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Modern economic growth began in England.

It's strange.
We know it.
We can watch it.
This unique phenomenon in human history
after millennia
where living standards did not change very
much.
When suddenly population and output per
person began to soar.
Started in a particular place on the
planet.
It didn't start in five places, it didn't
start in eight places.
It wasn't separate discoveries.
It started in England.
We can watch it.
And therefore we can understand how this
came about.
I sometimes feel it's a little bit like a
biologist being able to watch the start of
life.
The first bit of life that emerges that
gives rise to all the rest.
What's so interesting about life and one
of the reasons
why I view it as an analogy for an economy
is that we know that every kind of
life on this planet shares some basic
metabolism and DNA structure.
And so the biologists have said life
appeared once and from there it has
evolved and it has created a biosphere, a
world of millions and
millions of species.
It all started, presumably,
from a cell.
Modern economic growth also has a
kind of DNA.
It also came together from a number of
different materials and viola, something
took off.
Also, in a way, a living property because
a growing economy gave rise to forces
that continued the economic growth once it
took off.
If it were so easy to create economic
life, it would've happened many places.
We would have records of long economic
growth in
China, long economic growth in different
parts of the world.
But as John Maynard Keynes rightly pointed
out, we did not see that in human history.
So what happened in the Industrial
Revolution
as we call it, in the middle of the 18th
century in England, in my view was
a unique coming together of various
forces, that
allowed life in the economic sense to take
off.
That first cell of a modern economy that
became replicating
and that eventually spread to the entire
world economy
took off.
Well what is it about the Industrial
Revolution?
I think let's take a hint from the word,
industry itself.
For the first time a society moved beyond
agriculture as
the base, to one in which industry was the
base.
This required a fundamental change of
know-how,
of technology, of technical advance.
But just like life
itself requires a lot of interaction of
the components of the cell, so
too the life of an economy requires many
things to come together.
Technology is certainly a core part but
connecting the
different parts of the economy, the rural
area where
people are growing food, the factory towns
where workers are working in factories
producing textile goods, steel new output,
those interconnections are needed as well.
The food has to get to the city.
The manufactured goods, the shirts and
clothing are sold back to the farmers.
That requires transport,
that requires a market, that requires
exchange.
And so for the Industrial Revolution to
come together in
England in the 18th century many things
had to be present.
First agricultural productivity starts to
rise.
I wouldn't call it yet scientific farming,
but
I would call it very systematic and
evidence-based farming.
Farmers learning, better rotations for
crops, how to replenish the soil
nutrients.
There was more urbanization, more trade, a
market economy taking
hold, property rights, rule of law
beginning to take hold.
Of course, there was the wonder of the
scientific revolution.
Isaac Newton had shown that our world in
physical terms is governed
by natural laws.
This opened up a completely new way of
understanding things and it opened up new
avenues of practical exploration as well.
One of the great breakthroughs came from
1712, even before the Industrial
Revolution but maybe you can say it was
the start of it.
The invention of a steam engine by Thomas
Newcomen.
The first steam engine,
burning coal to create motive force, was
used to pump water
out of the shafts of mines.
It was the beginning of the revolution
of steam engines and of, of technology.
And then came a,
wonderfully creative targeted
genius who working in a university
lab in Glasgow in, in Scotland realized
that Newcomen
had made a couple of design mistakes even
though it was a great breakthrough.
James Watt looking for profit as well as
for glory, said, I can
improve on that steam engine and the Watt
steam engine in
1776 came to life.
I think it's fair to say this
was the breakthrough from a technological
point of view of the industrial era.
And in a way, it was the technological
trigger of all that followed.
Because now it was possible to harness
massive amounts of energy
efficiently, economically, effectively, to
make profits.
These are the components that come
together in England uniquely.
But of course, we have to understand
always that
without nature playing its helpful role,
it would have
been impossible for all of the genius of
Newcomen
and, and Watt if there were no coal in
England.
And there never would have been a steam
engine or Industrial Revolution.
Coal, iron ore deposits that could be
turned into
a modern iron and steel industry.
Wonderful transport conditions on
rivers on flat land the proximity of the
coal fields to London.
The ability to build canals to connect the
coal fields with
the, the new factory towns and allow for
low-cost barge traffic.
All of this is an example
of the very special conditions in which
nature and nurture, you could
say, the human ingenuity, the spur of
profits, the
patent law, the rule of law, the market
economy
came together to make possible this
industrial revolution.
Have a look at the first individual who
gave a modern
description of this even though he did not
mention industry itself all that much
especially not
the steam engine because it was occurring
exactly
the same year he published his wonderful
work.
You're looking at Adam Smith, the author
of The Wealth of Nations.
I think rightly called the father of
modern economics.
Think James Watt produces the modern steam
engine in 1776.
Adam Smith publishes The Wealth of Nations
in 1776.
The American colonies declare their
independence and the inalienable right
to life, liberty, and the pursuit of
happiness in 1776.
Quite a year for a takeoff.
Putting together the concepts
of a modern economy governed by market
institutions,
technological advance, the availability of
crucial natural
resources, making possible the birth of a
new kind of economic life.
Adam Smith explained the workings of a
modern economy.
He gave us the idea of the invisible
hand of market forces helping to spur
inventors,
manufacturers, farmers so that working
together, not through literal cooperation
but by trading in the market place, could
bring about a modern market economy.
And one of Adam Smith's wonderful lines
from The
Wealth of Nations explains, and I quote,
it is not
from the benevolence of the butcher, the
brewer, or
the baker that we expect our dinner, but
from their
regard to their own interest.
We address ourselves not to their
humanity, but to their self-love.
And never talk to them of our necessities
but of their advantages.
In other words we buy from the baker, the
brewer, the butcher.
It is through market transactions that
have
them producing their products, buying from
the farmers.
It is from the manufacturers selling their
goods,earning and looking for profits
that make the modern world economy work.
And we know
the images of that early modern era.
James Watts, steam engine.
The new factory towns with the coal
burning and, and the smoke coming out of
the high chimneys.
The new modern form of transport in the
early 19th century,
the steam engine pulling railroads and
transforming
transportation around the world.
The steam ship and the new
factories that are now powered by not
human or animal traction as was before
people pulling and
pushing machines or animals pulling plows,
but now
steam providing a massive, unprecedented
amount
of energy.
To drive the new industry to make possible
an unprecedented rise of a modern world
economy
combining the natural resource base, the
technological
knowhow and a spreading market economy.
Now one of
the stunned observers of this, one of the
critics of of some of
the harshness of early industrialization
of course was none other than Karl Marx.
And Marx and his co-author Friedrich
Engels wrote
in the Communist Manifesto in 1848 a kind
of ironic tribute to the power of this
new, modern economy driven
by these breakthroughs in technology,
changing the world in a unique way.
They caught that mood, even if they didn't
like
it or fully understand of course what
would evolve.
And even if they rightly pointed out some
of
the harsh downsides, especially in that
era, it's worth listening
to Marx and Engels, how they describe this
new world in 1848.
And I quote.
Modern industry has established the world
market, for
which the discovery of America paved the
way.
This market has given an immense
development
to commerce, to navigation, to
communication by land.
This development has in its turn reacted
on
the extension of industry and in
proportion as industry,
commerce, navigation, railways extended in
the same
proportion, the bourgeoisie, the new
capitalist class developed,
increased its capital and pushed into the
background
every class handed down from the Middle
Ages.
A new world indeed had arrived.
The Industrial Revolution had brought
form, forth
a new kind of economic life indeed.
A unique form that created
the modern era of economic growth.