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The industrial revolution was driven by the increasing adoption of coal as a shift away from burning wood and other biomass allowing for highly energy intensive

The industrial revolution was driven by the increasing adoption of coal as a shift away from burning wood and other biomass allowing for highly energy intensive industries to develop. Steam engines, massive smelting furnances etc couldnt function without the huge energy efficiency gains from the shift towards coal. That shift was driven entirely by thermal efficiencies gained. Finance powerful though it may be doesnt outrank thermodynamics

tashoecraft 8y ago
This is looking at things from an engineers perspective, "Oh the technical solution wins because it was just better". How would this industrialists get the capital to purchase their machines? The raw materials? For their suppliers to have the product on hand, or go a long time with without repayment? All this was enabled by the finance revolution. Finance gets a bad rap (rightfully so) because it's ripe for theft and manipulation, but I don't believe we would have seen even close to the same industrial revolution if it wasn't for the progress to the financial system.
- arghwhat 8y ago
  The industrial pioneers, if I'm not mistaken, were "old-school rich", with real wealth coming from either hard work or a rich linage. I doubt venture capitals and other financial solutions were involved in anything that'll make its way into a history book.
  - lovich 8y ago
    The term nouveau rich was coined specifically to describe the rich industrialists who had generated their fortune without being from the old aristocratic families. Also if hard work led to you having wealth then their wouldn't have been peasants, and even children could buy their own homes after a long day in the fields or mines. I am an avid critic of the financial industry, but the whole idea of lending money and having a store of it that was trusted enough to accept checks from altered all of society. Prior to that you could only purchase as much material as you had money on hand to buy, or something else to trade. There was no way to borrow 100 dollars to buy materials that you converted into 130 dollars of value without already having 100 dollars
    - arghwhat 8y ago
      Lending money predates banks, does it not? One could argue that the banks has brought more fair terms, but I doubt that this was the case initially. Checks are of course a product of banks, but I fail to see how that should have brought significant change (rather than a bit of convenience). They were certainly never more trustworthy than cash, and they are themselves not more than simply a form of currency. Things like credit agreements are a separate product.
      - lovich 8y ago
        Lending money on fractional reserves at an interest rate that should cover defaults did not exist until relatively recently in the western world. It was classified as usury and banned by the Catholic Church the same was that the Islamic world does currently. >I fail to see how that should have brought significant change (rather than a bit of convenience). A bit of convenience can create massive change. What's the difference from online banking compared to buying at a store other than a bit of convenience? You can do all the same things in person, yet we've seen massive changes in logistics and ourchasing habits because of it. Checks that people _trusted_ were massive. You could write someone a document that let them go to somewhere nearby to get gold, rather than carrying it on the roads. This was the modern era where you can travel most European or american roads safely. The world wasn't lawless but the law didn't extend much farther out than the local rulers could patrol. There was always the risk of bandits taking your shipments on land or pirates on the sea. By having a banking system the risk of transferring currency dropped massively and that would lead people to engaging in enterprises that were too risky previously
Balero 8y ago
To take advantage of this you need an accumulation of capital in the right hands. This is what finance provided. The industrial revolution would have happened, but slower and later. We'd be waiting for some landowner who had an interest in engineering, rather than an engineer able to convince someone wanting to make a return.
subjectHarold 8y ago
Yes...and this is only one part of the story. You may be aware that China had already made a lot of this progress, in particular moving towards coal but other stuff too...but by the ~10th century...no Industrial Revolution... (https://economicdynamics.org/meetpapers/2013/paper_351.pdf https://economicdynamics.org/meetpapers/2013/paper_351.pdf - I am fairly sure this isn't the paper that started this research but I don't have the time to find it). The Industrial Revolution is not particularly simple but two things are accepted: it wasn't just about technology (besides anything else, if you say it was just technology then you still have to know why technology changed? This question is a central focus of current IR research i.e. McCloskey) and finance was very important (the invention of govt finance/taxation, particularly so). It maybe isn't worth getting bogged down in the detail but an important part of the industrial revolution was a shift from assembly at home - "proto-industrialisation", which had existed for ~150 years before the IR - to factory-based production. Finance was essential to this process (and impossible without it).
- safgasCVS 8y ago
  And I wonder if I'll ever learn to not make flippant generalising comments :) I'd say there needs to be a distinction made between finance going towards funding productive activities and the rampant financial speculation largely divorced from underlying productivity which is where I see a good chunk of modern finance's efforts go towards. Its this latter 'dirty' side of finance I think we can do without - the 40 years post bretton woods period shows its perfectly possible to have a financial system that functions safely. For large IR type transitions I agree it would have take a lot longer or possibly impossible to see such huge transitions without the power of collective investment. Indeed its no wonder vaclac smil called it the age of Synergy. The chinese may have been coal and natural gas as far back as 10th century but without all the pieces in place they only transitioned to majority coal use in the 20th century
  - subjectHarold 8y ago
    Not really. Again, you are making several misconceptions (this isn't uncommon, economists don't really understand finance and they understand even less about financial history so they say very odd things that ppl seem to pick up on). First, the system was not safe...at all. There were pretty much constant financial crises through the 1960s. Second, the reason why these crises occurred is because the US promised to buy central bank gold at X price. This wasn't sustainable, this caused crises as central banks tried to acquire gold and the UK/US tried to stop them doing so (gold pooling arrangements are an example). It was a fundamentally bad system. Third, the reason why the system appeared "safe", in today's terms, was govt assumed all the financial risk. Trade and capital accounts were closed, even ones that were open had significant limitations. For the US, this didn't work out terribly because they could keep printing "gold" paper that actually had no value...for everyone else, it was terrible (particularly, the UK). This required some level of protection of domestic industry and resulted in poor competitiveness, high taxes, and high prices for consumers. The funniest thing about this re imagining of the 1960s is that if you actually read what policy makers thought, they believed it was terrible system that would fail (and they were correct). It is impossible to distinguish between productive and speculative finance, and it is actually very important that you don't try to (this was a major concern in the 1960s and for the IMF, they believed they could control speculative capital movements distinct from productive capital movements...it didn't work). The 19th century saw several financial manias, they produced waste but also tremendous value (canals, railways, electricity, etc.). You can't have one without the other. Finance is risk, and you can't take risk without the possibility of failure. One of the problems today, typically outside of the US, has been the inability to cope with failure (and so you get lots of idiots saying we just need to get rid of "speculation"). No, the aim of capitalism is to maximise productivity/competitiveness by maximising failure. The solution to this problem is social policy (i.e. Denmark) not trying to fiddle with capitalism. It should be no surprise that this viewpoint has coincided with an increase in concentration of wealth (rich people generally don't like competition/capitalism...another aspect of history that is forgotten).

tashoecraft 8y ago

This is looking at things from an engineers perspective, "Oh the technical solution wins because it was just better". How would this industrialists get the capital to purchase their machines? The raw materials? For their suppliers to have the product on hand, or go a long time with without repayment? All this was enabled by the finance revolution. Finance gets a bad rap (rightfully so) because it's ripe for theft and manipulation, but I don't believe we would have seen even close to the same industrial revolution if it wasn't for the progress to the financial system.

arghwhat 8y ago
The industrial pioneers, if I'm not mistaken, were "old-school rich", with real wealth coming from either hard work or a rich linage. I doubt venture capitals and other financial solutions were involved in anything that'll make its way into a history book.
- lovich 8y ago
  The term nouveau rich was coined specifically to describe the rich industrialists who had generated their fortune without being from the old aristocratic families. Also if hard work led to you having wealth then their wouldn't have been peasants, and even children could buy their own homes after a long day in the fields or mines. I am an avid critic of the financial industry, but the whole idea of lending money and having a store of it that was trusted enough to accept checks from altered all of society. Prior to that you could only purchase as much material as you had money on hand to buy, or something else to trade. There was no way to borrow 100 dollars to buy materials that you converted into 130 dollars of value without already having 100 dollars
  - arghwhat 8y ago
    Lending money predates banks, does it not? One could argue that the banks has brought more fair terms, but I doubt that this was the case initially. Checks are of course a product of banks, but I fail to see how that should have brought significant change (rather than a bit of convenience). They were certainly never more trustworthy than cash, and they are themselves not more than simply a form of currency. Things like credit agreements are a separate product.
    - lovich 8y ago
      Lending money on fractional reserves at an interest rate that should cover defaults did not exist until relatively recently in the western world. It was classified as usury and banned by the Catholic Church the same was that the Islamic world does currently. >I fail to see how that should have brought significant change (rather than a bit of convenience). A bit of convenience can create massive change. What's the difference from online banking compared to buying at a store other than a bit of convenience? You can do all the same things in person, yet we've seen massive changes in logistics and ourchasing habits because of it. Checks that people _trusted_ were massive. You could write someone a document that let them go to somewhere nearby to get gold, rather than carrying it on the roads. This was the modern era where you can travel most European or american roads safely. The world wasn't lawless but the law didn't extend much farther out than the local rulers could patrol. There was always the risk of bandits taking your shipments on land or pirates on the sea. By having a banking system the risk of transferring currency dropped massively and that would lead people to engaging in enterprises that were too risky previously

Balero 8y ago

To take advantage of this you need an accumulation of capital in the right hands. This is what finance provided. The industrial revolution would have happened, but slower and later. We'd be waiting for some landowner who had an interest in engineering, rather than an engineer able to convince someone wanting to make a return.

subjectHarold 8y ago

Yes...and this is only one part of the story. You may be aware that China had already made a lot of this progress, in particular moving towards coal but other stuff too...but by the ~10th century...no Industrial Revolution... (https://economicdynamics.org/meetpapers/2013/paper_351.pdf https://economicdynamics.org/meetpapers/2013/paper_351.pdf - I am fairly sure this isn't the paper that started this research but I don't have the time to find it). The Industrial Revolution is not particularly simple but two things are accepted: it wasn't just about technology (besides anything else, if you say it was just technology then you still have to know why technology changed? This question is a central focus of current IR research i.e. McCloskey) and finance was very important (the invention of govt finance/taxation, particularly so). It maybe isn't worth getting bogged down in the detail but an important part of the industrial revolution was a shift from assembly at home - "proto-industrialisation", which had existed for ~150 years before the IR - to factory-based production. Finance was essential to this process (and impossible without it).

safgasCVS 8y ago
And I wonder if I'll ever learn to not make flippant generalising comments :) I'd say there needs to be a distinction made between finance going towards funding productive activities and the rampant financial speculation largely divorced from underlying productivity which is where I see a good chunk of modern finance's efforts go towards. Its this latter 'dirty' side of finance I think we can do without - the 40 years post bretton woods period shows its perfectly possible to have a financial system that functions safely. For large IR type transitions I agree it would have take a lot longer or possibly impossible to see such huge transitions without the power of collective investment. Indeed its no wonder vaclac smil called it the age of Synergy. The chinese may have been coal and natural gas as far back as 10th century but without all the pieces in place they only transitioned to majority coal use in the 20th century
- subjectHarold 8y ago
  Not really. Again, you are making several misconceptions (this isn't uncommon, economists don't really understand finance and they understand even less about financial history so they say very odd things that ppl seem to pick up on). First, the system was not safe...at all. There were pretty much constant financial crises through the 1960s. Second, the reason why these crises occurred is because the US promised to buy central bank gold at X price. This wasn't sustainable, this caused crises as central banks tried to acquire gold and the UK/US tried to stop them doing so (gold pooling arrangements are an example). It was a fundamentally bad system. Third, the reason why the system appeared "safe", in today's terms, was govt assumed all the financial risk. Trade and capital accounts were closed, even ones that were open had significant limitations. For the US, this didn't work out terribly because they could keep printing "gold" paper that actually had no value...for everyone else, it was terrible (particularly, the UK). This required some level of protection of domestic industry and resulted in poor competitiveness, high taxes, and high prices for consumers. The funniest thing about this re imagining of the 1960s is that if you actually read what policy makers thought, they believed it was terrible system that would fail (and they were correct). It is impossible to distinguish between productive and speculative finance, and it is actually very important that you don't try to (this was a major concern in the 1960s and for the IMF, they believed they could control speculative capital movements distinct from productive capital movements...it didn't work). The 19th century saw several financial manias, they produced waste but also tremendous value (canals, railways, electricity, etc.). You can't have one without the other. Finance is risk, and you can't take risk without the possibility of failure. One of the problems today, typically outside of the US, has been the inability to cope with failure (and so you get lots of idiots saying we just need to get rid of "speculation"). No, the aim of capitalism is to maximise productivity/competitiveness by maximising failure. The solution to this problem is social policy (i.e. Denmark) not trying to fiddle with capitalism. It should be no surprise that this viewpoint has coincided with an increase in concentration of wealth (rich people generally don't like competition/capitalism...another aspect of history that is forgotten).