Economic Wisdom for Tumultuous Times

Tawni Hunt Ferrarini, Visiting Professor, Stavros Center for Economic Education, Florida State University

Scott Niederjohn, Professor of Economics and Director of the Free Enterprise Center at Concordia University Wisconsin

Mark C. Schug, Professor Emeritus, University of Wisconsin-Milwaukee

William C. Wood, Professor Emeritus, James Madison University

Today, our nation faces major concerns with inflation, the border, government involvement in private affairs, and freedom to trade—issues prominent in the 2024 Presidential election. These modern issues echo those that motivated colonists over 250 years ago to sever all allegiance to the British Crown and declare the colonies to be a free and independent nation. By considering today’s issues in view of those that motivated the Declaration of Independence, we see that the 1776 experience provides historical wisdom for navigating these tumultuous times.

Inflation and More. From the onset of the COVID-19 pandemic in early 2020 to Election Day of 2024, prices as measured by the Consumer Price Index rose 22 percent. Some especially visible goods, such as eggs and beef, saw much higher increases. Coming after a long period of relative price stability, this explosive inflation was disorienting and demoralizing, disrupting the financial security of voters and prompting them to hold someone accountable.

Similarly, in 1776 colonists felt their independence, freedom, and economic livelihood were threatened. In the Declaration, they specifically criticized the British King “For imposing Taxes on us without our Consent” and “For Quartering large bodies of armed troops among us.” Higher taxes reduced what colonists could consume, save, or invest from the sweat of their labor while the increasing presence of British troops threatened the independent pursuit of happiness and enjoyment of life.

While the newly independent states were not initially plagued by widespread inflation, the problem was not long in arriving. The Second Continental Congress turned to printing money to fund government spending required by the American Revolution. The new nation faced limited options, having no federal power to tax and yet facing a desperate need for funds to overcome formidable British forces. Support from foreign nations was a possibility, but few came through. So, the printing of money became the solution. General Washington approved, but as the war stretched into its sixth year, the young nation found itself on the verge of hyperinflation. Two economic historians note that “the hyperinflation of the Revolutionary War era left a legacy of suspicion concerning government monetary mismanagement that can still be heard today.” [1]

Immigration and the Border. Estimates vary, but between 2021 and 2024 around 8 to 12 million individuals entered the United States outside of the immigration system. The resulting problems include increased demands for public services in areas receiving immigrants, security concerns, and the need to protect vulnerable populations from exploitation.

Eighteenth century immigration was, of course, different in some respects than today. For example, no one disputed the right of a nation to decide who was allowed into the nation. That seems to be an open question today. Moreover, the immigrant population was more homogeneous then than it is today, and American colonists were outraged that the British government had interfered with the flow of immigration into the colonies, listing this interference as part of the “long train of abuses” visited upon the colonies by George III, who was accused of hindering orderly population and territorial growth by obstructing immigration laws and land appropriation. Colonists claimed of the King that “He has endeavoured to prevent the population of these States; for that purpose obstructing the Laws for Naturalization of Foreigners; refusing to pass others to encourage their migrations hither, and raising the conditions of new Appropriations of Lands.”

That said, a nation that welcomes immigrants must also ensure the protection of its citizens’ lives and property. Without security, funds and resources are directed away from productive use. In 2025, these concerns make immigration and border control top priorities for the incoming U.S. president.

Fiscal Imbalance. A latent concern with government spending and the national debt came to the fore in 2024, as the U.S. government began accumulating about a trillion dollars of new debt every 100 days. Economists across the political spectrum agreed that the imbalance was being driven by expanding transfer programs, inefficient spending, unfunded liabilities, and interest on previously accumulated debt. Although 2024’s election candidates rarely addressed this problem, the 2023 Financial Report of the U.S. Government starkly stated, “The current fiscal path is unsustainable.” [2] As difficult as the nation’s current problem with fiscal balance is, no external power or war forced this on us. It is a product of our own choices.

The colonists of 1776, by contrast, had the Crown as an external power to blame and the realities of the American Revolution to hold accountable. The Currency Act of 1764, for example, prohibited the colonies from issuing paper currency, giving the British more control over the colonial economy. Specie (gold and silver) was always scarce in the colonies. Local governments frequently issued “bills of credit,” which were promises to repay gold or silver later. Subsequent restrictive measures imposed by the British continued to curb the economic freedoms of the colonists, making them believe that their future was being shaped without their consent.

Freedom to Trade. Tariff policies and trade restrictions are frequently discussed today. Some argue that these measures could strengthen the nation’s position in negotiating more favorable trade terms with other countries and bringing jobs home, while others claim they will generate additional revenue through customs duties. However, most economists are skeptical. They worry that policies like a ten percent across-the-board tariff, along with higher tariffs on China and Canada, will drive up prices for domestic consumers and displace workers and close businesses in import-using industries. Further, these policies risk sparking worldwide trade wars reminiscent of the 1930s.

Before 1763, the American colonists were frequently subjected to arbitrary taxes and restrictive trade policies imposed by mercantilist British authorities. However, the colonists successfully resisted by simply ignoring these policies. After 1763, Britain increased the pressure by continuing to hike taxes, tightening trade restrictions, and moving toward strict enforcement. The Sugar Act of 1764 restricted colonial supplies, raising prices and heightening colonial resentment. In 1767, the Townshend Acts imposed taxes on tea, glass, and paper and established a Customs Board in America with the authority to search and seize property. The Tea Act of 1773 further threatened colonial merchants. These policies ultimately led to the infamous Boston Tea Party, amplifying the calls for “no taxation without representation.”

The colonists’ reaction in 1776 was to declare governments as legitimate only when they derive “their just powers from the consent of the governed.” The solution, independence from Britain, followed. Addressing today’s concerns about inflation, immigration, U.S. borders, fiscal imbalance, and freedom to trade will require returning to policies based on the consent of the governed. The government has adopted too many policies that, through the mechanisms explained by public choice theory, advance the special interests of defined groups rather than the general interests of the governed.

Choosing to Fight for Independence

The decision to declare independence was immense, one loaded with risk. What were the odds of victory? Great Britain’s Royal Navy was the mightiest in the world. Though not as strong as France or Prussia, the British army was still a daunting opponent against General Washington’s less well trained and under-equipped forces. At the outset of the Battle of New York in 1776, the British expeditionary force that arrived in New York included 32,000 troops and 70 warships. This overshadowed Washington’s frail and chronically shorthanded troops with fewer than 9,000 troops, of which 2,000 were too ill to fight. (The Americans luckily escaped from the forces of General William Howe and his brother Admiral Richard Howe, living to fight another day.)

When the Founders of 1776 adopted the Declaration of Independence, the odds of victory were slim. Also, independence came with a potentially high opportunity cost. After all, the British colonies in North America at the time were relatively safe, prosperous, and free. [3]

Safe. Except on the frontier, where settlements sometimes came into conflict with indigenous  peoples, most of the colonists lived and worked in relative safety, given the protection of Britain’s Royal Navy and ground troops. Throughout the earlier colonial era, imperial rivals and indigenous peoples often posed serious threats to the colonists’ lives and property. The British spent heavily to protect the colonies during the French and Indian War (1755–1763). And the Royal Navy protected American shipping along the North American coast, in the Caribbean, in the Mediterranean, and along other expansive trading routes.

Prosperous. Before 1763, the colonists enjoyed sufficient economic liberty to develop a relatively high quality of life. They lived longer and better than most of their contemporaries. Their incomes, on average, likely surpassed incomes elsewhere in the British Empire. Economic historians Gary M. Walton and Hugh Rockoff write, “Even today, relatively few countries generate average income levels that approach the earnings of free Americans on the eve of the Revolution.” [4]

Free. The colonial Americans of Great Britain’s empire parallel the Hongkongers under British rule and up until the recent crackdown by President Xi Jin Ping. Like Hong Kong, the Americans were largely left alone to do their business given simple practicalities. Transportation and communications were slow 250 years ago, with the result that colonial issues took weeks to reach London. Response times were long.

Changes in Land Policy Provides Adds an Incentive

Why fight for independence when you are safe, prosperous, and free? As discussed earlier, inflation, immigration, borders, fiscal imbalance, and freedom to trade are large contributors. But, is there more to the story?

Very early on, British land policy created opportunities to establish new settlements through well-defined land rights. The original land agreement with the Virginia Company provided settlers rights to own land from “sea-to-sea.” Later, in 1763, the victory during the French and Indian War made settling westward reasonably safe, thwarting risks of foreign aggressions or competition over land with indigenous peoples and others.

New threats to the prospect of westward settlement soon emerged. British authorities introduced measures to control expansion and contain the population largely within the eastern seaboard. These measures included the Royal Proclamation of 1763 and the Quebec Act of 1774, which restricted colonial settlement throughout a large area ranging from what is now Georgia to the north shore of Lake Superior.

The prospect of land ownership was a huge attraction—an incentive—to many colonial Americans. That the British would prevent colonists from acquiring cheap, unsettled western land struck many of them as an act of theft. The land claims of states such as Virginia, Massachusetts, and Connecticut were confiscated. The colonists had built the nation, taking the risks of settlement to establish farms, shops, and the foundations of manufacturing. Who would settle these lands now—loyalists to the Crown? The threat to future land ownership affected people from all walks of life, not just merchants on the eastern seaboard. Thus, the opportunity to regain land for settlement became another powerful incentive to fight.

Conclusions

As we have seen, the Crown and Parliament tightened control over taxation, freedom of movement, fiscal policy, trade, and other policies. The British Parliament treated the colonists as subjects under their rule, without voice. Increasingly, Britain’s new policies and enforcement procedures distorted prices and injected uncertainty into all aspects of colonial life, reducing income and imposing significant hardships; they marked a reduction in the economic freedom the colonists had come to expect.

The grievances against the British were widespread. The losses in material well-being and autonomy caused by various British acts ignited the will to fight. Changes in British policy increased the risks and costs associated with continuing as part of the British Empire. Future economic growth was in doubt. Self-government was threatened. The colonists fought for independence because benefits obtained under British rule—freedom, prosperity, and self-government—were increasingly threatened. The prospect of fighting securing these benefits was worth the risks of war and covered the costs of breaking away from the British Empire.

With the 250-year anniversary of the Declaration of Independence approaching, Americans still debate the role of government in our private lives. Today we do not face an authoritarian government that rules us from across the ocean. However, we do face similar concerns for safety, prosperity, and freedom:

• Safety. Has the expansive power of the administrative state become, as in 1776, a threat to our way of life, liberty, and the pursuit of happiness?
• Prosperity. Could restrictive trade policies threaten to reduce prosperity even among friends and allies? Will the expansion of discriminatory and arbitrary tax policies punish some and favor other taxpayers, ultimately decreasing overall societal wealth?
• Freedom. Will unilateral power in the executive branch threaten our freedom and undermine the separation of powers so brilliantly devised by our Founders?

Note: An expanded discussion of these and other related points appears in chapter 4 of the authors’ book Economic Episodes in American History, 2nd ed. (N.J. Wohl Publishing, 2019).

Sources
1. Jonathan Hughes and Louis Cain. American Economic History. 6^th ed. Boston: Addison Wesley, 2003 p.75
2. Bureau of the Fiscal Service. Financial Report of the U.S. Government: An Unsustainable Path, Washington D.C.: 2023. https://fiscal.treasury.gov/reports-statements/financial-report/unsustainable-fiscal-path.html
3. Mark C. Schug, William C. Wood, Tawni Hunt Ferrarini, and M. Scott Niederjohn. Economic Episodes in American History 2^nd ed. Morristown, NJ. Wohl Publishing 2019.
4. Gary M. Walton and Hugh Rockoff. History of the American Economy. 9^th ed. Mason, Ohio: South-Western/Thomson Learning, 2002 p. 112.