Tricked on the Fourth of Julyby Gary North
Jul. 04, 2011
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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.The colonists had a sweet deal in 1775. Great Britain was the second freest nation on earth. Switzerland was probably the most free nation, but I would be hard-pressed to identify any other nation in 1775 that was ahead of Great Britain. And in Great Britain's Empire, the colonists were by far the freest.
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.I can think of no more misleading political assessment uttered by any leader in the history of the United States. No words having such great impact historically in this nation were less true. No political bogeymen invoked by any political sect as "the liar of the century" ever said anything as verifiably false as these words.
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.So, as a result of the American Revolution, the tax burden tripled.
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.Only after the price control law was repealed in 1778 could the army buy goods again. But the hyperinflation of the continentals and state-issued currencies replaced the pre-Revolution system of silver currency: Spanish pieces of eight.
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.After the American Revolution, 46,000 American loyalists fled to Canada. They were not willing to swear allegiance to the new colonial governments. The retained their loyalty to the nation that had delivered to them the greatest liberty on earth. They had not committed treason.
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.
Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.
Copyright © 2011 Gary North