The Rise and Fall of World Commerce

Part 4​—The Industrial Revolution—​What Has It Led To?

THE industrial revolution began in the 18th century and changed the world as few things had done before. Technical know-​how, sufficient capital, the availability of raw materials, the possibility of transporting them and finished products cheaply​—these and other prerequisites for industrial advancement now converged in England. This set off an unprecedented and rapid increase in the production of goods.

Preparing the way, however, were events that had taken place earlier. Coal, readily available in Britain, was introduced as fuel. Also, while Continental Europe was being torn by religious wars, England enjoyed relative peace. The country had a superior banking system. Even its break with the Roman Catholic Church was significant, since Protestantism stressed immediate economic well-​being, attempting to create, as it were, a heaven on earth.

Beginning in the 1740’s, Britain’s population soared. Industry had to find new methods of meeting increased demand. The wave of the future was obviously more and better machines. As the banking system provided funds for setting up new businesses, crowds of workers swarmed into machine-​filled factories. Trade unions, previously banned, were legalized. British workers, less restricted by guild regulations than were workers in Continental Europe, were paid for piecework. This gave them an added incentive for finding better ways of producing goods faster.

Britain also had well-​trained manpower. Professor Shepard B. Clough says that “the universities of Glasgow and Edinburgh had no peers in matters of scientific inquiry and experimentation in the late eighteenth century.” Thus, with Britain taking the lead, the industrial revolution spread throughout Europe and the United States. In developing nations it continues to this day.

The Darker Sides

Because of these developments, says The Columbia History of the World, “striking prosperity came to English towns, reflected in improved standards of living, a flourishing provincial culture, and a growing pride and confidence.” Britain even “attained a position of military, especially naval, dominance that in turn gave it great ‘diplomatic’ power.” Mastery of certain industrial processes gave the country economic leverage over competitors. Its industrial secrets were so valuable that laws were enacted to prevent them from becoming common knowledge.

For example, when Samuel Slater left Britain in 1789, he hid his identity because textile workers were not allowed to emigrate. He circumvented the laws banning the export of textile-​manufacturing plans by committing to memory the entire layout of a British mill. This enabled him to build the first cotton-​yarn factory ever constructed in the United States.

The policy of protecting trade secrets still exists. Time magazine comments that “companies and countries pursue corporate secrets like sharks in a frenzy at feeding time.” Stealing someone else’s know-​how can save years of research and untold expenses. So “whether the product is medicine or muffins, companies are more preoccupied than ever before with finding ways of protecting their trade secrets.” A recruiter in the electronics industry admits: “There’s a lot of greed out there. If you can get into the right situation, you’re an instant millionaire.”

The textile industry serves to illustrate another dark side of economic progress. When new weaving methods made possible the production of cotton goods by machine, the demand for raw cotton increased. But so much time was needed to process it by hand that supply could not keep up with demand. Then, in 1793, Eli Whitney invented the cotton gin. Within 20 years the U.S. cotton crop had expanded to 57 times what it had been! But as Professor Clough points out, Whitney’s invention was also responsible “for the extension of the plantation system and of Negro slavery.” So although useful, Clough explains, the cotton gin “contributed much to the tensions which developed between the Northern and Southern states, which led finally to the War between the States.”

The industrial revolution helped create a system of large factories in the hands of the wealthy. Only the rich could afford expensive machines, whose size and weight demanded that they be installed in permanent, well-​constructed buildings. These were built where energy was readily available and where raw materials could be delivered at low cost. So businesses tended to concentrate in huge industrial centers.

Economical use of the energy​—initially water and later steam—​that was needed to run the machines required that several of them be operated at one time. So factories grew in size. And the larger they became, the more impersonal. No longer did employees work for people; they worked for companies.

The larger the business, the greater the problem of financing. Partnerships became more numerous, and joint-​stock companies, first developed in the 17th century, came into their own. (See box.) But these helped concentrate power in the hands of a few, since investors, or stockholders, had little control over management. Businessmen who concurrently served as directors of several companies or banks wielded tremendous power. Clough speaks of “interlocking directorates” through which “a small clique could determine the line of credit that businesses would get, could refuse credit to competitors, and could acquire so much power that it could determine the policies of governments and even overthrow regimes which were hostile to it.”​—Italics ours.

Thus, the industrial revolution granted the world of commerce additional power. Would it be used in a responsible way?

Free Enterprise or a Controlled Economy?

Capitalism blossomed into full bloom in England. Also known as the free enterprise system or as a market economy, capitalism has produced more than its share of millionaires as well as the highest standards of living in history.

Yet, even the staunchest supporters of capitalism concede that it has weaknesses. For example, economic growth under capitalism is unreliable. Its instability periodically causes economic ups and downs, business booms and business depressions. Fluctuations formerly caused by outside forces such as wars or weather can be created by the economic system itself.

A second weakness is that while producing good commodities, capitalism often produces bad side effects​—smoke, toxic wastes, or unhealthy working conditions. The industrial revolution made this all too apparent, contributing to the so-​called greenhouse effect with its unwanted consequences.a

A third drawback is that capitalism does not ensure fair distribution of wealth or products. Take, for example, the United States. In 1986 the bottom fifth of its families earned less than 5 percent of the country’s total income, whereas the upper fifth earned almost 45 percent.

As capitalism came of age during the industrial revolution, its weaknesses did not go unnoticed. Men like Karl Marx condemned it, calling for its replacement by a controlled or centrally planned economy. They advocated that the government set production goals, regulate prices, and manage business largely to the exclusion of the individual. Yet today, after decades of trial in the Soviet Union and Eastern Europe, this system has lost its appeal. Central planning works best when crash planning is required, such as in fighting wars or in developing space programs. In the everyday bread-​and-​butter market, it falls seriously short.

Supporters of capitalism will concede, however, as did Adam Smith, upon whose teachings it is heavily based, that government involvement in the economy cannot be entirely ruled out. If problems like inflation and unemployment are to be managed with a measure of success, they must be tackled at the governmental level. Therefore, most nations with a free enterprise system have moved away from pure capitalism to a mixed or modified system.

About this trend 1990 Britannica Book of the Year predicts: “It seems likely . . . [that] economic systems may lose some of the decisive differences that have marked them in the past and come to suggest instead a continuum on which elements of both market and planning coexist in different proportions. Societies along such a continuum may continue to designate themselves as capitalist and socialist, but they are likely to reveal as many common aspects in the solutions to their economic problems as they may still display important differences.”

Contributes to Problems

In 1914, World War I began. When it did, greedy commerce stood ready to provide the guns, tanks, and airplanes that the warring nations needed and that the industrial revolution had made possible.

The Columbia History of the World notes that while “industrialization has helped to solve many of man’s physical problems,” it has also “contributed to social problems of enormous gravity and complexity.”

Today, 78 years after 1914, we have more reasons than ever to agree with these words. Appropriately, the next installment in this series will be “Big Business Tightens Its Grip.”

[Footnotes]

[Box on page 18]

The Stock Market​—Start to Finish

By the 17th century, it was common practice to launch new businesses by combining the capital of several investors. Shares of stock were offered at a given price. This joint-​stock arrangement has been called one of the most important inventions ever made in business organization. The English attempted several such ventures in the mid-1500’s, but they became widespread following the forming of the English East India Company in 1600.

As the number of joint-​stock companies grew, so also did the need for stockbrokers. At first they met with clients at various places, sometimes in coffeehouses. Later, exchanges were founded to provide a set place for dealing in stocks. The London Stock Exchange was founded in 1773. But the world’s oldest may be the one in Amsterdam, which some say opened in 1642, or possibly the one in Antwerp, which others claim dates back to 1531.

Stock companies have such advantages as the following: provide sufficient capital to operate large enterprises; allow the public an opportunity to put even small amounts of capital to work; reduce the amount of loss to any one investor in case of setbacks; permit stockholders to get ready cash by selling all or some of their shares; and allow shares to be passed on as an inheritance.

Unexpected fluctuations in stock prices, however, may mean disaster. Also, as recent Wall Street scandals demonstrate, the market can be illegally manipulated, possibly by means of insider trading, a practice that is on the increase. Individuals use or sell important advance information​—perhaps knowledge of a pending merger of two companies—​thereby profiting on the movement of those firms’ stocks. A friend of a man accused of this practice in 1989 attributed it to greed. Although there is a move in many countries to ban insider trading, Time magazine commented: “Laws alone will not be sufficient to solve the problem.”

On Jehovah’s fast-​approaching day of judgment, the problem will be solved for good. Silver and gold will be worthless, and stocks and bonds worth no more than the paper on which they are printed. Ezekiel 7:19 says: “Into the streets they will throw their very silver, and an abhorrent thing their own gold will become.” Zephaniah 1:18 further says: “Neither their silver nor their gold will be able to deliver them in the day of Jehovah’s fury.”

[Picture on page 17]

The invention of the cotton gin led to the expansion of slave labor

[Credit Line]

The Old Print Shop/​Kenneth M. Newman