Thursday, December 30, 2010

IPE Everywhere: The Original Tea Party

. Thursday, December 30, 2010

It was less about principle than we often believe:

Indeed, for consumers, anger over the tea tax had never made much economic sense. For one thing, many drank Dutch-supplied tea, which was smuggled and therefore tax-free. Benjamin Woods Labaree, the most attentive scholar of the Colonial tea trade, estimates that three-quarters of the 1.2 million pounds of tea that Americans consumed each year was smuggled. Meanwhile, the tax on legal tea was largely offset by a tea-tax refund passed the same year. But in 1772 that tax refund shrank, making British tea more expensive and enhancing smugglers’ price advantage. Tea piled up in the British warehouses of the East India Company, which owed money to the British government and also needed to ask it for a loan. Someone had an idea: why not raise cash by dumping the company’s surplus tea on the American market? Parliament agreed to help by restoring the old refund in full and by allowing the company to export tea directly rather than through merchant middlemen. With the new measures, the price of legal tea was expected to halve. Consumers would save, Parliament needn’t lose quite so much on its bailout of the East India Company, and smugglers would be driven out of business.

Boston’s big businessmen felt threatened. Not only might smuggling cease to be profitable but, if the experiment of direct importation were to succeed, it might cut them out of the supply chains for other commodities as well.

The whole article is about how prominent businessmen -- who were often smugglers as well -- riled up the public to support their (the businessmen's) economic interests. Highly recommended.

Via Blattman


IPE Everywhere: The Original Tea Party




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