Financial History Issue 122 (Summer 2017) | Page 18
Boston Town Treasury Certificate issued to Oliver Brewster on July 13, 1780 for £390 with interest
due in 1786, payable “out of the next tax…for the sole Purpose of carrying on the War.”
empire, especially naval power exerted on
behalf of trade expansion, outweighed the
costs of the mercantile system that penal-
ized trade with other empires and nations.
In numerous colonial wars, including
three with the French between 1739 and
1763, the government of Britain dem-
onstrated that it had the economic and
financial strength to conduct transatlan-
tic warfare on an unprecedented scale on
both land and sea. For the aggressive and
acquisitive settler class in North America,
the wars presented enormous opportuni-
ties to expand their command of landed
resources. In 1763, the Treaty of Paris, fol-
lowing the eight-year French and Indian
War, gave the British possession of virtually
all of French Canada and most of the terri-
tory the French had claimed in the valleys
of the Ohio River and the Mississippi River.
The Treaty, however, did not secure the
newly-acquired lands. Powerful Native
American groups still controlled most of
the North American interior. Massive new
public resources — tax revenues and the
additional financial resources they could
leverage — were required to exploit the
new conquests.
In 1763, to acquire those resources, to
reduce the burden of the debts that accu-
mulated from the French and Indian Wars
and to moderate increases in excise and
land taxes within Britain, Britain launched
a major expansion of its tax effort in the
colonies. The result was a new tax regime
for the colonies — one that was more
ambitious, centralized and tightly admin-
istrated. New tax measures included the
Stamp Act of 1765, which placed a levy on
legal and commercial papers, newspapers
and pamphlet literature, as well as playing
cards and dice; the Townshend Acts of
1767, which taxed consumption of paper,
glass, lead, paints and tea imported from
Britain; and, in 1773, the Tea Act, which
provided favorable tax treatment in Amer-
ica for the British East India Company.
The new regime prompted a crisis of
tax consent in the colonies. To many
Americans, the new taxes threatened
their regime of internal taxation that they
had developed informally and incremen-
tally over the decades. When the Brit-
ish government had previously expanded
its spending on behalf of its American
colonies, it had left them relatively free
to develop their own internal systems of
self-governance and fiscal autonomy. The
colonies had used their discretionary fiscal
space within the British Empire to expand
their taxation of property and internal
trade. They used these taxes to administer
justice, fund modest programs of road
building, schooling and welfare, and help
prosecute colonial wars.
In response to the Stamp Act, a congress
of nine colonies called for repeal of the
act, declaring that it was “essential to the
freedom of a people, and the undoubted
right of Englishmen, that no tax should
be imposed on them, but with their own
consent.” Riots followed, and colonists
responded to the Townshend duties with
nonimportation boycotts. By the time of
the Boston Tea Party in 1773, the crisis of
tax consent was clearly contributing to a
crisis of confidence in the legitimacy of
British rule, and that much larger crisis
16 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org
yielded the American Revolution.
The successful Revolution ended any
obligation of Americans to share in Brit-
ain’s financing of the French and Indian
War. But the new nation had to finance
its revolution. As a percentage of national
product, it was probably the most expen-
sive war in American history. Moreover,
the newly-acquired lands offered promise
for vast expansion of the commonwealth,
but controlling them posed the same fiscal
problems that the British had found daunt-
ing. In meeting these two challenges, the
Americans had to replace the British fiscal
regime from which they had just exited.
Between 1775 and the early 1790s, the 13
former colonies puzzled their way through
the process of forming a fiscal state that
would live up to the aspirations of the
new society. In 1775 and 1781 (under the
Articles of Confederation), the Americans
replaced the British fiscal regime with
weak alternatives. Under these temporary
regimes, the central government had to
rely most heavily on both inflation and
outright confiscation, thus forcing ordi-
nary Americans to make great economic
sacrifices on top of the huge personal
losses they had endured in wartime vio-
lence. In addition, taxation made less
of a contribution to war finance during
the Revolution than in any other major
American war. At the end of the war, the
outstanding debt of the Congress and the
states was huge — probably larger, relative
to national product or income, than at the
conclusion of any other war in US history.
In order to manage this large debt, the
central government eventually settled on