Government and the economy, 1688–1850

INTRODUCTION According to a well-worn myth, the British industrial revolution was a revolution that took place in the market, that was financed by private capital, and the agents of which were individual entrepreneurs. The government, which had no industrialisation policy, played no significant role in this revolution. Rather, it gradually adopted a laissez-faire policy. Taxation was very low by modern standards and had no substantial redistributive consequences. Government expenditure conformed to early modern patterns and mainly took the form of military and crown expenses. The state owned neither means of production nor infrastructure and even its landownership had been dramatically reduced over the two previous centuries. Though some remnants of Tudor and Stuart regulation existed, particularly in the labour market and in overseas trade, such regulation was not effectively enforced and was in the process of being abolished. The minimal role of the state was unique to Britain. Elsewhere, government played an important role in inhibiting industrialisation (as in France or China), in creating industrialisation engineered from above (as in Germany and Japan) or in encouraging and subsidising private sector industrialisation (as in the USA). The more exceptional that Britain was in terms of the role of government, the more attractive this minimal role became as a potential explanation of why Britain was the first to industrialise. If the first industrial revolution took place in a ‘night watchman’ state, should not economists, inspired by this interpretation of the roots of the industrial revolution, recommend free-market industrialisation as the prescription for industrialisation in eastern Europe and the Third World today? This view of the industrial revolution was most popular in the 1950s and 1960s.