Liberty Matters

The American Revolution was costly and that’s why we know that it was exceptional!

We would like to thank Professor Thompson and Messrs. Comegna, Gregg, and Witcher for their valuable responses and insightful comments on our lead essay. Our response addresses some of the comments made regarding the use of counterfactuals, the choice to compare the American economy with Quebec’s economy, the importance of protectionism for infant industries, and the importance of the American Revolution in the development of the American economy.
We agree that we must be careful when dealing with counterfactuals since we enter the “realm of speculation,” as Professor Thompson points out. However, we should point out that we are not drafting a counterfactual the same way that Winston Churchill conjured one when he imagined what the world would have looked like had the battle Gettysburg been won by Robert E. Lee. When economists draw up counterfactuals, they use constraints imposed by economic theory. For example, demand curves cannot slope up; if demand is inelastic compared to supply then consumers pay the larger share of a tax’s burden etc. Each assumption behind a model must then be checked off against historical evidence. Falsified assumptions falsify the counterfactual. With that in mind, a proper counterfactual must be as close as possible to historical reality.  This is why our counterfactual is a modest one – it posits that the US would have grown at the same rate as the other British North American colonies. 
We acknowledge that our counterfactual cannot perfectly represent the economic consequences of a failed American Revolution. Indeed, a failed American Revolution would probably have resulted in “harsh penalties on the colonies.” However, we know for a fact that the (successful) American Revolution brought significant institutional changes in the colonies. Therefore, our results must be understood as a lower bound for the effect of the American Revolution relative to the scenario where the colonies fail to become independent. In this case, the conclusion we reach can only be bolstered by easing some of the assumptions we made that were designed to cut against our key conclusion.
Messrs. Thompson and Witcher question the use of Quebec to determine how much wealthier the United States became thanks to the American Revolution. Indeed, they argue that the comparison is flawed since Quebec and the American colonies are very different culturally, socially, and religiously. That is a fair point but we should point out that the recent work of one of us has shown that Quebec was growing at the same pace as the colony of Nova Scotia from the 1760s to the 1850s. Also, combining the work of Frank Lewis with that of the present authors shows it also grew at the same pace as Upper Canada (i.e., Ontario) from the 1790s to the 1850s, which is particularly telling as the initial settlers to the area were American Loyalists. 
It is also important to mention that Quebec was geographically close to the United States (similar transportation costs when exporting to Britain) and both colonies were important actors in the British grain markets. Furthermore, as we have mentioned in our essay, Quebec had low living standards before 1760 and experienced mild economic growth after the Revolution. Therefore, even though there are important differences between Quebec and the United States, we are confident in our ability to get valid lower and upper bounds for the estimation.
As Mr. Witcher highlighted, even though he disagrees with them, some historians believe that protectionist tariffs were a necessary means to the development of American infant industries. Therefore imposing protective tariffs increased long-term growth. He gives the example of the infant textile industry which emerged thanks to the Jeffersonian trade embargo and grew because of the 1816 protective tariff on cotton and wool textiles. However, both policies negatively impacted the American economy. Irwin (2005) finds that the embargo cost 5 percent of the American GNP in 1807 while Irwin and Temin (2001) explain that the American textile industry would have developed even without the protective tariff, because the British and Americans were making different types of textile products. Therefore, we side with Taussig and believe that protectionist tariffs had, at best, no impact on the growth of the American economy. Furthermore, it is important to note that imposing tariffs on the British gave them ammunition to impose their own tariffs which would negatively impact productive American firms. 
We should also mention that there are some aspects of the American revolution that were detrimental that went unmentioned and that are tied with tariffs. The most notable is the role of the tonnage duties which are not included in the estimates of tariff levels by Doug Irwin. The tonnage duties were justified on the basis of funding lighthouses. However, as one of us has shown in work with Justin Callais in the European Economic Review, duties discriminating against foreign ships were raised significantly to 25 times the tonnage duties on American ships. The federalization of lighthouses thus appears to have been a tool to sneak in protectionist measures – which is an extra cost of the revolution.  
We should finally point out that we need not explain what made America exceptional. Our attempt to build a counterfactual is based on setting the baseline of an America without any exceptionalism – an America that looked like the British colonies to the North. All we know is that America was exceptional. It paid a deep cost that few appreciate (i.e., the delay of the first age of globalization that we highlight) and yet, it came out on top of the counterfactual. This is truly exceptional. For us, the roots and reasons of American exceptionalism are one debate too far … for now. One step at a time.