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Economic Effects of the Industrial Revolution

Even though the Industrial Revolution occurred approximately 200 years ago, it was an era that left a great impact on how people lived and the way businesses operated. The economic effects of the industrial revolution are very profound as the factory systems that developed during this era are responsible for creating capitalism and the modern cities of today.

Before the industrial revolution, the majority of households earned a living from farming and lived primarily in small, rural communities. However, with the emergence of factories during the industrial revolution, people began working for factories located in urban areas for the first time. Even though the wages were low, and the working conditions were harsh, they still preferred working for such businesses because it paid a better living than farming. This industrial age had several effects on society, and, in this article, we will be throwing more light on the economic impacts of the industrial revolution.

Economic effects of the industrial revolution
Economic effects of the industrial revolution

Related: European Industrial Revolution

Industrial revolution explained

The Industrial Revolution was the transition from hand production methods to new manufacturing processes in Great Britain, continental Europe, and the United States. This occurred from around 1760 to about 1820–1840. The 1st Industrial Revolution began in Great Britain in the 1760s when innovation led to goods being produced in large quantities as a result of machine manufacturing. This spread around the world, and the 2nd Industrial Revolution began in the late 1800s in the U.S. which saw further advancements in technology that led to greater efficiency.

The industrial revolution was a transition from hand production methods to machines; and other new manufacturing processes like chemical manufacturing, the increasing use of water power and steam power, and iron production processes. Due to the development of machine tools and the rise of the mechanized factory system, there was an increase in output. The first industry to use modern production methods was the textile industry which made it the dominant industry in terms of employment, capital invested, and the value of output.

However, this progress came with significant negative effects such as an unprecedented rise in population and population growth rate. There were also negative social effects of the industrial revolution such as child labor, pollution of the environment, and health and safety hazards to squalid living conditions for factory workers and their families. According to historians, the majority of these problems persisted and grew in the second industrial revolution.

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What were the economic effects of the industrial revolution?

The industrial revolution caused a shift from an agrarian economy to a manufacturing economy where products were no longer solely handmade but made by machines. Hence, there were economic effects of the industrial revolution on society such as increased production and efficiency, more employment opportunities, more goods, improved wages, the predominance of capitalism, lower prices, and increased international trade.

This era increased the overall amount of wealth and distributed it more widely than had ever been in the earlier centuries, thus, helping to enlarge the middle class. The industrial revolution gave rise to the world’s second great increase in economic productivity. The first occurred during the Neolithic Revolution, about 15,000-20,000 years ago when small communities became less nomadic and began to base their existence on agriculture and animal husbandry.

The industrial revolution, unarguably had economic impacts as it increased material wealth, enhanced people’s standard of living, and was a powerful force for social change. It is no doubt an era that reorganized the economic and philosophical worldview of the West, undermining the centuries-old class structure in Europe. Let’s further discuss some of the economic effects of the industrial revolution.

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Economic effects of the industrial revolution

  1. One of the economic effects of the industrial revolution is that it caused a shift from an agrarian economy to a manufacturing economy where products were no longer solely handmade but made by machines.
  2. The machines and inventions of the industrial revolution increased production which made products cheaper to buy and easier to make.
  3. The arrival and predominance of capitalism were one of the prominent economic effects of the industrial revolution.
  4. The industrial revolution caused a wider distribution of wealth and increased international trade.
  5. The consumer revolution and consumerism were significant economic impacts of the industrial revolution
  6. Due to mass production in the industrial age, customers could choose from a variety of products.
  7. With the emergence of factories, employment opportunities were created and people moved from farms and villages into towns and cities in search of work in factories.
  8. The industrial revolution precipitated the division of labor and the rise of wage labor.
  9. The rise of organized labor is one of the main legacies of the industrial revolution that changed the socioeconomic lives of the working class people.

During the industrial revolution, there were dramatic changes in the social and economic structure of society. Let’s further discuss the economic impacts of the industrial revolution:

A shift from an agrarian economy to a manufacturing economy

The industrial revolution transformed economies that had been based on handicrafts and agriculture into economies based on mechanized manufacturing, large-scale industry, and the factory system. This was one of the major economic effects of the industrial revolution. Before this period, the most significant economic activities in the majority of European countries were small-scale farming and artisan handicrafts, and the social structures remained basically as they had been during the middle ages.

Due to the industrial revolution, the economic activities in many communities moved from agriculture to manufacturing, and production that was usually done in traditional locations in the home and small workshops shifted to factories. The emergence of new machines, new power sources, and new ways of organizing work that came with the industrial age made existing industries more productive and efficient.

As several manufacturing centers and factories were being established in towns and cities, large portions of the population relocated from the countryside to where these centers and factories were found. Therefore, the domestic system of industrial production wherein independent craftspersons worked gradually got replaced with the factory system and mass production which consigned large numbers of people, including children and women to long hours of tedious and sometimes dangerous work at subsistence wages.

Production efficiency

Efficiency in production was one of the economic effects of the industrial revolution. Production efficiency improved during this era with inventions like the steam engine. The steam engine completely reduced the time it usually takes to manufacture products. This was one of the positive impacts that came with the early industrial revolution which rapidly changed the economy.

New organizational strategies were introduced to increase productivity. This had begun with the outwork system whereby small parts of a larger production process especially for shoe and boot making were carried out in numerous individual homes. Before the industrial age, many products were built or made by hand which required a specific time investment by the creator and as a result mass production was virtually impossible.

However, the industrial revolution changed all that as factories gave room for groups of people to be more productive than one person producing on their own. The factory system was the chief organizational breakthrough of the industrial revolution where work was carried out on a large scale in a single centralized location. This caused an increase in production levels and also made it possible for better products and services to be made and given respectively.

The overall amount of goods and services that were produced completely expanded, and the proportion of capital invested per worker grew. New groups of investors, managers, and business people took financial risks and reaped great rewards. Due to lower labor costs, the more efficient production subsequently reduced product prices, thus, opening the marketing doors to a new level of customers.

Predominance of capitalism

The arrival and predominance of capitalism came with the industrial revolution. This was one of the most prominent economic effects of the industrial revolution. Capitalism is an economic principle that was theorized in ‘Wealth of Nations’ by Adam Smith which Karl Marx elaborated upon in his magnum opus, ‘Capital’.

The capitalist economies developed in conjunction with the industrial revolution. Under the capitalist economy, business owners (capitalists) began to organize labor centrally into factories and introduced a division of labor to increase profitability and output. The factories that started off in this era illustrated the capitalist principle of wage labor, whereby workers in exchange for an hourly wage disown ownership of the means of production.

The whole process, therefore, concentrated wealth in the hands of industrialists, whose riches became tied to the fluctuations of a consumer market. Compared to the craft and guild systems that preceded the industrial revolution, capitalist production encouraged innovation and technological change at an unprecedented rate.

Throughout the 19th century, the size and scope of manufacturing enterprises continued to increase as the United States, Europe, and other parts of the world industrialized. As multiple products could be made in any industry or sector competition was created in the sphere of international trade. Thus, free market economies began to develop and the larger enterprises that could achieve economies of scale were of advantage.

Increased employment opportunities

An increase in employment opportunities was one of the economic impacts of industrial revolution in Great Britain and America. The emergence of factories created an increase in employment opportunities in this period and made it possible for more people to have jobs. Before the industrial age, jobs were based on unique talents, family traditions, or educational studies that someone had.

However, with the emergence of factories around the world, people began to earn a living in ways that were very different from the past. The laboring population which was formerly employed predominantly in agriculture increasingly gathered in great urban factory centers to earn higher wages. The wages at the factories were higher than what the people were making as farmers and as more factories were built, additional managers and employees were required.

People were needed for factory operations, and as such, there was an increase in the supply of jobs and overall wages. Due to this, domestic workers gradually left the countryside to work in the new factory set up around urban areas. Workers became available for the new factories, and at the same time encouraged enclosure in the countryside.

Rise of wage labor

The rise of wage labor was one of the economic effects of the industrial revolution. Before the industrial age, a majority of Europe’s manufactured goods were produced by artisans with specialized skills. Their work was governed by the limits of available resources and the traditions of their craft. During that time, animal and human muscle as well as the waterwheel were the main sources of energy. Nonetheless, with the coming of factory-based industry, the coal-fired steam engine and other machinery incentivized and set a new, faster pace for labor.

During the industrial revolution, the capitalist principle of wage labor was predominant and labor was concentrated in factories, mills, and mines. Workers in exchange for an hourly wage disown ownership of the means of production. However, the rise of wage labor at the heart of the industrial revolution exploited the working class in new ways. The working hours were very long in the factories, coal mines, and other workplaces, and the working conditions, generally, were dismal and dangerous.

Rise of organized labor

The rise of organized labor (labor unions) was one of the main legacies of the industrial revolution. This is a strategy of workers joining together to engage in collective bargaining for job benefits, higher wages, or better working conditions. Organized labor associations first began during the industrial revolution, in the 19th century and are still very strong in many countries, especially in Europe and the United States. This has brought tremendous positive change to working Americans and Europeans as many today, enjoy safer working conditions, higher wages, and better hours.

At the time of the industrial revolution, the working class people were usually exploited by wealthy owners and treated horribly. The dominant political and economic views at the time of the industrial revolution were centered on individualistic values such as classical liberalism and laissez-faire capitalism. Both systems favored the idealogy that the government should play as little a role as possible in the economic lives of the people. Hence, there were very few government regulations that were put in place to protect workers. This gave room for wealthy owners to exploit the workers in various ways.

The working-class people faced horrible working conditions such as crowded and cramped workspaces, poor levels of pay, long hours of work, dirty and dangerous factory and mining operations, and a lack of basic healthcare, education, and rights. The exploitation of child labor was also a significant issue that came with the rise of wage labor. Before the industrial revolution, children worked to assist their families but were assigned jobs quantifiable to their age and size. However, the rapid growth of factories created such a high demand that poor youth and orphans were exploited for cheap labor.

They were taken from London’s poorhouses and housed in mill dormitories. These children were forced to work long hours, and carry out dangerous adult jobs. The exploitation of child labor was one of the worst negative effects of the industrial revolution on society.

Women were also subject to long hours of tedious and sometimes dangerous work at cheaper wages compared to what was paid to the male workers. The wages that factory owners usually paid women were only half of what the men got for the same work. This was based on the false assumption that women didn’t need to support families, and were only working for money to spend on inessentials.

All these challenges facilitated organized labor or trade unions to help improve the interests of the workers. In 1824, the first strike occurred among textile workers protesting wage factory conditions. By withdrawing all labor and causing a consequent cessation of production, the power of a union could demand better terms.

As a result, the employers and factory owners had to decide between giving in to the union’s demands at a cost to themselves or suffering the cost of the lost production. It was hard replacing skilled workers and so these were the first groups to successfully advance their working conditions through this kind of bargaining. The labor unions eventually began to win reforms such as the child labor laws to get children out of the workplace, a limit of 8 hours of work in a day, an established minimum wage, and pensions for workers hurt while on the job. This brought about tremendous changes in the economic lives of the working class.

Availability of a variety of goods

During the industrial revolution, production levels increased making mass production possible. This period of mechanized production although primarily focused on the capital goods sector and industrial infrastructure, dramatically increased the availability of consumer goods.

Before this era, there had been a scarcity of resources. However, the industrial revolution happened and created an unprecedented economic situation. Consumers had products available in outstanding quantities for the first time in history, at outstandingly low prices, which was available to virtually everyone in the industrialized west. This economic effect of the industrial revolution was a life-changing one as consumers could choose the best product that meets their needs from a variety of products rather than being reliant on a particular business or provider to give them what they needed.

They could also buy a variety of goods, all in one place, and shopping became a popular leisure activity. The quality of living improved over time in communities because there was greater access to goods and services. People benefited from falling prices for clothing and household items such as cast iron cooking utensils, stoves for cooking, and space heating. In Europe, coffee, tea, tobacco, sugar, and chocolate became affordable to many. As a matter of fact, the industrial revolution shifted power away from businesses into the hands of consumers.

Consumerism and the consumer revolution

One of the economic effects of the industrial revolution was that it led to the consumer revolution and consumerism. The consumer revolution was a period in England that experienced a marked increase in the consumption and variety of luxury goods and products by individuals from different economic and social backgrounds. This marked a transition from the traditional way of life that was dominated by scarcity and frugality to one of increasing mass consumption in society.

Consumerism is the theory that consumer spending on goods and services, is the primary driver of economic growth and a principal measure of the productive success of a capitalist economy. The mass production that followed the industrial revolution led to overproduction whereby the supply of goods grew beyond consumer demand. Hence, manufacturers resorted to advertising and planned obsolescence to manipulate consumer spending.

The consumer revolution in England had seen an exceptional increase in the consumption of a variety of luxury goods and products by individuals from different social and economic backgrounds. Due to the improvements in transport and manufacturing technology, the opportunities for buying and selling became faster and more efficient than before. Social mobility and rising prosperity in the 18th century increased the number of people with disposable income for consumption and the marketing of goods for individuals also increased.

Improved international trade

The improvement in international trade is definitely one of the economic effects of the industrial revolution. Before the industrial age, international trade was in existence but was quite difficult, due to the immense cost of transporting goods. In addition, trade and commerce were restricted to the national level at best.

However, during the industrial revolution, transportation was better and this helped enhance international trade. The transcontinental railroad built in the U.S. was one of the first significant inventions of the second industrial revolution. In 1803, the steam railway locomotive which was an application of the steam engine was invented by Richard Trevithick, a British engineer.

This invention made transportation cheaper and easier, thus allowing businesses to create an international presence for their brand. Hence, it became possible for communities to experience new goods or services even while still enjoying local products. This was definitely one of the most prominent economic effects of the industrial revolution in history.