The Industrial Revolution didn't appear out of the blue. Although its mechanical inventions, particularly the watermills, had their roots in Ancient Greece and Rome, they were not widespread as the two societies relied a lot on slaves. Their application on a greater scale only began in the medieval ages. The most plausible reason for that may have been the surplus agriculture produce arising from the medieval warming period (900-1300). Certain correlations can be established. For example, the increase in watermill number in England intensified between 1050 and 1200, then slowed until 1275 before levelling off. Technological change wasn't the only impact of the surpluses, politics and society also had their fair share as feudalism would eventually crater in the face of the increased trade and wealth redistribution arising from those surpluses.
The mechanical movement of the watermills began with the rotary motion, and then with the use of cranks, a horizontal forward and backward motion was added. With cams, a beating motion came into being. The new range of motions allowed the mills to move out from their initial use of crushing wheat to crushing malt for beer-making (invented in 861), hammering flax stalks for linen fibres (990), fulling the wool cloth (1086), pounding the leather (1138), and pounding linen rags into pulp (1276). Only by the 14th century, did the watermills go into iron-making, a task unrelated to agriculture. So when the Industrial Revolution came along 400 years later, it was a matter of switching the power source from limited sources of water to limitless supply of coal.
However it was the Agricultural Revolution that preceded as well as enabled the Industrial Revolution. Little known is the fact that the British picked up the skills necessary for the Agricultural Revolution from the Dutch. Certainly, there are reasons for the Dutch’s agricultural innovativeness but they were also equally adept in other fields that made up the 4Cs of capacity, consumption, communication and currency. But more curious is why such innovativeness didn’t lead to the birth of the Industrial Revolution in Holland.
The rise of the Dutch was partly attributable to the migration to Amsterdam of Antwerp’s Protestant and Jewish inhabitants fleeing Spanish persecution in the 16th century. They brought with them their skills and financial capital, key prerequisites for the ascendant of the Dutch in the 17th century. However, the original inhabitants of the Dutch Republic, of which Holland being the most prominent province, had been introducing technological innovations, such as the watermills to drain and reclaim wetlands, as far back as the 8th century. By the 14th century, the mills were modified to use wind as the motive force. The latter invention not surprisingly coincided with the Little Ice Age (1315-1720) which saw a drop in sea level.
The Dutch, challenged by their very limited land, had to excel in agriculture. They applied the four-field rotation system, first discovered by farmers in Flanders, to fully utilise the land all year round instead of leaving a third fallow under the three-field system. The field which would have been fallow was instead planted with turnips and clover pasture. The clover, a fodder crop increased livestock production which in turn increased manure production, a much needed fertiliser. Another innovation was the enclosure system which encouraged experimentation with new farming techniques and fertilisers.
Their labour-saving wind-powered mills not only pumped water but also crushed grain and sawed shipbuilding timber, boosting their shipbuilding capacity in the process. That killed two 4C birds—capacity and communication—with one stone. For inland transport, they capitalised on the canals and waterways originally built to drain away the pumped-out water. Water transport in the pre-railways age was 90% cheaper than land transport. With their fluyt ships which used half the usual manpower while offering more cargo space, they could offer the lowest shipping rates, thus monopolising the European carry trade. Like Ancient Athens and Ancient Rome, who both had the most powerful navies of their time, the Dutch also enjoyed the same advantage, helping them to dislodge the Portuguese from the Eastern spice trade.
Reclaiming the low-lying land and building the windmills and ships all entailed heavy capital spending. These ventures couldn't simply be financed from future profits. Ancient Athens had its silver mine while Ancient Rome had both silver mines and war spoils. The Dutch however needed a financial innovation: a well developed bond market with capital coming from Jewish immigrants. However it was the Spaniards who, flushed with gold and silver from their Latin American colonies, provided the bulk of the money that spread around the whole of Europe. It was this money that initiated the Price Revolution in 16th century Europe (see above chart taken from Bacci's The Population of Europe). This is damning evidence that it's not precious metals that provide price stability but the quantity of money supply.
Lulled by the easy wealth, the Spaniards ludicrously embarked on wars with most of the European major powers in the 16th century, leaving them always short of funds. Their deficit spending, which eventually bankrupted the state after their gold and silver supply had ran out, created the money. That was the currency leg of the 4Cs. Note that without deficit spending, the gold and silver alone wouldn't have been spread across Europe. Nowadays, dazed by the cheap euro, the Spaniards went on a real property frenzy. Again they end up short of funds as their banking sector faces a collapse on a massive scale.
The last leg, consumption which depended on population, was a given in those days provided the other 3Cs were favourable. Indeed, Europe was undergoing a rapid population growth rate beginning in mid 15th century (see chart above). So all the 4Cs were favourable for the Dutch economic take-off. But towards the end of the 17th century, it was soon to be eclipsed by the next great power.
In 1688, a century after the rise of the Dutch, William III of Orange was invited by the English to depose their unpopular king, James II who happened to be William’s uncle and father-in-law. William brought with him Holland’s financiers, scientists and skilled workers. By then the Dutch monopoly of spice trade no longer mattered as the widely grown turnips could be stored in winter for livestock food. Consequently, livestock need not be slaughtered in winter, reducing the need for odour masking spices.
As is typical of any end-of-cycle economic wave, extreme wealth polarity afflicted the Dutch. Without any new economic wave, its society was bound to collapse. It so happened that its neighbour, France, was ruled by Napoleon who was intent on dominating Europe. With a so highly divided society, the Dutch easily fell to the French in 1794.
The Dutch loss was the English gain. The English copied the agricultural innovations of the Dutch. The English also had land enclosures which came in two waves. The first in the 16th century was a result of the Price Revolution, in which prices quintupled. The second wave of enclosure arose from 1765 to 1815, also a result of massive deficit spending, this time by the major European powers, especially England and France, which were engaged in the Seven Years’ War (1756-1763) and the Napoleonic Wars (1799-1815). As always, wars can do wonders to the economy and society. You can't miss fortunes in misfortunes.
The English and Dutch agricultural productivity surpassed that of the other European countries. Between 1500 and 1800, their agricultural yield improved from 7:1 (seven units of output for every one of input) to 10:1 whereas that of France, Italy and Spain remained static. Other European countries were only getting 4:1.
The English also benefited from having a unified nation since the reign of Henry II (1154-1189) whereas other big European nations were fragmented. France, for example, was still having feudal principalities despite the semblance of a nation-state up until the French Revolution in 1789. As a result, France had internal tolls, tariffs and other trade barriers on goods moved from one locale to another while the English could move their surplus produce with ease. Although knights no longer existed, pre-revolutionary French still had their lords who had feudal rights over peasants in their provinces. Other current big states, such as Germany and Italy, were worse; they were non-existent then, merely existing as a slew of principalities, bishoprics, counties, kingdoms and states.
The French Revolution was partly triggered by poor grain harvests leading to food shortages which worsened the price inflation. France’s low agricultural productivity was also a consequence of its partage inheritance laws which split agricultural lands among all offspring whereas the English had primogeniture inheritance which passed on all the lands to the eldest son. But food shortages in France recurred even after the revolution. So it couldn't have been the main driving factor.
The bigger contributory cause was the burdensome tax from which the nobles and clergy were exempt. These taxes were necessitated by the preceding wars with England, including the support for the American revolutionaries. The tax burden is akin to the modern day austerity drive as governments tried to accumulate reserves in order to tame the runaway deficits. But for the government to be in surplus, the rest must see their wealth worn down. It's a zero-sum game; only an economic expansion will alleviate the sense of loss. If in 1789, it led to the French Revolution, then horrors awaits the Eurozone denizens if the Eurozone countries still insist on waiting for the austerity drive to bear fruit.
In contrast to the French, the English with their primogeniture inheritance laws favoured wealth accumulation or capitalism. The land owners now had more incentives to rapidly introduce new techniques, which not only increased agriculture surpluses—enclosed fields had 20%-25% more yields than those of open fields—but also released labour from agriculture. Aside from practices copied from the Dutch, the British also introduced several innovations of their own. Among these include farm mechanisation, such as Jethro Tull's horse-drawn seed drill which economised on the use of seeds as well as ensured better plant growth since planting was done at the correct density. Threshing was also mechanised using horse power. Selective breeding of livestock improved their desirable characteristics, such as fast maturing and easy tameability.
As a result of these advances, between 1700 and 1800, the proportion of England's population involved in agriculture decreased from 80% to 40% at a time when its population increased from 5.45 million to 9.25 million. England's population in the Roman period, and a few times in the past when it had reached the former number, would stop growing because of agriculture constraint. But by 1750 at the onset of the Industrial Revolution, this Malthusian trap was smashed. By 1870, England produced 300% more agricultural produce than in 1700 with only 14% of the population. These monumental advances in agriculture production came to be known as the Agricultural Revolution.
The resulting farming surpluses released farmers from agriculture. These surplus workers were one of the factors that enabled England to embark on its Industrial Revolution. The benefits were however mutual as without the Industrial Revolution, England would have undergone a social revolution as the unemployed workers would have revolted without stable employment. However, home production of food wasn't enough. England had to import sugar—which provided most of its calorific values—from the West Indies and wheat and meat from Ireland. In turn the Irish survived on potato. All these foods had in effect fuelled the indutrialisation of Britain.
Of course, food was only one factor that allowed Britain to forge ahead with its Industrial Revolution. Like the Dutch, it had the greatest navy of its day. With a series of Navigations Acts, aimed at the Dutch, it restricted the conveyance of goods to and from the Commonwealth on English vessels. By 1700, the shipping tonnage on English vessels doubled.
England's first central bank was established in 1694 for the purpose of financing the war with France. Bonds were issued to finance the issuing of bank notes. Amsterdam lost its luster when it transferred its financial business to London after it suffered financial crises in 1763 and 1773.
As for consumption demand, this depends on population growth. Looking at the chart above, the population of the whole of Europe was on a rapid ascent especially post-1700, thus ensuring a ready market that could absorb whatever stuff the increased capacity could throw at it.
The most critical component was of course, energy, or more specifically, coal. As land that used to provide firewood had become scarce with its clearance for agriculture, firewood had become expensive and had to be replaced with coal. Fortunately in England, coal was cheap because of plentiful supply of surface deposits and easy access to canals. This is the main reason why the Industrial Revolution had its roots in Britain. Holland, France and Germany also had deposits of coal but they had to await the invention of railways to unlock them.