Was the American Revolution an Economic Disaster?

15 07 2011

According to economic historians Jeffrey Williamson and Peter Lindert:

The American Revolution itself, like the revolutions in France and Russia and the waves of independence in Latin America in the early 19th century and in Africa and Asia after the Second World War, delivered negative economic shocks...The new estimates imply that America’s real income per capita dropped by about 22% over the quarter century 1774-1800, a decline almost as steep as during the Great Depression between 1929 and 1933, and certainly longer…What caused such sustained income losses?

The authors go on to list a number of ways in which the Revolution harmed the American economy. Canadian readers will be particularly interested in this factor.

…The third major negative shock involved a crisis at the top, and it could have caused much greater income losses. America’s urban centres were damaged by British naval attacks, by their occupation, and by the eventual departure of skilled and well-connected loyalists. New York, Charleston, and Savanna were not free of Loyalists and waves of recriminations until 1783. An estimated 60,000 free persons (3.1% of the free population) and 15,000 slaves (3.6 of the slave population) had left by the early 1790s. Loyalist claims presented to His Majesty for losses in American rebellion came to $1,053,024 or about 0.6% of the 1774 income of the 13 colonies.

You can read a summary of the paper here. The full paper is: Lindert, Peter H and Jeffrey G Williamson (2011), “American Incomes Before and After the Revolution”, NBER Working Paper 17211.

This research in fascinating. Many Canadians are of the view that it would have been far better had the dispute over British taxation of the colonies been solved with some sort of compromise and that the United States ought to have achieved independence from Britain gradually and peacefully on the Canadian model.

United Empire Loyalists, Hamilton, Ontario

It is pretty clear that the Revolution was bad for the American economy in the short term. I’m not certain whether we can say the same thing about its long-term consequences. It seems to me that Independence from Britain produced cultural and institutional shifts that accelerated economic growth in the longer term. As Gordon S. Wood argues in The Radicalism of the American Revolution, the revolution was about far more than Home Rule–it was about who would rule at home as well.  The Revolution helped to make the country less hierarchical and more egalitarian, and as Lindert and Williamson themselves note, “the new institutional view of development views inequality as a barrier to pro-growth institutions and policies (Engerman and Sokoloff 1997)”. The Revolution also produced modest improvements in the status of women and a fall in the birth rate, which also would have influenced growth patterns. The republican ideology also provided an additional rationale for state investment in higher education and we know from studies in modern developing countries that increasing literacy rates is one of the best things a country can do to encourage growth.  As Morton Horowitz showed, the legal break with Britain also allowed American judges to reform the common law in ways that departed from British precedent and accelerated economic growth. Most importantly, political independence helped to insulate the United States from some of the consequences of British imperial wars. For instance, the United States did not enter WWI until 1917 and was thus able to rake in big profits from three years of neutrality. Canada, Newfoundland, and the British West Indies, in contrast, assumed the burdens of this conflict the moment Britain declared war on their behalf.

Hat tip to Marginal Revolution.