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Sunday, July 3, 2016

Saving the American Revolution from Itself

Price controls nearly undid the cause of independence.

Economists since Adam Smith have warned that price controls serve as a prelude to shortages. Published in 1776, it would take time and bitter experience for The Wealth of Nations to gain a broad audience in the American colonies. Yet it was amid this economic ignorance, joined by revolutionary passion, that the American Revolution was nearly lost, not merely by British invasion, but by state intervention in the price system.

By 1778, inflation had taken its toll on the colonies, with a rise in overall prices by 45 percent. The Continental Army was unable to acquire basic necessities, as the prices of corn, wheat, and flour skyrocketed following the colonies’ disastrous experiment in paper currency.

But, as Murray Rothbard chronicled in his Conceived in Liberty, the promoters of paper money refused to accept reality: “The partisans of inflationary policies urged further accelerated paper issues to overcome the higher prices… In another familiar attempt to deal with the problems of inflationary intervention, they outlawed the depreciation of paper, or the rise of prices.”

State and local governments presumed to know what market prices of the various commodities should be, and laid down price regulations for them. Wage rates, transportation rates, and prices of domestic and imported goods were fixed by local authorities. Refusing to accept paper, accepting them for less than par, charging higher prices than allowed, were made criminal acts, and high penalties were set: they included fines, public exposure, confiscation of goods, tarring and feathering, and banishment from the locality. …  

Price controls made matters far worse for everyone, especially the hapless Continental Army, since farmers were thereby doubly penalized: they were forced to sell supplies to the army at prices far below the market and they had to accept increasingly worthless Continentals in payment. Hence, they understandably sold their wares elsewhere; in many cases, they went “on strike” against the whole crazy-quilt system by retiring from the market altogether and raising only enough food to feed themselves and their own families. Others reverted to simple barter.

In reaction to this financial crisis, committees began to sprout up throughout the colonies for the purpose of imposing price controls. As Rothbard wrote, “Merchants were prohibited from speculating, and thereby from bringing the needed scarce goods to the public. Enforcement was imposed by zealots in local and nearby committees, in a despotic version of the revolutionary tradition of government by local committees.”

In particular, such economic intervention found adamant support in Philadelphia, as the Committee of Inspection and Observation grew from forty to one hundred members, among them Thomas Paine.

“Not only did it regulate the price of scarce commodities and shut down the stores of merchants who violated its edicts,” says historian David Lefer, author of The Founding Conservatives, “but it also began hunting down people it felt had uttered treasonous opinions.”

Among the committee’s frequent targets, Robert Morris was under investigation regarding cargo on the French ship Victorious, which had been kept in dock for over a month as prices rose. Upon discovering the cargo was under the control of a French agent, and therefore out of their control, the committee harassed Morris further, seizing 182 barrels of flour under his name in Wilmington. (As it turned out, Morris was merely storing it for the French military.)

On July 27, 1779, debates ensued in the State House yard regarding the effects of these price controls. Joining Morris in opposition were James Wilson and Benjamin Rush. Rush condemned paper money as the cause of inflation, and Wilson observed that “there are certain things, sir, which absolute power cannot do” — among those things, repealing the laws of supply and demand.

Wilson had painted a target on his back with his adamant opposition to price controls. Already condemned for providing legal services to Loyalist Quakers, and for opposing the excessively democratic state constitution, tensions peaked in mob violence on October 4, in what became known as the Fort Wilson Riot.

After sending his wife and children to the home of Robert Morris for safety, Wilson was joined by Continental officers and city merchants, and began barring doors and windows. Accounts differ as to whether the mob of militiamen shot first or whether Captain Campbell fired from the second floor window. In any case, Campbell was shot dead almost immediately after the shooting began. After holding the mob at bay for some time, Wilson was relieved by the arrival of Pennsylvania president Joseph Reed and a force of cavalry. The mob dispersed shortly thereafter, with 27 men arrested. Wilson went into hiding for more than two weeks.

Following the Fort Wilson Riot, no one could deny that price controls had ended in miserable failure. As historian John Ferling explains in A Leap in the Dark:

Shortages of virtually every necessity existed throughout that summer, including salt, which before the war sold for a dollar a barrel but by 1779 was only available on the black market, and then for $36 a barrel. Regulatory committees or not, prices continued to rise. Passions rose alongside the escalating costs.

Indeed, in the end, even Thomas Paine was forced to come to grips with this reality, writing to Georges Danton:

In Philadelphia we undertook among other regulations of this kind to regulate the price of Salt; the consequence was that no Salt was brought to market, and the price rose to thirty-six shillings sterling per Bushel. The price before the war was only one shilling and six pence per Bushel; and we regulated the price of flour (farine) till there was none in the market and the people were glad to procure it at any price.

Throughout the crisis, Robert Morris maintained “that commerce ought to be free as air.” Had Morris, Wilson, and Rush not warned their fellow patriots of the consequences of interventionism and fought to weaken or dismantle them, the cause of independence may have been lost. It is hardly an exaggeration to say their commitment to economic freedom saved the American Revolution.

  • Devon Downes is a PFC in the United States Marine Corps. He graduated from Warren County High School in Virginia in 2015.