The Cost of the American Revolution - Econlib

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Jul 9 2026

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The Cost of the American Revolution

Vincent Geloso,

Antoine Noël

Categories:<br>Political Economy

By Vincent Geloso,<br>Jul 9 2026

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The core of this argument is that the American Founding set the United States on a unique path that made it one of the richest and freest places in the world. Yet, this causal connection requires a leap of faith. Few have attempted to conjure a counterfactual in which America remained a British colony or became independent in ways similar to later British Dominions (e.g., Canada, Australia, New Zealand, and South Africa). Serious causal inference generally requires the use of large datasets to infer the effects of important policy changes or some large exogenous shocks. For nations, especially in the more distant past, this is even more challenging because of data paucity, limited numbers of observations, and other confounding factors. It may even be impossible. A possible alternative course is to rely on analytical narratives to construct a theory, laying out assumptions and predictions. Then one takes the list of predictions and assumptions and checks to see if they hold up using both quantitative and qualitative sources.

Many have tried to deploy this practice with regard to the American Revolution by asking what really led to the Revolution (e.g., burdensome elements of British imperial policy such as the Navigation Acts) or what the British Empire would have looked like had they retained the American colonies (notably the decision to abolish slavery  in the West Indies). However, to the best of our knowledge, very few attempts to construct a counterfactual regarding economic growth  in the United States without the Revolution have been undertaken. This is an unfortunate omission as American prosperity is not just a by-product of the ideas of the Revolution. Asking what would have occurred had the Revolution failed is asking a question that goes to the root of why America sought its independence. Notice we say “failed” rather than “never happened,” because we are asking if the institutional changes that emerged from the Revolution’s success were beneficial. This is what we seek to do here, attempting to create a reasonable counterfactual of American economic growth until the Civil War.

Strangely enough, the first step in constructing a counterfactual lies north—in the Canadian province of Quebec. In 1759, when the French army was defeated outside Quebec City, Quebec was still a French colony with an almost exclusively Catholic population. By 1760, French forces had capitulated at Montreal and, three years later, the colony was formally and permanently ceded to Britain. Moreover, and this is also relevant for the purpose of constructing a counterfactual, the colonists in Quebec were invited to join the American Revolution, an offer that was rejected. As such, we have an example of a group of colonists in North America that both became British subjects and chose to remain British subjects.

Recent research about colonial Quebec’s economic growth suggests three key facts that are of use in setting up a counterfactual. First, the colony was the poorest place in all of North America—by a wide margin. Second, it enjoyed no increases in living standards (wages, incomes) until the 1760s. Third, the colony most likely enjoyed mild economic growth until the 1850s.1

This can be contrasted with evidence from economic historians regarding economic growth in the United States before, during, and after the American Revolution. Currently, the consensus is that economic growth prior to 1776 could not have been below 0.05% per annum (which is a powerful finding given the rapid population growth) and not higher than 0.5% per annum for all the thirteen colonies (even though there were important variations regionally). The extent of the decline in living standards during the war was substantial and it is relatively well-documented. A reasonable figure would be that incomes fell 20% during the period (with larger declines in the southern states). As such, when the war ended and economic growth resumed, it started from a lower floor. From there, the data about economic growth is far more solid and it suggests that, from 1790 to 1860, the average income of Americans grew between 1.07% and 1.41% per annum (the latter being estimated from 1800 to 1860)—astoundingly fast growth rates in economic history up to that point.

The tendency of many in constructing a counterfactual would be to assume that growth rates pre-Revolution would have continued even had the Revolution failed. This suggests a trend such as depicted in the two top panels of Figure 1 below, where the dashed lines can be seen as the counterfactual (with incomes in 1700 being set equal to 1 so that a value of 2 on the y-axis implies that incomes were twice as high as in 1700). The difference between the...