This is looking at things from an engineers perspective, "Oh the technical solution wins because it was just better". How would this industrialists get the capital to purchase their machines? The raw materials? For their suppliers to have the product on hand, or go a long time with without repayment? All this was enabled by the finance revolution. Finance gets a bad rap (rightfully so) because it's ripe for theft and manipulation, but I don't believe we would have seen even close to the same industrial revolution if it wasn't for the progress to the financial system.

The industrial pioneers, if I'm not mistaken, were "old-school rich", with real wealth coming from either hard work or a rich linage.

I doubt venture capitals and other financial solutions were involved in anything that'll make its way into a history book.

The term nouveau rich was coined specifically to describe the rich industrialists who had generated their fortune without being from the old aristocratic families.

Also if hard work led to you having wealth then their wouldn't have been peasants, and even children could buy their own homes after a long day in the fields or mines.

I am an avid critic of the financial industry, but the whole idea of lending money and having a store of it that was trusted enough to accept checks from altered all of society. Prior to that you could only purchase as much material as you had money on hand to buy, or something else to trade. There was no way to borrow 100 dollars to buy materials that you converted into 130 dollars of value without already having 100 dollars

Lending money predates banks, does it not? One could argue that the banks has brought more fair terms, but I doubt that this was the case initially.

Checks are of course a product of banks, but I fail to see how that should have brought significant change (rather than a bit of convenience). They were certainly never more trustworthy than cash, and they are themselves not more than simply a form of currency. Things like credit agreements are a separate product.

Lending money on fractional reserves at an interest rate that should cover defaults did not exist until relatively recently in the western world. It was classified as usury and banned by the Catholic Church the same was that the Islamic world does currently.

>I fail to see how that should have brought significant change (rather than a bit of convenience).

A bit of convenience can create massive change. What's the difference from online banking compared to buying at a store other than a bit of convenience? You can do all the same things in person, yet we've seen massive changes in logistics and ourchasing habits because of it. Checks that people _trusted_ were massive. You could write someone a document that let them go to somewhere nearby to get gold, rather than carrying it on the roads. This was the modern era where you can travel most European or american roads safely. The world wasn't lawless but the law didn't extend much farther out than the local rulers could patrol. There was always the risk of bandits taking your shipments on land or pirates on the sea. By having a banking system the risk of transferring currency dropped massively and that would lead people to engaging in enterprises that were too risky previously

Yes...and this is only one part of the story. You may be aware that China had already made a lot of this progress, in particular moving towards coal but other stuff too...but by the ~10th century...no Industrial Revolution... (https://economicdynamics.org/meetpapers/2013/paper_351.pdf - I am fairly sure this isn't the paper that started this research but I don't have the time to find it).

The Industrial Revolution is not particularly simple but two things are accepted: it wasn't just about technology (besides anything else, if you say it was just technology then you still have to know why technology changed? This question is a central focus of current IR research i.e. McCloskey) and finance was very important (the invention of govt finance/taxation, particularly so).

It maybe isn't worth getting bogged down in the detail but an important part of the industrial revolution was a shift from assembly at home - "proto-industrialisation", which had existed for ~150 years before the IR - to factory-based production. Finance was essential to this process (and impossible without it).

And I wonder if I'll ever learn to not make flippant generalising comments :)

I'd say there needs to be a distinction made between finance going towards funding productive activities and the rampant financial speculation largely divorced from underlying productivity which is where I see a good chunk of modern finance's efforts go towards. Its this latter 'dirty' side of finance I think we can do without - the 40 years post bretton woods period shows its perfectly possible to have a financial system that functions safely.

For large IR type transitions I agree it would have take a lot longer or possibly impossible to see such huge transitions without the power of collective investment. Indeed its no wonder vaclac smil called it the age of Synergy. The chinese may have been coal and natural gas as far back as 10th century but without all the pieces in place they only transitioned to majority coal use in the 20th century

Not really. Again, you are making several misconceptions (this isn't uncommon, economists don't really understand finance and they understand even less about financial history so they say very odd things that ppl seem to pick up on).

First, the system was not safe...at all. There were pretty much constant financial crises through the 1960s.

Second, the reason why these crises occurred is because the US promised to buy central bank gold at X price. This wasn't sustainable, this caused crises as central banks tried to acquire gold and the UK/US tried to stop them doing so (gold pooling arrangements are an example). It was a fundamentally bad system.

Third, the reason why the system appeared "safe", in today's terms, was govt assumed all the financial risk. Trade and capital accounts were closed, even ones that were open had significant limitations. For the US, this didn't work out terribly because they could keep printing "gold" paper that actually had no value...for everyone else, it was terrible (particularly, the UK). This required some level of protection of domestic industry and resulted in poor competitiveness, high taxes, and high prices for consumers. The funniest thing about this re imagining of the 1960s is that if you actually read what policy makers thought, they believed it was terrible system that would fail (and they were correct).

It is impossible to distinguish between productive and speculative finance, and it is actually very important that you don't try to (this was a major concern in the 1960s and for the IMF, they believed they could control speculative capital movements distinct from productive capital movements...it didn't work). The 19th century saw several financial manias, they produced waste but also tremendous value (canals, railways, electricity, etc.). You can't have one without the other. Finance is risk, and you can't take risk without the possibility of failure.

One of the problems today, typically outside of the US, has been the inability to cope with failure (and so you get lots of idiots saying we just need to get rid of "speculation"). No, the aim of capitalism is to maximise productivity/competitiveness by maximising failure. The solution to this problem is social policy (i.e. Denmark) not trying to fiddle with capitalism. It should be no surprise that this viewpoint has coincided with an increase in concentration of wealth (rich people generally don't like competition/capitalism...another aspect of history that is forgotten).

So I think you and I wil disagree a bit here

"First, the system was not safe...at all. There were pretty much constant financial crises through the 1960s."

I cant find any such systemic crashes that happened in the 60s. The 80s were a return to form following financial deregulation following the stagflation of the late 70s when monetary policy was shifted to technocrats in central banks where instead of following the maxim of full employment the shift went to price stability to reverse the effect of the capital strike going on. Even so what few blips there might have been seemed to have been well isolated enough that its ill effects werent globalised unlike today's hyper-connected financial sector.

"Trade and capital accounts were closed, even ones that were open had significant limitations." this part right here was the bit that made these risks relatively independent of one another. The BW agreement was far from perfect for reasons you mentioned however they did put a cap on free flow of capital unlike what we see today. (Central banks pumped how manh hundreds of billions of $ into the finacial sector with zero increase in inflation as predicted by traditional economics? We're at near 0 inflation and thats entirely down to money being able to funnel its way freely)

"It is impossible to distinguish between productive and speculative finance, " - Fair enough. My concern is who gets burned when it goes up in smoke. In our current environment of 'too big to fail too big to bail' the losses are put on the public balance sheet (Greek debt crisis most recently and I believe the president of the eurogroup basically held a gun to the Irish primeminister's head and forced them to socialise the losses of mostly german banks). So absolutely let them fail/succeed just make sure they do it with their own skin in the game and not others

There were at least three occasions in the 60s when it looked like BW would have to end (from memory, there were speculative attacks in '62 and '65, France left the Gold Pool in '67...which btw, should have meant that BW was over). The reason you don't know about them is because they aren't like crises that we have today and you have to read about the period (I did my undergrad thesis on it). But if you start talking about how we need to go back...then these crises are very important. Specifically, if you look at British monetary policy: they were in the worst position because they couldn't print fake gold but couldn't devalue (and internal devaluation was politically impossible) because it might cause BW to break down, then you would see what I am talking about...I have no idea what the rest of the third paragraph means.

No the risks weren't independent. Again, if you understand what happened in the 1960s then you would realise they weren't. The whole point of the period is that they tried to make it independent, and it didn't work (this isn't wholly true, all central bankers knew it wouldn't work, France in particular, but they saw no other option).

This is not to say that it cannot work...China is a perfect example of it working, it worked during WW2...but the issue is that it causes your economy to malfunction because you remove competition entirely which results in high prices and high taxes (it also isn't that feasible today politically as it requires a significant amount of intervention in day-to-day life i.e. foreign currency rationing, banning certain financial assets like gold, etc.). Again though, the proof is that no-one who has actually lived in the system you are describing thinks it works. For example, China's policymakers would certainly prefer to have a market-based system of finance right now, and they clearly understand how important it was to open their trade account to competition (although they did continue do so in a somewhat limited fashion).

And no, your understanding of the financial crisis is not correct. Ireland socialised losses during the GFC, before the Euro crisis. But the reason for doing that is exactly in line with what you are saying. If you want to limit the damage of speculative finance, then you socialise losses. That is what happens in China, it is what happened during WW2, it is what happens when you have don't a freely floating currency (which is what you are suggesting), and it happened in the 60s (the only reason the speculative attacks in the 60s were fended off were huge loans from central banks to Britain to ensure they didn't devalue and trigger a speculative attack on the dollar).The only new issue that the GFC raised was the wisdom of mixing the payment system into banks.

If I had to boil down the mistakes you are making (aside from not reading about the actual events that occurred): the reason we came here is because there is no other choice. You cannot control speculative forces and have a productive economy, it is one or the other. But the other mistake you are making is assuming that the only way to limit the effect of capitalism is by doing weird dictatorial stuff they even knew was stupid six decades ago (like trade controls, which Trump is trying now). Again, Denmark is a perfect example: they have one of the most capitalistic societies anywhere (probably more so than the US) and just use social policy to limit the damage...without interfering in the market. It works fine. The issue is that most people believe (or are told) that it is a black or white choice (there is a correlation here with the political system, adversarial-style democracy isn't particularly effective).

Post 60s the US had twin deficits essentially making BW dead in the water unless they shifted to austerity to maintain a surplus which would have been politically too difficult. (Or one could be nasty and say it would have put an end to their 24/7 of spreading democracy in south east asia via bombs). My history here is fuzzy.

I wouldnt advocate for a return of BW - but the one core aspect of what it aimed to achieve, namely global stability, can I believe be achieved without the free option call on society you describe as essential for having globalised finance. Keynes' version of BW would have involved a central clearing house of sorts between countries that would nullify the negative effects of unbounded capital flows by using a common currency. I dont remember the exact details but the big wig at the IMF and the Chinese central bank seemed pretty pro this idea.

"And no, your understanding of the financial crisis is not correct. Ireland socialised losses during the GFC, before the Euro crisis..." Well no. The reason they socialised losses has nothing to do with some inherent requirement to make finance work but because the Euro is a dumb idea as it doesnt allow countries to run a deficit (unless youre Italy/France and too big to kick out) so the only solution to paying off debts is austerity. The reason they had to socialise losses was a faustian bargain also offered to the greeks - basically you socialise our private bank's losses (take out an additional loans) else we switch off your banks and you're dead. Only cutting spending in a downturn is stupid and only makes the debt/gdp ratio worse but first rule of politics is never let facts get in a way of a beautiful theory (austerity)

" the reason we came here is because there is no other choice. You cannot control speculative forces and have a productive economy, it is one or the other." - no. Thats a huge leap to make and has little to no evidence to support the claim. The reason lots of Euro countries socialised losses is not because its a universal law like gravity but due to political expedience. Fundamentally its just unfair to privatise profits and socialise losses.

Sorry I cant comment on the Danes! I'll have a read up

face palm. Some advice: if you read a book and have already decided what is right before you read it...don't bother reading it. You seem to have your own view of the world that you want to confirm. Great, but keep it to yourself. Again, 95% of what you are saying is just factually inaccurate, and the 5% that isn't seems to have been purposefully misunderstood so that it fits with what you thought already. HN is a special place.

This has become a waste of my time.

To take advantage of this you need an accumulation of capital in the right hands. This is what finance provided. The industrial revolution would have happened, but slower and later. We'd be waiting for some landowner who had an interest in engineering, rather than an engineer able to convince someone wanting to make a return.