There are generally two schools of thought on this, the first stemming from Weber (as mentioned by the earlier commenter), or a more technological explanation of the rise of capitalism (specifically in Britain). Here is my take:

We will consider the question of Weber versus Malthus in the context of improving living standards in Britain during the 19th century. The key issue will be to determine the role of culture in distinguishing Britain as the leader in the industrial revolution, and specifically whether culture can explain the movement from a Malthusian world with stagnant living standards to the modern growth model of steadily increasing living standards. We define a Malthusian world as one with fixed land endowments and marginally advancing technology (Galor, Weil, 1999). Technological advancement brings about an increase in standard of living and, because standard of living is positively correlated with growth rate, the population increases in size. Importantly, Malthus suggested that population growth will exactly offset increases in GDP, bringing living standards (approximated by GDP/capita) back to pre-advancement levels. In a Malthusian trap, a state cannot increase its living standards in the long run; any increase in technology simply brings about a new equilibrium with more people but the same GDP per capita. The industrial revolution could be defined as the time period in which Britain was able to lead the way out of the trap, to increase their standard of living substantially higher than historical levels. Max Weber, in his book The Protestant Ethic and the Spirit of Capitalism (1905), suggests that differences in culture can serve as an explanation for differences in economic growth rate. Specifically, that a culture of entrepreneurship promotes investment and technological advancement. The purpose of this paper will not to be to analyze Weber’s work in any detail. Instead, it will use Weber’s name as a representation of a school of thought, one wherein economic growth can come endogenously from culture. By exploring the various explanations of what distinguished Britain as the first country to industrialize, this paper shows that it was not Britain’s culture that distinguished it from the rest of Western Europe, but instead it was superior institutions that set the groundwork for industrialization. Many of the papers to be discussed attempt to prove the importance of a certain, specific, factor in promoting economic growth. The aspiration of this paper is to connect some of these factors together to create a holistic story of how Britain escaped the Malthusian trap. By tracing previously researched factors back to institutional roots, we hope to prove the importance of institutions and by implication, the secondary role of culture in creating GDP per capita growth.

We will use a sort of backwards path from effect to cause to trace improvements in GDP per capita to their original source, starting with the importance of trans-Atlantic trade in Britain in the 19th century. Before the mid-19th century, the wage to land rents ratio was shrinking in the UK (O’Rourke, Williamson, 2005). This is significant because it is consistent with “a Malthusian world in which an increasing population pressed on a quasi-fixed land endowment, to the benefit of landlords” (O’Rourke, Williamson, 2005). A shrinking wage to land rent ratio signifies growing inequality, as landowners benefit from the higher rents while workers wage growth remains slow. O’Rourke and Williamson find that at some point during the 19th century this trend switched, and the wage to land rent ratio began to grow. The purpose of their 2005 paper was to determine how much of this reversal can be attributed to the onset of freer trade in Britain and how much was due to industrialization and technological advancement. The traditional technological view would suggest that the wage-land ratio started to rise as technology increased worker productivity. The increase in productivity would have naturally drawn workers out of the country and into the cities, “raising wages, lowering rents, and inflating the ratio of wages to rents” (O’Rourke, Williamson, 2005). However, O’Rourke and Williamson point out that many of the technological advancements of the early 19th century were labor saving and land using. They found that the wage-rent ratio was negatively correlated to agricultural productivity. If a technological advancement increased agricultural productivity it softened the demand for labor, explaining the negative correlation with the wage-rent ratio. It is for this reason that technological advancement could previously have been overestimated as a driver of increased living standards during the 19th century.

O’Rourke and Williamson propose that international trade decoupled factor prices from English endowments. This decoupling allowed factor prices to drop, making commodity prices exogenous to the British economy. We can interpret the pre-mid-19th century decline in the wage-rent ratio as an increase in the relative scarcity of land in Britain. As a small country, Britain was relatively poorly endowed in land compared to most of the rest of the world, and importantly to many of its historical trading partners. The Heckscher-Ohlin model gives us intuition about what how goods will be exchanged between two countries with differing factor endowments. Britain, with its relatively low endowment of land, will naturally import land-intensive goods. Driving this trade is simply the fact that land-intensive goods are cheaper to produce wherever rents are lower. By importing land-intensive goods at a lower price, Britain is effectively importing land. In a world with zero barriers to trade, i.e. no transportation costs or tariffs, we may expect factor-price equalization between two trading countries. However at the start of the 19th century, Britain had in place significant tariffs on trade, as high as 71 percent in 1815 (O’Rourke, Williamson, 2005). These tariffs prevented foreign goods of any kind to be imported cheaply, keeping factor prices dependent on domestic resources. In a movement from mercantilism to trade liberalism, Britain lowered its import tariffs over the course of the 19th century, eventually leading to “virtually free trade in 1846” (O’Rourke, Williamson, 2005). At the same time, technological advancements in the steam engine were making trans-Atlantic transport cheaper. The combined effect of these two barriers to trade dwindling was that land-intensive goods could be imported to England relatively cheaply, effectively increasing Britain’s land endowment. O’Rourke and Williamson line up the liberalization of trade with the change from decreasing to increasing wage-rent ratios, suggesting that trade had a significant effect on living standards. Britain’s increasing wage-rent ratio following the onset of free trade stresses the importance of institutions on GDP per capita growth.