20 June 2015

The New York Review of Books: “1776: The Revolt Against Austerity”

What alternative strategy did the authors of the Declaration propose? Today, we tend to regard the practice of using government spending to stimulate economic growth as an invention of John Maynard Keynes in the 1930s. But already in the eighteenth century, self-styled Patriots, followers of Pitt on both sides of the Atlantic, argued that what the British Empire needed if it was to recover from the fiscal crisis was not austerity but an economic stimulus. In the midst of the crisis one journalist wrote that Pitt and the Patriots believed that the burgeoning debt could be reduced by increasing “the national stock,” or Gross National Product, whereas Prime Minister Grenville believed that an hundred and forty millions of debt is to be paid by saving of pence and farthings.

Like other Patriots in the 1760s and 1770s, Smith also denounced chattel slavery as an economic system most fit for absolute government. Because wage laborers added so much to the commonweal by their consumption as well as their production, Smith insisted the work done by freemen comes cheaper in the end than that performed by slaves. Had the British government pursued measures to support the colonies, rather than austerity policies that retarded their growth, Smith believed, the American economy would have been so dynamic that in little more than a century the seat of the empire would then naturally remove itself to its most economically dynamic region: North America.

Steve Pincus

A fresh new way to examine the American Revolution: not a revolt against higher taxes, but against austerity! And certainly relevant in our recent debt crisis. Ironically, Great Britain was confronted with a referendum for independence this time around as well, with different results so far. There have been plenty of supporters for stimulus instead of austerity, but the situation is rather different now compared to back then. There are no more empty continents to colonize, no slaves to free and convert into eager consumers. There is growth in automation and robot labor, but that comes with its own pitfalls. The only comparable solution is relaxing immigration policies, something that the UK government seems reluctant to pursue.

Maps of the USA from 1776-1866
Maps of the USA from 1776-1866, just 146 years ago

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