British Financial Policies and the American Revolution

Introduction: Taxation and the Road to 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 many people understand that taxes helped contribute to colonial unrest and encouraged revolutionary behavior, few have 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 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 them. Having gained an understanding of British colonialism, one must then examine the specific acts that Parliament 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 an 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 acts may seem repugnant to modern Americans, they were consistent with England's position as the major colonial power. It is therefore clear that England's financial system, rather than any form of political tyranny, was the primary driver of the American Revolution.

The British Empire and Its Financial Burdens

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 empire. In fact, the British controlled the majority of islands off North America and in the Caribbean. Furthermore, the British controlled large parts of India, parts of Eastern Asia, and much of Africa. The result was 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 those preceding empires because it included a tremendous portion of the New World, which had not yet been discovered during those earlier eras.

This vast colonial system was incredibly lucrative for England, but it also created a significant financial burden. In order to secure the colonies, the English often had to expend tremendous financial and human resources. For example, although the initial colonization of North America was relatively inexpensive, Great Britain had to wage military campaigns against the French and several Native American tribes to retain control over claimed territory. This was not unusual; even after securing control of colonies, the English could expect to face significant resistance from indigenous populations and from competing imperial powers. This competition led to English involvement in a series of wars and skirmishes, which taxed its considerable financial holdings.

These wars were only the latest in England's long, war-strewn history. England therefore desperately needed to use the financial resources of its colonies to replenish 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 at home.

Mercantilism as the Foundation of British Colonial Policy

Taxation represented only one part of the British financial system at the time of the American Revolution. In fact, taxation formed only a small component of the broader mercantile system. As one source explains: "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 simply because of taxation, but because it guaranteed British merchants a captive market for their goods. Furthermore, mercantilism reinforced the colonial system itself. For example, the Crown tried to prevent colonists from importing items such as molasses. This measure did not protect manufacturers in England, but rather British merchants who owned sugar plantations in other colonies.

Britain was not alone in operating a mercantile system. Many nations believed that their economic prosperity depended upon the amount of capital they could control. Imperialism and the drive to colonize foreign lands were rooted in the idea that controlling access to more goods placed a country in a stronger economic position. Another central tenet of mercantilism was the belief that global trade existed in a fixed volume. Therefore, those who controlled more resources would not only obtain a larger share of global trade, but a larger percentage of it as well. Adherents of mercantilist theory also believed that governments should encourage exports and discourage imports through tariffs, duties, and other taxes.

Britain's treatment of the American colonies did not, therefore, differ substantially from how other imperialistic nations treated their colonies. In fact, Britain granted its colonists greater rights than colonists of most other countries enjoyed. It may have been precisely this history of relative leniency — a long-standing hands-off financial policy — that caused colonists to react so vehemently when the Crown finally attempted to impose taxes and duties upon them.

This vehement opposition appears somewhat irrational from a modern point of view. After all, "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 while reaping little direct financial reward from them. Furthermore, even if England had chosen to use some funds to offset prior war expenses, the colonists had received real benefits from those wars — notably, "recent military victories that removed the threat of French imperialism and opened up the western frontier." It would not have been unreasonable for the Crown to expect the colonists to share in those costs.