Economic change in all periods depends, more than most economists think, on what people believe, and this was very much true for the economic development of the British economy between the Glorious Revolution and the Crystal Palace exhibition. This book is a personal interpretative essay on the factors that led to the emergence of modern economic growth in what became “the industrialized world” in which, by all accounts, the British economy played a pivotal role. It provides an account of economic developments in Britain during the century and a half after 1700. It is not a balanced account: given the magnitude of the literature on this period, any survey needs to pick priorities and I have done so shamelessly. It argues, in short, that in addition to standard arguments such as geographical factors and the role of markets, politics, and society, the beginnings of modern economic growth depended a great deal on what people knew and believed, and how those beliefs affected their economic behavior. The eighteenth century was the Age of Enlightenment—and the economic ramifications of that fact need to be fully confronted. Thought and philosophy, as Hegel pointed out, inspired a world of reality that people constructed, and the French and American Revolutions demonstrated this amply (Himmelfarb, 2004, p. 7). But what about economics?
Do ideology and “culture” affect economic outcomes? The question is as old as economics itself. Both Marx and modern free market economists have felt that beliefs adjust themselves to economic interests that themselves are largely determined by deeper forces of technology, demography, geography, and so on. Most economists, ironically enough, share with Marx a historical materialism which holds that ideology is basically endogenous to economic environments and does not shape them. At the other end of the continuum there have always been those who felt with John Maynard Keynes, in a famous paragraph, that “the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas … soon or late, it is ideas, not vested interests, which are dangerous for good or evil” ([1936] 1964, pp. 383–84). I will argue that in historical reality the two interacted in complicated ways. Under the right circumstances, as they occurred in eighteenth-century Britain, this interaction produced a positive feedback loop that created the greatest sea-change in economic history since the advent of agriculture: the Industrial Revolution and the emergence of sustained economic growth.
The way this interaction between what people believed and knew on the one hand and their economic actions on the other took place was historically contingent. By this I mean that it was the result of a confluence of circumstances that was in no way inevitable. It seems natural to infer that the beliefs of rulers and policy makers, those who wrote the rules and regulations by which the economic game was played, were crucial. But in the Industrial Revolution the beliefs and ideas of intellectuals, scientists, skilled mechanics, inventors, and entrepreneurs may have mattered more. Of course, ideas do not rain down from heaven. Commercial and urban societies, which could afford to sustain a substantial number of people living by their wits rather than having to toil in the fields, were necessary if intellectual ideas were to be created. Those people whose main occupation was to think and analyze competed in a marketplace for ideas (Mokyr, 2007). Some ideas proved victorious, others did not. From this competitive natural selection process, changes in the intellectual environment emerged, with far-reaching consequences for the creation of “modern” polities and economies.
There are no simple answers to the question of why some ideas won out and became a “dominant paradigm.” Some ideas will succeed when the “circumstances” are right, and at other times the circumstances seem propitious but the ideas are not forthcoming or fail. Just as in evolutionary biology we can never know precisely why some highly fit species emerged and others, just as fit, did not, there is a baffling indeterminacy in history. Good timing and contingency explain outcomes. Surely, those ideas that proved amenable to strong economic interests had an advantage. But was there an autonomous logic to the evolution of the ideas held by the elites whose beliefs proved so important to economic development? Was rhetoric entirely marginal to the outcome? It would be simply wrong to believe that ideologies were simply a reflection of economic interests and that persuasion itself did not matter at all. Many influential intellectuals in history were traitors to their class, none more so than that great believer in historical materialism, Friedrich Engels. The philosophes who created the Enlightenment were, on the whole, very good at persuading, and slowly imbued the social and economic elites of their time with a new set of values and beliefs. The question “in whose interests” is always a good first place to look for answers as to why policies are made the way they are. But it should never be the final stop. Looking just for the answer to the cui bono issue overlooks the obvious fact that economic interests were often opposed by other economic interests. Alliances were formed, deals were made, and persuasive rhetoric about what was best “for the nation” must be taken into account. Reformers were met every inch of the way by incumbents and reactionaries, with the outcome indeterminate. There was nothing predetermined or inexorable about these outcomes, but once they took place, it is impossible to explain the transformation of the British economy without them.
There is a lot to explain. This was an economy that changed profoundly in a century and a half. By 1850, Britain had a population more than three times as large as in 1700. Furthermore, a far larger proportion (45 percent compared to 18 percent) of that population lived in towns. People purchased many more of the goods and services they consumed from strangers, and worked increasingly in large establishments that were separate from their homes and which demanded discipline and punctuality. They moved around their country in trains rather than in stagecoaches and their “sailing” across the seas was relying less and less on sails. The division of work within the household had changed, and so had the economic relations of individuals with their neighbors and communities. Markets, while already omnipresent in 1700, were dominant in 1850. People not only bought their daily bread, clothing, and houses, but also sold their labor and invested their savings through markets, in all aspects of economic life dealing increasingly with strangers. The clothes they wore were made of cotton rather than wool or linen, and while the changes in the quality of homes in which they lived and the food they ate were not all that dramatic, careful examination reveals shifts even there. Accounts of these changes tend to expose themselves to the charge of “teleology,” meaning that we tell the tale of change as if everything that happened was somehow meant to bring about the outcome we observe at the end. Economic accounts of this period have tended to describe this transformation as a success story, opening themselves up to charges of “triumphalism.” I will make a conscious effort to avoid such pitfalls in this book, but I will probably fail to some extent. The dilemma that a historian asked to describe this process faces is obvious: can one and should one tell this tale without stressing that by most criteria – not least those of people living at the time – this was an astonishing success story? The fact remains that by the time of the famed Crystal Palace exhibition (1851), Britain had become the undisputed economic leader of the world, enjoying a newly found (if ephemeral) political prestige and hegemonic power, and had become capable of providing permanently higher living standards for most members of a large and growing proportion of its population. Luxuries that had once been reserved to the very rich and powerful (or had been unknown altogether) were becoming routine consumption for ever-larger segments of the British population.
Historians of every nation are disproportionately interested in what happened in Britain in the eighteenth and early nineteenth centuries because it was not, in the end, a strictly British affair. The changes in the British economy were shared by other nations in Europe and eventually overseas as well. This is the era in which modern economic growth was “invented”—a phenomenon unprecedented in human history, which lifted a majority of the people above the minimum consumption needed to survive and provided them with comfort, security, leisure, and material satisfaction that in previous ages had been confined to a few. Whether one considers the rise of commercial industrialism, financial capitalism, urbanization, and the achievements of technology a blessing or a curse, there can be no doubt that they took place. The period in which the plant of prosperity germinated and first blossomed is the period under discussion here, and the place in which it happened was Britain. At the center of it all was the Industrial Revolution.
If any consensus among historians, economists, and historically inclined social scientists is to be found regarding the economic history of the world, it is that what is regarded today as modern economic growth started in Britain as a result of the Industrial Revolution. Whereas many of the details of timing, causes, and effects have remained in dispute, historians and economists have sensed that at some point after 1750 something deep and irreversible happened in the British Isles, that eventually spread to most of Western Europe, North America, and other areas influenced by the West. In 1700, economic growth was not entirely new to the world, and certainly not to Britain: few scholars would disagree that by the Glorious Revolution of 1688, when a first quantitative picture of the British economy was sketched by Gregory King ([1688], 1936) material life and economic institutions had changed a great deal since the Norman conquest, and that consumption patterns and aggregate output had grown in the long haul. And yet by modern standards change had been extremely slow. “A matter of degree,” some might say, but degree is everything in economic history and the acceleration in the rate of economic change is the central event that needs to be explained.
All the same, it would be misleading to call British economic history of the period under discussion “the age of the Industrial Revolution,” as if the period before it was but a prelude to the Industrial Revolution and the decades following it the aftermath. The event looms large to the modern economist because in retrospect it had huge repercussions on global economic history. Much of the economic history of the nation, however, can be described, analyzed, quantified and even modeled without reference to the subsequent emergence of modern economic growth. In the period 1700–1850, a great deal happened in the British economy that was in no way or only tangentially related to the Industrial Revolution. Just because the Industrial Revolution took place does not imply that everything before and during it inevitably “caused” or even facilitated it or that everything after it was caused by it.
Yet economic growth will continue to fascinate economists, and historians will not be able to avoid it. Before the Industrial Revolution economic growth, such as it was, was not only slower but qualitatively different from what economists today would regard as “normal” economic growth. Growth in our age relies heavily on technical advances and the accumulation of improved capital goods and new skills and competences that embody and enable innovations. Such advances, although present in the pre-1750 world, played only a secondary role in bringing about economic change. Although this hypothesis is difficult to quantify, it seems that until the Industrial Revolution, economic growth, such as it was, constituted primarily what is often known as “Smithian growth.” Such growth was based on the expansion of commerce, the growth of markets, and improvements in the allocation of resources. As Adam Smith observed and economists have taught ever since, when two regions or economies trade with one another, both gain due to the benefits of specialization. The volume of trade increased prodigiously between 1450 and 1750, and Western Europe especially benefited. Much of the increase in trade was itself due to a growth in useful knowledge: improvements in ship design and navigation, the growth in geographical knowledge, and the discovery of new trade routes and trading partners. Moreover, trade was facilitated by improved institutions that strengthened the “rule of law.” Institutions that eliminated piracy, improved enforcement of contracts and property rights, reduced risk and provided credit, insurance, information, and the reasonable assurance that trading partners would meet their commitments were a major factor in Smithian growth.
As a consequence, in the centuries before the Industrial Revolution, markets got better at the allocation of resources. Economics teaches that if labor or capital is reallocated from low- to high-productivity uses, overall output rises. Such improvements in allocation can be brought about by improving the institutional framework and the markets in which economic activity takes place. At one time or another, northern Italy, the Low Countries, southern Germany, and England were the beneficiaries of what is now known as “Smithian growth” and created considerable wealth. Commercial flourishing was often associated with industrial and technological change: the Dutch economy in its seventeenth-century golden age was rich in part because of shipping and commerce, but also because it relied on industries that catered to or depended on international trade, such as sailcloth weaving, papermaking, and sugar refining, and was able to increase productivity and compete through innovation. But such developments were normally driven by the engines of commerce and institutional improvement, with technology providing the auxiliary source of power. Around 1750 all this began to change. The best definition of the Industrial Revolution is the set of events that placed technology in the position of the main engine of economic change.
Many historians and economists describe the pre-Industrial Revolution economies as being dominated by Malthusian mechanisms, in which population pressure prevented income per capita from growing. One view of the modern age, especially popular among economists but also quite common among historians, is that modern economic growth consisted of overcoming these demographic negative feedbacks. The significance of the Industrial Revolution was that the race between babies and resources was won, resoundingly, by resources. How did this happen? In part, available resources expanded at an ever faster rate, as people became better and better at exploiting things they had possessed all along but had been unable to take advantage of. Three fundamental factors brought this about. The first is ingenuity. The Malthusian model describes an “organic economy” based on plants and animals, supplemented here and there by water and wind power (Wrigley, 1987, 1988, 2004a). The Industrial Revolution is said to have shifted the material and energy basis of the economy firmly to minerals and fossil fuels, thus augmenting the effective resources at the economy’s disposal. Iron and later steel replaced wood, and coal replaced animal and human energy. This view may understate the dependence of the pre-1700 economy on non-organic resources such as wind- and water power, but grosso modo it is an apt description. The supposedly fixed supply of land was stretched to yield ever more food, energy, and materials. The greater exploitation of natural resources in the eighteenth century came about not because of demand-side pressures, but because the knowledge needed to extract, transport, and utilize mineral was growing. Second, Britain learned to rely more and more on imported resources. Minerals could not be eaten, but food could be purchased overseas from nations that had more or better land and could therefore produce it more cheaply than Britain ever could. To pay for this food, Britain exported manufactured goods and minerals. Thirdly, people eventually decided to have fewer babies. The population of Britain—excepting Ireland—kept expanding, but in the nineteenth century the rate of income growth began to exceed the rate of population growth by a larger and larger margin. When fertility began to decline, the gap between the two grew rapidly.
It has often been remarked that Malthus wrote his famous and highly influential Essay on Population (1798) at just about the time that it became irrelevant. Perhaps so—yet there are some reasons to believe that even before that time, his model was a rather rough approximation at best. Its most famous implication, the “iron law of wages” held that all per capita growth was doomed in the long term because population growth would undo it. In part that account is simply belied by the evidence: in the very long run, the economy was growing, if at a very slow rate by modern standards. Productivity in farming, mining, and shipping increased, and the range of consumer goods available to the average Briton by 1700 was far wider and richer than it had been in 1400. Most estimates of the rate of growth before 1750 are of the order of 0.2–0.3 percent per year (Snooks, 1994; Maddison, 2002, pp. 46, 90). At that rate income per capita doubled every two and a half to three centuries.
Moreover, fluctuations in population seem to have been governed by forces more powerful than income per capita: the incidence of diseases and epidemics seems to have followed its own dynamic, and might be chalked up to exogenous microbiological events as much as to what Malthus called “positive checks”—that is, endogenous responses of mortality to overpopulation (Goldstone, 1991). Fluctuations in climate, too, had a substantial impact on productivity. Moreover, some economists, such as the Danish economist Ester Boserup, have criticized the classical Malthusian model by arguing that in the long run Malthus’s idea that population increase would lead to diminishing returns and thus to lower income per capita (which in the Malthusian story would bring population increase to a halt) underestimates society’s capability to adapt to population pressure by using its relatively scarce resources more intensively and effectively.
It seems, therefore, that just breaking out of the Malthusian “regime” through better technology does not constitute the entire story of the transformation of the British economy. In recent years, more and more economic historians, inspired by the pioneering writings of Douglass C. North, have begun to pay serious attention to institutions, that is, to the rules by which the economic game is played and the beliefs that generate these rules and people’s adherence to them. For much of recorded history, the arch-enemy of economic growth was not population pressure so much as predators, pirates, and parasites, often known euphemistically by economists as “rent-seekers,” who found it easier to pillage and plunder the work of others than to engage in economically productive activities themselves. Whether they were the King’s or the Bishop’s tax collectors, highwaymen, corrupt officials, greedy local monopolists, guilds that tightly controlled entry and production, or invading neighboring armies, aggressive rent-seeking often led to the end of the economic activity that brought about growth. In this way growth, in truly dialectical fashion, created the conditions that led to its own demise. Wealthy towns such as Milan, Antwerp, and Magdeburg raised the envy and greed of strong neighbors, who besieged, sacked, and taxed them. Only a few areas with unusual geographical characteristics such as Venice or the maritime provinces of the Dutch Republic could avoid the worst of these ravages, but even they had to devote a large proportion of their economic surplus to defense.
Britain was unusually lucky in two respects. One was that as it was an island, the threats to its security were less pressing. They were not absent altogether, as the Spanish Armada attests, and certainly being an island was not a sufficient condition to keep out foreign occupiers and plunderers (as Ireland and the Philippines found out to their misfortune), but all the same it was an advantage. However, keeping out foreign marauders was insufficient, because much of the rent-seeking was carried out by local notables and home-grown bullies. In the seventeenth century, British society became unusually good at restraining the greatest local bully of them all, namely the King. The principle that Britons would not be taxed unless they agreed to be, embodied in Article 4 of the Declaration of Rights of 1689 (stating that “levying money for or to the use of the crown, without grant of Parliament … is illegal”), should be regarded as an important step toward constraining this one form of rent-seeking (North and Weingast, 1989). Yet rent-seeking was alive and well in eighteenth-century Britain: there were still many ways in which rules, regulations, and restrictions siphoned off wealth from those whom we would regard as “productive,” and redistributed it to others with political influence or traditional privileges.
Much of the economic history of Britain during the period under discussion here cannot be properly understood without realizing that after the middle of the eighteenth century redistributive activities, inimical to economic development, were on the retreat. The attacks on mercantilism—which was the formal manifestation of rent-seeking—by liberal economists were one front on which this battle was fought. The term “mercantilism” post-dates the age in which it predominated in much of European commercial policies, although Adam Smith wrote scathingly of the “mercantile system.” In much of Europe around 1700, governments had created alliances with economic interests that provided each with something they badly wanted. Governments were provided with much-needed tax revenues; special interests gained protection and other exclusionary rents. But in Britain, more than anywhere else, the legitimacy of government regulation, monopolies, privileges, and the rent-seeking they implied in the foreign and colonial trades, came under criticism on account of the growing abhorrence felt for monopolies, workers’ combinations, and other encumbrances to the free and uninhibited exercise of economic activity. The groups in power increasingly decided to curb ancient privileges, including the misnamed “freedoms” (i.e., privileges), which gave certain groups the right to exercise a monopoly in incorporated towns, and the tight regulation of apprenticeships.
Economic liberty based on the loosening of economic regulations and their enforcement was only one element in a wider set of changes in eighteenth-century Britain. On the Continent, of course, these changes were inextricably mixed up with the French Revolution and its diffusion to other countries on the bayonets of Napoleon’s soldiers; in North America, with the American Revolution and the emergence of the institutional foundations of American economic growth. In Britain, there were fewer dramatic events, and not all of them point unambiguously in the direction of liberalization. All the same, this was a society that drifted hesitantly and slowly toward more openness, higher competitiveness, and more unfettered economic choices. By the time of Queen Victoria’s ascent to the throne, it had become as much of a laissez-faire economy as can be expected on this earth, and rent-seeking in Britain was approaching extinction. Instead, it placed its faith—excessively in some views—in the one institution whose wisdom it had learned to appreciate: the free market. This transition, the mother of all institutional changes, needed to take place before economic growth was to become the norm rather than the exception.
A successful economy depends on good institutions to create the right incentives for commerce, finance, and innovation. Yet there is no set of institutions that we could design as universally “optimal.” As the circumstances change, institutions need to adapt. What matters therefore is for institutions to have the agility to change as circumstances change. It needs not only rules that determine how the economic game is played, it needs rules to change the rules if necessary in a way that is as costless as possible. In other words, it needs meta-institutions that change the institutions, and whose changes will be accepted even by those who stand to lose from these changes. Institutions did not change just because it was efficient for them to do so. They changed because key people’s ideas and beliefs that supported them changed (Greif, 2005; North 2005). Much as some economists may be suspicious of cultural beliefs underpinning economic change, we cannot avoid facing changing ideology and institutions when discussing the eighteenth century.
And yet by itself institutional change would not have been enough. There was another element that held back pre-Industrial Revolution economies and prevented sustained growth. Their technological options were limited. The simple truth is that in many of the relevant fields of human productive activity, people did not know enough to make techniques work effectively and to solve bottlenecks that kept productivity low. This is not to say, of course, that before the Industrial Revolution technology was stagnant. By 1700, Britons and other Europeans made high-quality steel without understanding the basic metallurgy of steel; brewed beer without understanding the modus operandi of yeasts; bred animals without understanding genetics; and mixed elements and compounds without understanding basic chemistry. They manipulated power without understanding thermodynamics and fertilized their fields without soil chemistry. New techniques emerged as a result of trial and error and serendipity, and at times the progress they wrought was remarkable. But just as strikingly, people at times got it rather astonishingly wrong (especially in medical and agricultural technology). The growth of useful knowledge is at the center of any story of modern growth. As we shall see, the movement from the knowledge of nature to technology was a two-way street, with the movement going as much from practice to theory as it was going in the other (and more widely discussed) direction.
This is not to argue that the Industrial Revolution and economic growth were driven primarily by scientific breakthroughs. Scholars are still divided on the issue of how much technological progress during the Industrial Revolution really depended on scientific expertise (Landes, 1969; Musson and Robinson, 1969; Jacob, 1997). The impact of science on solving technological issues differed a great deal from problem to problem and from industry to industry. Many of the “wave of gadgets” that we associate with the classical Industrial Revolution—steam power being the most notable exception—could have been easily made with the knowledge available in 1600. What is beyond question is that the relative importance of science to the productive economy kept growing throughout the late eighteenth and nineteenth centuries, and became indispensable after 1870, with the so-called second Industrial Revolution. Much knowledge codified in books and articles as well as tacit knowledge that passed on between individuals would not qualify as “science” in its modern incarnation, but was of critical importance. Engineering, mechanics, the natural regularities involved in crop rotation, the location and extraction of minerals, the construction of instruments used in surveying and navigation, and the manufacture of material-intensive products such as potter’s clay, paper, and metals became increasingly reliant on useful knowledge embedded in printed sources or obtained from experts. The essence of the Enlightenment’s impact on the economy was the drive to expand the accumulation of useful knowledge and direct it toward practical use.
Explaining the Industrial Revolution and the origins of modern economic growth thus involves at least two separate problems, as Deirdre McCloskey (1994, p. 242) has pointed out. One of them is the “big problem”: why did Western Europe succeed in doing something that no society in history had ever done, that is, break through the confining negative feedback barriers that had kept the bulk of people who had ever lived before 1800 at a level of poverty that is by now practically unknown in the West? Despite their formidable scientific and technological achievements in years past, neither the Ottoman world, nor China, nor India, even came close. Answers to this question have ranged from the bizarre (climate, race, religion) to the plausible-but-hard-to-prove such as culture, society, empire, and politics. Most of the answers, however, are explanations of the “big question.” In what follows, I will address the “little problem”: why was it Britain that took the leadership in the movement that turned the European Industrial Enlightenment into lasting economic prosperity?
The importance of the “little” question for the understanding of the history of Europe and the world is hardly marginal: by the mid-nineteenth century Britain had become the workshop of the world, the unquestioned technological leader, a source of economic and political power that was instrumental in implementing the Pax Britannica, that consolidated the British Empire, and that created the Victorian age that was, in retrospect, the true Golden Age of Great Britain. It was much on the minds of contemporaries. Concerned Frenchmen regarded Britain’s leadership as a reversal of the normal state of things (which, they felt, was French leadership). Economic success led to a smugness and self-congratulatory mood in Victorian Britain that took many decades to fade. It also established Britain as the first nation dominated by factories and later by railroads, a nation that developed the first large industrial urban proletariat. The Industrial Revolution helped establish the financial hegemony of the City of London, which for many decades dominated the international banking scene. Moreover, it caused the demise of domestic industries, in which manual workers throughout Europe fought an increasingly desperate rearguard battle against the ever cheaper mass-produced factory products. In every conceivable manner economic growth changed the way in which people lived their lives. The British Industrial Revolution influenced the economic structure of the young American Republic by creating the demand for raw cotton that transformed the economies of the Southern States and gave slavery a new lease of life.
If the basic premise that the Industrial Revolution was the outgrowth of the social and intellectual foundations laid by the Enlightenment and the Scientific Revolution is correct, it was a European, not a British, phenomenon. In that sense, the “big question” and the “small question” are impossible to separate. Britain’s leadership by itself was probably not essential to economic growth in the West. Without it, another Western economy could have led, and the process might have been delayed and differed in details. Britain’s position of leadership increasingly shaped the Western world in the decades leading up to 1850, when it reached its zenith, but this hegemony was not a long-term equilibrium, and other economies had the wherewithal to emulate Britain and modernize their economies. This is not to say that they slavishly adopted the British model of steam and cotton; different economies, facing a variety of local circumstances, found their own “paths to the twentieth century.” Yet to admit these differences is not to deny the enormous influence that the British example had on the decisions and choices that faced the entrepreneurs and engineers in Germany, France, Belgium, or Scandinavia. Everyone in Europe between 1820 and 1860 recognized Britain’s economic leadership.
It makes little sense to think of the rest of Europe as “slow” or “backward.” Each continental country had its own specific constraints and obstacles that needed to be removed or overcome before it could do what Britain did, and follow its own variation on the theme of industrialization and the modernization of production. Some of them chose a different path in terms of the techniques and forms of industrial organization adopted. Many of them required a political revolution to clear away the institutional debris, from restrictive craft guilds to internal tariffs to serfdom, that had accumulated over centuries of predatory rule and rent-seeking. It took another full generation for the Continent after 1815 to pull even, but clearly none of the British advantages were especially deep or permanent. They explain Britain’s position as the lead car in the Occident Express that gathered steam in the nineteenth century and drove away from the rest of the world, but they do not tell us much about the source of power. Was Britain the engine that pulled the other European cars behind it, or were Western Europe and its offshoots on an electric train deriving its power from a shared source of motive energy?
The French Revolution violently swept away much of the institutional remains of the ancien régime and laid the foundation for the economic success of many continental nations. By the end of the period under discussion here, 1850, they had on the whole not quite caught up. By 1914, however, they had, and Britain was demoted from “leader” to “one of many.” Implicit in this formulation is the notion that had it not started in Britain, it would have started somewhere else in Western Europe. It would probably have been a bit later, and the exact pattern would have been different in many details, but it would have occurred nonetheless. Europe, not Britain, was the entity that was unique in this interpretation. And yet within Europe, Britain played an undoubted leadership role, and why and how it came to play this role is a second and somewhat different question.
The answers to both questions in the end need to be sought in the realms of knowledge and institutions, not geography. The economic game is played at two levels: the level of a game against Nature (technology), and a game of interacting with other people (institutions). Stripped to its barest essentials, the game against nature is not a social game—though in any practical historical situation it was of course mixed up with social elements. Technology is always and everywhere about utilizing natural phenomena and regularities to extract from Nature something she does not willingly give us. Production involves harnessing these regularities to further human material needs. In principle, even Robinson Crusoe faced this kind of problem, providing for food, shelter, clothing, transportation, and medicine. In practice, this distinction has its limits. Useful knowledge was distributed, shared, and communicated, and social relations such as trust and authority were at the core of market relations and at the center of economic development. In eighteenth-century Britain, a sophisticated market economy, institutions and technology interacted at many levels. It is in this complex of interactions that the answers to the big historical questions must be sought: what was special about Britain to account for the unique role it played as the cradle of industrial capitalism and the prosperity of the nineteenth century?
When thinking about such questions, it is important not to succumb to “hindsight bias.” By this I mean that when we know that a certain event occurred, we tend to view it as more or less inevitable and reinterpret all prior conditions as facilitating the outcome. After all, a lot of outcomes occur despite some prior conditions. Many of the institutions in eighteenth-century Britain were still hostile to economic development and this hostility somehow had to be overcome. On the eve of the Industrial Revolution it was in many ways still a protectionist and regulated economy. If Britain succeeded more than other European nations, it was because at that time she was better situated and equipped by comparison. But such differences were of degree, not essence, and they were fluid. The age of the Industrial Revolution was a golden age for British technological hegemony and all that flowed from it; yet, like all economic leadership, it was ephemeral.