The Wealth and Poverty of Nations summary

Although the Middle Ages are often seen as a dismal, dark interval between the fall of the Roman Empire and the blossoming of the Renaissance, the period was actually one of the most inventive times in human history, leading to gains in efficiency and overall technological development.

For example, the efficient use of water to power mills resulted in greater productivity. Specifically, the invention of gears made it possible to use the power of water sources located at a distance from the mill, and even control the direction of the water’s flow. Mills helped automate grinding grain, pounding cloth, hammering metal, mashing hops for beer and pulping rags for paper. In fact, while China invented the manufacture of paper, the process was first mechanized in Europe.

After the technological advances of the Middle Ages, Europe – and later America – benefitted from another change in the seventeenth century: the rise of Protestantism, which in turn prompted the rise of industrial capitalism.

What was it about Protestantism that was so conducive to economic growth?

The Industrial Revolution changed everything: it substituted machines for human handiwork and used new raw materials in production. But, while many countries had sufficient resources to support such a development, it was in Britain where the Industrial Revolution began.

Why?

The world’s cotton industry in the seventeenth and eighteenth centuries was centered in India, so – at least in theory – there should have been a keen interest in automating cotton production there.

However, this wasn’t the case. But why?

We have already seen how important the new techniques of the Industrial Revolution were to the accumulation of wealth. But not all countries developed technologies independently of each other. Indeed, much of this knowledge was transferred – or even stolen.

Why? Because building on the experiences of others can save a lot of time and money.

There is more to economic success than pure technical know-how, and the decline of the British chemical industry is a great example of why this is true. While the British possessed the proper techniques and technologies, a culture of research which would have fostered innovation didn’t exist.

Indeed, without research facilities, industrial enterprises cannot flourish.

Egypt’s investment in cotton mills seemed foolproof. After all, cotton was a sought-after product, and Egypt was home to the best long-fiber cotton in the world. Furthermore, by processing the cotton themselves rather than selling raw cotton, Egypt’s mills would be able to rake in greater profits.

In 1822, a French expat developed a new strain of cotton for Egypt, suitable for the finest yarn and cloth. By 1845, the country had exported 15.5 million kilograms of it. Furthermore, the funds generated from the export of raw cotton were poured back into education and industry.

One of the most successful conversions to modern capitalism happened in the Japanese automobile industry. This is surprising because their home market – where economies traditionally begin to grow – was too small for mass production of the kind seen in the American car industry.

So, how did it happen?