The Housing-Bubble and the American Revolution

When Benjamin Franklin returned to America in 1762, after almost five years in London, he was shocked at the housing prices.

“The expence of living is greatly advanc’d in my absence,” he commented. “Rent of old houses, and value of lands ... are trebled in the past six years.”

Franklin, it seems, had come home to a real estate bubble. It eventually popped — bringing on a credit crunch and deep recession that was the macroeconomic backdrop to the American Revolution.

Sound familiar?

The parallels between the current economy and the one Franklin saw highlight a debate among historians: how big a role did economics, as opposed to ideas, play in fomenting revolution?

“I think there’s reason to doubt the Revolution would have happened as it did if it weren’t for these economic conditions,” said Ronald W. Michener, an economics professor at the University of Virginia, in a radical departure from today’s popular notion that the Revolution was a product primarily of grand ideas about self-government.

Gordon S. Wood, a professor at Brown University and perhaps the pre-eminent living historian on the subject, counters: “There was a great deal of instability, but that is hardly an explanation for the Revolution. I don’t think you can make a strong argument for an economic interpretation of the Revolution.”

Professor Michener and his collaborator, Robert W. Wright, a financial historian at New York University, plan to do just that. The tandem worked for several years on a manuscript arguing that the American Revolution was a direct result of the economic malaise that followed the French and Indian War.

Now they have a built-in marketing hook — the current financial crisis — and the publisher, Yale University Press, is hoping to bring the book out as early as next fall. “What I found was that the monetary difficulties faced by the colonies were not very different from modern macroeconomic problems,” Mr. Michener said.

For the colonists, as for us, first came the boom. During the height of the French and Indian War, which lasted from 1754 until 1763, money flooded into the colonies, especially New York, where the British Army was headquartered. At the same time, the New York Legislature issued large numbers of bills of credit.

All that cash sloshing around resulted in lavish displays of wealth — notably by British officers, whose opulent living was emulated by the locals, especially in New York.

Housing prices soared during the war. But when credit tightened afterward — thanks in no small part to a prohibition on the issuance of paper money by the colonies under the Currency Act of 1764 — real estate owners who could not pay their debts lost their land.

John Morton, a sheriff of Chester County in Pennsylvania who would sign the Declaration of Independence, seized 180 farms between 1766 and 1769.

At the core of the Wright-Michener argument is that this confluence of nasty economic circumstances was what produced the anger that found expression in rebellion against the Stamp Act and other British taxes. In other words, the core economic culprit was a boom-bust cycle; convinced that their future was no longer in their hands, the colonists could summon the ghost of John Locke, setting the stage for the arguments of Tom Paine and the Declaration.

Professor Wood argues, in response, that while an individual’s response to the revolutionary cause was partly related to his economic circumstances, democratic ideas had been percolating for years and came to the fore only after specific actions by the British — for example, the Stamp Act, which is widely considered to have triggered the rebellion. And it wasn’t just immediate economic conditions that were ripe: the colonial population was growing faster than the population in Britain, and Franklin foresaw a day when America would be the center of the British Empire. In addition, because property was more easily acquired in the colonies than in Britain, America had a much larger proportion of common citizens, as opposed to nobles, among those entitled to vote.

Of course, economists acknowledge that ideas play a role in history, just as historians of ideas know the narrative has an economic backdrop. These two professors are trying to take back a larger part of the revolutionary story for large-scale economic events in a time when most recent histories have focused on the ideas. “We’re not trying to replace the ideological view,” Professor Wright said. “We’re saying we have an important piece of the puzzle.”

Fashions in history-telling often swing on a pendulum. In 1913, Charles A. Beard wrote his seminal book, “An Economic Interpretation of the Constitution,” which presented the founders’ economic self-interest as the principal factor in their commitment to revolution. About a half-century later, Bernard Bailyn, of Harvard, wrote “Ideological Origins of the American Revolution,” setting a benchmark for those who consider ideas to have been the main impulse. Along the way, other histories emphasized the exploits of common people, rather than the titans of history.

But matters macroeconomic — as opposed to mere British tax policies — have not been a dominant part of the narrative in recent years. “You walk into Barnes & Noble and there’s all these great big books on Franklin, Jefferson,” said Edward Countryman, a professor of American history at Southern Methodist University and author of “The American Revolution,” which traces the rebellion to a number of transformative developments, rather than one overriding cause. “By and large these authors are discounting any attempt to take into account social experience.”

Of course, even many historians who focus on the founders’ philosophies — including Professor Wood — say economics and social forces played a role. (Professor Countryman tells his students that trying to pin down Professor Wood is like trying to grab “a trout that is covered in olive oil” because he includes elements of both Beard and Bailyn in his books, even if his overarching view tilts toward ideas.)

“The reigning interpretation right now is ideological,” Professor Wood said. “I think the overall picture is pretty clear right now. But there will always be new generations of historians coming along.”

And a continuing argument, no doubt.

As Professors Wright and Michener see things, had British monetary policy been different, and had the recession been short, the United States might have gained independence only gradually, much as Canada did — over the course of more than a century, beginning in the 1860s.

That is a fun game of “what if,” but for those historians more attuned to ideas, the economic forces at play will always be subservient to the words of Jefferson and Madison.

“We are having a very serious crisis right now,” Professor Wood said, “but no one is talking about revolution.”

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Author: TIM ARANGO
Original Source: New York Times
Date Published: November 30, 2008
Web Source: http://www.nytimes.com/2008/11/30/weekinreview/30arango.html
Date Accessed Online: 2008-11-30