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Although capitalism has been a dynamic society since its inception, the pace of technological and social change accelerated greatly during the 18th and 19th centuries during the Industrial Revolution. It is important not to equate capitalism with industrialization. Historically, the Industrial Revolution occurred long after capitalism began; indeed, for most of capitalism's history, it involved preindustrial forms of manufacturing, including artisanal, mercantile, and household types of production. However, starting in the mid-1800s, an explosive increase in the speed and productivity of capitalist production occurred that transformed the worlds of work, everyday life, and the global economy. Industrialization is a complex process that involves multiple transformations in inputs, outputs, and technologies. Three dimensions are particularly important here: inanimate energy, technological innovation, and productivity growth.

Inanimate Energy

If preindustrial societies relied on animate sources of energy (i.e., human and animal muscle power), industrialization can be defined loosely as the harnessing of inanimate sources of energy. The first of this type was running water in waterwheels, a source used since the late Middle Ages to grind corn and flour and to saw wood. Running water was a major source of energy during the earliest stages of the Industrial Revolution, but it required firms to locate near streams and rivers; moreover, most streams are ephemeral; that is, they do not flow all year long.

A more efficient source of inanimate energy involves the steam engine, the first of which was built by Scottish engineer James Watt in 1769 as part of an effort to expunge water from coal mines that reached under the ocean. The steam engine marked a turning point in the process of industrialization. Wood provided the first major source of fuel for this invention, which required heating water into steam to drive the engine's pistons. As producers began to cut down forests in Britain in large numbers, deforesting much of the country, wood supplies began to dwindle and the rising costs eroded profits. As wood became scarce, producers switched to coal. Thus, as Britain industrialized, several areas became major coal-producing centers, including Wales and Newcastle. As the Industrial Revolution spread across the face of Europe during the 19th century, the large coal deposits of the Northern European lowlands became increasingly important, fueling the growth of manufacturing complexes in Belgium, northern France, Germany, Poland, and the Ukraine. In the United States as well, Appalachian coal played a key role in the nation's industrialization. During the late 19th century, coal was joined by other fossil fuels, particularly petroleum and natural gas. The abundance of cheap energy was the lifeblood of industrialization, and production became increasingly energy intensive as a result.

Technological Innovation

The Industrial Revolution witnessed an explosive jump in the number, diversity, and applications of new technologies. A technology is a means of converting inputs to outputs. These can range from extremely simple to highly sophisticated. As industrialization produced an increasingly sophisticated division of labor, opportunities for new inventions rose rapidly. These were employed in agriculture, manufacturing, transportation and communications, and services.

During the Industrial Revolution, a major reorganization in the nature of work occurred with the development of the factory system and a far more detailed division of labor. Prior to this era, industrial work was organized on a small-scale basis, including home-based work. By the late 18th century, firms in different industries were grouping large numbers of workers together under one roof, a process that effectively created the industrial working class. Inside factories, workers used vast amounts of capital, that is, many types of machines. The introduction of interchangeable parts, invented by American gun maker Eli Whitney, made machines more reliable. By the early 20th century, Henry Ford introduced the moving conveyor belt, which further accelerated the tempo of work and the ability of workers to produce.

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