One of the most striking economics books of the past few years is Jonathan Haskel and Stian Westlake’s Capitalism without Capital, in which they chart the rise of intangibles. But some of the original intangibles pioneers were, surprisingly, the famous steam engine improvers Matthew Boulton and James Watt.
Very interesting. There is a sense in which maybe we should expect more intangible capital in the past since there were fewer legal protections of physical capital and contracts/liability are harder to enforce. If the buyer can’t guarantee legal protection the the engine they buy (that it’s what they expect), brand name will matter more and you’ll find other work arounds. Maybe it’s similar to how minorities that were persecuted (Jews and Chinese especially) invested in human capital which the majority can’t just steal.
"one of the most famous business partnerships of the British Industrial Revolution — that between Matthew Boulton and James Watt from 1775 — was originally almost entirely based on intangibles."
This fact is a good argument (among many) in the debate why the Industrial Revolution didn't happen in the Roman or Chinese Empires. Such a partnership was possible only where intellectual property rights existed and were effectively enforced.
Steam engines as a Service! Why was this model ultimately abandoned by Watt and co.? The US financial system makes it extremely lucrative to run a business this way because you can sell shares to stock market investors who will capitalize your high margin recurring revenues at very high multiples. SaaS businesses a good example here. Arguably too high -- returns are so high that it crowds out investment in cyclical asset-heavy business models. Which is part of the reason our infrastructure is crumbling and we’ve run out of everything from semiconductors to nails
Fascinating, thank you. Also another example of the crucial role of parliament in the 18th century in supporting progress (the lengthy patent extension here, the effective and far-sighted operation of the Board of Longitude in a previous post of yours).
I wonder if the role of parliament in supporting the Industrial Revolution has been underestimated. And, if so, what it was about the pre-Great Reform Act parliament that made it so effective. In many ways it seems that exact opposite of what you'd get if you asked a committee of experts to design the perfect regulator and funding body.
the first steam engines were competing with existing windmills and waterwheels - did steam push either of these out, or did steam simply expand into regions where there wasn't suitable rivers/winds?
“Like so many modern intangibles-based businesses, Boulton and Watt’s partnership thus largely rested on research, design, training, networks, branding, and above all intellectual property.”
Perhaps we could also consider the extent to which this is true of the development of the mining and metallurgy industry more generally.
This might seem like an obvious point as technological innovation is key to almost any industry, but tangible mineral resources are only valuable to the extent they can be profitably extracted. Ultimately, the process by which the ore is extracted/smelted/refined - determined by intangibles such as research, talent, training, trade secrets, patents - is what matters. Historically, huge mineral deposits have often remained untapped until someone develops a profitable way to process them. (Somewhat separately, regulation and trade policies have also been critical in the development of the mining industry.)
The Associated Smelters of Swansea exemplify the importance of technical knowledge, training, and coordination. Thanks to their mastery of the closely guarded ‘Welsh Process’, this cartel was able to dominate for large parts of the 19th Century, smelting huge amounts of South American copper.
Patent rights seem very important; they could make or break mining and metallurgy companies, as seen by the success of Minerals Separation Ltd. (until their patent expired), and the poor fate of John Cort and John MacArthur.
The "professionalization" of the mining industry is another interesting case study; the influence of financiers and merchants, their role in establishing schools of mining and metallurgy in the late 19th Century, and in the development of companies like Rio Tinto, Newmont and Vale.
(All info here from, “Mining in World History”, by Martin Lynch. Interestingly the author also argues that Watt’s patent stifled further innovation in the UK, pointing to the improvements made by Richard Trevithick and other Cornish engineers following the expiration of the patent)
Very interesting. There is a sense in which maybe we should expect more intangible capital in the past since there were fewer legal protections of physical capital and contracts/liability are harder to enforce. If the buyer can’t guarantee legal protection the the engine they buy (that it’s what they expect), brand name will matter more and you’ll find other work arounds. Maybe it’s similar to how minorities that were persecuted (Jews and Chinese especially) invested in human capital which the majority can’t just steal.
"one of the most famous business partnerships of the British Industrial Revolution — that between Matthew Boulton and James Watt from 1775 — was originally almost entirely based on intangibles."
This fact is a good argument (among many) in the debate why the Industrial Revolution didn't happen in the Roman or Chinese Empires. Such a partnership was possible only where intellectual property rights existed and were effectively enforced.
Steam engines as a Service! Why was this model ultimately abandoned by Watt and co.? The US financial system makes it extremely lucrative to run a business this way because you can sell shares to stock market investors who will capitalize your high margin recurring revenues at very high multiples. SaaS businesses a good example here. Arguably too high -- returns are so high that it crowds out investment in cyclical asset-heavy business models. Which is part of the reason our infrastructure is crumbling and we’ve run out of everything from semiconductors to nails
Super interesting Anton ! Thanks for sharing
As the patent expired in 1800, had France experienced a surge in Watt's machines ?
Fascinating, thank you. Also another example of the crucial role of parliament in the 18th century in supporting progress (the lengthy patent extension here, the effective and far-sighted operation of the Board of Longitude in a previous post of yours).
I wonder if the role of parliament in supporting the Industrial Revolution has been underestimated. And, if so, what it was about the pre-Great Reform Act parliament that made it so effective. In many ways it seems that exact opposite of what you'd get if you asked a committee of experts to design the perfect regulator and funding body.
Given the current obsession with renewables:
the first steam engines were competing with existing windmills and waterwheels - did steam push either of these out, or did steam simply expand into regions where there wasn't suitable rivers/winds?
Great article.
“Like so many modern intangibles-based businesses, Boulton and Watt’s partnership thus largely rested on research, design, training, networks, branding, and above all intellectual property.”
Perhaps we could also consider the extent to which this is true of the development of the mining and metallurgy industry more generally.
This might seem like an obvious point as technological innovation is key to almost any industry, but tangible mineral resources are only valuable to the extent they can be profitably extracted. Ultimately, the process by which the ore is extracted/smelted/refined - determined by intangibles such as research, talent, training, trade secrets, patents - is what matters. Historically, huge mineral deposits have often remained untapped until someone develops a profitable way to process them. (Somewhat separately, regulation and trade policies have also been critical in the development of the mining industry.)
The Associated Smelters of Swansea exemplify the importance of technical knowledge, training, and coordination. Thanks to their mastery of the closely guarded ‘Welsh Process’, this cartel was able to dominate for large parts of the 19th Century, smelting huge amounts of South American copper.
Patent rights seem very important; they could make or break mining and metallurgy companies, as seen by the success of Minerals Separation Ltd. (until their patent expired), and the poor fate of John Cort and John MacArthur.
The "professionalization" of the mining industry is another interesting case study; the influence of financiers and merchants, their role in establishing schools of mining and metallurgy in the late 19th Century, and in the development of companies like Rio Tinto, Newmont and Vale.
(All info here from, “Mining in World History”, by Martin Lynch. Interestingly the author also argues that Watt’s patent stifled further innovation in the UK, pointing to the improvements made by Richard Trevithick and other Cornish engineers following the expiration of the patent)