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How Financial Institutions Helped Finance the Industrial Revolution

In the early 19th century, financial institutions became increasingly involved in industrial financing as the need for capital increased. Entrepreneurs were tasked with running new enterprises and needed to obtain money to start up and expand their companies. Although the costs of technology were decreasing and overall demand for funding increased, merchants, aristocrats, and wealthy families were key contributors to the start of the Industrial Revolution. The first industrial banks were general banking institutions, but soon after they were replaced by specialist banks that provided long-term loans to entrepreneurs.

In the 17th century, governments began to develop a more sophisticated financial system. The Netherlands saw the first such revolution, and its financial systems were based on the Dutch model. In the 16th century, the bill of exchange became the common medium of exchange. Afterward, transferable shares of permanent capital stocks traded on a secondary market. Perpetual government-issued annuities known as Consols were also introduced. In 1698, the Civil List was introduced to allow Parliament to grant Crown revenue, allowing the government to control its revenue and meet its running costs.

A number of prominent economic historians argue that the industrial revolution was mostly financed by savings and profits rather than through borrowing. While the industrial growth was slow, there is still evidence that effective financial institutions helped to promote the industrial revolution in Britain. In other countries, underdeveloped financial institutions may have slowed down the growth of the economy. As a result, more research is needed to determine the precise impact of financial institutions on economic development.

The financial revolution in the early nineteenth century was based on the Dutch model. The bill of exchange served as the medium of exchange, and a secondary market emerged for transferable shares of permanent capital stocks. In 1698, the Civil List was introduced by Parliament, which helped the Crown meet its running costs without compromising the revenue of the government. It was an era of economic transformation, but there was not much change in the standard of living.

The industrial revolution was largely funded by a large domestic market. Other countries, however, had their markets split among local regions and often imposed tolls on goods traded between their regions. Henry VIII abolished internal tariffs in England, but their systems continued to be influenced by internal tariffs. The result was that the industrial revolution was a global phenomenon, with no single nation experiencing less than a decade of growth in its period.

The Industrial Revolution also facilitated the organisation of trade unions, which allowed workers to collectively negotiate better conditions for themselves. By withdrawing labour and ceasing production, trade unions could compel employers to negotiate their demands. The result was that the industrial revolution gave birth to the first ever organized trade unions. A strong, organized labor movement facilitated the formation of new businesses and led to the development of a new type of democracy.


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