English taxes and financial policy's contribution to the Revolution

England's Financial System And Its Impact On The American Revolution

Even a beginning student of American History understands that the American Revolution was largely the result of England's financial policies. "No taxation without representation," is a familiar rallying cry, protesting the imposition of English taxes on colonial goods. However, while people may understand that taxes helped contribute to colonial unrest and encouraged revolutionary behavior, many lack a true understanding of the impact of British fiscal policies on the colonists. In order to understand how England's imposition of taxes helped lead to the American Revolution, one must first understand England's financial system at the time of the Revolution. During that time period, England was the world's largest imperial power, and its financial strength depended on two things: the wealth of its colonies, and its ability to control those colonies. Having gained an understanding of British colonialism, one must then understand the specific acts that the British passed to target the American colonies. The first of those acts was the Sugar Act. After the Sugar Act, the British passed the Stamp Act, which differed from the Sugar Act in that it represented a British attempt to impose a new type of tax. The colonists reacted vehemently against the Stamp Act, and the British responded by imposing the Townshend duties. While these three different acts may seem repugnant to modern Americans, they were consistent with England's position as the major colonial power. Therefore, it is clear that England's financial system, rather than any form of political tyranny, was responsible for the American Revolution.

At the time of the American Revolution, England had vast global holdings. Obviously, much of North America had been colonized by the British, but the American colonies represented only part of England's holdings. In fact, the British controlled the majority of islands off of North America and in the Caribbean. Furthermore, the British controlled large parts of India, parts of Eastern Asia, and much of Africa. The result is that Britain had an empire that rivaled the Roman Empire or the lands controlled by Alexander the Great. The British Empire was, in reality, far vaster than either of these preceding empires because it included such a tremendous portion of the New World, which had not yet been discovered during those two previous large empires.

This vast colonial system was incredibly lucrative for England, but it also created a significant financial burden. First, in order to secure the colonies, the English often had to expend tremendous financial and human resources. For example, although initial colonization of the United States was relatively inexpensive, Great Britain had to wage military actions against the French and several Native American tribes to retain control over the claimed area. This was not unusual and was a problem in colonies outside of North America as well; in fact, even after securing control of the colonies, the English could expect to face significant resistance from natives and from competing imperial powers. This competition led to English involvement in a series of wars and skirmishes, which taxed its tremendous financial holdings. These wars were only the latest in England's war-strewn history. Therefore, England desperately needed to use the financial resources of its colonies to re-fill its over-stressed coffers. While this policy may have appeared unfair to the colonists, requiring citizens in Britain to pay for the defense of overseas colonies would have been equally unfair to those citizens.

Of course, taxation represented only a small portion of the British financial system at the time of the American Revolution. On the contrary, taxation formed only a small part of the mercantile system. This was important because:

British colonialism in the eighteenth century was based on mercantilism, an economic practice which tied colonies to their mother country. Colonies shipped raw materials to Britain where they were either consumed or used for manufacturing and trade. Most important, the colonies had to buy their imports from the mother country. Mercantilism gave British merchants a monopoly on colonial trade.

Mercantilism gave Britain a tremendous economic advantage, not because of taxation, but because it gave British merchants a guaranteed market for their goods. Furthermore, mercantilism furthered the colonial system. For example, the Crown tried to prevent the colonists from importing items like molasses. This did not protect manufacturers in England, but British merchants who owned sugar plantations in other colonies.

Britain was not alone in having a mercantile system. On the contrary, many nations believed that their economic prosperity was dependent upon the amount of capital that they could control. In fact, imperialism and the drive to colonize foreign lands were based on the idea that controlling more access to goods placed a country in a better economic position. Another aspect of mercantilism is the belief that global trade exists in a fixed volume. Therefore, those who control more resources will not only get a larger amount of global trade, but also a larger percentage of global trade. Furthermore, adherents of the mercantilist theory believe that the government should encourage exports but discourage imports through the uses of tariffs, duties, and other taxes. Therefore, Britain's treatment of the American colonies did not differ from how other imperialistic nations treated their colonies; in fact, Britain gave its colonists greater rights than colonists of most other countries enjoyed. On the contrary, it may have been the fact that the colonists had long enjoyed a hands-off financial policy from Great Britain that made them react so vehemently to the Crown's attempts to impose taxes and duties on them.

This vehement opposition appears irrational from a modern point-of-view. After all, while England needed to impose taxes to increase its own governmental resources, it did not intend to divert funds it collected from the colonies for that purpose. On the contrary, "the taxes the British tried to collect were modest; the money was to be spent entirely in the colonies for their benefit and protection. It was not going to be sent back to the mother country." The Crown was simply trying to remedy the fact that it was bearing the cost of governing the colonies, and reaping little direct financial reward from those colonies. Furthermore, even if England had chosen to divert the funds to pay for prior wars, the colonists had received tremendous benefits from some of those wars. For example, the colonists had benefited from "recent military victories that removed the threat of French imperialism and opened up the western frontier." Therefore, it would not have been unreasonable for the Crown to expect the colonists to foot the bill for some of those benefits.

By this time, it should be clear that taxation in the British colonies, at least in the form of tariffs and duties, began long before the American Revolution. The Navigation Acts allowed Britain to tax the colonies and supported the mercantile system, by placing import duties on non-British merchandise. The Navigation Acts were an indirect and external tax. Furthermore, by smuggling in goods and bribing customs officials, the colonists were largely able to mitigate the financial effects of the Navigation Acts. In fact, England tolerated widespread evasion of those laws. However, by the last 1760s, England tired of this evasion and sought to enforce the Navigation Acts through Writs of Assistance, which were open-ended search warrants. These search warrants helped enforce taxation, because they permitted customs agents to search for smuggled goods. Therefore, the Writs of Assistance had the potential to create substantial economic hardships for the colonies. The colonists objected to the Writs of Assistance because they had few limitations, and were issued without probable cause. The first formal challenge to those acts was mounted by Massachusetts lawyer James Otis in 1761. Otis' challenge was unsuccessful. However, "the case attracted attention and thereafter judges and lawyers worked together to frustrate customs officers trying to obtain the writ." The result was that most colonists were never oppressed by the Writ of Assistance.

Although the Writ of Assistance had proven largely ineffective, the Crown attempted to impose another tax that would require enforcement by customs agents. The Sugar Act, formally known as the Revenue Act of 1764, gave preferential treatment to British sugar merchants, who had been damaged by American colonists purchasing French molasses instead of British sugar. Britain had imposed duties on molasses and sugar prior to the Sugar Act. In fact, "the Molasses Act of 1733 had called for a tax of sixpence per gallon on non-British sugar and molasses imported into the North American colonies." However, by smuggling and bribing customs officials, colonists were largely able to avoid the tax. This condition would have changed dramatically under the Sugar Act, which imposed import duties on items beyond sugar, such as wine, fruit, coffee, cloth, and tropical foods. While French molasses had been easy to smuggle, some of these other goods had limited means of entry into the American colonies, which would have made smuggling them much more difficult. In fact, the custom agents would not require Writs of Assistance in order to enforce the Sugar Act. Instead, Britain could use its vast navy and naval blockades to enforce the provisions of the Sugar Act. Therefore, while the Sugar Act actually lowered the amount of the duties, it resulted in far stricter enforcement of the laws. The result of the Sugar Act was immediate economic hardship in the colonies:

Rum distilling slumped badly and colonial exports overall dropped sharply. The slowing economy was further impacted by currency contraction as people, uncertain of the future, tried to retain their funds; efforts were made to settle debts with paper money rather than gold or silver.

The Sugar Act caused alarm in the American colonies, partly because of the expected economic disadvantages, but also because of a number of other reasons, one of the most important being the severe implementation by the navy." Although the colonists grumbled about the Sugar Act and threatened to boycott British merchants, the Sugar Act was actually the only successful direct tax that England was able to impose upon the colonists.

After seeing how the colonists responded to the Sugar Act, Britain became wary of imposing another direct tax upon the colonists. After all, England was not in the habit of imposing direct taxes upon its colonies. Instead of taxes, its financial system depended upon a system of mercantilism, which relied upon relatively good relations between the colonies and the mother country. This concept was reinforced when the colonists objected to the Sugar Act, because British merchants intervened on behalf of the colonists when they began to feel the impact of the colonial boycotts. There is some evidence that Prime Minister George Grenville wanted to maintain a positive economic relationship with the colonies. In fact, when confronted with the fact that revenues were still too low, Grenville offered the colonists the option of developing their own taxation system and raising their own taxes. However, Grenville did not tell the colonists how much money they needed to raise, which made it virtually impossible for them to come up with their own taxes. This fact gives some substance to the idea that Grenville intended to propose the Stamp Act to Parliament, regardless of the colonists' response to his proposal.

While the colonists were unhappy with prior taxes, they were especially unhappy with the Stamp Act of 1765. Not only did the Stamp Act impose taxes on the colonists, but it did so for an especially repugnant reason: "to finance the quartering of troops in North America." The Stamp Act "was imposed on all American colonists and required them to pay a tax on every piece of printed paper they used. Ship's papers, legal documents, licenses, newspapers, other publications, and even playing cards were taxed." However, it is important to keep in mind that the troops were in North America in order to protect the frontier, not in order to provide military power against the colonists themselves. Furthermore, the tax imposed by the Stamp Act was relatively small; what made it offensive to the colonists was the fact that it was intended as a revenue-producer, rather than as a method to regulate commerce.

In fact, it did not appear to matter to the colonists that "the British authorities were not trying to oppress the colonists and regarded the stamp tax as entirely reasonable." The British were simply seeking to impose a tax that would provide them with the funds needed to govern and protect the colonies. Regardless of British intention, the Stamp Act was the first direct, internal tax, and the colonists vehemently opposed its imposition. Therefore, the colonial resistance to the Stamp Act was largely a symbolic resistance to the concept of taxation without approval by colonial legislatures and as a means of revenue production.

In response to the Stamp Act, the Virginia House of Burgesses adopted Patrick Henry's Stamp Act Resolves:

These resolves declared that Americans possessed the same rights as the English, especially the right to be taxed only by their own representatives; that Virginians should pay no taxes except those voted by the Virginia House of Burgesses; and that anyone supporting the right of Parliament to tax Virginians should be considered an enemy of the colony.

Virginia's governor did not approve the resolutions, but they did demonstrate to the colonists that they were not powerless against England's attempts at taxation. In fact, the colonists took several actions to protest the imposition of the Stamp Act. Following Virginia's groundbreaking action, "almost all assemblies in the colonies challenged the right of the British to tax the territories." Furthermore, the colonists prepared for a widespread boycott of British merchants. The most concentrated formal response was the meeting of the Stamp Act Congress, which was the first time that the colonies formally united to protest the British government. Even more effective than the formal response was the street-level response to the Stamp Act. The colonists rioted, using force to intimidate potential tax agents and public demonstrations to solidify radical opposition.

After a year of protests, rioting and debating Parliament withdrew the Stamp Act, having grossly overestimated its own power and realizing the situation indeed had changed after the French-Indian war." No longer did the colonists readily submit to British law; instead, they had begun to act as a sovereign nation, long before they ever declared their independence from Great Britain.

Despite the fact that the colonists were successful in their efforts to have the Stamp Act repealed, England did not wholly abandon its attempts to tax the colonies. More importantly, England could not abandon its attempts to tax the colonies. While British merchants were becoming wealthy because of the colonies, they were a source of financial expense for the British government. To remedy that situation, a year after the Stamp Act fiasco, the Crown sought to impose the Townsend Duties upon the colonists. The Townshend Revenue Act imposed taxes on glass, paint, oil, lead, paper, and tea. The purpose of the Townshend Revenue Act was to raise money for the administration of the colonies. However, like the Stamp Act, the Townshend Act provided for direct, internal taxes in the colonies. In addition, the British government demonstrated an intention to strictly enforce those duties. In the summer of 1768, "customs officials impounded a sloop owned by John Hancock, for violations of the trade regulations." Colonial response was immediate and violent; the colonists mobbed the tax office. In response, British troops occupied Boston on October 1, 1768.

Bostonians offered no resistance. Rather they changed their tactics. They established non-importation agreements that quickly spread throughout the colonies. British trade soon dried up and the powerful merchants of Britain once again interceded on behalf of the colonies.

It is important to understand that the colonists did not initially take the position that they were entirely opposed to taxation. Furthermore, the colonists did not disagree with the proposition that Britain had the right to impose taxes. However, "Americans believed that they were entitled to certain fundamental rights, the 'rights of Englishmen,' which put certain activities beyond the reach of any government." One of those rights was the right to be free from taxation without representation. Furthermore, while the colonists initially objected to internal taxes, like stamp taxes, the actual revolution occurred in response to the imposition of external taxes. This position is supported by the fact that Americans had the same strong negative reactions to American tax agents after the Revolution as they had to British tax agents before the Revolution. The fact that the American colonists were so opposed to taxes suggests that the American Revolution was inevitable, because Britain had to collect some taxes from the colonists. Even with a hands-off attitude, Britain did incur governmental expenses for the colonies, which it reasonably expected the colonists to pay. However, the colonists had become spoiled by England's initial hands-off financial policy, and began to balk at paying any taxes. This attitude lasted long after the Revolution and resulted in several anti-tax movements and rebellions in the years immediately following the Declaration of Independence and the Continental Congress.

Given that the colonists initially resisted the imposition of taxation without representation, and then moved to protesting the imposition of any taxes at all, it becomes clear that the American Revolution was more than a reaction to taxation. On the contrary, it was a Revolution against Imperialism. For example, one of the acts that the colonists found egregious had nothing to do with taxation. The Currency Act, which was passed by Parliament on September 1, 1764, simply gave Great Britain control over colonial currency. As a British colony, it was reasonable for the Crown to want to regulate this currency. After all, fluctuating paper currency values that were not based on the pound sterling made it difficult for British merchants to conduct trade with the colonists. The problem was that Parliament made no attempt to regulate the paper currency that was then being used in the colonies, but instead abolished paper currency. "The colonies protested vehemently against this. They suffered a trade deficit with Great Britain to begin with and argued that the shortage of hard capital would further exacerbate the situation."

In addition, the Boston Tea Party was actually a protest against the broader British policy of mercantilism:

American tea merchants had been boycotting British tea for five years. Smuggled Dutch tea was used throughout the colonies. In response, the British government decided to remove the duties on East Indies tea when it arrived in Britain so it could be sold in America at a price cheaper than smuggled Dutch tea. In addition, a monopoly on this cheap tea was given to loyal British merchants in the colonies.

The colonists were concerned about the implications of actual monopolies, which could eventually destroy American's growing economy. However, most Americans did not support the actions taken by the Bostonian merchants. On the contrary, they believed that the merchants should be held financially responsible for the destruction of private property. This fact was of little use to the Americans, because the Boston Tea Party directly prompted the Intolerable Acts and led to a British invasion of the colonies.

Viewing the evidence as a whole, it is clear that Britain's financial policies helped contribute to the American Revolution. As a mercantile empire, Britain expected its colonies to be a source of revenue, rather than a financial burden. The problem was that Britain's financial system interacted hand in hand with its political system. While colonists, like all Englishmen, were nominally guaranteed the right to only pay taxes to which they had consented, this guarantee became meaningless because the Crown had the right to overrule the decisions made by colonists in their local assemblies. When it became clear that the local assemblies were not willing to impose the type of taxation necessary to run the government in the colonies, Great Britain's only alternative was to impose taxes and duties on the colonists. The colonists refused to submit to Britain's will. In addition, through boycotts of British merchants, smuggling, and other methods, the colonists resisted other aspects of the mercantile system. Therefore, it is clear that the American Revolution was not a colonial response to taxation, but to an imperialist mercantile system that the colonies could no longer tolerate.