Unintended consequences of trade policy and price controls

Saturday, 19 March 2016: 9:00 AM
Susan Christoffersen, Ph.D. , School of Business Administration, Philadelphia University, Philadelphia, PA
The tragedy at Valley Forge during George Washington’s military encampment in the winter of 1777-1778 provides a vivid lesson in economics. Misguided trade policy, supply disruptions and price controls were contributing factors to the death of nearly two thousand soldiers camped at Valley Forge. The glitter of British entertainments in Philadelphian society and the harshness of the Continental soldiers’ meager existence twenty miles away provide a sharp contrast and sparks the imagination.

Mercantilism dominated English economic thought on trade from at least as far back as the medieval acts of the great King Alfred, through to Parliamentary laws in the 1600’s, the Navigation Acts between 1651 and 1673, and continued to dominate during the Revolutionary War period.  This trade philosophy recommends limiting imports while promoting exports, based on the feudal system of the 1500’s and is currently described as economic nationalism. The colonists became active exporters of raw materials as “all citizens of the empire had clearly absorbed the spirit of mercantilism”.

In addition to export promotion, mercantilist philosophy includes “import prevention”, thus it is not surprising that trade barriers in America date back to before America existed as an independent country, including barriers to trade in textiles. "In the years after 1750, the men who would lead the colonists into declaring their independence... became increasingly captivated by a vision of an American empire... that would protect American commerce,... (and) develop American industry". Benjamin Franklin was among those who promoted this vision, thus an early advocate of protectionism, according to Gerald Stourzh.

At the very onset of the revolutionary era, George Washington called for boycotts of British textiles.  When the royal governor dissolved the Virginia assembly in 1765, “George Washington, Patrick Henry, Thomas Jefferson and other assemblymen hied to a tavern where they agreed to boycott British goods”. In 1769, Washington led the Non-importation Association and several years later he chaired the Virginia committee that adopted the Fairfax Resolution calling for an intensified boycott of British goods.

As a professor of Principles of Economics, one is always challenged to make the material come alive, demonstrate “real world relevance” and intrigue the students to want to learn more. The import prevention of Mercantilism and supply disruptions due to war lead to shortages that are exacerbated by price controls, and inexorably lead to the tragedy at Valley Forge.