What we get wrong about taxes and the American Revolution
Each month, the NBER Digest summarizes several recent NBER working papers. These papers have not been peer-reviewed, but are circulated by their authors for comment and discussion. With the NBER’s blessing, Making Sen$e is pleased to feature these summaries regularly on our page.
The following summary was written by the NBER and doesn’t necessarily reflect the views of Making Sen$e.
“No taxation without representation” — the rallying cry of the American Revolution — gives the impression that taxation was the principal irritant between Britain and its American colonies. But, in fact, taxes in the colonies were much lower than taxes in Britain. The central grievance of the colonists was their lack of a voice in the government that ruled them.
The political underpinnings of the American Revolution have been discussed and debated for more than 200 years, and there are multiple explanations of the causes and multiple analyses of the revolutionary dynamic. One question about the revolution that has remained difficult to answer is if a little representation in Parliament could have prevented a war for independence, why did King George III not grant it?
This question is the motivation for Sebastian Galiani and Gustavo Torrens‘s study “Why Not Taxation and Representation? A Note on the American Revolution.” In drawing attention to the role of representation as a spark for revolution, they note that the average British citizen who resided in Britain paid 26 shillings per year in taxes compared to only 1 shilling per year in New England, even though the living standard of the colonists was arguably higher than that of the British.
Most accounts of the events that led to the American Revolution depict a conflict between the colonies and a unified British government. In fact, the researchers argue, the reality was subtler. They draw on a variety of historical accounts to describe the tension between two rival British interest groups, the landed gentry and the democratically inclined opposition, and explain the failure to reach a compromise that would have granted representation to the colonies. In particular, they focus on how extending representation would have affected the relative influence of these two groups.
The researchers consider events a century before the American Revolution to have set the stage for the domestic tensions in Britain at the time of the colonial protests. In 1649, during the English Civil War, a rebellion of Parliamentarians overthrew — and beheaded — King Charles I. Oliver Cromwell, who ruled for most of the subsequent decade, supported expanding representation in government beyond landowners, and his government was sympathetic to grievances like those raised by the American colonies many decades later. However, following Cromwell’s death in 1658, Royalists returned to power and sought to restore the historical ruling class.
When the colonies asked for representation in the middle of the 18th century, the monarchy was still recovering from its dethroning, and the landed gentry, now returned to primary power, still felt vulnerable. The researchers point out that the Royalists were contending with factions that sought to bring democracy to Britain. While these opposition groups did not hold significant power, if representatives from the American colonies were invited to join Parliament, they likely would have sympathized with the opposition and expanded their influence. The researchers see this tension as critical to understanding why Britain was so reluctant to enfranchise the colonists.
There were proposals to settle the colonial crisis peacefully, most notably by Thomas Pownall and Adam Smith. Smith, for example, proposed “a system in which the political representation of Great Britain and America would be proportional to the contribution that each polity was making to the public treasury of the empire.” Such proposals were rejected by the ruling coalition in Britain. “The landed gentry, who controlled the incumbent government, feared that making concessions to the American colonies would intensify the pressure for democratic reforms, thus jeopardizing their economic and political position,” the researchers find.
Ultimately, the opposition of the landed gentry to the demands for representation by the American colonies pushed the colonies to rebellion and independence, but helped to delay the development of the incipient democratic movement in Britain.
— Jen Deaderick, National Bureau of Economic Research