Industrial Revolution: Transport, Trade, and Capitalism’s Rise
Railroads and Steamboats: 18th Century Innovations
In the mid-eighteenth century in Britain and parts of Europe, there was an improvement in traditional communication methods. Initially, the railroad was used in mines to transport mineral ore. The first innovations included a new system of iron rails and wheels with flanges that prevented the derailment of the railroad. However, the most innovative development was Stephenson’s locomotive (1829), which propelled the railroad using a steam engine. The first passenger line joined the cities of Manchester and Liverpool (1830). In the following decade, the construction of the railway network in Europe provided a great stimulus to the development of the iron and steel industry (siderurgy).
The railway offered several advantages:
- It shortened journey times.
- It increased travel safety.
- Given its load capacity, it made carrying goods cheaper.
Subsequently, the steam engine was applied to shipping, and steamboats constructed of iron replaced sailing ships.
Increased Trade and Market Economies
The Industrial Revolution gave way to a market economy, where production was not for self-consumption but for sale in wider markets. This became increasingly possible thanks to:
- Increased production
- Population growth
- Improving purchasing power of farmers and the working classes
- Improvements in transportation systems
The improvement in transportation systems allowed for the increase of internal trade. In this way, local markets expanded, and a national market was consolidated. Foreign trade also increased considerably in the mid-nineteenth century.
Economic Liberalism and Capitalism
A number of British thinkers defined economic liberalism in the late eighteenth century. Adam Smith stood out; he established the principles of liberalism:
- Self-interest and the pursuit of maximum profit are the engines of the economy.
- Various interests are balanced in the market through the price mechanism, which adjusts supply to demand.
- The state should not interfere in the functioning of the economy, allowing for the free development of individual interests.
The Role of Banking and Finance
Banks were a very important institution in the development of capitalism. They performed several key functions:
- Provided capital to companies.
- Acted as direct investors.
- Facilitated payments through checks and bills of exchange.
Consequently, the bank became the intermediary between savers, who deposited their money, and businesses that needed capital to invest. Businesses required large contributions of money that a single employer could not supply alone. Therefore, limited liability companies emerged, through which the capital required by a business is divided into fractions (shares). These shares could be bought and sold by any individual in a specialized institution: the stock market.
The Expansion of Industrial Capitalism
In the early nineteenth century, industrialization spread to countries like France and Belgium, with a greater emphasis on the steel industry and less on textiles. Between 1850 and 1870, Russia, Germany, the United States, and Japan also industrialized. Southern Europe had industrialized regions alongside rural areas. Eastern Europe remained almost entirely outside the industrialization process until well into the twentieth century.