The Founding of the American Republic 6; C. Carson

Some historians have gone so far as to charge that American debt ors with the desire to rid them selves of pressing British credi tors stirred up resistance and brought off a revolution. Those looking for a class struggle expla nation of the conflict have tried to make the revolt against Britain a part of an internal struggle beDr. Carson lives in Florida. He is a noted lec turer and author, his latest book entitled Throttling the Railroads.

1972 THE MERCANTILE IMPASSE 43 tween the haves and have-nots. In short, almost every interpretation that could be imagined has been offered, and many of these have been buttressed by impressive arguments and such evidence as fitted them. One thing· is about as clear as such things can ever be: mercan tilist acts did not provoke the ini tial resistance in the mid-1760's. The Stamp Act of 1765 was not a mercantilist act, nor was the Sugar Act of 1764 primarily mer cantilistic. Indeed, the Sugar Act altered some of the original mer cantilist features of the Molasses Act of an earlier date. Moreover, there had been mercantilist re strictions on the American colo... nists for more than a century, and none of these had provoked violent resistance. There can be no doubt that colonists were long since used to mercantilist restrictions, and peoples are unlikely to revolt against that to which they have become accustomed. The fact is that when representatives of the coloni~ts gathered at the Stamp Act Congress to air their griev ances, they announced that what they fundamentally opposed was "taxation without representation"

a, thing contrary to the British constitution. They readily granted - at first - that Britain had the right to regulate their commerce. It follows, then, that the immediate provocation to resistance was not mercantilist measures. But this is only to look at things from the surface and to wrench them out of a much broader his torical context where they belong. Suppose that instead of asking why and what the colonists re sisted we ask why the British per sisted in passing measures which provoked the colonists. More di rectly, why did Parliament at tempt to raise revenues from the colonies in ways that departed from custom and long established policy? Why did they lay direct and indirect taxes on the colonies? For Revenue Only The answers to these questions are not far to seek. The British government was in dire need of new sources of revenue. The wa.rs of the eighteenth century had been highly expensive, and the indebt edness of the government was mounting. The debt in 1755 - just prior to the Seven Year's War (or French and Indian War as it was known in America) - stood at about £ 75,000,000. By 1766 it had mounted to £ 133,000,000.1 The British people were heavily taxed, and new taxes were being added. The reaction in the mother country to an added tax on do1 Lawrence H. Gipson, The Coming of the Revolution (New York: Harper Torch books, 1962), pp. 55-56.

44 THE FREEMAN January mestic cider is instructive. "The news of the passing of the cider act was the signal for 'tumults and riots' in the apple-growing countries of England, and many producers of cider threatened to cut down their orchards if the ex cise were collected."2 In short, the heavily-taxed British were in no mood to accept additional burdens. By contrast, American colonists were generally lightly taxed, and several colonies had no govern ment debt to speak of. For ex ample, one historian describes the situation in Pennsylvania in this way: "Not only were the inhabit ants relieved of all ordinary charges of government during the years 1760-63 but, aside from a revived excise tax on liquors, they also enjoyed such relief during the remainder of the period down to the Revolution. Moreover, the personal and estate taxes ... rep resented a per capita levy of less than one shilling ..." by 1775.3 A report from Maryland in 1767 in dicated that "all levies for the support of the provincial govern ment - in contrast to those for the support of the clergy, the schools, and other county and parish charges - amounted to less than £ 5,500, an annual per capita tax of about a shilling."4 Though not 2 Ibid., p. 58.

3 Ibid., p. 136. 4 Ibid., p. 138. all the colonies had such a pleasant tax situation, neither was it gen erally unpleasant. On top of this, colonial governments had been re imbursed for their military out lays during the French and In dian War. If these conditions be accepted at face value, if there be no look ing behind them, it would appear that the case for Britain's taxing the colonists would· certainly ·be understandable and probably justi fiable. But the situation does war rant an examination of the back ground. British taxation of the colonists broke a long-term con tract with them - so the colonists said - and heralded a major policy turn. Back of this policy shift were the mercantilistic policies and practices which had produced a domestic crisis for the British which their government tried to relieve by bringing pressure on the colonies. Bitter Fruits of a Long History of Mercantilism The contradictions of mercan tilism had produced a long harvest of bitter fruit, some of which the British government and people were no longer willing to accept.

No more, in justice, could the American colonists be expected to accept them. It is true that the debates of the 1760's and 1770's were not usually conducted in 1972 THE MERCANTILE IMPASSE 45 terms of mercantile policy. The contradictions were there, and policy changes should be viewed in the light of them. During this time; Adam Smith was putting to gether his monumental work, The Wealth of Nations, which laid bare the fallacies and contradic tions of mercantilism. It may be accounted appropriate, too, that this work appeared in print in 1776, the same year as the Dec laration of Independence. A little exa,mination into British mercan tilism will show its role in pro ducing an impasse between Britain and America. Mercantilism was a composite of ideas and practices which had grown helter-skelter over a couple of centuries before the revolt in the American colonies. Most of the ideas were formulated in the seventeenth and eighteenth cen turies, but some of the practices associated with it are much· older.

The theory of mercantilism was the first faltering effort at devis ing a general theory of economics in the modern era. As some think ers cut loose from a Christian framework and attempted to look at things naturally, they devised a crude economics to fit new pre conceptions. The theory was weighted down with two assump tions, however, which were cul tural in origin rather than natu ral. Measured in Gold The first of these assumptions was made up largeiy of what is commonly called the bullion theory. Bullionism is· the notion that wealth consists of precious metals, particularly gold, and that the value of everything else derives from the fact that precious metals will be exchanged for it. It is un derstandable that men should ha:ve come to think. in this way. Gold was the most universally accept able medium of exchange in both East and West. It hardly deterio rates; it weighs little in propor tion to its exchange value for other things; it has many practi cal uses; and it is malleable. Men ever and again mistake money, because it can be exchanged for goods, for the source of the value which their demand gives to the goods. Small wonder, then, they should make this confusion about gold when gold is valued as a com modity as well as a medium of exchange.

The second major assumption of mercantilism was nationalistic. That is, mercantilists thought ex clusively about how a single na tion might enhance its wealth by increasing its supply of gold. One nation's wealth, as they saw it, was usually gained at the expense of another nation. Ordinarily, one nation gains gold from another nation which is losing its supply.

46 THE FREEMAN January (It is interesting to speculate that mercantilistic theory and practice may well have been born out of the intense desire of many coun tries to separate the Spanish from the great hordes of gold they had found in the Americas.) Accord ing to the bullion theory, then, one nation's wealth is increased by diminishing that of another. Intergovernmental Affairs The thrust of mercantilism was to make trade into a contest among the governments of na tions. This was so because trade was now conceived of as a poten tial means for increasing the bul lion holdings of a nation. This. would be accomplished, according to mercantilists, by way of a fa vorable balance of trade. A favor able balance of trade is said to ex ist when the goods and services which one nation sold to another exceeded those bought from the other. In brief, a nation had a fa vorable balance of trade when ex ports exceeded imports. This was thought to be "favorable" because the difference would be made up in gold and the "wealth" of the nation thus favored would be aug mented.A nation which imported more than it exported would, of course, have an unfavorable bal ance of trade.

Numerous practices which might help a nation to get a fa:vorable balance of trade were con trived or justified by this theory. The practices were usually aimed at increasing exports and decreas ing imports. Imports could be de creased if more of the goods con sumed in a country were produced there. To that end governments encouraged manufacturing by spe cial charters and encouraged the growing of certain crops by sub sidies and bounties. Of course, im ports were more directly discour aged by tariffs, quotas, and dis criminatory charges levied against foreign suppliers. Similar prac tices also might help a country to increase its exports. Colonies were conceived of as being particularly valuable in en hancing the wea1th of a nation. Frequently wanted were raw ma terials for manufacturing as well as produce which could not be grown economically at home. If such exotic products could be ac quired from colonies they need not be imported from some other country. In addition to this, a colony might have an unfavorable balance of trade with the mother country and thus be a source of the precious metals it would send to make up the trade deficit.

The American continental colo nies were part of a British empire which had been shaped in the seventeenth and eighteenth cen turies as a result of the mercan1972 THE MERCANTILE IMPASSE 47 tile policies of England. Initially, the kings of England had at tempted to plant and benefit from colonies by granting them as mo nopolies to private companies and proprietors. These companies and indi viduals were empowered to regulate the activities of those who came over so that the undertak ings would benefit the owners and, perchance, enhance the wealth and power of England. Things did not work out that way very consist ently. Colonists frequently cared little enough about whether they benefited the original charter hold ers or not; instead, they concen trated their efforts on doing what was to their own benefit. Moreover, as colonists gained some measure of control over their governments, they often enacted their own mer cantile policies with the intent of making a colony self-sufficient. 5 Such action ran counter to British aims, of course.

Acts of Intervention By the mid-seventeenth century, then, Britain was ready to begin to impose a general system of mer cantile restrictions on the colo nists. The most general of the mercan tile acts are those known as the 5 See E. A. J. Johnson, American Eco nomic Thought in the Seventeenth Cen tury (New York: Russell and Russell, 1961), pp. 8-29. Navigation Acts. A series of these acts was passed over the years from 1651 through 1663. The num ber of acts passed was increased beca use legislation passed in the 1650's was considered invalid after the restoration of monarchy in 1660. This being the case, the later a.cts are the only ones that need concern us here. The Navigation Act of 1660 - re-enacted in 1661 - required that all trade with the colonies be carried in English built ships which were manned predominantly by Englishmen. "English" was defined for this purpose to include the inhabitants of the colonies. All foreign mer chants were excluded from the commerce of the English colonies, and certain enumerated articles, e. g., tobacco, could only be ex ported from the colonies to Britain or British possessions. The Staple Act of 1663 provided that goods to be exported from European countries to English colonies must first be shipped to England.

"These acts intended to give England a monopoly of the trade of· her colonies," one historian notes: - not a monopoly to particular per sons, but a national monopoly .in which all English merchants should share. The Staple Act meant not only that English merchants would get the business of selling to the colonies but also that English manufacturers 48 THE FREEMAN January might dispose of their wares at an advantage in that the foreign goods which had to pass through England en route to the colonies might be taxed, therehy raising their prices and enahling English goods to under sell them. Similarly, the enumerated article principle assured that most of the colonial staples important to England would he exported hy Eng lish merchants, who were also guar anteed employment for their vessels through the exclusion of foreign ves sels from the English colonies. 6 Parliament passed another Nav igation Act in 1696, but it was only an effort to tighten the ad ministration of existing law rather than to add new features. 7 British legislation also at tempted to prevent certain kinds of manufacturing and trade from developing in the colonies. The Woolens Act of 1699 prohibIted the export of wool or woolen goods from a colony either to other colo nies or to other countries. The Hat Act of 1732 prohibited the expor tation of hats from the colony in which they were made and lim ited the number of apprentices a hatmaker might have. The Mo lasses Act of 1733 placed high duties on molasses, sugar, and rum imported into the colonies from any source other than Brit6 Curtis P. Nettels, The Roots of Amer ican Civilization (New York: Appleton Century-Crofts, 1963, 2nd ed.), p. 283.

7 Ibid., p. 375. ish colonies. This was an attempt to give the British West Indies a virtual monopoly of the trade. It may also have been intended to increase income from the tariff or to reduce the shipping activities of New Englanders. The Iron Act of 1750 permitted pig iron to be exported from the colonies to Eng land duty free but prohibited the erection of new iron mills for the finishing of products in the col onies. There were other types of mer cantile regulations than those above. Over the years, it was us ually illegal for specie (gold coins) to be exported from England to the colonies. The British tried to encourage production of wanted goods in the colonies by paying bounties. For example, the British government paid these premiums to importers of colonial naval stores: "£4 a ton for pitch and tar; £3 a ton for resin and tur pentine; £6 a ton for hemp; and £1 a ton for masts, yards, and bowsprits."s The purpose of all these regula tions and restrictions was to make the colonies profitable to Britain of course. To that end, the col~ onists were encouraged to produce goods which could not be compet itively produced in England, dis couraged to compete with the mother country, encouraged to 8 Ibid., p. 434.

1972 THE MERCANTILE IMPASSE 49 send specie to England, discour aged from receiving specie from that country, and discouraged from developing markets in Amer ica which could serve either Eng land or other countries. There were, however, many unwanted side effects of these policies. They are commonly referred to as the inner contradictions of mercan tilism. The Road to War The most dire result of mer cantilism was war. Indeed, some believe that mercantilism did not so much lead to war as war led to mercantilism. One writer says that the "needs of constant war fare, especially its costs, had en couraged every power to develop and marshall its resources, at tempting to become self-sufficient, especially in the sinews of war. . . . This economic nationalism, generally described as m,ercan tilism, is less a theory than a weapon - the use of economic means to serve political ends."9 There is no doubt that mercantil ist methods were used sometimes in warfare, but the usual causal relation is the other way around.

Mercantilism ranges government power behind the commercial ac tivities of a nation, uses govern9 Engen Weber, A Modern History of Europe (New York: Norton, 1971), pp. 145-46. ment power to support the mer chants of a nation against those of other nations, prohibits trade activities of '. foreigners in order to give advantages to native trades men. In order to support or pro tect their tradesmen, other nations .retalia ted with similar restrictions and sought colonies which would be protected trade areas for their people. If tr~de is free, competi tion is peaceful, but mercantilism shifts the contest into the-, realm of governmental power. When gov ernments contest for advantage in this way they are moving in the direction of the ultimate recourse -war. Such were the results of mer cantilism in the seventeenth and eighteenth centuries. War followed upon war with monotonous regu larity as naval and colonial pow ers contested with one another for dominance and advantages.

The wars between the British and Dutch in the, mid-seventeenth cen tury were clear ly mercantile in origin' and character. Nettels notes that the Navigation Act of 1651 "precipitated the First Anglo Dutch War of 1652-54."10 Further, 4e says that the "acts of 1660-63 threatened to exclude the Dutch completely from the English col onies and consequently new fuel was added to the old rivalry. In 1664 occurred the Second Anglo10 Nettels, Ope cit., p. 281.

50 THE FREEMAN January Dutch Wa.r.... "11 It was not sim ply incidental, either, that during this conflict the English gained control of the Middle Colonies in America. A third war br0ke out in 1672. "Although a Dutch fleet recaptured New Amsterdam in August 1673 the treaty of peace in 1674 once more restored it to Eng land - an act which marked the passing of the Dutch menace to England's North American trade."12 Impact on the Colonies Unfortunately, it did not end the rivalry in North America nor the train of mercantilistic wars. France was now emerging in the latter part of the seventeenth cen tury as a major power under the aggressive leadership of Louis XIV. Louis courted English mon archs so that they would allow him room to operate to fulfill his am bitions on the continent of Europe. The courtship may have been the undoing of Charles II and James II ; at any rate, it came to an end with the Glorious Revolution in 1688.

A Dutchman, William of Orange, became William III of England and joint ruler with his wife Mary during the rest of her lifetime. In very short order, Britain went to war with France (King William's War) and by so doing began a se11 Ibid., p. 283. 12 Ibid., p. 284. ries of conflicts with that nation which did not finally end until the Congress of Vienna in 1815. Since other nations and their posses sions were usually involved in these conflicts between England and France, these wars may well be called world wars. While King William's War of the 1690's was ostensibly fought to maintain a balance of power in Europe, the colonies were at stake, also, at least potentially. One his tory indicates that in issuing his declaration of war "William took cognizance of the offenses of Louis' subjects in America against the English colonies there - in New foundland, in Hudson Bay, in the West Indies, in New York, and in Nova Scotia."13 Though there was considerable fighting in America, there were no significant territo rial changes as a result of that war.

Maps of North America show ing territorial possessions of Eu ropean powers and changes in them from 1700-1763 indicate something of the bearing of the colonial situation on the great wars of this period. In 1700, the English held only a relatively nar row strip of the eastern coast of North America from New Eng13 Max Savelle and Robert Middle kauff, A History of Colonial America (New York: Holt, Rinehart and Winston, 1964, rev. ed.), p. 261.

1972 THE'MERCANTILE IMPASSE 51 land to Georgia, with claims run,ning back to the Appalachian mountain chain generally. Most of the territory which is now Canada was then claimed by France, along with the vast hinterland region drained by the Mississippi River. South and west of these were the extensive Spanish possessions. The English hold on the continent was still precarious, and the colonies were surrounded except on the side of the Atlantic Ocean. by ter ritory claimed by other European powers. This situation would be drama tically altered by 1763 as a result of the wars. A Struggle for Control The War of the Spanish Succes sion (1702-13, known in England as Queen Anne's War) was fought over issues which were tied to the question of who would dominate the Americas. Louis XIV was de termined that his grandson should become king of Spain immediately and should eventually succeed him to the throne of France. This would not only bring under one person two great powers in Eu rope but would also link two mas sive empires in America. This was an intolerable prospect for Eng land. As one history puts the mat ter: "For Holland and England, it was a war over colonies and trade.

These two countries were deter mined to prevent a union of the French and Spanish crowns; but they were above all determined to prevent France from getting into a position to block their own com mercial and territorial ambitions in America."14 At the conclusion of the war, provisions were made for perpetual separation of the French and Spanish crowns, and Britain gained new territory in America: Newfoundland, Acadia, and the Hudson Bay territory. England got involved in war with Spain in 1739, known as the War of Jenkin's Ear, and a part of the struggle was over possession of Georgia. There was some fighting in America, but it was very lim ited, for the conflict shifted to Europe and the more general con vulsion known as the War of the Austrian Succession (1740-48) . This war did not result in any ter ritorial changes, though there were changes in alliances on the continent of Europe which af fected future events.

The peace that followed this second of world wars in the eight eenth century was unusually brief. The French and Indian War broke out in America, 1754; it involved most· basically a contest over terri tory in what is now western Penn sylvania between the French and Indians on the one hand and the British and English Am'ericans on the other. As an extension of this 14 Ibid., p. 265.

52 THE FllEEMAN January conflict, a general war broke out in Europe in 1756, known as the Seven Year's War. A major con flict continued in America, reach ing its climax with the Battle of Quebec in 1759. There the British forces decisively defeated the French. By the Treaty of Paris of 1763, the British got all the French Canadian holdings and French and Spanish territory east of the Mississippi. Triumphant, and Broke The British had apparently emerged triumphant in these wars against France. The American col onies now had an extensive do main to be opened up and exploit ed; it was a long way to the frontiers of any other European colonial power. A vast British em pire had been acquired and was ready for the shaping. So it may have looked to an im perialist, but the British Parlia ment and people were confronted with grave difficulties in the wake of the apparent triumph. There was, as earlier told, a huge debt in England in 1763 as a result of the wars. It was a debt of a size that would most likely dwarf all the profits gained thus far from mer cantilist policies. But even if the balance books had stood otherwise, the contradictions of mercantil ism would still, most likely, have produced an impasse.

One of the fallacies of mercan tilism is that the wealth within a nation constitutes the wealth of a nation. Wealth in Britain was not distributed among the inhabitants equally but individually possessed. Undoubtedly, some merchants, manufacturers, shippers, and tradesmen extracted great wealth as a result of special favors within the mercantile system. But this need not have increased the wealth of the populace in general. Indeed, when it is understood that mer cantile policies restricted the en try of goods from other lands and raised their prices, it becomes clear that the populace in general frequently suffered rather than benefited from mercantilism. When the burden of taxes to pay for mercantile wars was added to this - taxes levied on the populace in generalit is easy to understand why there was widespread dissat isfaction in Britain. Of course, the British govern ment did not proclaim mercantil ism a failure. Even if this had been clearly understood at the time, it is doubtful that those in power would have reversed their policies. At any rate, they did not do so. Instead, they laid the blame for difficulties on American eva sion of mercantile restrictions, de termined to enforce them more vigorously, and declared that the Americans must be taxed to help 1972 THE MERCANTILE IMPASSE 53 pay for the wars, a portion of which had been fought in their defense.

This course of action seemed eminently fair to many English men. After all, the colonists had been prime beneficiaries of British protection. Moreover, many Amer icans were reported to be living well if not luxuriously. Not only that, but to make matters· worse, these colonists paid very little by ,way of taxes. Such expenses as they had incurred in the recent French and Indian War had been reimbursed from the British treas ury. Surely, there could be no rea sonable objection to mild taxation of the colonists. As a matter of fact, there could and would be, but we have not yet come to that part of the story. Victims or Beneficiaries? What is most relevant here is the impact of mercantilism on the American colonies. The question has been raised by some histori ans as to whether the colonists were not really the beneficiaries of British mercantilism rather than the victims. The fact that many Americans prospered under the system is submitted as evidence that they benefited from the sys tem. There is also negative evi dence that Americans had rough going economically after the· break from England. The reasoning underlying this argument confuses because of with in spite of. The thrust of mercantilism is not such that it would produce prosperity in general for those on whom' it is imposed. Its ·thrust is to siphon resources from the colonies (and other countries) into the mother country. To restrict manufactur ing, to deny the development of local markets, to constrict interco lonial trade, and to make the mother country the port of entry for many goods could hardly bene fit the colonists generally.

Perhaps the most fundamental flaw of mercantilism is the view that a nation's wealth can be in creased by •exporting more in goods and services than is import ed. This policy was quite harmful to colonies without providing cor responding benefits to Britain. The British succeeded in a "favorable" balance of trade with the Ameri can mainland colonies. The most immediate effect was the gold drain from the colonies to Britain. This tendency was augmented by prohibiting the export of gold from Britain. Moreover, many of the ways by which the colonists might have made up the difference were denied to them by mercan tile restrictions. In consequence, the colonists suffered a shortage of specie. The practical effect was that colonists paid higher prices for goods com54 THE FREEMAN Janua'fY forts of colonists to find ways to deal with the situation were pro hibited before they were well es tablished.

ing from England than they would have had to do if a free market in gold had existed, because gold was more plentiful in Britain than in America. It is even doubtful that British merchants benefited In sum, the break from England from this situation as much as was preceded by an impasse at might be supposed, for they usu-tributable to mercantilism. More ally made loans. to Americans to than a century of wars had been enable them to buy their goods. fought in the pursuit of mercan Americans also had their credit in tile aims by Britain. These had England augmented by such pay-left a heavy burden of debt which ments as reimbursement for par-the British people found hard to ticipation in wars (an augmenta-bear. Thus, the government turned tion at the expense of British tax-to the colonies as a new source of payers) . revenue. But the colonies were Much of the economic activity hardly in a position to take on the within the colonies was an uphill burden. They were already drained effort to overcome the ill effects of of specie, and many colonists were mercantile policies. Probably, the deeply and perpetually in debt to fixing of slavery so extensively can British merchants. To say that be ascribed in the main to mercan-they were lightly taxed at home tilism. (British policy was opposed answers nothing as t~ what the to the emancipation of slaves be-effect of British taxation would be.

cause slaves were frequently col-Mercantile restrictions imposed lateral for loans.) Planters were barriers between Britain and the driven to expand their production colonies. An imbalance of trade al - to the acquisition of more and ready existed, with the colonies on more slaves - in the often vain the "unfavorable" end of that. Tax hope of balancing their trade. The payments to Britain could only be Triangular Trade by New Eng-made by reducing imports or going landers, which included the slave deeper in debt to British lenders. trade, was an extended effort to When the time came for resisting, get specie. The paper money· emis-colonists made their justifications sions which became so common to-along different lines than those ward the close of the period were above, but what they were resist efforts to deal with the monetary ing had been brought on by the crisis. Of course, many of the ef-mercantile impasse. I) Next: The First American C1'"~sis: 1763-66 A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN TheGeniusoftheWest WE, in the West, are supposed to hang our heads in shame these days. The bill of complaints brought against us is long. We are "im perialists." We are "materialists."