Most accounts of the origins of the industrial revolution are Anglo-centric, focused upon how the industrial revolution in England began from about 1750. Yet the industrial revolution in Scotland was where it all began, and there are vital lessons to be learned by studying how this new thing under the sun appeared, how it originated, how it was funded, and how it was transferred to England. Such an investigation does not simply reveal how this new thing worked, but it also has the power to explain how and why Britain declined.
The influence of John Knox on Scottish culture was one of the major factors underlying 18th century developments in Scotland. The transition to a Calvinist Protestant and Presbyterian religion brought with it a strong cultural foundation for the individual independence of mind. The industrial revolution which began in Scotland also had the great advantage of a high level of literacy (and, what is less frequently observed, numeracy) brought about by Knox’s insistence that Scottish church halls should be used to provide for the teaching of reading. Put simply, a high proportion of the male Scots could read and write and count in an age while most of the English and the Europeans could not. That better education conferred then a tremendous advantage in life and work as it still does today. As Joe Grice, the Chief Economic Advisor to the Office of National Statistics has observed.
“”In terms of the proportion of the population going into higher and tertiary education, Scotland actually has just about the highest in the world,” ONS chief economic adviser Joe Grice told ITV News.”Scotland also does very well in terms of people in the working-age population (16-64) that have got a qualification at NVQ4 or above.”
The numbers in the report Grice was presenting showed that:
“Scotland is the best educated country in Europe, according to a report released by the Office for National Statistics.It says that nearly 45 per cent of people in Scotland aged between 25 and 64 have had some kind of tertiary education”Š-“Šincluding university degrees and further education”Š-“Šahead of Ireland, Luxembourg and Finland, which were the only other countries to get more than 40 per cent.”
“The UK as a whole was in fifth place on just under 40 per cent, followed by Cyprus, Estonia and Sweden. Just over 30 per cent of French had a tertiary qualification, while Germany’s figure was less than 30 per cent.”
The Scottish Government has continued the centuries-long tradition of free higher education in Scotland (with Alex Salmond saying it is his proudest achievement) while successive UK Parliaments have now notched up the cost of an English, Welsh or Irish university education to £9,000 a year. Many of the able poor are no longer going to university in the rest of the UK (rUK). That is currently one of the most significant differences between the nations currently in the union.
The circumstances for the foundation of the industrial revolution and its new ways of life in mid-18th century Scotland were propitious”Š-“Šthe fresh circumstances created by the 1707 Union of Parliaments created great opportunities for trade and industry presented by the Empire in North America and elsewhere, and the Scots were up for these. The Scottish Enlightenment was the leading edge associated with an intensely practical series of intellectual, commercial and industrial developments which were the foundation of the industrial revolution.
Adam Smith’s key work on the Wealth of Nations founded the proper study of economics, Hutton’s work on geology founded that discipline, Hume advanced some Greek thinking which had apparently lain without significant development for over two thousand years, and perhaps above all James Clerk Maxwell set out the fundamental electromagnetic equations which explain how electrical power generation and equipment works. In parallel with these developments was the re-invention of the more efficient steam engine by James Watt, the carrying of that invention to the cotton mills of Lancashire by a dozen of Watt’s disciples (eleven Scottish-born, one English), Watt’s partnership with the engine-maker Matthew Boulton in Birmingham, Baird’s invention of television, the Scottish-born Bell’s invention of the telephone and so on.
The Scottish industrial revolution started with the dawn of the 18th century, from about 1710. That was when the Glasgow Tobacco Lords began to make vast fortunes by trading with the tobacco farmers in the new world. It is probably safer to set the initial date as about 1700, because the seeds of success in the tobacco trade were literally planted in Virginia and elsewhere in the North American Colonies at about then.
The financial-industrial system in Scotland during the first hundred and thirty years was the essential keystone of the industrial revolution. The Bank of Scotland was founded on 17 July 1695 with the stated purpose of assisting Scottish economic development as opposed to the Bank of England’s remit of funding the war expenditures of the British Government.
The industrial revolution was born and flourished in a supportive financial-industrial system of local banks supporting local enterprise. These banks arose after 1747 because the Bank of Scotland refused to rediscount commercial bills despite its stated purpose to support Scottish industry.
All industrial revolutions need a source of funding. That funding source in Scotland was the fortunes made by the Tobacco Lords who were among the richest men in the world at that time. This happened, as Wikipedia reports (see: https://en.wikipedia.org/wiki/Tobacco_Lords) because of three major factors: first, the 1707 Treaty of Union gave Scottish traders access to the American colonies, second, Glasgow had an advantage in receiving tobacco imports because the sailing ships driven by of the trade winds could reach Glasgow two to three weeks earlier than other British ports, and third, the French Government gave Scottish traders a monopoly in the importation of tobacco. Glasgow also had larger American built ships that could only, at that time, unload in the larger docks then existing on the River Clyde in Glasgow.
The Scottish Tobacco Lords had organised contacts in Britain, the American colonies and in Europe which fully supported the tobacco trade but these Lords also made large loans to the American tobacco farmers and then insisted these farmers could only sell to these Lords at low prices unless they could cancel their debts (which they generally could not afford to do). One of these tobacco farmers was George Washington and it may be that one of the driving forces behind the War of Independence was the wish to repudiate Scottish loans. The reign of the Tobacco Lords lasted for sixty years”Š-“Šfrom 1707 to 1767″Š-“Šand the vast fortunes possessed by the Tobacco Lords enabled the foundation of the local provincial banking system in Scotland.
The first three local banks supporting local industry were the briefly-flourishing Bank of Aberdeen (1747-53) established to support the local hosiery industry, and the two Glasgow-based banks of the Ship Bank and the Arms Bank (both established in 1750)”Š-“Štheir names give a clue to their main industrial-supporting activities. In the 1760s a further ten local Scottish banks were established, two more in Glasgow”Š-“Šthe Thistle Bank (1761) and the David Watson private bank (c1763)”Š-“Šfollowed by the Dundee Banking Company (1763), Macadam and Co in Ayr(1763), the Perth United Banking Company (1766) with 87 partners, the Johnson, Lawson &Co Bank in Dumfries, the Aberdeen Banking Company in 1767 (with 109 partners, or 105 more than its local and failed predecessor the Bank of Aberdeen), the General Bank of Perth (1767-1772), the Glasgow Merchant Banking Company and the Douglas, Heron and Company Bank (1669-72) in Ayr. By 1770 there were five supportive banks in Glasgow, and seven others covering much of the country”Š-“Šin Aberdeen, Ayr (which had two banks), Dumfries, Dundee, and Perth (which had two banks). (See page 16 of the best book on this subject, Charles W Munn’s “The Scottish Provincial Banking Companies”, John Donald Publishers Ltd, Edinburgh, 1981).
The Scottish provincial banking system grew until it was comprised of 25 banks with 35 local branches as well as eighteen banking companies with no branches, serving 78 locations. The banking network provided savings-collecting services and the funding of commerce and industry all over Scotland. For example, the Aberdeen Banking Company had six branches in 1793 in Forres, Huntly, Inverness, Banff, Keith and Elgin, and by 1810 Peterhead had replaced Inverness as a branch, and by 1825 Fraserburgh had replaced Forres. (See Tables 34 and 35 of Charles W Munn’s above-quoted book, ibid.) Charles Munn meticulously records all that. By comparison, there were about 800 local “country” banks in the UK (including Scotland) in the UK by 1800.
The funding of the Scottish industrial revolution was largely provided by the Tobacco Lords and tobacco trading while the funding of the English industrial revolution also depended on trading and a large part of that was the triangular trade of goods to Africa, slaves to the Americas and cotton and other products to the factories in Lancashire and the Midlands.
Part Three of Munn’s book is about “Financing the [Scottish] Economy” and he analyses this in Part 3, chapters 11 to 15 in the categories of Business Finance, The Finance of Agriculture and Fishing, the Finance of Trade and Transport, the Finance of Industry, and the Finance of Local Government and Public Utilities. The Scottish Provincial Banks, starting out as bill-discounting banks, extended their function to the provision of loans to all sectors of the economy. Scotland flourished and its economy exploded into manufacturing growth because of a helpful system of local banks which provided local loans to local industry.
Glasgow became the second city of the empire because close connections were formed from 1710 and maintained until about 1780 between Scottish industry and the tobacco plantations in Virginia. The Tobacco Lords of Glasgow, with their dark coats and gold-tipped canes, transformed the suburb of Kelvingrove into a wealthier suburb than any other at that time.
Arthur Hermann in his book about “How the Scots Invented the Modern World” (Three Rives Press, New York, 2001) has provided the most extensive and vivid description about how the Scottish Enlightenment and the multitude of inventions by Scots have provided modern nations with all the foundations of a modern economy. His case is complex and undeniable. Of course many other countries have contributed to the economic development of the world, but the inventiveness and intelligence of the Scots has been outstanding and out of all proportion to their numbers.
The four great inventions which had travelled on the Silk Road from China to Europe are often said to be the inventions of paper-making, printing, gunpowder and the compass. But the Chinese never came close to inventing the steam engine. Newcomen in 1712 in Dudley in the Midlands constructed a steam engine that was effective in removing water from coal mines. On 21 February 1804 the world’s first locomotive-hauled railway journey took place at Penydarren Ironworks, in Merthyr Tydfil, as Richard Trevithick’s steam locomotive hauled a train along a tramway.
James Watt in the 1760s doubled the efficiency of the steam engine and demonstrated how a piston could produce rotary power. Watt’s inventions ultimately increased the effectiveness of steam engines sixfold and his inventions provided the power which drove the industrial revolution. The engines in all the motor cars in the world are recognisably steam engines and although these are currently driven by petrol or diesel they are likely to be converted back to steam engines as green energy comes into general use.
The major lessons of the Scottish first industrial miracle are still very relevant today. These are, for the proper conversion of SME invention to factory floor innovation:
1– There needs to be a network of local banks committed to the success of local industry
2– These banks must be generously funded to enable long term loans to be made to SMEs and other enterprises including local authorities and public enterprises
3– These banks must have a recognised public function and should not be taken over and centralised on a national capital because a national bank cannot have either the local knowledge or the inclination continually to assist the prosperity of local industry, and
4– If any town or region lacks appropriate banks committed to local success, these banks should be founded again to enable SME and regional economic development.
These lessons have been implemented in the local Sparkassen Banks in Germany, in the explosive development of the Manchurian Railway Company, in post-war Japan and in South Korea, Taiwan and China. The new thing in these most recent Asian economic miracles was and is that the nation’s central bank provided the created investment credit that drove the growth. See ”The Rough Guide to Shimomuran Economics” at:
Any nation wishing to ensure its innovators are properly funded needs to pay due attention to the lessons of the Scottish industrial miracle which stands as an historical reminder about how to achieve higher growth based upon the natural inventiveness of local businessmen.
© George Tait Edwards 2015
For further information about ”Shimomuran Economics and The Rise of The Tokyo Consensus” see my book at:
This article first appeared at Medium.com (https://medium.com/@georgetaitedwards/the-scottish-industrial-revolution-or-the-scottish-first-industrial-miracle-1700-1800-f1677b05093f#.yul8xxb9u)
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This post was written by George Tait Edwards