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Tricked on the Fourth of July
by Gary North
Recently by Gary North:Never Say Retire
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 theBusiness 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 saidanything as verifiably false as these words.
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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.
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 ofthis 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, orgreatly impeded, on this account. we have no less than two thousand eight
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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."
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 thereactionists.
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 teaoff 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.
July 4, 2011
Gary North [send him mail] is the author ofMises on Money. Visit
http://www.garynorth.com.He is also the author of a free 20-volume series, An EconomicCommentary on the Bible.
Copyright 2011 Gary North
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