Great Britain also had a sufficient supply of capital available to invest in machinery and large industrial facilities needed to house them. Much of the capital for industrial investment was derived from Great Britain’s favorable trade balance created by its burgeoning colonial empire in the 17th and 18th centuries and the profits from the domestic sale of agricultural and cottage industry goods. Furthermore, members of the British aristocracy did not have a bias against commercial activities, and many engaged in establishing manufacturing and mining operations. And, while aristocratic bloodlines remained relatively pure, the marriage of wealth and entrepreneurship through investment opportunities provided real stimulus for industrial growth. Great Britain’s central bank and the regional banks that had emerged by the 18th century facilitated a flexible credit system that relied on paper instruments to make capital transactions (see Chapter 2). New partnership arrangements, not specifically tied to family, arose to pool capital and establish borrowing terms aimed to keep interest rates low. Banks frequently extended credit for three months for commercial transactions and echoed more modern versions of revolving or open credit accounts and overdraft protection. These factors produced a highly favorable business climate where working capital had a much greater impact than fixed capital.
The impact of these new financial opportunities can be seen in the early transition of British industrial enterprises. In the first part of the 18th century, the craft shop continued to dominate industry at the local level with its organization of master craftsman, journeyman, and apprentice. The artisan had his livelihood inextricably linked to the merchant who supplied him with the necessary raw materials for production and then peddled the completed work often outside of the local area as he had an understanding of the interests of customers in far distant places. Farmers in the off season and women and children with free time on their hands were also a ready-made work force. Merchants saw the cheap labor supply in the countryside as a boon to their financial success. This cottage industry format proved successful in
Certain industries. For example, the wool industry remained in this mode for the greater part of the 18th century and grew from producing 6 million pounds in 1700 to 9 million pounds a century later.
However, beginning in the 18th century, a number of entrepreneurs and inventors began to realize that this domestic arrangement was insufficient for the new economic challenges and opportunities. The growing population and demand for consumer goods began to outstretch the production capability of the cottage craft industries. Inventors allied with the early manufacturers who generally were merchants experienced with selling finished goods from Great Britain’s thriving cottage industry. Because these men were attuned to the ongoing changes, many realized the possibilities for increased profit inherent in larger manufacturing entities using the machines being constructed by the inventors. For example, between 1769 and 1800, some 110 cotton spinning mills operated in an area known as the Midlands. Of this number, 62 had been established by merchants and entrepreneurs who had made a profit in some aspect of the cottage textile industry.4 The new machines were generally rather easy to construct and, although more costly than previous devices, remained inexpensive enough for substantial investment opportunities. For example, as late as 1792 a typical spinning jenny with 40 spindles cost only 6 pounds and a carding machine only 1 pound per inch of roller width. Mill owners might also save expenses by picking up advertised used items for a cheaper price. The real capital investment was in the buildings for the factories and the growing reliance on new power sources to run the machines. In reality, until the 19th century the large factory was not the common sight in the industrial districts, as most mills were essentially just more sophisticated workshops of the past. The typical cotton textile mill in the late 18th century consisted of less than a dozen workers, one or two spinning jennies or mules, and a carding machine with the power supplied by the men or women working the equipment. But the growing demand soon led to the realization that the emerging large factory environment required a small bureaucracy. The new tasks required to run the operation—purchasing raw materials, supervision of the work force, and the selling of the goods produced—could not remain the purview of one man as in the old cottage industry. Thus, the old family firms broadened their scope and brought in entrepreneurs to earn the potentially large profits. There continued to be a fine line between success and failure, as a bad harvest or economic disruption from war, etc. might spell doom for even the most efficient entrepreneur. However, the constant flow of capital into these new and growing ventures ensured the long-term success of the Industrial Revolution in Great Britain.
World History
