Category Archives: Economic history

Harry Johnson on Staffan Linder

I haven’t seen a book review like this in some time. Harry Johnson didn’t hold back while expressing his opinion of Linder (1961). This is the closing paragraph of his rather blunt five-page review:

In summary, this is at once an ambitious, provocative, and provoking book-ambitious in the breadth and depth of the problems in trade theory it propounds and seeks to solve, provocative in the hypotheses it propounds, and provoking on account both of the perverse misinterpretations of existing theory that the author produces to support his claims to novelty and of the careless botch he makes of the exposition of his own alternative theories. The result is a volume that ought to be read by specialists looking for seminal ideas and interesting research problems,but that cannot be recommended for use by students insufficiently trained to be alert to the substitution of emotive debating points for reasoned argument and of irrelevance for logical analysis. [Economica, 1964]

What the Boston Tea Party wasn’t

Judge Vinson of the Northern District of Florida has ruled the federal individual health insurance mandate unconstitutional. His decision contains a bit of commentary about the Boston Tea Party. This isn’t a law blog, but I do cover economic history and protectionism. Vinson wrote:

It is difficult to imagine that a nation which began, at least in part, as the result of opposition to a British mandate giving the East India Company a monopoly and imposing a nominal tax on all tea sold in America would have set out to create a government with the power to force people to buy tea in the first place.

The 1773 Boston Tea Party was not a response to monopolization. The English Parliament had given the East India Company a monopoly on British tea since 1698; the American colonies had been required to import their tea only from Britain since 1721. It also wasn’t a response to a price hike. The nominal tax of three pence per pound was imposed by the Townshend Revenue Act of 1767 and renewed in 1773 (though most of the Townshend Act’s other taxes were repealed, the tea tax continued).

So what did cause the Boston Tea Party? A major source of opposition to the 1773 Tea Act was the fact that it lowered the price of imported tea and therefore hurt smugglers who had been illegally importing Dutch tea:

The Townshend Act forbade the [East India] Company from selling its goods directly to the colonists. Instead, the EIC had to auction merchandise to middlemen, who then shipped the cargoes to American wholesalers, who finally sold to local shop owners. In May 1773, Parliament, at the request of the EIC, passed the Tea Act. It imposed no new taxes, but rather allowed the Company, for the first time, to import tea directly from Asia into America. The act cut the price of tea in half and was therefore a boon to colonial consumers. The middlemen cut out by the act, local smugglers and tea merchants, were not as happy…

In November 1773, the East Indiamen Dartmouth, Beaver, and Eleanor entered Boston Harbor with the first loads of the EIC’s tea. The conspirators, probably led by Samuel Adams, were well prepared and highly disciplined: they cleaned the decks when they were finished and took no tea for personal use or later sale. [William Bernstein, A Splendid Exchange: How Trade Shaped the World, 2008, p.242]

Of course, the British claim to have the authority to tax the colonists also produced opposition, but they had been doing so for years. The most proximate change in 1773 was the threat to the economic self-interest of the middlemen and smugglers.

Addendum: LWS suggests this longer treatment of the topic in the New Yorker.

Irwin on Smoot-Hawley

Via the WSJ, we learn that Doug Irwin is writing a book titled The Smoot-Hawley Tariff and the Great Depression. It’s due next year from Princeton University Press.

While most economists do not hold the Smoot-Hawley tariff responsible for the Great Depression itself, it contributed to a sharp decline in world trade. The tariff slashed U.S. dutiable imports by about 15%, for example. Even worse, it spawned protectionism abroad…

The damage wrought by this tariff had only one silver lining. Ever since, the ghosts of Reed Smoot and Willis Hawley (a Republican congressman from Oregon) have stood in the way of anyone arguing for higher trade barriers. They almost singlehandedly made the term “protectionist” an insult rather than a compliment.

Presumably Professor Irwin’s 1998 REStat paper provides some preview of how he’ll approach the technical portion of the book:

In the two years after the imposition of the Smoot-Hawley tariff in June 1930, the volume of U.S. imports fell over 40%. To what extent can this collapse of trade be attributed to the tariff itself versus other factors such as declining income or foreign retaliation? Partial and general equilibrium assessments indicate that the Smoot-Hawley tariff itself reduced imports by 4-8% (ceteris paribus), although the combination of specific duties and deflation further raised the effective tariff and reduced imports an additional 8-10%. A counterfactual simulation suggests that nearly a quarter of the observed 40% decline in imports can be attributed to the rise in the effective tariff (i.e., Smoot-Hawley plus deflation).

Does trade improve food security? Evidence from colonial India

Evidence describing the relationship between trade and food security one hundred years ago doesn’t translate directly into 21st-century policy recommendations, but this is neat stuff from Dave Donaldson and Robin Burgess:

Our district panel regression results suggest that the arrival of railroads in Indian districts dramatically constrained the ability of rainfall shocks to cause famines in colonial India. On average, before the arrival of railroads, local rainfall shortages led to a significant rise in our index of famine intensity. But after a district gained railroad access the effect of local rainfall shortages on famine intensity was significantly muted.

They’re still working on it:

While these preliminary findings are consistent with railroad expansion mitigating famine intensity by facilitating trade in food the same infrastructure investments may also have intervened in the weather-to- death relationship by facilitating movements of people, capital and famine relief. In future work we aim to gain a fuller understanding of how trade openness can mitigate or exacerbate the impact of weather shocks by building up a complete series of mortality statistics for the period and by analysing data on passenger flows, trade flows, trade imbalances, output, prices and famine relief.