Economic history of the United Kingdom

The United Kingdom of Great Britain came into being on 1 May 1707, as a result of the political union of the Kingdom of England (which included Wales) and the Kingdom of Scotland. The terms of the union had been agreed in the Treaty of Union that was negotiated the previous year and then ratified by the parliaments of Scotland and England each approving Acts of Union. As well as being a political union, the United Kingdom was designed to be a full economic union with the majority of the 25 Articles of the Treaty of Union dealing with economic arrangements for the new state. Over the next three centuries, the United Kingdom developed as one of the world's leading economies, a position it retains today.

Th Century: The Age of Mercantilism.

The basis of the British Empire was founded in the age of mercantilism, an economic theory that stressed maximizing the trade inside the empire, and trying to weaken rival empires. The modern British Empire was based upon the preceding English Empire which first took shape in the early 17th century, with the English settlement of the eastern colonies of North America, which would later become the original United States, as well as Canada's Maritime provinces, and the colonization of the smaller islands of the Caribbean such as Trinidad and Tobago, the Bahamas, the Leeward Islands, Barbados, and Jamaica. These sugar plantation islands, where slavery became the basis of the economy, were part of Britain's most important and successful colonies. The American colonies also utilized slave labor in the farming of tobacco, cotton, and rice in the south. Naval material and furs in the north were less financially successful, but had large areas of good agricultural land and attracted far larger numbers of British immigrants who would also utilize slave labor to farm agricultural commodities. Britain's American empire was slowly expanded by war and colonization. Victory over the French during the Seven Years' War gave Britain control over almost all of North America.

The Industrial Revolution

In a period loosely dated from the 1770s to the 1820s, Britain experienced an accelerated process of economic change that transformed a largely agrarian economy into the world's first industrial economy. This phenomenon is known as the "industrial revolution", since the changes were all embracing and permanent. It has been argued by historians such as Christopher Hill, Eric Hobsbawm, and E.P. Thompson that the foundations of this process of change can be traced back to the Puritan Revolution in the Seventeenth Century. This produced landed and merchant elites alive to the benefits of economic change, and a system of agriculture able to produce increasingly cheap food supplies. To this must be added the influence of religious nonconformity, which increased literacy and inculcated a 'Protestant work ethic' amongst skilled artisans.

A long run of good harvests, starting in the first half of the eighteenth century, resulted in an increase in disposable income and a consequent rising demand for manufactured goods, particularly textiles. The invention of the flying shuttle by John Kay enabled wider cloth to be woven faster, but also created a demand for yarn that could not be fulfilled. Thus, the major technological advances associated with the industrial revolution were concerned with spinning. James Hargreaves created the Spinning Jenny, a device that could perform the work of a number of spinning wheels. However while this invention could be operated by hand, the water frame, invented by Richard Arkwright, could be powered by a water wheel. Indeed, Arkwright is credited with the widespread introduction of the factory system in Britain, and is the first example of the successful mill owner and industrialist in British history. The water frame was, however, soon supplanted by the spinning mule (a cross between a water frame and a jenny) invented by Samuel Crompton. Mules were later constructed in iron by Messrs. Horrocks of Stockport. As they were water powered, the first mills were constructed in rural locations by streams or rivers. Workers villages were created around them. Styal Mill (owned by the National Trust) is a surviving example of this kind of enterprise, as is New Lanark Mills in Scotland. These spinning mills resulted in the decline of the domestic system, in which spinning was undertaken in rural cottages.

However, the textile trade was transformed, as was much else, by the development of the steam engine. The first practicable steam engine was invented by Thomas Newcomen, and was used for pumping water out of mines. It was perfected by James Watt, being transformed into a reciprocating engine capable of powering machinery. The first steam power driven textile mills began to appear in the last quarter of the eighteenth century, and this transformed the industrial revolution into an urban phenomenon, greatly contributing to the appearance and rapid growth of industrial towns. The progress of the textile trade soon outstripped the original supplies of raw materials. By the turn of the century, imported American cotton had replaced wool in the North West of England, though the latter remained the chief textile in Yorkshire. Textiles have been identified as the catalyst in technological change in this period. The application of steam power stimulated the growth of the coal industry, the construction of mills and the demand for machinery and engines impacted upon the iron industry, and the demand for imported raw materials (and later improved means of export and distribution) led to the growth of the canal system, and later the invention and spread of the railway.

Such an unprecedented degree of economic growth could not be sustained by domestic demand. The application of technology and the factory system created such levels of mass production and cost efficiency that enabled Britain to undercut foreign competitors. The political dominance created by the growth of an overseas empire and the strategic control of the world's seas by the Royal Navy, enabled British manufacturers to export their goods to Europe, Africa, Asia, and Latin America. Indeed, the demands of the war economy created by the French and Napoleonic Wars added to these opportunities.

Walt Rostow has posited the 1790s as the take-off period for the industrial revolution. This means that a process previously responding to domestic and other external stimuli began to feed upon it, and became an unstoppable and irreversible process of sustained industrial and technological expansion.

In the late eighteenth and early nineteenth century a series of technological advances led to the Industrial Revolution. Britain's position as the world's pre-eminent trader helped fund research and experimentation. The nation was also gifted by some of the world's greatest reserves of coal, the main fuel of the new revolution. It was also fuelled by a rejection of mercantilism in favour of the predominance of Adam Smith's capitalism. The fight against Mercantilism was led by a number of liberal thinkers, such as Richard Cobden, Joseph Hume, Francis Place and John Roebuck. Some have stressed the importance of natural or financial resources that Britain received from its many overseas colonies or that profits from the British slave trade between Africa and the Caribbean helped fuel industrial investment. It has been pointed out, however, that slave trade and the West Indian plantations provided less than 5% of the British national income during the years of the Industrial Revolution.

The Industrial Revolution saw a rapid transformation in the British economy and society. Previously large industries had to be near forests or rivers for power. The use of coal-fuelled engines allowed them to be placed in large urban centers. These new factories proved far more efficient at producing goods than the cottage industry of a previous era. These manufactured goods were sold around the world, and raw materials and luxury goods were imported to Britain.

During the Industrial Revolution the empire became less important and less well-regarded. The British defeat in the American War of Independence (1775-1783) deprived it of one of its most populous colonies. This loss of the southern American colonies was coupled with a realization that colonies were not particularly economically beneficial. It was realized that the costs of occupation of colonies often exceeded the financial return to the taxpayer. In other words, formal empire afforded no great economic benefit when trade would continue whether the overseas political entities were nominally sovereign or not. The American Revolution helped demonstrate this by showing that Britain could still control trade with the colonies without having to pay for their defense and governance. Capitalism encouraged the British to grant their colonies self-government. The end of the old colonial system was most evident in the repeal of the Corn Laws, the agricultural subsidies on colonial grain. The end of these laws opened the British market to unfettered competition, grain prices fell, and food became more plentiful. The repeal greatly injured Canada, however, whose grain exports lost a great deal of their profitability.

Some argue that this push for free trade was merely because of Britain economic position and was unconnected with any true philosophic dedication to free trade. Roughly between the Congress of Vienna and the Franco-Prussian War, Britain reaped the benefits of being the world's sole modern, industrialized nation. Following the defeat of Napoleon, Britain was the 'workshop of the world', meaning that its finished goods were produced so efficiently and cheaply that they could often undersell comparable, locally manufactured goods in almost any other market. If political conditions in particular overseas markets were stable enough, Britain could dominate its economy through free trade alone without having to resort to formal rule or mercantilism. Britain was even supplying half the needs in manufactured goods of such nations as Germany, France, Belgium, and the United States.

Britain, in this sense, continued to adhere to the Cobdenite notion that informal colonialism was preferable — the established consensus among industrial capitalists during the age of Pax Britannica between the downfall of Napoleon and the Franco-Prussian War.

Sovereign areas already hospitable to informal empire largely avoided formal rule, even often during the shift to New Imperialism. China, for instance, was not a backward country unable to secure the prerequisite stability and security for western-style commerce, but a highly advanced empire unwilling to admit western (often drug-pushing) commerce, which may explain the West's contentment with informal 'Spheres of Influence'. China, unlike tropical Africa, was a securable market without formal control.

The victory of forces of the British East India Company at Plassey (1757) opened the great Indian province of Bengal to British rule, though later (1770) famine exacerbated by massive expropriation of provincial government revenues aroused controversy at home. The nineteenth century saw Company rule extended across India after expelling the Dutch, French and Portuguese. Following the First Indian War of Independence of 1857 India became a crown colony. The territory continued to expand as Ceylon (now Sri Lanka) and Burma (now Myanmar) were added to Britain's Asian territories, which extended further east to Malaya and (1841) to Hong Kong following a successful war in defense of the Company's opium exports to China.