The end of the Seven Years War, known in America as the French and Indian War, left Britain undisputed control of North America east of the Mississippi. Today we are going to step away from military battles to take a look at the exciting world of 18th century British tax policy!
Military victory had left Britain awash in debt and with the expenses of controlling and governing many new territories. Raising the necessary funds to pay off debt and manage the empire led to a series of policies that probably made great sense to the politicians in London. In hindsight though, it eventually led to even more conflict and another costly world war.
Britain Needs Revenue
In London, Prime Minister Grenville wanted to increase revenue. The recent war had about doubled Britain’s national debt, which was sitting at about 150% of GDP. Interest on the debt alone was a substantial and growing portion of the budget. International lenders already considered Britain a high risk. Even at high interest rates the government found it increasingly difficult acquire new loans. Since the British pound was based on gold and silver, the government could not simply print more money as it might today.
With the end of the war, military costs would go down of course, payments to the German States for military defense would go down, as would subsidies to the colonies to pay for militia. The government could also shrink its army and navy.
But even after cuts, there was more work to be done, not only to end the deficits but to begin reducing the debt itself. British possession of Canada would require a large and expensive standing army in North America to ensure the French population there would not attempt to return the territory to France. This would be a major added expense when compared to pre-war expenses. Grenville estimated the cost of maintaining 10,000 soldiers would be about £220,000/yr. This was down from the £350,000/yr that parliament was spending on the colonies during the war, but was still unsustainable unless the colonies could contribute a substantial amount to help cover the costs.
Understanding Money in 18th Century Britain
Since we are going to spend some time talking about money and taxes, this might be a good time to go over how money worked in the British Empire at this time. Then, as now, British currency was based on the British pound sterling (£). The pound at the time was literally the value of one pound of sterling silver. It is a little tricky to convert the value of £1 in 1764 to modern US dollars. Today, in 2017, a pound of silver would cost a little over $250.
I’ve looked at a bunch of attempts to calculate inflation from the 1760s to today. Any such calculation is tricky because you are comparing a wide variety of goods and services that changed prices at differing levels. A comparison of wages alone makes no sense since the standard of living for a typical worker has changed greatly. So with the caveat that others will come up with quite different conversion rates, my best calculations show that £1 in 1764 would be worth around $220 in US dollars in 2017, not too far off from simply using the value of silver then and today.
In 1971, Britain converted to a decimal system. Before that, pennies and shillings were valued differently against the pound.
|British Shilling showing George III|
The symbols for each British denomination are based on latin monetary terms. The pound symbol (£) is basically a fancy L that comes from the latin word librae. The s for shillings comes from the latin solidi. The d used for pence comes from the latin denarii.
It might also be helpful to know how much a the typical worker earned compared to today. Wage data is a little spotty from this era. But the studies I’ve seen indicate that unskilled laborers earned about 12 pence per day for farm labor in England. A craftsman in the building trade made about 22 pence per day. Work weeks were typically six days long, meaning an unskilled laborer could take home a little over £1 per month. In other words, in inflation adjusted dollars, a common laborer had to work and support a family on less than $3500/yr. Say what you will about the problems caused by the industrial revolution. It definitely increased our expectations about reasonable pay and standards of living!
Pay in the colonies, where there was less supply and greater demand for labor, was usually higher than in England. Making direct comparisons can be difficult because some colonial pay was made using colonial pounds, which tended to be worth less than British pounds. It is not always clear which currency is listed in wage records. However, records show that a common laborer in the colonies could make around 2 shillings (24 pence) per day. A more skilled worker, like a brick layer might make three times that amount. Therefore, common laborers in the colonies made about double their counterparts in England. Colonial workers with some skills made an even greater premium over their English counterparts. Even so, making £1 required a week or two worth of work for most low level working class jobs.
Don’t worry. None of this will be on the test. I just thought it helpful so that when we talk about a 3 shilling tax on something, you have some frame of reference as to what that really cost people.
Taxes in England
Alright, back to Grenville’s revenue problems: Since many of the costs were coming from the need to maintain larger militaries to protect newly acquired colonies, it seemed only reasonable that the colonies could assist in shouldering some of that financial burden. British subjects in England, Scotland, and Ireland were already taxed to the hilt. One historian estimated that the average English subject paid about 23 shillings per year in taxes. By contrast, Massachusetts, which is thought to be the highest taxed colony at the time, paid about 1 shilling per year in taxes. The British colonies, in fact, were probably one of the least taxed areas in the world.
British subjects were already hit with a wide variety of taxes. Import tariffs also contributed greatly to British coffers. Unlike tariffs in the colonies, British customs agents diligently collected tariffs in Britain and enforced trade laws.
During the war, Parliament raised revenue by levying a new tax on cider. The opposition to the cider tax was in part because people already felt overtaxed, but also because most cider was made locally on farms in England and Wales. Enforcement, therefore, required government officials to search farms for cider production and make sure proper taxes were paid. This intrusion on people’s homes did not sit well with the farmers. This issue was a big part of what brought down Lord Bute’s ministry in 1763. It remained unpopular during Grenville’s term as well.
With the war over, members are Parliament were feeling constituent pressure to lower taxes, not raise them. Increasing taxes on workers was impossible since they were barely getting by on subsistence pay. Increasing taxes on the wealthy in Britain was not a popular option either. The aristocracy controlled Parliament. Raising taxes on your friends and family was not going to go over well at home. Everyone already felt overtaxed in England. Members were in no mood to hit up voters for any more money.
Grenville, therefore, did not see any way to get Parliament to go along with new taxes at home. Since much of the increased costs were the result of the colonies, the colonies had to cover at least some of those costs themselves. Still, with the well known sensitivity that colonists had about taxes, Grenville knew he had to tread lightly. The best place to start was with trade tariffs. Tariffs could be collected at ports, meaning one did not have send tax collectors all over the colonies. Further, tariffs on certain imports had existed for decades, even if poorly enforced. Therefore, there was no valid principle that should prohibit its collection.
The Sugar Act of 1764
An easy place to start would be a tariff on sugar. Almost all the colonists’ sugar came from the French controlled islands in the West Indies, what we call the Caribbean today, - you know, the islands Britain just gave back to France in the Treaty of Paris. A tariff would actually end up putting most of the cost on the French planters, since merchants were generally unable to increase prices on luxury goods. They would be forced to pressure the French planters into lower prices in order to maintain sales.
|The Sugar Act|
Well, no one really saw it that way because no one actually paid the tax from the Molasses Act. Tariffs under that act only brought in about £1800/yr in all colonies combined. The rate was prohibitively high and intended to cut off trade with the French colonies. Even at half the rate, the tax was high. It cost about 14.5 pence to make a gallon of rum, which sold at wholesale for around 18 pence. A threepence tax would mean the rum maker would essentially break even, unless rum prices increased or molasses costs decreased. The existing sixpence tax meant a law abiding rum manufacturer would lose money. That was why traders evaded the tax, paying off customs collectors at a lower rate to let the product into the colony. The corruption had become routine, with customs collectors taking a twopence payment for each gallon. Therefore, a threepence tax would be an effective 50% increase in the taxes.
To make sure colonists actually paid the tax, the new law also overhauled how it would be collected. First, all disputes would be heard in British vice admiralty courts. In other words, naval officers would judge smuggling or tax evasion accusations, not local juries. The admiralty courts had had jurisdiction over such cases since the last century. However, it was easy and commonplace to remove the hearing to a local colonial court. Therefore, merchants always did this, and with the help of popular and persuasive lawyers like James Otis, almost always won their cases in front of sympathetic juries. This new law would force trials to go to admiralty courts in Halifax Canada, meaning difficulty of travel and almost certain prospects of the government winning the case.
The law also helped customs officials by limiting the damages they might have to pay if they seized a vessel in error. Under the old law, a ship owner could sue customs officials for any mistaken seizure and count on a friendly jury to find against the tax collector. Under the new law such cases would go to admiralty courts where the customs official would stand a much better chance of winning. The new law required merchant ships to post bonds, which could be forfeited if their cargo did not match their manifests, as well as a host of other costly and confusing paperwork.
Like the Molasses Act before it, the Sugar Act only applied to trade with non-British colonies. Colonists in America were free to go to the West Indies and trade with other British colonies there. The problem with that was that most of the sugar came from the French colonies. It was better quality and cheaper. The French colonies were also more eager to buy the products the North American colonists wanted to sell them, things like fish, lumber, and flour. Therefore, trade only with the British West Indies was not a viable option. Some in Parliament, however, thought that the competitive advantage for the British West Indies might eventually encourage some of the French islands to be more amenable to joining the British Empire in the future.
So for the politicians in London, the Sugar Act seemed like it would solve several problems. The new law would raise some revenue, end the institutional corruption that had developed in the colonies, and also encourage French colonies to be more disposed to join the British Empire. They had gotten used to selling rum to British colonies in North America. They no longer had French colonial markets in Canada. France did not import much rum. Therefore, the colonies would get stuck making less because of the tariff. They would have greater desire to become British colonies again to enjoy free trade with North America. It’s a win-win, what could go wrong?
Parliament passed the Sugar Act in April 1764 with relatively little debate or dissent. If anything, the members thought Grenville should be more aggressive in increasing tariffs on the colonies. Politically though, Grenville wanted to ease into the issue of colonial taxation slowly, lest he set off colonial revolts which would only cost the government more money to put down.
The Currency Act of 1764
Later that same year, Parliament took up another issue. Some colonies had been printing their own paper money in order to make up for a lack of sufficient gold and silver available in North American markets. Virginia in particular had financed much of its wartime expenses by issuing paper money, which could be returned to the colonial government for payment of taxes. This provided an easy way to remove it from circulation once the need for currency fell. In effect, the paper money acted as a loan to the government. The government pays its bills now with paper, then gets it back and retires the notes instead of getting cash in later tax years.
|Virginia 2 Pound Note, 1762|
(from Williamsburg Foundation)
Grenville had been contemplating a currency plan of his own to unify all colonial currencies, but did not want to tackle that problem in 1764. However, a member of Parliament, who also happened to be a London merchant trying to collect on a fair amount of colonial debt, proposed the Currency Act in order to protect his own interests as well as those of many of his colleagues. The Currency Act restricted the use of colonial paper money. It prohibited colonial legislatures from mandating that the paper be accepted for payment of private debts. In other words, the London merchants could demand payment in British pounds.
Like the Sugar Act, the Currency Act raised little controversy in Parliament. New England was already under similar restrictions, having to use notes that could be exchanged for gold or silver in order to maintain value. The new law targeted Virginia’s currency law, which was seen as ripping off British merchants. Getting paid back in money worth the same as what was lent seemed perfectly reasonable to everyone in London.
Clearly Grenville was proceeding cautiously and with great thought to his plans. He deliberately withheld plans for a colonial Stamp Tax in 1764 because he wanted to start slowly with the less controversial tariff policies. This would begin to pay money back to government coffers and would acclimate the colonists to the idea that they needed to contribute more to the Empire’s costs. He also tried to avoid side controversies by shutting down attempts to establish Anglican Bishops in New England, at least for now.
If anything, Parliament seemed to be pushing Grenville to act more quickly and forcefully. During the debate on the Sugar Act, Grenville commented that the colonies had to contribute toward paying for their costs. The main response by some members was that the colonies should be paying all of their costs. They needed to become self sufficient, not a drain on the budget. The Currency Act was pushed on Grenville before he had been ready to act as well. Parliament overall seemed more eager than the Prime Minister to shift into a peacetime economy and get colonial revenues headed in the right direction.
Yet as carefully and as slowly as they moved, it did not seem to occur to anyone in Parliament to involve the colonies in any of the plans. Many of the colonies had agents in London who essentially acted as lobbyists. Colonial Governors also could have performed an ambassadorial role, providing feedback from the colonial legislatures and popular opinion to help shape policy. Governors certainly provided intelligence on reactions to policies already in place, but did not work on shaping future policy. Parliament considered tax and trade policy to be well within its authority for the entire empire. There seemed to be little dispute on that in London. The colonies, however, had an extremely different view, which would soon become evident.
Next week: the colonists express their opinions on the new acts of Parliament.
Next Episode 21: Colonies React to Taxes
Previous Episode 19: Suppressing the Indians
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George Grenville: https://history.blog.gov.uk/2015/02/11/george-grenville-whig-1763-1765
A study on historical wages in the UK for the last millennium:
18th Century Taxes in the UK, by Sarah Murden (2015):
American Duties Act of 1764 (aka The Sugar Act):
The Currency Acts of 1751 and 1764:
The Currency Act, a Problem and a Solution:
James Otis The Rights of the British Colonies Asserted and Proved:
(from archive.org unless noted)
Anecdotes of the Life of the Right Honourable William Pitt, Earl of Chatham, Vol 2, by John Almon (1810).
British colonial policy, 1754-1765, by George Louis Beer (1907).
History of Wages in the United States from Colonial Times to 1928, by Estelle May Stewart & Jesse Chester Bowen (1934) (Google Books).
The Grenville Papers, Vol. II, William J. Smith (ed) (1852).
Correspondence of William Pitt, Vol. 2, by William Taylor & John Pringle (eds) (1838).
Books Worth Buying
(links to Amazon.com unless otherwise noted)*
Anderson, Fred Crucible of War: The Seven Years' War and the Fate of Empire in British North America, 1754-1766, Alfred A. Knopf, 2000.
Brumwell, Stephen Redcoats: The British Soldier and War in the Americas 1755-1763, Cambridge Univ. Press, 2002.
Dickerson, Oliver M. The Navigation Acts and the American Revolution, New York A.S. Barnes & Company, 1951.
Fowler, William M. Empires at War, Walker Books, 2005.
Hawke, David The Colonial Experience, Prentice-Hall, 1966.
Jennings, Francis Empire Of Fortune: Crowns, Colonies & Tribes in the Seven Years War in America, W.W. Norton & Co. 1988.
Knollenberg, Bernard Growth of the American Revolution 1766-1775, Liberty Fund, 1975.
Miller, John Origins of the American Revolution, Little Brown & Co. 1943.
Nye, John War, Wine, and Taxes: The Political Economy of Anglo-French Trade, 1689-1900, Princeton Univ. Press, 2007. (If you are burning to learn more about the exciting world of British tax policies in the 18th century, this is the book for you!)
* As an Amazon Associate I earn from qualifying purchases.
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