Throughout history, the founding of the United States has been touted as a pivotal moment leading to unprecedented freedom and prosperity. Yet, establishing a direct causal link between the American Revolution and the nation’s wealth is not straightforward. Few scholarly efforts have examined what might have occurred had America remained a British colony or gained independence in a manner similar to later British dominions like Canada or Australia. Serious explorations of causation typically rely on large datasets to analyze significant policy changes or major external shocks, but historical data for nations is often limited, making such inquiries challenging. An alternative approach involves developing analytical narratives that articulate assumptions and predictions, which can then be evaluated against both quantitative and qualitative sources.
Many have attempted to explore the American Revolution by questioning the underlying causes, such as the British Empire’s onerous policies, including the Navigation Acts. Furthermore, discussions about what the British Empire might have looked like had they retained the American colonies have been prevalent—especially concerning the timing of the abolition of slavery in the West Indies. However, to date, relatively few have constructed counterfactuals regarding the economic growth of the United States in the absence of the Revolution. This oversight is regrettable, as American prosperity stems not merely from revolutionary ideals. Investigating what might have transpired had the Revolution failed directly addresses the motivations behind America’s quest for independence. By focusing on “failed” rather than “never happened,” we want to interrogate whether the institutional transformations that resulted from a successful Revolution were indeed advantageous. This article aims to create a plausible counterfactual scenario of American economic growth leading up to the Civil War.
Interestingly, the foundation for this counterfactual can be traced to the Canadian province of Quebec. In 1759, following the defeat of the French army outside Quebec City, the colony was still predominantly French and Catholic. By 1760, French forces surrendered in Montreal, leading to the cession of Quebec to Britain. Notably, Quebec’s residents were extended an invitation to join the American Revolution, an offer they declined. Thus, we find a scenario where certain North American colonists both became British subjects and chose to remain loyal to the British crown.
Contemporary research on the economic development of colonial Quebec provides three essential insights for framing our counterfactual. First, Quebec was the least wealthy region in North America. Second, it did not experience improvements in living standards until the 1760s. Finally, Quebec likely saw mild economic growth until the 1850s.
In stark contrast, evidence from economic historians regarding the growth rates in the United States during this period tells a different story. Presently, the consensus is that economic growth prior to 1776 ranged from a minimum of 0.05% annually to a maximum of 0.5% across all thirteen colonies, despite notable regional differences. The decline in living standards during the Revolutionary War was significant—estimates indicate a reduction in income by about 20%, particularly in the southern states. Consequently, when peace was restored, economic growth resumed from a contraction point. Data from 1790 to 1860 indicates that American income grew between 1.07% and 1.41% annually—remarkably high growth rates for that era.
Often, when constructing a counterfactual, one might assume that the growth rates observed before the Revolution would have persisted even if the Revolution had not occurred. This reflects a flawed reasoning known as post hoc ergo propter hoc. A more accurate counterfactual would involve examining Quebec, using a mid-range growth rate of 0.6% per year. This approach illustrates a significantly smaller “net total effect” of the Revolution. Rather than being 59% to 87% wealthier, projections suggest Americans were actually between 39% and 48% richer as a result of the Revolution’s outcomes. This perspective allows for a more reasoned estimation of the potential economic outcomes had the American Revolution never succeeded.
Next, we can analyze the Revolution’s residual benefits by weighing these against the main costs incurred. Fortunately, the costs are relatively few. Most historians concur that it is unlikely slavery would have ended sooner without the Revolution. Discussions about the impact on Native American welfare are more complex. Given their demographic significance and inequalities in living standards, it’s challenging to ascertain if their welfare represented a substantial economic burden for the United States overall, although Native American communities undoubtedly faced considerable difficulties. Further costs can be broadly categorized under trade disruption.
Recent studies reveal that natural trade barriers posed by the ocean were less harmful to international trade and market integration than previously thought. Instead, trade policy, specifically tariffs, wielded a far more significant influence. Before the Revolution, strong indicators suggested substantial market integration between the colonies and Britain. From 1760 to 1775, when Canada, the British West Indies, the thirteen colonies, and Britain operated under a shared political union, the data on wheat prices indicated a trend towards integrated markets. Therefore, the pre-Revolutionary period saw marked gains in shipping productivity and increased per capita trade volumes, as the American colonies were already engaged in a global economy. However, the Revolution’s outcome led to the establishment of trade barriers that eliminated preferential access to British grain markets, and various goods faced heavy taxation. As a result, trading volumes took considerable time to rebound to pre-Revolutionary levels.
Canada’s preferential access to British grain markets, combined with similar transportation costs between the U.S. and Canada, contributed to delaying the First Age of Globalization across the North Atlantic. This initial era of globalization, characterized by closely intertwined economies, is associated with significant economic growth. The success of the American Revolution, by raising tariff barriers, postponed the onset of this economic era—this poses a considerable cost.
Estimating the magnitude of this cost can be challenging without employing economic models. However, certain historical analyses allow us to approximate it. Research into Mexico’s grain market integration following railway expansion between 1880 and 1910 reveals that a halving of the coefficient of variation in pricing correlated with about 50% of economic growth during that period. Given the growth rate in Mexico, it is suggested that such a reduction in price variation could increase growth by approximately 0.8% per year. Applying this to the American context, a doubling in the coefficient of variation across the North Atlantic likely hindered growth by 0.8% annually. Even if this figure were halved, resulting in a 0.4% annual hindrance, it represents a significant cost stemming from the Revolution—nearly half of the growth observed from 1790 to 1860.
Some may interpret this analysis as undermining the American Revolution by pointing towards diminished economic gains. However, we argue quite the opposite: it serves to validate the Revolution. The revolutionaries were acutely aware of potential costs. While they may not have predicted Britain’s subsequent tightening of the Corn Laws or the French Wars’ impact—from 1792 to 1815—these unforeseen factors were largely beyond their control. Even then, they understood the inherent uncertainties associated with potential costs. This suggests that, while risky, they believed the benefits of independence outweighed the expenses. This perspective highlights the exceptional nature of America’s founding and its enduring significance.
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Endnotes
[1] Probate records that estimate wealth can be converted into income based on certain assumptions, suggesting per capita growth rates of wealth between 0.38% to 0.96% per annum from 1792 to 1835. Adjustments to price indexes (to account for inflation) indicate slightly lower growth (0.33% to 0.83%). Various estimation methods from 1822 to 1850 yield growth rates from 0.17% to 0.53%. Furthermore, real wage data for the period indicate gradual improvements until the 1820s, after which growth plateaued until the 1850s. Analysis of wage data from 1760 to 1850 suggests growth between 0.36% and 0.72% annually.
This post initially appeared at Liberty Matters as the lead essay in the series: Did the American Colonies Pay Too High a Price for Revolution? It has since been reposted here as part of Econlib’s commemorative series for the 250th anniversary of the Declaration of Independence.
