Volume 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repealed in 1770.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.
In 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.
Since 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.
The 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.
Furthermore, 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.
An 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.
The 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.
Since 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?
Hence, 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.
The 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.
New 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.
In 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.
Opposition 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.
It 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.
In 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
expressed 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.
Fifteen 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
The 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.