds of opportunities for an enterprising man to educate himself in the new sciences and discoveries through free lectures. A best seller for 100 years after its publication in 1751 was ”The Tutor’s Assistant”, a mathematics textbook. Journals were available that disseminated the latest theories of special interest to those in any number of trades and agricultural practices. One could learn as much or more in the coffee houses of London, where many of these associations met, as at any of the Universities.
Implicit in this search for scientific understanding was its practical application. As A.E. Musson says of Dr. William Lewis (1708-1781) F.R.S. “His work marks the arrival of the professional chemist, applying scientific knowledge systematically to industrial problems.” (Science and Technology in the Industrial Revolution, Musson & Robinson p. 53) This new scientist was in partnership with the tradesman and craftsman, each hoping to learn something from the other. Since this was an unprecedented situation, skilled craftsmen from all over Europe came to London to learn and to work. A very modern spirit of confidence that anything was possible and that man could understand and control Nature was abroad in England.
Another phenomenon of the 18th century that was to benefit the growth of the young iron industry and all the other new enterprises such as the textile industry and the factory system in general was the exponential growth of the British population. This was not the result of a rise in the birth rate, which actually declined slightly. It was partly the result of a much lower death rate from disease as the importance of sanitation was better understood, but the greatest contributing factor was a much better diet for the population as a whole.
This was a direct result of the agricultural experiments and reforms based on scientific discoveries that had begun in the previous century. The ancient and inefficient practice of subsistence farming in the “open fields” where each family had a narrow strip of his own land among many other family strips, had gradually over the last two centuries been succeeded by the “enclosure farming” of large hedge-row fenced fields used as pasturage for cattle and sheep or the growing of grain crops. The waste or common lands were also being enclosed and brought into production for the first time resulting in an increase of acreage under cultivation. The efficiency of farming in large fields when added to the benefits of land drainage, of crop rotation, and of applying fertilizers were all resulting in a much higher yield.
The new practice of growing root crops like turnips as winter feed for livestock meant that they no longer had to be slaughtered in the fall for the lack of winter forage. As a result meat was now available to everyone year around. A well nourished population with a longer life expectancy meant that a larger work force no longer tied to agriculture was available to fill the coming demand for labor in many kinds of work. In fact, T.S. Ashton argues that it was because the Industrial Revolution occurred there first that Britain was able to successfully absorb this population growth and therefore was able to avoid the political and economic upheavals which were soon to be experienced by other nations whose populations were also increasing, but whose economies were not.
The nascent iron industry had in place just what it needed for expansion. Capital was available in various instruments at a low interest rate. The regulations and government restrictions on trade and business were being avoided by locating away from where they were in effect. Property rights and patents protected innovation for long enough to allow investors to recoup their investment. A scientifically educated and increasingly prosperous middle class was available to contribute to as well as to invest in that innovation. A century of improvements in the refining of iron itself, at ever lower cost, meant that the British iron industry was very competitive in world trade. The attitude of English society in general was favorable to progress, to expanding trade, to new ideas and discoveries. There was nothing to prevent expansion of the iron industry except the need to find new applications for the improved product.