Age of Invention: Why Scotland Succeeded
It was capital, not education
Scotland once punched far, far above its weight. Despite having a population under a quarter the size of its neighbour, England, whose king Henry VIII tried repeatedly to subdue it, it was the smaller nation that prevailed. It is the blood of the cunning and patient James VI and not of the forceful Henry, that has flowed through the veins of the UK’s monarchs ever since.
Once James came to rule both nations — he became king of England exactly 423 years ago today — it was the far fewer Scots who most vigorously took advantage of the opportunities of a united Britain and the empire it soon conquered. John Rae and George and Thomas Simpson finally found the North-West Passage. David Livingstone – who had once worked as a child in a cotton mill – pursued the source of the Nile and ended up having his heart famously buried in Africa. A Glaswegian, John A. MacDonald, became the first prime minister of an independent Canada.
Beyond the grasping of opportunities for exploration and administration, however, tiny Scotland was most remarkable for its originality, as a seedbed of globally significant ideas. From anatomy to zoology, and everything between – botany, economics, electromagnetism, mechanical engineering, medicine, telecommunications, and more – Scotland has been unusually impactful.
Take even a single field like civil engineering. John Loudon McAdam revolutionised road-building; Thomas Telford built canals to cross rivers using cast-iron aqueducts; Robert Stevenson transformed the safety of our coastlines thanks to his work on lighthouses and their lights. Not to mention John Rennie, William Fairbairn, and hundreds more.
Why were Scots so overrepresented in the annals of so many fields?
Thanks to the rise of Calvinism in the 1560s, and the subsequent establishment of a country-wide system of tax-funded schools, one common refrain is that Scots were unusually literate. With better education, the thinking goes, the Scots were better able to pursue opportunities.
But the laudable intentions of Kirk and State did not automatically translate into results, and in the eighteenth century literacy rates among men were hardly different to those of England, which lacked any such purposeful system of education, and still much lower among women.1 Only in the 1870s, once Scotland had already been punching well above its weight for a while, were its literacy rates appreciably any better. And by then the advantages were slim: 90% literacy among Scottish men, compared to 80% to the south.2
By the nineteenth century fewer than a third of Scottish schoolchildren were being educated in the tax-funded schools, the vast majority instead being taught in private, fee-paying schools.3 To the extent that the spread of literacy was a factor at all in Scottish success, then it was one that owed its origins to Scots’ ability to pay. Scots became literate because in the late eighteenth century they were increasingly able to afford it. They were able to punch above their weight because of their growing, newfound wealth.
Scotland’s Economic Miracle
That wealth was far from inevitable, and from the vantage point of the seventeenth century would even have been surprising. Scotland before the 1740s was significantly poorer than England. Overwhelmingly agrarian, in good years it exported grain, along with fish, hides, skins, wool, cattle, coal, kelp, and salt, but with much of the population scratching a living at the very edge of subsistence.4 Scotland was the last part of Britain to banish famine, unemployment was often rife, and insufficient coin often forced its population to resort to barter and payment of wages and rents in kind.5 Scottish society was vastly unequal, with a tiny handful of aristocrats owning almost all the land, and with the vast bulk of the population occupying it without proper leases, liable to eviction or rent raises at the drop of a hat when the demand for their goods either fell or rose.
With the markets for the goods on which people depended being both fragile and small, there was hardly a middle class of artisans, merchants, and urban professionals in between. As an English spy reported in 1580, merchants and artisans were “few and mean for wealth by reason of the small exportation which the country affords”, manufacturers had “but small trading by reason that the people are but poor and accustomed to live hardly, without much variety of diet, apparel, etc”, and those who worked the land were largely serfs at subsistence, paying to the lord “all the commodities that rise from their labours to him, reserving to themselves at the year’s end, in a manner, nothing else but to live.”6 Even after the Union in 1707, despite the opportunities that this brought in terms of freely exporting to England and its empire, the economic gap remained wide, and there was every chance that the pull of London, as a place for Scotland’s landlords to live and spend their rents, could have prevented it being reinvested in Scottish enterprise, siphoning it away.
But by the 1740s, the first signs could be seen of a spectacular change. Glasgow, whose merchants had long ago carved out a respectable share of the tobacco imported to Britain from Virginia, suddenly and rapidly came to dominate the trade. From controlling just 10% of tobacco imports in 1738, just twenty years later Glasgow had surpassed even gargantuan London. Another ten years on, by 1769, Glasgow accounted for more than every other British port combined, while all the time the total amounts of tobacco imported grew and grew.7 Contemporaries estimated that the shipping tonnage on Glasgow’s river, the Clyde, had increased more than tenfold.8 Edinburgh meanwhile saw its shops fill with luxuries, and its university become a centre of excellence in medicine and chemistry, drawing students from across northwestern Europe, while the city itself expanded, elegantly, with the building of the New Town.
Other urban centres, like Dundee, Paisley and Perth, grew rich and large from the manufacture of linen, and later cotton, while in the century after 1750 Scotland became the most rapidly urbanising region in the world, soon employing a greater proportion of the male workforce in industry than even England.9 Having accounted for about a tenth of British output in the 1820s, by the 1850s Scotland accounted for over a fifth.10
The countryside also rapidly transformed, as landlords in first the Lowlands and the Borders, and then, most infamously, in the Highlands, ruthlessly reorganised and expanded their farms to be as efficient and profitable as possible, eliminating employment for all but a fraction of the workers they had had before. Lowland farms were soon a wonder to even the English, long used to rapid agricultural change. They become in the words of one 1830s English visitor, vast “factories for making corn and meat”.11
For many of those who lived through it, such as the agricultural labourers who faced eviction in the name of improvement, or the slaves on American plantations who grew the tobacco with Scots linen on their backs, Scotland’s transformations were painful, or even strictly for the worse. Yet all the transformations, for better and worse, all had a common root – a factor that made possible the sheer pace of Scotland’s simultaneous agricultural, industrial, and urban revolutions, squeezing into the space of just a few decades what had taken England at least a century and a half, and then allowing it to grow even faster still. Each of the changes required extraordinary levels of investment, which was only made possible because despite the Union, Scotland retained a difference in law and institutions that made it uniquely supportive of the raising and deploying of capital.
Capital Advantage
South of the border there was only a single chartered bank – the Bank of England – along with lots of tiny, unchartered banking partnerships outside of London. In Scotland, however, by 1750 there were not only three chartered banks competing with one another in Edinburgh alone, but the unchartered partnerships in the rest of the country were able to grow into extensive operations covering whole regions, a few of them soon outcompeting chartered banks.
Whereas in England a company needed a royal charter or a special act of parliament in order to be a distinct legal entity, with partnerships according to English common law being no more than the sum of their parts, Scots law instead enabled unchartered firms to be distinct from their owners in lots of important ways, able to outlast the partners who died or went bankrupt, with shares able to be easily traded or transferred, and enabling profits to be preserved for reinvestment in the firm rather than being dissipated in dividends. As a result, even the unchartered banks in Scotland could have dozens or even hundreds of partners drawn from across the upper and middle classes, whereas the average in England had just three.12
Scottish banks started up with more capital, grew faster, drew on a much deeper pool of investors, and were significantly more stable and resilient to shocks. And in all having to compete with one another they offered financial services that were unheard of south of the border – they had local branches, paid interest on deposits, and readily offered short-term loans on personal security rather than just on land. The second of the chartered banks, the Royal Bank of Scotland, in 1728 seems to have been the first bank in the world to have ever offered overdrafts, called the “cash credit” system.13 In the 1810s Scotland developed the savings bank, which paid interest on even the tiny deposits of artisans and labourers.14
And the Scottish banks issued plentiful banknotes in small denominations that were able to circulate in the economy as currency, finally satiating Scotland’s decades-long want of coin.15 Indeed, Scots law made it much quicker and easier than in England to enforce all sorts of debts.16 With creditors made confident, they were much more willing to lend, making more capital available to grease commerce’s wheels.
It was thanks to this capital advantage that Glaswegian merchants were able to both out-borrow and out-invest their competitors in the English ports, rising above Whitehaven, Liverpool, and even London. Glaswegian merchants could afford to invest in much larger ships, taking advantage of economies of scale, as well as in building their own warehouses in Virginia to buy up the tobacco before the ships had even arrived. They could also afford to sell an increasingly varied array of European goods to the tobacco planters at rock-bottom prices, and on generous credit, sometimes even lending the planters cash so that they could secure their eventual tobacco crop.
When the Virginian tobacco planters all defaulted during the American Revolution, and the warehouses were all seized, Glasgow’s merchants were so well-capitalised that they could largely take the loss, and simply switch to dominating the trade in Caribbean sugar and cotton in the same ways instead. Indeed, by out-lending their competitors in order to capture the trade, and so allowing planters to clear land and buy slaves before they’d even grown their crop, Glasgow’s merchants provided the capital that enabled the plantations of first Virginia and then the Caribbean to so rapidly expand.17 Although it’s often said that slavery and colonialism funded Glasgow’s growth, it was largely the other way around: the Atlantic economy’s heyday was built on the savings of Scots.
As to Scotland’s own exports, particularly linen and later cotton cloth, these likewise owed their success to Scotland’s extraordinary ability to marshal capital. In the early eighteenth century the Scottish linen industry faced fierce competition from Germany, the Netherlands and Ireland, especially as it produced hardly any flax of its own, having to import it from the Baltic. Yet when the British parliament instituted export subsidies for linen in the 1740s, merchants in Edinburgh seized on the opportunity, forming the British Linen Company in 1746. It began by raising an enormous amount of equity, most of it subscribed from within Scotland itself, to immediately make it one of the best-capitalised firms in Britain – an advantage compounded by making use of the newfangled overdrafts to meet its short-term needs, and by borrowing extensively by issuing promissory notes, with its lenders including even kirk parishes and hospitals.18
Although it began as a manufacturer, the British Linen Company soon discovered that its main advantages were in marketing and credit. In the face of razor-thin profit margins, and by itself bearing the costs of transporting linen to London for sale, it managed to carve out a market for Scottish linens abroad. But most importantly, by extending credit to linen manufacturers – even at its peak, the company itself never made more than a tenth of Scottish linen itself – it allowed the industry as a whole to grow. In the 1770s it decided to concentrate on its strengths and become entirely a bank.
Just as the credit advanced by Glasgow merchants had allowed for tobacco and sugar plantations in America and the Caribbean to expand ahead of each crop season, the credit advanced by the British Linen Company allowed for the creation of bleach-fields, as well as for cloth manufacturers in Scotland to fund every stage of the process. British Linen Company credit allowed manufacturers to buy stocks of foreign flax that they would take to the women who spun for them in the countryside; it allowed them to pay the women for the yarn to take to the weavers; and to pay those weavers for their cloth — all before any cloth was actually sold.19
Much the same can be said of how Scotland assembled the capital for its mills, mines, ironworks, farms, and a host of other trades,20 as well as how it built its infrastructure, from harbours, bridges, canals, and later railways, to city water supplies, street paving, hospitals, and civic buildings. When new industries were invented, it was Scottish capital that ensured the country pursued it on a large scale. The St Rollox chemical works in Glasgow, founded by a former weaver and bleacher, Charles Tennant, was in the 1830s and 40s reputedly the largest heavy chemical plant in the world.21
But even more fundamentally, Scotland’s unique financial system in the late eighteenth and early nineteenth centuries made it possible for ambitious individuals to borrow even when they owned no land, based only on the personal security of themselves and their guarantors, and so to raise the capital that merely their reputation, skill and acumen might command. Scotland was thus uniquely supportive of the ambitious “lad o’ pairts”, or of the artisan with a new idea for an invention, who wanted only capital to make it real. It was the obvious place, thanks to Samuel Smiles in the 1850s, to have spawned the entire literary genre of self-help.
As the benefits of Scotland’s financial system became increasingly obvious, it was soon regarded with envy elsewhere – especially to the south. The core elements of its banking were extended by legislation to the rest of the UK in the 1820s,22 and there were attempts in the 1850s to do the same for its debt-enforcement provisions, though these failed to get voted through.23 So Scotland eventually lost most, though not all, of its edge in marshaling wealth. Yet it retains that capacity to be different, more so now than even then. Perhaps it may do so again.
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Rab Houston, ‘The Literacy Myth?: Illiteracy in Scotland 1630-1760’, Past & Present, no. 96 (1982), pp.81–102
Rab Houston, Literacy in Early Modern Europe (Routledge, 2014), p.2
Rab Houston, ‘The Literacy Campaign in Scotland, 1560-1803’, in National Literacy Campaigns: Historical and Comparative Perspectives, ed. Robert F. Arnove and Harvey J. Graff (Springer Science & Business Media, 2013), p.57
'Elizabeth: December 1580', in Calendar of State Papers, Scotland: Volume 5, 1574-81, ed. William K Boyd (London, 1907), via British History Online, pp.544-569
Jacob M. Price, ‘The Rise of Glasgow in the Chesapeake Tobacco Trade, 1707-1775’, The William and Mary Quarterly 11, no. 2 (1954), pp.179–99
Harris, Hunter. ‘“Our Practice Has a Superiority:” Debt Enforcement, Bills of Exchange, and Credit in Eighteenth-Century Glasgow’. American Journal of Legal History 63, no. 2 (1 June 2023), pp.150–74
Devine, T. M. The Scottish Clearances: A History of the Dispossessed, 1600-1900 (Penguin UK, 2018), p.108, p.122. Devine notes that in 1750-1850 it was the fastest urbanising region in Europe, rather than the world, but I can think of no place outside of Europe that could have been urbanising as quickly.
Christopher A. Whatley, The Industrial Revolution in Scotland (Cambridge University Press, 1997), p.30
The quotation comes from William Cobbett as cited in Devine, The Scottish Clearances, p.126
An act of 1708, designed to shore up the Bank of England’s monopoly, banned its unchartered competitors from having more than six partners. This is often pointed to as a major difference between England and Scotland, but it does not seem to have been the main constraint in England, as only a tiny minority of English banks ever reached even five or six partners, let alone attempting to have more. Graeme G. Acheson, Hickson ,Charles R., and John D. and Turner, ‘Organisational Flexibility and Governance in a Civil-Law Regime: Scottish Partnership Banks during the Industrial Revolution’, Business History, 53.4 (2011), pp. 505–29 convincingly argue that the much bigger constraint was in how the English common law treated partnerships. See their paper for an overview.
S. G. Checkland, Scottish Banking: A History, 1695-1973 (Collins, 1975), p.63
Ibid. p.283
A key breakthrough here was a 1749 decision by the Court of Session, after which banknotes with denominations as low as a shilling began to circulate. A limit of £1 was imposed by statute in 1765, which being welcomed by the incumbent banks is sometimes portrayed as evidence of being a prudent policy. However, Goodspeed, Legislating instability: Adam Smith, free banking, and the financial crisis of 1772 (2016) provides evidence that this was supported by them as a self-interested and anti-competitive measure, bad for consumers and making the system less stable. Nonetheless, when the British parliament considered raising the limit further, to £5, this was protested by the Scottish banks and Scotland was exempted from statutes of 1775 and 1777, until the limit was lowered again in England and Wales to £1 in 1797.
Harris, Hunter. ‘“Our Practice Has a Superiority:” Debt Enforcement, Bills of Exchange, and Credit in Eighteenth-Century Glasgow’. American Journal of Legal History 63, no. 2 (1 June 2023), pp.150-174
T. M. Devine, ‘Sources of Capital for the Glasgow Tobacco Trade, c. 1740–1780’, Business History, 16.2 (1974), pp. 113–29; T. M. Devine, ‘The Colonial Trades and Industrial Investment in Scotland, c. 1700-1815’, The Economic History Review, 29.1 (1976), pp. 1–13; Jacob M. Price, ‘The Economic Growth of the Chesapeake and the European Market, 1697-1775’, The Journal of Economic History, 24.4 (1964), pp. 496–511
Alastair J. Durie, The Scottish Linen Industry in the Eighteenth Century (John Donald Publishers Ltd, 1979), pp.115-120
Ibid., pp.138-140
Checkland, pp.231-233
Whatley, p.30
Charles W. Munn, ‘The Emergence of Joint-Stock Banking in the British Isles a Comparative Approach’, Business History, 30.1 (1988), pp. 69–83
See Harris for details.
Interesting and well written! I would note that what you correctly identify as a “capital advantage” in Scotland was in fact inseparable from their lower case "d" democratic governance structures which were embedded law, finance, and civic institutions, and which dictated not just the availability of capital but also, super-importantly, decision making regarding its allocation and deployment pathways. Its the system's brain!
First, since I'm more interested in the history of ideas than economic and social history, I come to this with certain biases.
Very interesting to read Deirdre McCloskey on the nature of the industrial revolution today, emphasising that it was much more than an revolution in economic behaviour. It required a change in society so that it would support the continuous generation of economically useful knowledge and its diffusion through society. This is Joel Mokyr's distinction between propositional and prescriptive knowledge. I agree that the parochial school system was not especially important for this, but the development of the education, especially the modernisation of the university curriculum (looking to the Netherlands, then the richest place in the world), gave Scots a platform for the exploration of physical and medical sciences.
Beyond this, in the 1740s, there was the political disaster of the Jacobite rebellion - in response to which leading Scots quickly embraced the European Enlightenment project. Perhaps the Scots' genius was to embrace political liberalism and freedom of thought while actively debating what short of public institutions would support the country's social and economic development.
That provides some context for the development of banking systems. I think that there's one important point. Credit markets work best in conditions of high trust. Read Adam Smith (both "Theory of Moral Sentiments" and "The Wealth of Nations") and it is very clear that he thought of commercial activity very much in ethical terms. His theory of progress in "The Wealth of Nations" places capital accumulation at its heart. Much of the language seems loose to a modern economist, but he is very clear that capital accumulation enables increased labour productivity, higher wages, and greater spending - bringing larger returns to the owners of capital.
For these reasons, I think that Scotland was very well placed to develop a banking system which was effective in channeling capital to productive purposes.
I note someone else in the comments mentioned capitalism. Anachronistic, I think. Smith never used the term, writing instead about commercial society - which he knew well from his time as a professor in rapidly growing Glasgow.