Trade, Taxes, Monopolies and Tea: A Revolutionary Brew

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On every December 16th, it’s hard not to turn your mind back to the year 1773 when the most famous protest of the American Revolution took place in Boston Harbor – the destruction of the tea.

While often portrayed as a simple tax protest, the Massachusetts colonists dumped 342 chests of tea into the harbor because of a complicated set of events. They involved the grand British East India Company.

In 1773, the East India Company faced a dire situation. The expense of suppressing the people in its far-flung holdings bedeviled the company. A recent famine in India also drove up costs. And sales fell because of economic stagnation and failing trade in Europe.

In exchange for support from the British government, the East India Company had to to ship all of its tea to England. There, traders could buy it and export it to America and other places.

The Tea Tax

Unfortunately for the traders, this created a problem. The taxes on the tea that came in and out of England made the price uncompetitive with the Dutch. The result: a bustling trade in smuggled Dutch tea into America.

No one took the trouble to stamp out the illegal trade during good times. But when the East India Company had too much tea and too much debt, lobbyists and the politicians in England’s Parliament came up with what probably seemed like a good idea at the time: Allow the East India Company to take its tea directly to America.

That would bypass English taxes (and middlemen). Customs agents in America could collect a lighter tax on the tea.

What could be simpler? America would get its tea. The price, even with the tax, would be cheaper than the illegal Dutch tea. The East India Company could increase its share of the market while driving the Dutch out.

And as part of the bargain, the cheap tea would presumably force the Americans to accept the notion that they were, in fact, subject to British taxes. That would open up a revenue stream for the Crown, which the colonists had balked at.

But the idea proved toxic to the colonists. Not only did they oppose British taxation in principle, a good many were prospering from trade with the Dutch and other nations. The British government’s attempts to carve out a tea monopoly for its preferred corporate partner, the East India Company, would hurt the independent American merchants.

Additionally, once the British established the principle for tea, how long before other commodities would be similarly treated, forcing the colonists to pay out to a single corporate master for all their needs?

Protests

The idea did not sit well. The protests continued throughout the colonies. In Massachusetts, the royal governor decided to take a stand. Thomas Hutchinson declared the tea would be landed and taxed. Period. Or, not, as it turned out …

Faced with the ultimatum, the colonists conducted their now-famous raid on the ships Dartmouth, Eleanor and Beaver. The whole debacle left Hutchinson’s reputation in tatters.  While he retained the loyalty of the Crown, most people viewed him as incompetent. Hutchinson would protest that he faced a Hobson’s Choice. He could use military force to land the tea, for which he would have been criticized, or he could let the tea return to England, for which he also would have been criticized.

More moderate Americans tried to mend fences with England, offering to pay for the tea. But the actions so infuriated the English politicians and aristocrats that no offers of apologies or payments were enough. The two sides moved closer to war.

This story was updated in 2017.