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There were 3 major types of transport that were improved during the indudustrial revolution: canals, roads and railways. Latter was the last one too be built (started around 1830s) and thus did not influence the start of IndRev, its economic effects were thus deemed to be different.
Before IndRev in 1750 trade was a mixture of fairs (trade was done in fairs, buyers and sellers agreed on a particular time), itinerant (merchants & peddlers moved around with poor and slow methods of transportation). Permant shops came to existence in 1750 in towns with fixed markets(always trade). Thus it became necessary for peoplel to travel to these shops from rural areas either to buy necessities(salt) or sell their aggricultural products.
Roads were poor before IndRev. Parishes were responible for the roads so only local people maintained them. Horses were widely used, e.g. to carry mail. Herds of animals were also taken along roads, but many died and they destroyed the road even further.
1760-70 started the major road improvements as the turnpipe trusts came to existence. These were essentially local people who formed very little businesses that charged people for going thrugh small pieces of road. There wer eprofit made from getting food to town, so people could afford the tax, and started travelling more often. Extra money enabled roads be surfaced by tarmak. By1750-60 road service was regular systematic and numerous, but slow.
Although tax had to be paid the actual unit costs of getting food to inland fell as the travelling times shortened, no. of breakdowns decreased and the food spoilage was minimised before it reaced towns or inland. This only mattered much when the demand for a good was more price elastic as then the volume could increase. Also the amount that transport costs were in proportion to other costs was important, it turned out that mostly low bulk high value goods were transported by roads and thus the effect should not be over-amplified.
The bottlenecks in the road system were also prevented as when they occured people could build extra/wider roads and make more money. Roadmaking increased demand for workers, bridge widening was an example of frequently needed job.
Growing number of roads increased the number of Inns were people could stop. They became local trading places as well as farmers could display their products in special rooms in them et. Turnpiking gave money for signposting. The vechile building was increased and soon steel wheels were introduced for extra comfort. Demand for horses increased, they required hay and oats and thus the demand for aggricultural products was increased as well.
The speed of transport grew too. Soon regular coaches were starting to run. They could change horses in predetermined places, so no time was wasten. It has been estimated that the traveling times in 1830 were only 1/3-1/5 of 1750. It doesn't show the actual costs as prices varied and were generally expensive (16s for inside travel London-Manchester) but as very little input was needed virtually everyone could start a coach service, thus it became highly competitive market with price wars etc. Post coaches were introduced instead of horses. They did not have to pay tolls and were very fast. They could also carry passangers in a hurry. Newspapers and businessman sending back and receiving orders were the ones that benefited most and became more efficient besides the postal service. Post become more secure and insurance schemes were started too.
Coach service had to be highly organised in order to make sure that fresh horses were always available. People who did not want to travel at night could stay in an Inn and a place had to be secured for the morning coach. Different coach firms had a pool of money for clearing according to mileage when people who had bought a ticjet from one coach firm used the other.
Coaches were stil mainly used to get to London, very few were provicial. They helped to spread London culture and new ideas quicker among other things.
Transportation and travelling was still a luxury. It had an elastic demand and improved the welfare of middle classes. Travelling was used for leisure,but only very rich could afford and it was not very comfortable. Distances travelled tended to be much shorter than those by canal or rail. In fact roads beneefited much and were widelly used latter on to get the goods to canals and railways, so it served more as a short distance travelling mean due to its high cost, but reachability to everywhere.
The second main improvements were made in the inland wter system. Early 18 century only 1 river was navigatable, others needed river improvements (locks, etc.) These improvements required capital, but interest rates were high. 1st improvement happened in 1710, they generally occured around towns needing food supply and emerged near large farmowners. Rivers were improved to move grain abroad. But several placed had no rivers and the transportation to London was very roundabout.
So in 1755 first dead water canal was opened. It was financed by salt merchants. Next canals were to develop coalfields. They were very costly (Trent & Mersey £300 000), but still much cheaper than the railways latter on. Thus large sums of capital was needed and the capital market in England started to develop and first joint-stock companies emerged. But shares were only dealed locally, the first canal firm to be listeed in London stock-exchange was only in 1811.
After a sslow start in 1750s, in 1760-70 came canal mania reaching highpoint in 1790. Then speculators started to buy shares to gain from their price fluctuatiions.But large empires were never estabilisheed in canals as was in railways later on.
In 1815 steam was introduced and altogether 4000 miles of canals were built. Latter canals had higher building costs (had to be built to unfavourable places) and lower returns (because of competition) and thus gave disappointing dividents and many were not finnished at all. Also too much divident was paid and not ploughed back for further improvements.
Canals had two major types of economic effects. Their development created demand for civil- engineers, they gave income to navigators, who built them and machienery was also needed for locks, etc. Warehouses and factories were built near banks, inland harbors gained access to outside and were thus improved, even new towns (St Helens) emerged to traffic junctions. Road traffic was also increased and many invetions were pioneered by civil engineers (e.g. tunnels) that could be used for railways later on. Employment was increased at the beginning because canals were built and latter on as someone had to sail the ships. Wages were generally good before railways, but dropped in 1840s. Canal companies were itself not allowed to employ shipmen as they were natural monopoly and could have used ships to bid up price.
Secondly economic effects rose from the fact that canals existed. They were mainly used to increase long-distance low value trafic, so heavy manufacture benefited most and light industry was not much affected, but the overall improvements in economy stimulated the high-value good traffic as well. Many industries become possible (ie chemicals, but not cotton).
Charges on canals were low (although calculations have exluded lower breakdowns and the cost of getting to canal). It has been estimated that a 1/4 to 1/5 less had to be paid compared to roads. This fell even further when competition from railways came.
Canals benefited coal transport a lot. Larger areas gained access to it and it was also cheaper. Inland coalfields (Derbyshire) could be exploited more fully. At the beginning though no coal reached London as local manufactures keeped it out. Lime, manure, corn, iron, sand, gravel, stones, bricks and timber were aldo transported. Thus urbanisation was much lesss painfull and building was cheaper, aggriculture benefited, too. Passangers were also carried at certain placed but as a whole the canal network was not suitable for this due to its slow speed. Rural life was developed dually- essential imports for arable communities could be provided and they had more opportunities to dispose off their products.
Railways were the last means of travel to improve during the IndRev. First modern railway in Liverpool was open in 1830. There were some wooden railways to carry coal before. They were horse drawn, first passanger was carried in 1807, first steam (although too heavy) railway in 1800, the boom were around 1840s and by 1860 the building had almost finnished.
Railways had, different to other means, immediate success in passanger carrying, although they had been built to move freight. So railways were making profits directly not through long-term benefits. The revenue from carring freight did not exceed that of passsangers before 1850. The freight that was carried was mostly low-bulk high value goods, because railway was so cheap.
There were major cost reduction in personal travel and the quality of travel was extended. The travel became available for lower classes too as managers realised it was more profitable to get the trains full, so the third class tickets were priced cheaply. Travel became a necessety for rich and businessman. This all had a large social impact and large social savings were made as the demand tended to be income and price elastic. People were also getting to know their country. Even time had to be Greenwiched because of railways.
New economists have tried to calculate the effects of railways. According to O'Brien they use 3 types of arguments: counterfactuals (how would the situation be different without railways, problem is that this is based on indirect evidence), social rate of return on investment (the impact to whole economy not just the railway firm is taken into account) and the social savings made. Hawke calculated the effect on GDP arising from the later. He looked the acttual cost of carrying passangers in 1865 and compared it to cost that would have been without railways. He found that this was 7% lower for passangers and 45% for freight. Upper bound was 11% of GDP, for 1850 around 2.5-6.5% so the effects of railways decreased affter the boom. Problems eith social savings are, that it does not measure the actual contribution, you get the %age of gdp that would have been diverted. Canal and wagon costs would not be the same without railways and it is questionable whether the canals and road system could be updated to necessary standard without congestion cost. Traffic would also not go through the same routes, so real cost would be even lower. So Hawke's study was not so accurate and the IndRev would probably have happened without railways. He mixed up the comparison between the post-wagon passangers and 1st class traveles, etc.
There are not many ways that a reduction in transport costs can improve production. Impperical evidence suggest that Transport changed already earlier and microeconomic aspects of inventions (ie how to adapt major invention in firm base) were more important than the macroeconomic ones (ie major inventions themselves). But railways did force exiisting canal firms to lower their costs and become more efficient.
Effects on railways can also be divided broadly to 2: effects arising from their building and from their actual existence (this was mainly the cost reduction and passangers).
Large amounts of capital was needed to finance the building of railways. So new joint-stock companies were formed and the capital market was extensively developed (e.g. prefference shares were intorduced). Railways were the pioners of modern business organisation, professional management could be used because of the large scale. In its peak the investment reached 6.7% of GDP and was aroun 2% from 1838 onwards. Small investors were still not reached as the nominal value of shares were high. Also by 1840 UK had mostly industrialised and railways had little effect on industrialisation. Capital investment did not vary with the trade cycle, but more like followed it with a lag and thus helped to stabilise the economy.
The scale of building was far greater than that of canals (contracts were exceeding £3m). New mechanical-engineers were demanded to build engines, etc. Engineering sector was tiny before railways. They did not expand the existing bits, but created new sections to it. Although the effect of all that building never reached above 7% of GDP, so it could have not been that major. Also regional discrepancies were great (South-Wales having more building and Scotland less).
The employment was greatly enchanged. It was mainly the low skill worrkers who got the job. It also did not have a remarcable effect on other industries as many people were unemployed and there was emmigration from Ireland. After the construction had finnished in 1850 the unemployment did not rise as people stayed on running the trains or went abroad to built railways. This had another major advantages for UK as its profits helped to countereffect the visible trade deficit as the building works (eg in USA) were financed by the British capital. Also the patterns changed and the contractors were increasingly large firms in national level who carried out the work (unlike in canals building). Labour market became more flexible and skilled as a consequence (their were once mobilised and they got the working experience).
There was also a major organisational problem arising from the fact that for security reasons railways had to be a monopoly. So state started regulating the traffic to avoid accidents.
Last 2 points were also existing after the railways were built, but their major effects afterwards was to release the working capital in use and thus provide themselves also with extra finance. Basically speed improved and merchants had to keep less stock. Actual carriage costs were not reduced much. There were no main new inventions introduced, only efficiency was greatly improved. Only exception was the introducion of coal transport.
Railway provided open markets and profits could be maximised. Trains charged higher costs for local travel and lower for long distance so that the local coal (who benefited very much from railways) could be competitive further away.
Raw materials could be transported a lot further away. Thus industry could concentrate and grow bigger. Massive economies of scale followed that among the other things made goods cheaper and easier to export.
1830 first mail train came and the service went a lot faster again, this caused a flall in the newspaper prices. Foods transport also benefited as much was lost during travelling beforehand.
The demand for timber and bricks were also increased, although again effect was not that great in national level. Tracs demanded iron as well and in that sector their demand dominated the home market.
New habits of saving were also introduced. Rather than leaving it all to banks or hoarding it it was invested to railways. Savings rose to 10% of the GDP and were retained in the UK.
So railways were mainly unique because of their wwhole idea of national union, extensive construction, improvements mainly in passanger travel and the whole new method of financing them that changed the whole financial market.