19th-Century Industrialization: Supply and Demand Dynamics
Supply and Demand in 19th-Century Industrialization
Demand Growth
Growing populations with rising per capita incomes fueled consumption. Industrial goods prices fell more than agricultural prices, favoring industrial product consumption, assuming positive income trends.
Consumption Patterns
Consumption habits and patterns shifted, mirroring trends in England, though with varying intensity. A “consumer revolution” emerged in advanced European nations from the late 18th century, transforming into a “consumer goods revolution” by the century’s end.
Investment
Private investment, facilitated by new financial institutions, focused on transport infrastructure, construction, and industry. Public spending, though modest relative to national income, supported public works and nascent social services.
External Demand
Developing nations and Great Britain provided a growing external demand for continental goods. Growing European economies, especially Britain, demanded raw materials, food, and luxury items.
Technological Change
The era saw the diffusion and maturation of innovations from the First British Industrial Revolution. Britain’s technological superiority stemmed from lower capital and energy-intensive technique costs. European innovation focused on labor-intensive production due to British competition and differing factor costs.
Financing Industrialization
Continental industrialization benefited from some advantages over the British model, though small businesses still relied on personal savings for fixed assets and bank credit for variable capital. The major innovation was the continental or universal joint-stock bank. These banks accepted deposits and invested primarily in short-term operations. Mixed banking (commercial and investment) allowed for longer-term investments in industrial securities and urban services, alongside short-term loans and public debt operations. This model facilitated risk diversification and business promotion by banks.
Great Britain’s External Sector in the 18th and 19th Centuries
Trade Growth and Transformation
British foreign trade expanded significantly, outpacing population and national income growth. This indicated an increasingly open economy. Growth also surpassed that of commercial competitors. England replaced France as the dominant force in global trade in the late 18th century, having previously overtaken the Netherlands. British trade represented 33% of world trade in 1800, up from around 10% in 1700, though it fell to 25% by 1860. Trade routes shifted, with trade with American colonies gaining importance.
Exports and Imports
England specialized in manufactured exports and food and raw material imports, reflecting its industrial economy. Woolen fabrics initially dominated exports, later joined by cotton, iron, and steel from modern industries. A substantial portion of these industries’ output was exported. England transitioned from a re-export broker to an exporter of domestic products, particularly noticeable in the first half of the 19th century.
Trade Balance and Current Account
Despite a trade deficit, the current account remained positive due to surpluses in services and transfers. Transport, financial services, and foreign investment income offset the goods deficit. British commercial development was closely linked to industrialization, with the foreign sector encompassing more than just goods trade, contributing to external balance and economic growth.
Continental Europe and the US
In the latter half of the 19th century, continental Europe and the US challenged Britain’s economic dominance. While other nations experienced faster growth, Britain’s leadership persisted, and the relative backwardness of other industrialized countries increased. Only Belgium and Switzerland significantly narrowed the gap.