Why Did the Industrial Revolution Happen in Britain in the Eighteenth Century?

Based on Robert C. Allen, The British Industrial Revolution in Global Perspective (Cambridge University Press, 2009).

The central feature of the Industrial Revolution was technological innovation on an unprecedented scale, so explaining the time and place of the innovation is tantamount to explaining the time and place of the Industrial Revolution. Why did this wave of innovation occur in Britain in the eighteenth century? Allen argues that the answer to this question is basic economics. The Industrial Revolution was the surprising, perhaps even astonishing, result of normal economic endeavour. Britain had unusual factor prices: labour was expensive relative to capital, and thermal fuel was cheap. British industrialists could have profitably adopted technologies that replaced workers with machines and thermal fuel. Innovators, recognizing that there was a demand for technologies of this kind, were willingly to bear the costs of developing them. Britain’s “wave of gadgets” was the result of ordinary profit-seeking on the part of its innovators and industrialists.

The new technologies were not immediately adopted on the Continent. Labour was cheaper there, and thermal fuel more expensive, so replacing workers with machines and thermal fuel was not initially a profitable strategy for Continental industrialists. However, refinements to the new technologies eventually reduced their operating costs so much that the technologies also became profitable on the Continent. Adoption of the new technologies occurred even later in Asia, where very low labour costs initially made their use even more unprofitable. As in the Continent, the new technologies were not adopted until their operating costs had been driven down enough to make them profitable. The pattern of factor prices explains not only why these technologies were developed in Britain in the eighteenth century, but also why their adoption in other parts of the world was delayed and staggered.

Factor Prices

Here, once again, is Clark’s plot of England’s population and per capita income.1 Malthusian economics predicts a negative relationship between these variables, and that negative relationship is fairly evident until 1630. Then, from 1630 until the beginning of the Industrial Revolution in 1760, per capita income grew steadily, even though the population remained stable.

The growth in per capita output reflects the rapid growth of Britain’s manufacturing and trade. Britain in 1600 had been an almost entirely agricultural economy, but by 1700, manufacturing and commerce accounted for one-third of its national product.2 Britain began to produce the light woolen cloths known as the “new draperies,” and these cloths found ready markets in Europe.3 British textile production doubled in the second half of the seventeenth century. Rapid growth also occurred in a number of other industries, including mining (coal, lead, iron, and tin), iron smelting, glass, ceramics, metal goods, and shipbuilding. While some of these goods were sold domestically and in Europe, Asia and the New World were increasingly important markets.

London was the great beneficiary of the rise in trade:

The new draperies flowed out of the Capital: cloths amounted to 74% of London’s exports and re-exports in the late 1660s and made large contributions to the growth of that city. By the early eighteenth century, one-quarter of London’s workforce was employed in shipping, port services or related activities.4

London’s population rose from 50,000 in 1500 to 500,000 in 1700. This kind of growth required workers to be drawn to London from other parts of the country, and the only incentive that could draw them in sufficiently great numbers was high wages. As economic activity spread to other areas of England, wages in these areas also had to rise to remain competitive with London. Daniel Defoe, writing in 1726, was certain that English workers fared much better than their Continental counterparts.

The working manufacturing people of England eat the fat, and drink the sweet, live better, and fare better, than the working poor of any other nation in Europe; they make better wages of work, and spend more of the money upon their backs and bellies, than in any other country.5

Allen’s own studies show that Defoe was correct. British wages, measured in terms of purchasing power, were higher than other European wages (Dutch wages were not far behind English wages) and very substantially higher than Asian wages.6

Britain’s factor prices were unusual in another way: Britain had the cheapest energy in the world, due to the rise of a previously little regarded fuel, coal. In the medieval economy coal had had few uses outside of blacksmithing and lime burning. No country had produced much coal, and Britain had not been a leading producer. London’s explosive growth changed all of that. Wood was a construction material (for ships as well as buildings), but it was also the dominant source of energy, both in industry and in the home.7 As London grew, the local supply of wood became depleted, driving up its price. Wood eventually became so expensive that people began to use coal in its place. This substitution was not simple. The wood used for domestic heating and cooking had been burned in large open fireplaces, and the smoke had been allowed to escape through ceiling vents. Coal could not be burned in this way, as it burns well only in a confined space, and it produces noxious fumes that must be actively drawn out of the house. Builders began to design houses for the burning of coal, and after some experimentation, settled on small, enclosed, and grated fireboxes connected to tall narrow chimneys.

London’s energy price was about the same as Continental energy prices, but the energy price in Newcastle, where the coal was mined, was one-eighth of that! The difference between London’s price and Newcastle’s price was simply the cost of transporting the coal. Energy-intensive industries, such as metal refining and manufacturing, began to locate near Newcastle and other coal-producing areas to exploit the cheap energy. Britain was on its way to becoming the “workshop of the world.”

Coal became the standard energy source for both residences and industry, and demand exploded. Between 1560 and 1800, British production of coal rose by a factor of 66. In 1800 Britain’s production was eight times greater than that of Belgium, the next highest producer.

The cost of capital is the cost of financing investment in plant and equipment. It was about the same in Britain as it was on the continent. Thus, Britain had high labour costs, low energy costs, and average capital costs (in comparison to its competitors on the Continent and in Asia). Production methods that used more capital and energy but less labour would be more profitable in Britain than in any other place in the world. But these methods would exist only if someone were willing to invent them.

Costly Invention

Invention is generally a long drawn-out business, with high costs and no guarantee of success. It won’t be attempted unless there is evidence that a successful invention can be profitably sold, compensating the inventor for his time, his effort, and his cash outlays. British innovators in the eighteenth century developed labour-saving technologies because they were aware that these technologies would find willing buyers. Innovators elsewhere did not develop this kind of technology because businesses in their own countries could not profitably adopt them.

The costliness of invention is illustrated by the attempt to use steam to draw water out of the mines.8 The first device invented for this purpose was Thomas Savery’s vacuum pump (1698). Its operation involved filling a vessel with steam, condensing the steam with cold water to reduce the pressure within the vessel, and then opening a pipe leading to the water that was to be lifted. The pressure of the atmosphere (acting against the open surface of the water) drove a volume of water up the pipe and into the vessel. A blast of steam then expelled the water from the vessel and refilled the vessel with steam, so that the process could be repeated. A few of these pumps were set up in large houses to move domestic water supplies, but the pump was never successfully used in a mine. The very limited sales of the vacuum pump could not have compensated Savery for his development costs, but he was able to patent his “fire engine”. That patent would turn out to have some value.

Denis Papin was even less successful as an entrepreneur than Savery. He produced a very rudimentary atmospheric engine in 1695, and constructed an engine based on Savery’s pump in 1705. Neither of these engines was close to being commercially viable. There were at least two other significant attempts to build workable engines — both failed.9

The first successful atmospheric engine was built by Thomas Newcomen.10 Newcomen began experimenting with engines in 1700, tested one in an operating mine in 1710, and installed his first commercial engine in 1712. Despite very great differences in their operation, Newcomen’s engine was deemed to be a “fire engine” and therefore an infringement upon Savery’s patent. Newcomen was forced to deal with the patent holders, and in the end, Newcomen’s twelve years of research and development produced little in the way of profits.

Although there were many small improvements that increased the efficiency of Newcomen’s engine, the next major innovation — James Watt’s separate condenser — came almost sixty years later. The cylinder of the Newcomen engine was alternately heated by the injection of steam and cooled by the injection of cold water to condense the steam. Watt recognized that energy could be saved by leading the steam away to a separate vessel before it was condensed, so that the cylinder always remained hot.

Watt conceived of the separate condenser in 1764. He performed experiments related to this idea in 1768, built a prototype in the same year, and patented the device in 1769. By this time he had accrued £1000 in development costs. To put this amount of money in context, in 1781 the average annual earnings of engineers and surveyors was £170, of lawyers was £242, of clergymen was £182.11 It wasn’t easy for Watt to obtain that kind of funding.

To finance this R&D, Watt needed venture capital, and he received it first from Joseph Black. In 1768, John Roebuck, the inventor of the lead chamber method of making sulphuric acid and a founder of the Carron Ironworks, assumed Watt’s debts and paid the costs of a patent in exchange for a two-thirds interest in it. Roebuck, in turn, went bankrupt, and Matthew Boulton purchased his share of the Watt patent.12

Commercial production didn’t begin until 1776, when the partnership with Boulton was in place. This partnership would prove to be very successful. At last, a profitable outcome!

The same long, expensive, and uncertain development process can be seen in the cotton industry. In the years 1764-7 James Hargreaves invented and developed the spinning jenny, a machine that allowed a single operator to spin as many as seventy cotton threads at once, as opposed to the one thread possible with the spinning wheel. The spinning jenny is a relatively simple machine, but its development costs were perhaps ten times larger than Hargreaves’ annual income.13 He was able to obtain financial backing from a man named Peel — but that wasn’t the hard part.

When word got out that Hargreaves had made a spinning machine, neighbours broke into his house and destroyed the jenny and much of his furniture. In 1768, Hargreaves moved to Brookside where Peel paid for manufacturing premises. They were attacked by a mob, and jennies were again destroyed. Hargreaves then moved to Nottingham…14

Despite early adversity, the spinning jenny became a smashing success. By 1788 there were more than 20,000 spinning jennies in Britain.15 Unfortunately, Hargreaves was unable to enforce his patent and made little money from his invention. History remembers him, though. His spinning jenny was the first step in the complete mechanization of the British textile industry.

Adoption and Diffusion of the New Technologies

Allen’s hypothesis is that inventors bore the costs of developing labour-saving technologies in eighteenth century Britain because they believed that businessmen would adopt them. This belief was grounded in Britain’s unusual factor prices: the cost of labour was high relative to the costs of both energy and capital, so that technologies that substituted energy and capital for labour would be profitable. Labour was less expensive in other countries, both on the Continent and in Asia, so labour-saving technologies were unlikely to be adopted there. The evidence for this hypothesis lies in where and when the new technologies were adopted.

Newcomen’s atmospheric engine was designed to draw water out of coal mines, and initially, this task was all that it could do. The engine burned fuel at such a tremendous rate that it could be used profitably only in coal mines, where it could be run on coal that was too fragmented to be sold. Moreover, the engine ran too unevenly — it paused twice in every cycle — to power anything but a pump. The first problem was solved in part by fine-tuning each component of the engine, and in part by the use of Watt’s separate condenser. The first Newcomen engine burned 45 pounds of coal to produce one horsepower-hour of energy, while Watt’s engine burned only 8.8 pounds. There were further gains ahead: by 1900 the best engines would burn only 1 pound. The problem of converting an engine’s uneven motion to the even rotary motion needed for powering machinery was solved in by a series of innovations in the 1780s. A flywheel and crank, or a flywheel and Watt’s sun and moon gears, was added to the engine to convert the engine’s up-and-down motion into a smoothed rotary motion.16 Watt’s centrifugal governor stabilized the speed of the engine itself.

Resolving these two issues made engines much more useful to British industry. The table below shows the Britain’s use of stationary power (measured in thousands of horsepower) by source.17 Note both the astonishing growth in total power used, as well as the increasing dominance of steam as the source of that power.18

Britain was the early adopter. The use of the steam engine lagged in other countries because their wages were lower. The steam engine did not become profitable for them until it was both cheaper and more fuel efficient. The following table shows installed steam power and illustrates Britain’s lead.19

Sometime around 1800, Richard Trevithick invented the “high pressure steam engine” in which, for the first time, steam drove the piston. (The pressure of the steam was a little less than two atmospheres.) The advent of high pressure steam opened up new avenues for technical improvement, and the engines quickly became more powerful and more fuel efficient. The high pressure engine made railways and steamships possible, and they were so efficient that there was very little lag between the adoption of these technologies in Britain and their adoption elsewhere. Indeed, the United States was a leader in steamboat technology: Robert Fulton started the world’s first commercial steamboat service in 1803.

The same implementation lag occurred in cotton spinning. As noted above, there were more than 20,000 spinning jennies in England by 1788. In 1790 there were about 900 spinning jennies in France, and there were none in India. Wage differentials explain this pattern of adoption. The spinning jenny replaces the spinner’s labour with machinery. In England, where labour was expensive, the internal rate of return on a spinning jenny was 40%. In France, where labour was cheaper, the internal rate of return was 2.5%. The normal return on textile investments in France was roughly 15%, making the spinning jenny uncompetitive with other possible investments. In India the internal rate of return was -5.2%. A firm that replaced cheap labour with expensive machinery would have made itself worse off.

There are three steps to making cotton yarn: cleaning the raw wool; “carding” the wool to align the fibers into a long, loose bundle called a roving; and “spinning” during which the rove is lengthened, thinned and twisted to produce the yarn. Richard Arkwright patented a carding machine in 1775. He patented a new spinning machine, the water frame, in 1769. While the spinning jenny essentially replicated the motions of a human spinner using a spinning wheel, the water frame used a rolling process borrowed from the metallurgical industries. Neither the carding machine nor the water frame involved ideas that had not been tried before, but Richard Arkwright was the one who made these ideas work.

The culmination of Arkwright’s work was the cotton mill, in which machines were employed at every step of the manufacturing process.

In [1772], Arkwright and his partners began building a water-powered mill at Cromford. It proved difficult to scale up the water frame for factory production. A further set of design issues emerged regarding the spatial location of the various machines, the flow of materials from one to the next, and the provision of power throughout a multi-story building. The first mill was a learning experience, and its lessons were incorporated into a second mill opened in 1776. This mill was the prototype for cotton mills throughout Britain and the world.20

There were about 150 large mills in operation in Britain in the late 1780s. At the same time in France, there were only four, and some of these were small and did not represent best practice. Again, a technology that was profitable in England was unprofitable in France because of the wage rate differential. Allen finds that the internal rate of return on a mill in England was 40%. The internal rate of return on a mill in France was only 9%, well below the prevailing return for capital investments in the textile industry.

Mills did not become common outside of Britain until Samuel Crompton’s mule (1780), which produced yarn as a much lower cost than either the spinning jenny or the water frame, came into common use.


Allen’s argument is that inventions don’t just happen: they are the result of sustained and deliberate effort. This effort is only forthcoming when there is some prospect of financial reward, as there was in Britain in the eighteenth century.

  1. A version of this diagram appears on page 30 of Gregory Clark’s A Farewell to Alms.
  2. Steve Pincus, 1688: The First Modern Revolution, p. 52.
  3. Allen (p. 16) attributes the appearance of the new draperies to the Black Death. Sheep had traditionally been raised on marginal lands, and had produced wool that was too short to be spun into fine yarns. The Black Death reduced the rural workforce by so much that some of the better lands were switched from crops to grazing. The sheep, better nourished, grew a longer wool that was better suited to the production of fine yarns. However, the industry also benefited from the skills of immigrants, many of them from the Netherlands.
  4. Allen, The British Industrial Revolution in Global Perspective, p. 109. On the new draperies, Allen cites R. Rapp, 1975, “The unmaking of the Mediterranean trade hegemony: International trade rivalry and the commercial revolution,” Journal of Economic History, pp. 499-525. His source on shipping employment is J. Boulton, 2000, “London, 1540-1700” in Peter Clark (ed.), Cambridge Urban History of Britain, vol 2, pp. 315-346.
  5. Daniel Defoe, The Complete English Tradesman, 1726, chapter 22.
  6. Wages on the east coast of the United States were also high, but did not induce labour-saving innovations because there was, at this time, little industrial activity there.
  7. Wood was either burned directly, or converted to charcoal and then burned.
  8. Water naturally seeps into the part of the mine that is below the water table, and removing this water is a significant part of a mine’s operation.
  9. Milton Kerker, “Science and the Steam Engine”, Technology and Culture (1961), p. 383. The major attempts were by Salomon de Caus and Edward Somerset; Kerker suggests that there were many other less significant attempts.
  10. It was an atmospheric engine because, as with Savery’s vacuum pump, the atmosphere performed the work. Newcomen’s engine featured a cylinder that closed at one end and open at the other. A piston was fitted into the cylinder. The cylinder below the piston was filled with steam, then condensed with water to create a partial vacuum. The difference in pressure between the partial vacuum below the piston and the open atmosphere above it, drove the piston down the cylinder. If a steam engine is one in which steam drives the piston, the first steam engine is Richard Trevithick’s high pressure engine (c. 1800).
  11. Jeffrey Williamson, “The Structure of Pay in Britain, 1710-1911”, Research in Economic History (1982)
  12. Allen, The British Industrial Revolution in Historical Perspective, p. 167. Joseph Black was a chemist at the University of Glasgow; his theory of latent heat was the beginning of what is now known as thermodynamics.
  13. Allen, The British Industrial Revolution in Historical Perspective, pp. 190-1.
  14. Allen, The British Industrial Revolution in Historical Pershpective, pp. 191-2.
  15. Allen, The British Industrial Revolution in Historical Perspective, p. 193. Allen cites Aspin and Chapman, James Hargreaves and the Spinning Jenny (Helmshore Local History Society, 1964), pp. 48-9.
  16. The flywheel itself was not new. The wheel that gives the spinning wheel its name is a flywheel that smooths the speed of the bobbin.
  17. Allen, The British Industrial Revolution in Historical Perspective, Table 7.1.
  18. Allen, The British Industrial Revolution in Historical Perspective, Table 7.1.
  19. Allen, The British Industrial Revolution in Historical Perspective, Table 7.2.
  20. Allen The British Industrial Revolution in Historical Perspective, p.202