55. Tea Launches the Final Crisis

0:00Volume 3, Chapter 55, Tea Launches the Final Crisis The duty on tea, a modest levy of three pence per pound, was the only Townsend duty not repealed in 1770. The American boycott on British tea continued after 1770. Although the boycott was only partially observed in most of the ports, it was strictly maintained in the two major tea buying ports of New York and Philadelphia, which shifted to buying smuggled tea from Holland and the Dutch West Indies. Here was a happy marriage of principle and economic self-interest, for the price of smuggled tea was considerably lower than that imported from Great Britain. During 1771 and 1772, the Americans imported 580,000 pounds The United States imported 580,000 pounds of British tea, of which Boston imported 375,000 pounds, and the southern ports most of the remainder.

1:05In contrast to this average annual import of dutyable tea of 290,000 pounds, total American consumption per year was estimated at 6.5 million pounds. Even reducing the sum to half, British tea was not in these years able to capture over 8% of the vast American tea market. The British tea price could have been far more competitive with Dutch tea, even with the three-penny burden, because the Townsend Act had removed the shilling tax on imports of tea into England for all tea re-exported to America. In 1769, however, the East India Company, to which Britain had granted a monopoly on the import of tea—the tea was imported from China—followed the typical path of monopoly and raised the upset price it charged at auction from about two shillings three pence a pound to three shillings.

2:11Since tea in Holland sold for less than two shillings, the uneconomic status of British tea in the colonies became evident. The structure of the English tea trade was as follows. The East India Company monopoly imported tea from Canton, China, using its full governmental powers to rule India as the trading base for the lucrative China commerce. The company sold the tea at public auction, setting the minimum or upset price. English merchants bought it at auction and sold the tea to American importing merchants who in turn sold it to the retailers. American purchase of British tea was discouraged not only by the high price, but also by the irregular timing of the East India auctions, The price raising by the East India Company was a reflection as much of its growing financial difficulties as of its privileged monopoly status.

3:21The East India Company did not enjoy prosperity during the widespread economic boom of 1769-72. Its high price, coupled with the American tea boycott, caused millions of pounds of tea to pile up unsold in East India warehouses. Moreover, a powerful clique of speculators in East India stock insisted on paying a high dividend, thus hazardously running up the stock far above what was justified by the actual operations of the company. They paid the high dividend even though this burdened the company further by legally obligating it to pay an annual sum of £400,000 to the Crown.

4:11Furthermore, the company was legally liable for reimbursing the Crown for revenues foregone from exempting it from duties on tea re-exported to America. The loss of the American market caused the unpaid liability to pile up, reaching over 700,000 pounds by September 1772. The company's dwindling sales, its over-purchase of tea in relation to the actual American market, and its heavy expenses in running the government of Bengal all contributed to making its position precarious. The East India Company, which The company lost money in Bengal, but the company bureaucrats there were able to garner large personal fortunes by plundering the natives.

5:03An Act of June 1772 eliminated any further need for company reimbursement of the government for loss of tax revenue. It also replaced two-fifths of the former import duty levied on the company's re-exported tea. But since little tea was being re-exported to America anyway, this extra burden proved to be academic. Finally, in mid-June, the great economic boom of 1770-72 followed the usual path of booms based upon credit expansion, financial crash and depression. A wave of failures of leading banks in London and Scotland brought about distress and a stock market crash.

5:48The stock boom had been fueled by bank credit expansion in London, Amsterdam and Paris. The general credit crash of mid-1772 hit particularly at the heavily overinflated East India shares, the price of which fell by 60 percent in the month of July alone. The crash of East India stock was also aggravated by a tax in parliament upon the company in in the spring of 1772 attacks because of its tyranny, plunder and rapacity as a private monopoly vested with state power in India. Neither the Whig calls for vigorous reform of the monopoly nor the Crown's drive for tight governmental control over its own creature was calculated to aid its financial fortunes. In September, the company passed its dividend and also defaulted on customs payments to the Treasury.

6:49Since these payments were important to the Treasury, the British government itself was now in deep financial trouble. The Crown then decided to effect a two-fold plan to relieve the affairs of the East India Company and save it from imminent bankruptcy and to move as a kind of quid pro quo to take over control of its unruly creature. The best way to relieve the company, in addition to a large parliamentary loan, seemed to be to sell some of the 17 million pound surplus inventory of East India Tea to the long-lost American market. And what better way to dump the tea than by lowering its price and expanding East India Company operations to direct sales to the colonies?

7:41Hence, the Tea Act of May 1773. The Tea Act, first, restored the full exemption, or drawback, of duties paid on tea imported into England and then re-exported to America. Second, it continued the old three-pence duty on American tea imports, despite the pleas of the East India Company, in order to gain some revenue and to preserve the principle and the full parliamentary taxation of American trade, but these provisions were relatively unimportant as they merely continued policies that had prevailed since 1767 and had provoked little clamor.

8:26The radical innovation, the deed that alarmed and provoked the Americans, was to extend the hated and feared East Indian monopoly to American shores. For the Tea Act authorized the East India Company to obtain a license from the Treasury and to export tea to America on its These sales, on all inventory of tea over 10 million pounds, could be made either to merchants it designated or to branch houses of its own in America. Here was a grievous threat indeed to the merchants of America. The East India Company could now employ its monopoly power to cut prices even below smuggling prices and to arrogate the entire American tea trade to a new vast network of its own agents, branches and favored merchants.

9:29New York and Philadelphia merchants in particular feared imminent ruin of their flourishing trade in smuggled Dutch tea. But the fears of American merchants were hardly confined to tea. They knew full well that the East India Company imported into England vast quantities of other commodities – silks, calicoes, spices, china ware, and so forth. And if now the East India Company were to take over the American tea business, could these commodities be far behind? Indeed, such a scheme was already being proposed to England by the Tory merchant of Philadelphia, Thomas Wharton. Philadelphia had already had bitter experience with East India Company machinations in other commodities than tea.

10:21In 1771, when Chinaware first began to be manufactured successfully in Philadelphia, The East India Company, monopoly importers of Chinaware into England, managed to manipulate the price to fall by one-fourth in order to destroy its newfound American competition. It is the curious position of some historians that to focus on mercantile opposition to the East India monopoly means to charge such hostility to the Tea Act with lacking principle, with being confined to economic self-interest and with lacking the support of the bulk of the people. On the contrary, there is no necessary contradiction between political principle and economic self-interest.

11:16Opposition to a governmentally privileged monopoly is in itself a high principle, which can be and was upheld by the American populace as well as by the merchants. The fact that the competing merchants would also have been driven to the wall by the East India monopoly was certainly a compelling reason for mercantile opposition to the Tea Act, but it did not conflict with the libertarian principles that generally animated American opinion. Quite the opposite. Defense of one's property and commerce against a privileged is required by libertarian principle. Liberty implies property rights and free trade.

12:05It does not contradict them. Historians as disparate as Robert E. Brown and James Truslow Adams agree in upholding the spurious contradiction. Thus Adams, generally pro-British, sneers at the anti-monopoly focus Brown, determinedly anti-British in accepting this fallacious dichotomy, tries oddly and unsuccessfully to assert that the main focus of American opposition to the Tea Act was on the tea tax and not on monopoly.

12:53In this way he hopes to salvage democratic principle in what would otherwise be a supposedly narrow, selfish economic ground for American resistance, but his attempt ignores the fact that the tea tax had been quietly on the books since 1767 and that no new tax or even more rigorous enforcement was here being imposed. Another vital factor in the colonists' opposition to the East India invasion was their horror at the brutal and rapacious record of East India Company government in Bengal, its depredations, monopoly and ruinous taxation, a record that had led directly to the disastrous Bengal A terrible famine of 1769-71, one of the most terrible famines in history. It killed millions, eradicating a full one-third of the population of Bengal. The spectre of that famine and of the East India Company tyranny that had brought it about was in the minds of the American people as they confronted the prospect of the East India Company extending and its tentacles to America. This horror at the record of the East India Company was

14:16expressed most forcefully and eloquently in the widely circulated pamphlet of Pennsylvania's eminent liberal leader, John Dickinson. There, the East India Company's conduct in Asia, for some years past, has given ample proof how little they regard the laws of nations, the Rights, Liberties or Lives of Men. They have levied war, excited rebellions, dethroned princes and sacrificed millions for the sake of gain. The revenue of mighty kingdoms have centered in their coffers, and these not being sufficient to glut their avarice, they have, by the most unparalleled barbarities, extortions and monopolies, stripped the miserable in Inhabitants of Their Property, and Reduced Whole Provinces to Indigence and Ruin.

15:15Fifteen hundred thousand perished by famine in one year, not because the earth denied its fruits, but this company and its servants engrossed all the necessaries of life and set them at so high a rate that the poor could not purchase them, thus having drained the The sources of that immense wealth they now it seems cast their eyes to America as a new threat who are on to exercise their talents of rapin, oppression and cruelty. The monopoly of tea is, I dare say, but a small part of the plan they have formed to strip us of our property. In coming to the aid of the near bankrupt East India Company, the British government did not neglect its quid pro quo. In two companion acts to the Tea Act, it took care to grant itself control of East India affairs and patronage. Thus, the top governors of India were now to be named by the government. This takeover, too, had grave repercussions in the colonies, for this involved a violation of the East India Company Charter by Great Britain, and

16:32The Americans feared nothing more than a threat of tampering with their precious colonial charters. Yet here was clear precedent for large-scale intervention. American opposition, particularly New York opposition, to the new Tea Policy, was whipped up by the brilliant theoretician of the Rockingham Whigs, Edmund Burke. Burke was appointed New York's London agent in late 1770, and his correspondence had great influence in forming opinion in that colony. Opposed to the record of the East India Company, and especially to the Crown's takeover, Burke bitterly attacked the King's friends and the Tories who were behind the Tea Act. He urged Americans to resist, pledging the full support of the English and the twigs in that effort.