As this 4th of July weekend winds up with an austerity-induced crisis in Greece and an ongoing economic debate over the same philosophy here in the U.S., this is a fascinating and timely analysis, with a good deal of relevance to the politics of 2016 as well as 1776.
Just as political debates in Britain and the United States today turn in large part on the response to the great recession of 2008, so the events that made the United States were shaped by the British imperial government’s reaction to the debt crisis of the 1760s. What made the Declaration so offensive to British politicians then, and what makes it highly relevant to Europeans and Americans today, is that America’s founders offered a blueprint for a different kind of state response to fiscal crisis.
Steve Pincus, Professor of History at Yale University and writing for the
New York Review of Books, convincingly argues that what the colonists were rebelling against, as set forth in the Declaration of Independence, was not so much being taxed too much, but being invested in too little. And that what enraged British politicians about the Declaration more than anything was its implicit and explicit indictment over what can only described as a system of fiscal austerity as practiced against the American colonies.
When Governor Scott Walker of Wisconsin proudly proclaims that “we celebrate the fourth of July and not April 15, because in America we celebrate our independence from the government, not our dependence on them [sic],” he fails to see that our founders blamed George III and his government not for taxing too much but for doing too little to stimulate consumer demand. When Senator Chuck Grassley warns that President Obama’s executive action on immigration violates the limitations expressed in the Declaration, he fails to see that America’s founders, in the Declaration itself, criticized the British king for obstructing immigration to the North American colonies that would encourage growth.
Pincus argues that until 1760 and the coronation of George III, the British Empire had pursued a Keynesian-reminiscent policy of investment in infrastructure and subsidizing and promoting immigration towards it colonies. The roots of these "stimulus" policies stretched back several decades to the Ministry of William Pitt, who tied British economic well-being to a philosophy of robust investment in the Empire's colonial interests. This philosophy included a general aversion to hiking taxes to pay for wars and incentivizing the production of exports.
This all changed in 1763. As the country's national debt rose, King George III's Ministers blamed Pitt's foreign policy and his unwillingness to tax the colonies to pay for it. They decried what they considered a policy of "redistribution" to the Colonies of vast inherited wealth held by the landed gentry and aristocrats. Immediately the subsidizing of immigration to the Colonies reversed itself, intra-colonial trade was prohibited, and the issuance of new currency for investment purposes was curtailed. This culminated in the issuance of the Stamp Act in 1765, intended to "restrict the colonial land market:"
These changes were shocking and dramatic. Americans and their British allies interpreted this austerity program as a complete reversal of British imperial economic policy. By the middle of the 1760s, many Americans and Britons were certain that Grenville’s measures had led to widespread economic hardship. The Bristol merchant Richard Champion thought that the measures had struck “very fatal blows … at the commerce of the Empire.” The wealthy Boston merchant, and prominent signatory of the Declaration, John Hancock thought the new policies “very cruel” and would soon make the Americans “a gone people.”
The "history of repeated injuries and usurpations" referred to in the Declaration of Independence is a reference to this system of austerity imposed by the British Crown and in particular, by Prime Minister Lord Grenville. And just as in modern-day America, two schools of thought emerged on both sides of the Atlantic regarding the benefits of fiscal austerity versus investment. Supporters of Pitt, both at home and in the colonies, called themselves "Patriots" and demanded more investment while supporters of Grenville called for fiscal cutbacks and increased "savings." The Patriots' position depended strongly on immigration, which, when thwarted by George III, figured in the Declaration of Independence, in accusations that the British Crown "endeavored to prevent the population of these states." These "Patriots," hailing from both Northern and Southern colonies (this was before cotton was recognized as a financial bonanza to the south) also argued against slavery, both in economic and moral terms. Slavery made no economic sense to a consumer oriented society as slaves could not purchase anything. Again, a direct reference to this is found in the Declaration itself:
It was for this reason that the founders complained that George III had “refused to assent to laws” that would have eliminated or severely restricted the importation of slaves into North America.
Trade restrictions, specifically restrictions on the colonies' ability to trade with Spain, also figured in the Declaration: the act of "cut[ting] off our trade with the rest of the world." The attitude of those opposed to the British austerity measures was that exports should be increased, not limited to Bilateral trade with England. They also advocated the expansion of infrastructure including roads and harbors.
The theoretical underpinning of the anti-austerity position, according to Pincus, was provided through Adam Smith's classic, Wealth of Nations, published, not coincidentally, in 1776.
Smith famously sided with the Americans in the crisis that ripped the British Empire apart, arguing that instead of enforcing their austerity measures and extractive policies with military force, Britain should have allowed the Americans “such a number of representatives as suited the proportion of what it contributed to the public revenue of the empire.” Smith celebrated “the natural good effects of the colony trade” of Great Britain because that trade encouraged “manufactures,” but castigated the Ministry’s insistence on constraining colonial exchange through punitive customs assessments and restrictions on trade with imperial rivals.
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Had the British government pursued measures to support the colonies, rather than austerity policies that retarded their growth, Smith believed, the American economy would have been so dynamic that in “little more than a century” the “seat of the empire would then naturally remove itself” to its most economically dynamic region: North America.
Pincus's conclusion is richly ironic, in light of the mantra-like regard that Republicans profess for the nation's Founders. The same policy of fiscal austerity that dominates Republican economic theory (and the same policies of discouraging immigration) infuriated those same Founders enough to author the Declaration of Independence and served as a primary justification for the Revolutionary War.
Had George III and his ministers not adopted austerity measures in the 1760s and 1770s, had they chosen to follow Pitt’s policies of economic stimulus, America’s founders might not have needed to declare their independence at all.