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.