The Roots of Economic Transformation in England

England was the first nation in Europe to develop a social structure that strongly supported the innovation and economic growth we associate with modern times. England's advantages were many, some of them deeply rooted in geography and history. This comparatively small realm contained an excellent balance of resources. The plain to the south and east, where traditional centers of English settlement concentrated, was fertile and productive.The uplands to the north and west possessed rich deposits of coal and iron, and their streams had powered flour mills for hundreds of years. Proximity to the sea was another natural advantage. No part of the island kingdom was distant from the coast. At a time when water transport offered the sole economical means for moving bulky commodities, the sea brought coal close to iron, raw materials close to factories, and products close to markets. Above all, the sea gave Britain's merchants access to the much wider world beyond their shores.

/

Efficiency of transport was critical in setting the size of markets. During the eighteenth century, Britain witnessed a boom in the building of canals and turnpikes (roads that could be traveled for a fee). By 1815 the country possessed some 2,600miles of canals linking rivers, ports, and other towns. In addition, few institutional obstructions to the movement of goods existed. United under a strong monarchy, Britain was free of internal tariffs (payments for goods transported across a border), unlike prerevolutionary France, Germany, or Italy. English merchants every where counted in the same money, measured their goods by the same standards, and conducted their affairs under the protection of the common law. By contrast, in France local regions differed in their legal codes and in weights and measures, which complicated and slowed exchange. As the writer Voltaire sarcastically remarked, the traveler crossing France by coach changed laws as frequently as horses.

The English probably had the highest standard of living in Europe and generated strong consumer demand for manufactured goods. English society was less stratified (divided into groups based on status) than elsewhere in Europe, and the aristocracy was powerful but much smaller. Primogeniture-the right of the eldest son to inherit the family's land-was the rule both among the aristocratic members of the House of Lords and among the other land-owning classes. Left without lands, younger sons had to seek careers in other walks of life, and some turned toward commerce. They frequently obtained capital for their ventures from their landed fathers and elder brothers. English religious minorities, chiefly Calvinists and Quakers, formed another pool of potential businessmen; denied careers in government because of their religion, many turned their energies to business enterprises.

A high rate of reinvestment is very important to industrialization; reinvestment, in turn, depends on the skillful management of money by both individuals and public institutions. Here again, Britain enjoyed advantages. Early industrial enterprises could rely on Britain's growing banking system to meet their capital needs, a system which in the seventeenth century was taken over by the goldsmiths of London, who accepted and guarded deposits, extended loans, and provided other financial services. In the eighteenth century, banking services became available beyond London; the number of regional banks rose from 300 in 1780 to more than 700 by 1810. English businessmen were familiar with banknotes and other forms of commercial papers, and their confidence in paper money facilitated the recruitment and flow of capital.

The founding of the Bank of England in 1694 marked a distinctive period in the history of European finance. The bank took responsibility for managing England's public debt, sold shares to the public, and faithfully met the interest payments due to the shareholders with the help of government revenue, such as the customs duties efficiently collected on Britain's extensive foreign trade. When the government needed to borrow, it could turn to the Bank of England for assistance. This stability in government finances ensured a measure of stability for the entire money market and, most important, held down interest rates in both the public and private sectors. In general, since the late seventeenth century, England's government was sensitive to the interests of the business classes, who in turn had confidence in the government. Such close ties between money and power facilitated economic investment.