by and unknown, but stellar, student (?? Stella Incongnitus ??)

Final Paper ECON 40423 Fall 2018 Dr. John Lovett

The American Tea Time: An Investigation of Importance of Tea in the American Revolution

Abstract: Modern economic historians have fiercely debated the importance of the economic consequences following a series of policies passed by British Parliament in the years preceding the American Revolution. A sizable portion of these economic

historians believe the effects of the Navigation Acts were minimal, citing the effect on colonists as a small percentage of gross domestic product. On the other hand, they are contested by the ideas of economists like Larry Sawers, who argues that the economic effects of these policies should not be weighted equally amongst all colonists. Sawers instead believes the Navigation Acts placed a heavy burden on a select handful of influential colonists. Therefore, several economic policies passed before 1776 were catalysts of the Revolution. Some of the most economically significant events that occurred in the years preceding the Revolution—and their significance varies substantially theory to theory—were political pretenses that both represented and prodded the emotion and ideologies behind the Revolution. This paper will attempt to argue that tea, an influential commodity and the focus of a couple pieces of legislation, is the single best representation of the economic and emotional turmoil preceding the American Revolution. 2

The American Tea Time: An Investigation of Importance of Tea in the American Revolution Stella Incongnitus Abstract Modern economic historians have fiercely debated the importance of the economic consequences following a series of policies passed by British Parliament in the years preceding the American Revolution. A sizable portion of these economic historians believe the effects of the Navigation Acts were minimal, citing the effect on colonists as a small percentage of gross domestic product. On the other hand, they are contested by the ideas of economists like Larry Sawers, who argues that the economic effects of these policies should not be weighted equally amongst all colonists. Sawers instead believes the Navigation Acts placed a heavy burden on a select handful of influential colonists. Therefore, several economic policies passed before 1776 were catalysts of the Revolution. Some of the most economically significant events that occurred in the years preceding the Revolution—and their significance varies substantially theory to theory—were political pretenses that both represented and prodded the emotion and ideologies behind the Revolution. This paper will attempt to argue that tea, an influential commodity and the focus of a couple pieces of legislation, is the single best representation of the economic and emotional turmoil preceding the American Revolution.

Introduction In the decades that ushered in the American Revolution, Britain was to the world what

New York is today to the United States: a powerhouse with policies that reach far beyond its

jurisdiction. Due to the controlling nature of the Empire, Parliament wrote policies that often affected more than just the subjects for which they were originally intended. For the most part, policies passed in the 1760s and 1770s were fiscal policies designed to offset a cumbersome debt incurred by the Seven Years’ War (also known as the French and Indian War). Fundraising occurred through levying “domestic,” or internal, taxes, and morale boosting came through writing mercantilist policies to bring specie and glory into the nation. However, nearly all of these policies were poorly received and countered by the American colonists in some way. Let 3 the Navigation Acts serve as an example. The Navigations Acts were originally passed in 1651 and created an inefficient and frustrating obstacle for colonial traders to hurdle (Keegan, 2018).

The Navigation Acts may have been one instance of inspiration for Adam Smith’s Wealth of

Nations, because instead of willfully complying to the policies of Parliament, colonial smugglers and merchants were economically motivated by their own self-interest to create an extensive network of smugglers (Bishop, 1995). Thus, Parliament’s policies, though intending to bring wealth and power to Britain, became fodder for the development of an influential American black market. Parliament’s attempt to micromanage trans-Atlantic trade backfired sorely.

All before the British could ring in the year of 1775, Parliament passed many polices and levied many taxes on the colonists. These acts include the Navigation Acts, the Sugar Act, the

Stamp Act, the Townshend Act, and the Tea Act; all of which, directly or indirectly, levied taxes on the colonists without the approval of a colonial representative (Keegan, 2018). The British focus on economic strategy and design left Parliament vulnerable to being blindsided by something rarely considered: the political and cultural side effects of their economic policies.

The colonists were mad. According to Sawers (1992), the colonists’ feelings of fear, jealousy, and anger that fueled the fire of the Revolution did not arise suddenly. In fact, the desire for independence began bubbling up as early as the 1760s, but “the war was…not fought because a bunch of hotheads flew off the handle” (Sawers, 1992, p. 265). Parliament had been making the colonists upset for decades.

The best example of economically driven policy that had more than just economic ramifications is the Tea Act and its predecessors. In the mid-eighteenth century, tea was a substantial component of British and British-American culture and diet. Therefore, tea was also a largely traded commodity, making it an economic force of its own. This paper will attempt to 4

examine how policy passed by British Parliament affecting tea, a substance of great economic

and cultural significance, was one of the most significant catalysts of the American Revolution.

The Cultural Importance of Tea

Though tea and tea time are modern symbols of British culture, the drinking of tea

originated in China. Via international trade, tea and its popularity traveled west through the

Middle East and finally on to Europe. The English quickly adopted tea drinking in the mid-

seventeenth century (Smith, 2013). Soon thereafter, the British brought tea to North American

colonies.

Originally, tea drinking was an exotic, cultural event performed by the well-traveled

society elite. Its presence in British culture brought about the development of an entirely new

type of social function to be practiced on both sides of the Atlantic. Popular became the concept

of “tea parties, usually held by women [and] were commonly held throughout the colonies”

(Smith, 2013, p. 44). For colonial American men and women, tea was far more than just a

beverage; it represented a desirable lifestyle of leisure and fashionable socialization. The British

Figure 1: Colonial Market for Chinese Tea loved tea so much that they began to consume it S S’ more and more often, to where tea drinking was a price/lb

P mundane and frequent occurrence. The ever-growing

exposure and popularity of tea meant that the P’ quantity of tea demanded by wealthy colonists grew

D rapidly. To meet this expanding demand, Chinese

Q Q’ quantity production of tea skyrocketed in the early eighteenth

century. In reference to Figure 1, the quick increase in Chinese tea suppliers caused the supply

of tea in the colonial market to shift right (increase), which in turn caused the price to decrease. 5

The lower price allowed for tea, once a luxury, to become available to families of all income levels. Tea grew into “the most common libation in the British North American colonies, second only to water” (Smith, 2013, p. 44). According to Merritt (2004), drinking tea was a “daily ritual,” so much so that Americans each drank about two pounds of tea a year, or an average of one cup per day (p. 126). Regardless of class, tea had become a staple in the American diet. It is important to note, however, that because of the limiting effects of the Navigation Acts and the fact that China was the primary producer of tea, the colonists “had grown dependent on British companies and merchants to provide it for them” (Merritt, 2004, p. 127). One of the most significant aspects of American culture revolved around Britain’s status as the sole provider.

Therefore, an economic investigation of the Navigation Acts and the importation of tea is necessary to fully understand the tea crisis Americans would soon face after the popularity of tea developed.

The Price of Tea

It is important to know that in the eighteenth century, Britain was practicing a concept commonly known as mercantilism, which is an idea that is difficult to succinctly describe but is basically understood as a “phase in the history of economic policy” (Rees, 1939). Loosely defined, mercantilism was an economic and political ideology embodied by nations like Great

Britain in the eighteenth century and was often employed through trade policies (Nettels, 1952).

Growing in popularity throughout Europe, mercantilism was a fashionable method to facilitate the development of “the spirit of nationalism that [would animate] the growth of the national state in early modern times” (Nettels, 1952, p. 105). Seeking both power and economic superiority, British Parliament passed and frequently updated the Navigation Acts, one of the earliest British mercantilist policies. These acts were created and regularly revisited with the 6

ever-changing state of the growing empire. Such policies were utilized to create “colonial

dependence on English markets” and would allow Britain to manipulate the colonies as a sort of

“peripheral economy” with motherland Great Britain as the primary benefactor (Merritt, 2004, p.

122). In the early to mid-eighteenth century, one of the largest impacts of the Navigation Acts was the order that “imports from Europe had to be routed [first] through England” (Sawers,

1992, p. 263) before ever reaching the colonies. Nearly all major imports to the colonies were subject to this rule, and tea, a product of China, was no exception.

Observing the rules of the Navigation Acts, no matter its final destination, tea always shipped from China directly to England. While in England, shippers of any nationality would sell their tea to British merchants. These merchants aimed also to make a sizable profit off the trade, so they would raise the final price of the tea sold they in the colonies (Smith, 2013).

Additionally, Charles Townshend, a man seeking glory within the British government and an ardent proponent of taxing the North American colonies, saw an opportunity to push through

Parliament the Townshend Acts of 1767, also known as Charles Townshend’s Revenue Act

(Chaffin, 1970). This piece of legislation not only placed a per-pound tax on tea, but also allowed Parliament to tax a handful of other products frequently imported to the colonies,

including paper—a bold idea, considering the Figure 2: Townshend Tax Effect on Tea Prices S’ havoc the Stamp Act wreaked just two years price/lb S prior—and paint. The tax acted as an increase in

P’ the price of tea at all quantities supplied. Therefore, P as illustrated in Figure 2, tea supply would decrease D and ultimately raise the prices colonists would have

quantity to pay for tea. Thus, Townshend’s new tax on tea, 7 in combination with the roundabout shipping methods required of merchants, meant that tea in the colonies sold at a price approximately 80% higher than in the world market (Smith, 2013).

Colonists recognized that they were victims of strict British trade policy and were infuriated.

Though a group first formed to protest the Stamp Act, the Townshend Acts “strengthened the gusto of the American Sons of Liberty,” (Carp, 2012, p. 341). The Sons of Liberty acted as the loudest political voice of the time, with whom a majority of colonists were in agreement. In fact, the colonial dependence on tea was so universal that colonists avidly supported the radical

Sons of Liberty. According to Smith (2013), together they “objected strenuously to the taxes because their own colonial legislatures had not given their consent” (p. 46). As a force empowered by extroverted passion, the Sons of Liberty were successful in pressuring Parliament to reduce the duties, likely through threats of instead illegally employing Northern European merchants. However, Parliament failed to eliminate the tax entirely (Carp, 2012).

Smuggling Tea

The continued taxation of tea and the principle of forced dependence on Britain for their tea supply was incredibly frustrating to the colonists. British mercantilism was in full effect.

However, the colonists’ love and demand for tea did not diminish. Adam Smith, the economist infamous for his work Wealth of Nations, attempted to warn the British government of the consequences of heavily taxing such a desired Figure 3: The Invisible Hand Prediction good. He predicted that “a highly taxed article, if price/lb P in demand, would find a means of evading the Pequilibrium additional charges” (Hoh-Cheung, 1968, p. 45).

This was one of Adam Smith’s first examples of the “invisible hand” that would pressure a market quantity 8

back to equilibrium prices and quantities as illustrated in Figure 3. Per Smith’s description, the

Navigation Acts and Townshend Acts were holding prices too high, and he predicted the colonial market would find a way to bring tea to the colonies at a lower price. In fact, Smith correctly

predicted such a tax evasion, which for the colonists came in the form of smuggling (Hoh-

Cheung, 1968).

Tea was an ideal article to smuggle. According to Carp, it satisfied all the required

characteristics as “lightweight, valuable, subject to heavy British duties, and high in demand”

(Carp, 2012, p. 339). On top of duties, bonded securities were another deterrent to both

smugglers and legitimate traders. As part of the series of obstacles that came with the Navigation

Acts, bonded securities were required of all traders based out of Britain. The bond would be

secured in England, and then the merchant would receive a certificate of landing at their

destination. They would need to present the certificate in England in order to get their bond

repaid. Therefore, merchants trading between Britain and the colonies would have their own

money tied up in England for nearly a year, the amount of time required for a round trip (Hoh-

Cheung, 1968). Because merchants were unwilling to lose their security for that long, it was not

very common for smugglers to traffic tea directly between British and American waters. Instead,

merchants learned to shuttle tea back and forth between closer ports. For instance, Ireland, very

close to England, was a popular location for smugglers to pick up tea because the “merchant

[who brought the tea from England] would secure the release of the bonded security…in a matter

of weeks” (Hoh-Cheung, 1968, p. 47). In a similar manner, surrounding European countries who

“had relatively little use for tea except to smuggle it to Great Britain and its possessions” became

the primary sanctuaries for illegitimate trade (Carp, 2012, p. 339). Soon, the market for smuggled tea flourished, and residents of American cities with ports “became fully accustomed 9 to smuggling” (Carp, 2012, p. 340). Because smugglers were able to offer their tea at a price much lower than the legitimate shippers who paid hefty duties, colonists nearly abandoned the purchase of legal tea and began to depend on the supply of smuggled tea. Tea smuggling became so common that smugglers would cart their tea through town in the middle of the day in some of the more notorious ports (Carp, 2012). Smuggled tea became such a significant commodity that in the years preceding 1784, “approximately 6,000,000 pounds of British tea

[were] smuggled” into the colonies (Hoh-Cheung, 1968, p. 44).

In the early 1770s, Britain’s dominant corporation, the East India Company (EIC), began to struggle financially. To rescue the East India Company—and therefore some of Britain’s most influential individuals—from financial ruin, King George III and Prime Minister North developed and passed through Parliament the Tea Act of 1773 (Norton, 2016). The Tea Act was written to allow the East India Company to sidestep the once-required pitstop in England when transporting tea from its originating country to the North American colonies. Though the

Townshend Duties were still a mandatory expense, this allowance for a direct shipping route meant “the taxes paid by the company as the tea entered England were eliminated when the commodity was re-exported” (Norton, 2016, p. 688). Thus, the East India Company could lower the overall price of their tea sold in the colonies and therefore take control of a larger portion of the colonial tea market. Circumventing the stop in England was a major advantage over the other legitimate traders still in the market. However, the Tea Act was quickly revealed to be an

EIC-centric policy written without much consideration to possible effects on the rest of the tea market. Soon after its approval, the Tea Act turned into a challenge for the large network of illegitimate merchants and shippers who were relying on their low prices to stay in business.

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Tea as a Symbol of Loyalty

For a while, smuggling tea was viewed by the colonists as “merely unlawful rather than unjust” (Carp, 2012, p. 340). Colonists felt loyal to the American colonies when purchasing smuggled tea since virtually no taxes would return to benefit the British government. Thus, so long as smugglers were in business, colonists could continue to consume their tea morally unburdened. However, the Tea Act crossed a political line. Parliament was not only exerting more power over the colonies after a series of pushbacks from earlier legislation but also infringing on colonial trade markets. The Tea Act “gave a few hand-picked merchant firms a huge trade advantage over competitors, plus a 6 percent commission thrown into the bargain”

(Carp, 2012, p. 351). In another account, this legislation created an economies of scale effect, so that it was “difficult for small merchant companies to buy and sell East India Company tea, ‘for we cannot ship any Less Quantity than a whole Lott which is sometimes 900 lb & very seldom less than 300 lb of Bohea’” (Merritt, 2004, p. 128). Thus, Parliament created a market in which small to average size legitimate and illegitimate traders could not survive. Instead of humbling the colonists as Parliament had hoped, they lit a financially and politically charged fire under them.

Seeing tea as a majorly British symbol, the Sons of Liberty spearheaded a nonimportation agreement amongst the colonists regarding British tea. Coupled with the nonimportation came the peer pressure to cease tea drinking altogether, both a way of demonstrating a unification against all things oppressive and British, and as a noticeable rejection of “Great Britain as the master of [the] American economy and government” on either side of the Atlantic (Merritt, 2004, p. 119). Giving up tea was both a dramatic show of patriotism and a way for colonists to seek revenge on the corporation that put them out of business. However, not all colonists were able to 11 discontinue their consumption of tea as well as others. For example, the Boston chapter of Sons of Liberty were notorious for having a weaker backbone than others. They frequently gave into greed and continued to import British tea despite the nonimportation agreement until the other groups of Sons of Liberty scolded them (Carp, 2012). This gave the Bostonians the push they needed to find the courage to bite the hand that fed them.

Now feeling empowered and furious at a British government that frequently acted without regard to the wellbeing of its subjects, thousands of colonists gathered at the Old South

Meeting House in Boston on December 16, 1773 to discuss a new issue. Despite the nonimportation agreement, three tea ships had arrived at the Boston port and the colonists refused to let it land and pay the tax (Smith, 2013). These colonists latched on to a phrase popularized by Boston lawyer James Otis that said “’taxation without representation was tyranny,’” which was a powerful rallying cry since tyranny was an evil buzzword of the time

(Smith, 2013, p. 41). At the meeting, the colonists learned that the British-loyal governor,

Thomas Hutchinson, had ordered some of the tea for himself and refused to send the ships away.

A cacophony of dissent arose, from which, according to Smith (2013), John Hancock, a well- known smuggler, declared that “’every man [should] do what is right in his own eyes’” (p. 42).

That night was the Boston Tea Party, one of the most significant rebellions preceding the revolution. Tea had brought about war.

Conclusion

Once tea was introduced into the British and colonial culture, its popularity blossomed quickly. Not only did it become a society staple, but tea grew into a diet staple beloved by colonists of all income levels. The most significant downsides to the growing tea consumption in the colonies were the limitations of the Navigation Acts, including heavy taxes and restricted 12 shipping. These stringent policies were all a dimension of Britain’s mercantilist dreams and forced the colonists to be dependent on Mother Britain. Soon came the Townshend Acts, which inspired a small but vocal pushback from the Sons of Liberty. However, Parliament failed to eliminate the tax entirely and inadvertently created an expansive network of smugglers, who were able to undercut major British traders by avoiding tax expenses. When Parliament retaliated with the Tea Act, colonists virtually ceased their consumption of tea until a cold turkey lapse led into the Boston Tea Party and the beginnings of the American Revolution.

Thus, the economic policies passed by Parliament had much more than just economic effects and can act as a case study for basic economic principles on taxation and market pressures. The Navigation Acts pushed the American tea market out of equilibrium by limiting supply and increasing price. With this imbalance came Adam Smith’s first and best example of the invisible hand, and the inspiration for one of the most significant economic writings in modern history. Market pressures and colonists acting in their own self-interest brought about the creation of an extensive smuggling network. Thus, tea, both an economic and cultural staple, is the single best representation of the entwinement of economic policies and political and social culture. It also acted as a major catalyst of the American Revolution and a case study of the principles of modern economics. 13

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