July 04, 2017
Tricked on the Fourth of July
Gary North
I do not celebrate the fourth of July. This goes back to a term paper I wrote in graduate school. It was on colonial taxation in the British North American colonies in 1775. Not counting local taxation, I discovered that the total burden of British imperial taxation was about 1% of national income. It may have been as high as 2.5% in the southern colonies.
In 2008, Alvin Rabushka's book of almost 1,000 pages appeared: Taxation in Colonial America (Princeton University Press). In a review published in the Business History Review, the reviewer summarizes the book's findings.
- Rabushka's most original and impressive contribution is his
measurement of tax rates and tax burdens. However, his estimate of
comparative trans-Atlantic tax burdens may be a bit of moving target. At
one point, he concludes that, in the period from 1764 to 1775, "the
nearly two million white colonists in America paid on the order of about
1 percent of the annual taxes levied on the roughly 8.5 million residents
of Britain, or one twenty-fifth, in per capita terms, not taking into
account the higher average income and consumption in the colonies"
(p. 729). Later, he writes that, on the eve of the Revolution,
"British tax burdens were ten or more times heavier than those in
the colonies" (p. 867). Other scholars may want to refine his
estimates, based on other archival sources, different treatment of
technical issues such as the adjustment of intercolonial and
trans-Atlantic comparisons for exchange rates, or new estimates of
comparative income and wealth. Nonetheless, no one is likely to challenge
his most important finding: the huge tax gap between the American
periphery and the core of the British Empire.
I will say it, loud and clear: the freest society on earth in 1775 was British North America, with the exception of the slave system. Anyone who was not a slave had incomparable freedom.
Jefferson wrote these words in the Declaration of Independence:
- The history of the present King of Great Britain is a history of
repeated injuries and usurpations, all having in direct object the
establishment of an absolute Tyranny over these States.
The Continental Congress declared independence on July 2, 1776. Some members signed the Declaration on July 4. The public in general believed the leaders at the Continental Congress. They did not understand what they were about to give up. They could not see what price in blood and treasure and debt they would soon pay. And they did not foresee the tax burden in the new nation after 1783.
In an article on taxation in that era, Rabushka gets to the point.
- Historians have written that taxes in the new American nation rose
and remained considerably higher, perhaps three times higher, than they
were under British rule. More money was required for national defense
than previously needed to defend the frontier from Indians and the
French, and the new nation faced other expenses.
The debt burden soared as soon as the Revolution began. Monetary inflation wiped out the currency system. Price controls in 1777 produced the debacle of Valley Forge. Percy Greaves, a disciple of Ludwig von Mises and for 17 years an attendee at his seminar, wrote this in 1972.
- Our Continental Congress first authorized the printing of Continental
notes in 1775. The Congress was warned against printing more and more of
them. In a 1776 pamphlet, Pelatiah Webster, America's first economist,
told his fellow men that Continental currency might soon become worthless
unless something was done to curb the further printing and issuance of
this paper money.
- The people and the Congress refused to listen to his wise advice. With more and more paper money in circulation, consumers kept bidding up prices. Pork rose from 4¢ to 8¢ a pound. Beef soared from about 4¢ to 100 a pound. As one historian tells us, "By November, 1777, commodity prices were 480% above the prewar average."
- The situation became so bad in Pennsylvania that the people and legislature of this state decided to try "a period of price control, limited to domestic commodities essential for the use of the army." It was thought that this would reduce the cost of feeding and supplying our Continental Army. It was expected to reduce the burden of war.
- The prices of uncontrolled, imported goods then went sky high, and it was almost impossible to buy any of the domestic commodities needed for the Army. The controls were quite arbitrary. Many farmers refused to sell their goods at the prescribed prices. Few would take the paper Continentals. Some, with large families to feed and clothe, sold their farm products stealthily to the British in return for gold. For it was only with gold that they could buy the necessities of life which they could not produce for themselves.
- On December 5, 1777, the Army's Quartermaster-General, refusing to pay more than the government-set prices, issued a statement from his Reading, Pennsylvania headquarters saying, "If the farmers do not like the prices allowed them for this produce let them choose men of more learning and understanding the next election."
- This was the winter of Valley Forge, the very nadir of American history. On December 23, 1777, George Washington wrote to the President of the Congress, "that, notwithstanding it is a standing order, and often repeated, that the troops shall always have two days' provisions by them, that they might be ready at any sudden call; yet an opportunity has scarcely ever offered, of taking an advantage of the enemy, that has not been either totally obstructed, or greatly impeded, on this account…. we have no less than two thousand eight hundred and ninety-eight men now in camp unfit for duty, because they are barefoot and otherwise naked…. I am now convinced beyond a doubt, that, unless some great and capital change suddenly takes place, this army must inevitably be reduced to one or other of these three things: starve, dissolve, or disperse in order to obtain subsistence in the best manner they can."
- The people and the Congress refused to listen to his wise advice. With more and more paper money in circulation, consumers kept bidding up prices. Pork rose from 4¢ to 8¢ a pound. Beef soared from about 4¢ to 100 a pound. As one historian tells us, "By November, 1777, commodity prices were 480% above the prewar average."
The proponents of independence invoked British tyranny in North America. There was no British tyranny, and surely not in North America.
In 1872, Frederick Engels wrote an article, " On Authority." He criticized anarchists, whom he called anti-authoritarians. His description of the authoritarian character of all armed revolutions should remind us of the costs of revolution.
- A revolution is certainly the most authoritarian thing there is; it
is the act whereby one part of the population imposes its will upon the
other part by means of rifles, bayonets and cannon -- authoritarian
means, if such there be at all; and if the victorious party does not want
to have fought in vain, it must maintain this rule by means of the terror
which its arms inspire in the reactionists.
The revolutionaries are not remembered as treasonous. John Harrington told us why sometime around 1600. "Treason doth never prosper: what's the reason? Why, if it prosper, none dare call it treason."
The victors write the history books.
What would libertarians -- even conservatives -- give today in order to return to an era in which the central government extracted 1% of the nation's wealth? Where there was no income tax?
Would they describe such a society as tyrannical?
That the largest signature on the Declaration of Independence was signed by the richest smuggler in North America was no coincidence. He was hopping mad. Parliament in 1773 had cut the tax on tea imported by the British East India Company, so the cost of British tea went lower than the smugglers' cost on non-British tea. This had cost Hancock a pretty penny. The Tea Party had stopped the unloading of the tea by throwing privately owned tea off a privately owned ship -- a ship in competition with Hancock's ships. The Boston Tea Party was, in fact, a well-organized protest against lower prices stemming from lower taxes.
So, once again, I shall not celebrate the fourth of July.
[Posted originally here: https://www.garynorth.com/public/8215.cfm]
https://www.garynorth.com/public/16833.cfm --
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