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Economic Lessons of Tea

November 26, 2001

The lessons to be learned from food are limitless. Almost any food you can name--if you study its history--has something to say about economics, politics, history, or culture.

For whatever reason, tea, particularly the plain old regular types we all know (such as the "black" tea found in cheap boxes of 1,000 teabags at the local grocery gigamart), seems to teach more lessons by its history than almost anything else we could eat or drink.

The first thing tea history demonstrates is that free trade and free markets are reliably impressive. Tea first became known to a few in the west in the 1500s, and by 1620 it was exported from China to most all of Europe--on private ships. When an entrepreneur saw an opportunity, even in the face of months-long voyages, dangers, hardships, crude technology, and monstrous business risks (imagine coming back from a voyage and finding the product was out of fashion!), the product found its market.

Another tea history lesson is that without government micromanagement of money and markets, things get less expensive; markets for goods and services approximate the perfect-competition model, and prices approach marginal cost. In the first decades of the 1600s in Holland, tea was enjoyed by only a wealthy few, as it cost over $100 per pound. By the later decades of the same century, tea was so affordable it was available in restaurants. Things keep getting more expensive for us today because the government keeps messing with our money (1, 2) and absorbing half our productivity.

Tea keeps on teaching: There's nothing government can do that private enterprise can't do better. The John Company, in the 1700s, was granted by the government of Great Britain a monopoly on all trade to the Orient. Built mainly on the tea trade, the John Company was permitted--and able!--to occupy and govern territory, coin money, build forts, declare war, pass laws, and more.

True, without government-sponsored monopoly power, a single firm wouldn't have been able to develop all those capacities quickly or easily, but this is still more evidence that individuals and corporations can accomplish whatever needs doing, without government providing the infrastructure or funding (3; PDF file).

And even tea history is written by the victors. The British East India Company, the one we've all heard about, was not the biggest player in the tea business during its entire history. In the early 1700s, the John Company was the big one, and East India, facing bankruptcy, was forced to appeal to the government for help. The companies were merged, and East India--the name of the combined company--was the biggest player by 1773 (the Boston Tea Party). Since East India won the right to keep their name, and because our revolutionary history was written by the victors in America, few Americans or Brits have heard of John Company.

But the tea history lessons continue, next reminding us that government corporate welfare hurts the consumer (that's you). The John Company and East India, after the government-brokered/enforced merger, were granted monopoly rights over all trade with India and China. The result: the price of tea remained artificially high for Brits all over the world, including those in America fighting for their independence. It's worth keeping in mind that monopolies don't arise without the help of coercive government.

Tea's history in the U.S. proves that a free economy makes your life better. It was America that invented iced tea and the paper teabag, the two most important innovations in tea history. It is noteworthy that both these inventions surfaced before World War I, when the federal government began its twentieth-century booming expansion into internal economic and external political affairs.

Aside from powdered instant tea and new marketing of the same old products, there appears to have been virtually no further substantial innovation in the American tea industry until the 1980s and '90s, which brought us mass-market herbal "teas" (herbal teas aren't really tea), fruit-flavored teas, single-serving prepared iced tea bottles and cans, and more. Perhaps the governmental shocks to the economy of WWI, the Depression, WWII, and the welfare state of 1950 forward kept teamen on their heels for most of the century.

The history of tea reinforces even cultural lessons, such as the one that you can expect the South to make anything its own. Along with mint juleps, pork barbeque, watermelon, and cooking with lard, the South made tea its own way, in the form of sweetened iced tea. There's no restaurant in the South that won't assume you mean "sweetened" when you order iced tea, and there's no place you can go where iced tea isn't the most-ordered beverage.

Finally, tea reminds us that if you dig a little, the history of a single food item can teach more than a textbook, and the lessons strike you immediately and intuitively. If boring old tea can teach us this much in a few minutes, imagine what something nourishing, like beef, has to say.

Unfortunately, most of the lessons boil down to the ineffectiveness of governmental impingements on the economic activity of people wishing to exercise freedom of choice in producing and buying goods and services. This is the very lesson which, it seems, never will be learned.


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