Introduction to the Economic Way of Thinking

1. Introduction to the Economic Way of Thinking

2. Overview • Guide to Economic Reasoning • Why did the Colonists Fight? • Other economic mysteries

3. Why Did the Colonists Fight

4. Why Did the Colonists Fight? • At first glance the American Revolution seemed inevitable: • Sugar Act in 1764 • Stamp Act in 1765 • Tea Act in 1773 • Neither side was willing to back down.

5. The Colonists Were Safe • Colonists lived in relative safety due to British military protection. • The Royal Navy protected American shipping. • The British spent heavily to protect the colonies from French forces and their Indians allies. • The French and Indian War lasted from 1755-1763.

6. The Colonists Were Prosperous • By today’s standards colonial life was rough. But by the standards of their own time, colonists enjoyed a high quality of life. • Growth of production • Lived longer than most • Average incomes were as high or higher than in England • “Even today, relatively few countries generate average income levels that approach the earning of free Americans on the eve of the Revolution.” (Walton and Rockhoff, 2002)

7. The Colonists Were Free • The colonies were a long way from Britain • Transportation and communications were slow. • English authorities were inclined to leave the colonists more or less alone.

8. The Colonists Were Free • Samuel Eliot Morison (1965) writes: “British subjects in America … were then the freest people in the world.” • Practiced in self government • Freedom of speech, press and assembly. “The hand of government rested lightly on Americans.”

9. Lesson 7: Mystery • The British colonies in America grew and prospered. Since the colonists were economically successful under British rule, why did they seek independence? • Why would colonists fight a revolution against Great Britain, one of the world’s most powerful nations and, in many ways, the wellspring of their freedom and prosperity?

10. Apply the Guide to Economic Reasoning 1. People choose. 2. People’s choices involve costs. 3. People respond to incentives in predictable ways. 4. People create economic systems that influence individual choices and incentives. 5. People gain when they trade voluntarily. 6. People’s choices have consequences that lie in the future.

11. People Choose • The colonists decided that fighting the Revolution offered the best combination of benefits and costs they could attain.

12. People’s Choices Involve Costs • Questions of cost loomed large. • They risked losing: • Guaranteed market for some goods. • Subsidies and bounties. • Military protection

13. People Respond to Incentives • After 1763, new taxes and regulations became more restrictive. • Sugar Act • Stamp Act • Tea Act

14. People Create Economic Systems • The Navigation Acts (1651, 1660, 1663) changed the rules of the game. • Britain was more willing to enforce the rules resulting in higher prices for colonists.

15. People Create Economic Systems • Trade was allowed only in American or British vessels. • All imports were through British ports.

16. People Create Economic Systems • Enumerated goods (tobacco, sugar, cotton, indigo, rice, and naval stores) from the colonies could only be shipped to England. • Townsend Act placed new taxes on tea, glass and paper.

17. People Create Economic Systems • Agricultural land was very important to many colonists. • Quebec Act of 1774 • Enlarged the size of Quebec. • Destroyed western land claims of Massachusetts, Connecticut and Virginia.

18. People Gain from Voluntary Trade • Trade was very important to the colonial economy. • Colonial producers saw Britain’s tightening mercantile policy as an obstacle to free trade.

19. Future Consequences • Changes in British policy increased the risk that the future would not be as safe prosperous and free as the past had been. • Economic growth was in doubt. • Self-government was threatened.

20. Solve the Mystery • The colonists fought the Revolution because benefits they had obtained - - especially prosperity and self-government - - were threatened. • The prospect of fighting to secure these benefits for the future outweighed the other choices.

21. Other Mysteries in U.S. History

22. Lesson 2: Mystery • American Indians are widely supposed to have favored common ownership rather than private property. • Like people everywhere, however, American Indians distinguished between private and public ownership. • Why did they decide to use private property in some cases but public ownership in others?

23. Lesson 4 Mystery • The American colonies were an unlikely candidate for economic success. • There was no gold and silver and no spices to trade. • England held sway as a primary source of manufactured goods. • Colonial America did possess land and other natural resources, but labor was not abundant. • Eventually, however, the colonists lived longer and better than the populations of other nations and places at the time. • Why?

24. Lesson 5 Mystery • Indentured servants cut trees, moved boulders, built barns, plowed fields, planted tobacco, baled hay, cooked, cleaned and so forth. • But from about 1650 to 1780 young people from England eagerly committed themselves to terms of indentured servitude in the North American colonies. • Why would people sell themselves into bondage?

25. Lesson 18: Mystery • In light of the economic advantages of the North over the South, it seems in retrospect almost irrational for the South to have engaged the North militarily. • Why did the South secede?

26. Lesson 24: Mystery • During the late 19th century, industrialization proceeded rapidly in the U.S. Men like Andrew Carnegie, John D. Rockefeller and the Cornelius Vanderbilt pioneered the way. • Were these men “Robber Barons” or industrial entrepreneurs?

27. Lesson 33: Mystery • People feared that the end of World War II would be followed by a return to depression. • Instead, the years that followed the war brought rising prosperity and an unprecedented expansion of the American middle class. • Why did the economy expand after World War II rather than falling into a new depression?