Introduction to the Economic
Way of Thinking
Overview
 Guide
to
Economic
Reasoning
 Why did the
Colonists Fight?
 Other economic
mysteries
Why Did the Colonists Fight
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.
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.
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)
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.
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.”
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?

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.
People Choose

The colonists
decided that fighting
the Revolution
offered the best
combination of
benefits and costs
they could attain.
People’s Choices Involve Costs

Questions of cost
loomed large.
 They risked losing:



Guaranteed market
for some goods.
Subsidies and
bounties.
Military protection
People Respond to Incentives

After 1763, new
taxes and
regulations became
more restrictive.



Sugar Act
Stamp Act
Tea Act
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.
People Create Economic Systems

Trade was allowed
only in American or
British vessels.
 All imports were
through British ports.
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.
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.
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.
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.
Solve the Mystery
The colonists fought the Revolution
because benefits they had obtained - especially prosperity and selfgovernment - - were threatened.
 The prospect of fighting to secure these
benefits for the future outweighed the
other choices.

Other Mysteries in U.S.
History
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?

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?
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?

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?

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?

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?
