LIKE THE NEW ENGLAND COLONIES and Virginia, New York was founded by a profit-seeking corporation. But the Dutch West India Company was a far larger concern than the startups that founded the other colonies. It had been created in 1621 and given a monopoly of trade in an area that stretched from West Africa to Newfoundland. The colony of New Netherland was established by the company at a cost of 20,000 guilders to exploit the fact that the Hudson River (called the North River by the Dutch) gave an easy entry to the source of the furs so much in demand in Europe. In the first year, the company shipped to Europe 45,000 guilders worth of furs, easily recouping the cost of establishing the colony.
In the early seventeenth century, the Dutch had the most advanced and most market-oriented economy in Europe. They invented or developed to new levels of sophistication stock and commodity exchanges, insurance, and corporate governance. They also had the most religiously tolerant government in Europe. Both the Dutch capitalist spirit and religious freedom were soon implanted in their new colony in North America. When the governor, Peter Stuyvesant, a sincere member of the Calvinist Dutch Reformed Church, tried to expel Quakers and Jews from Nieuw Amsterdam, they appealed to the Dutch West India Company in the Netherlands in a document known as the Flushing Remonstrance. The company quickly wrote Peter Stuyvesant, telling him in no uncertain terms to mind his own business so that the Quakers and the Jews could mind theirs.
As early as the 1640s, while its population was still under a thousand, the little city at the tip of Manhattan Island was the most cosmopolitan in North America. A French priest counted no fewer than eighteen languages being spoken on the street in that decade. Almost all of those thousand citizens were there to make money. The Dutch didn’t even get around to building a proper church for seventeen years. Indeed, the Dutch purpose for being in the New World could hardly have been clearer. The seal of New Netherlands was a beaver encircled with wampum, the form of money used by the Indians.
While the Dutch ruled on the Hudson for only forty years, they left a deep impress on the city they founded. It is still, nearly 350 years after the English seized it in 1664, the most commercially minded great city in the world.
LIKE THE PURITANS, the Quakers came to North America to escape religious persecution. But, also like the Puritans, they regarded prosperity as a sign of God’s approbation.
William Penn was the son of Admiral Sir William Penn, who owned estates in both England and Ireland, and to whom the crown owed the large sum of 16,000 pounds. He had become a Quaker in his youth but stayed on good terms with both King Charles II and his brother James, Duke of York, owing to his connections and considerable income. In 1681 Charles, in exchange for canceling the debt, granted Penn a vast area of land west of the Delaware River, amounting to more than forty-five thousand square miles. These nearly thirty million acres made Penn the largest private landowner in history.
But, of course, it was just wilderness when he acquired it, and Penn wanted both to establish a “Holy Experiment” in America and to prosper in the process. “Though I desire to extend Religious freedom,” he explained, “yet I want some recompense for my trouble.” He certainly achieved the first part of his ambition, granting the colony nearly complete toleration and no established church, not even the Friends. He got fellow Quakers to purchase 750,000 acres, raising 9,000 pounds to finance the colony.
Pennsylvania (named for Penn’s father, not himself) developed with extraordinary speed. Virtually uninhabited in 1680, only six years later it had a population of more than eight thousand. Forty-three ships, bringing three thousand settlers, arrived in the first two years. As with New England, they were largely intact families, and they multiplied rapidly in the new colony’s temperate climate. By 1700 Pennsylvania’s population was more than eighteen thousand, and Philadelphia was rapidly becoming the largest city in British North America. By 1776 Philadelphia would be second only to London among the cities of the British Empire, with a population, including its suburbs, of about forty thousand.
Pennsylvania’s soil was far better than that of New England, and the colony had a longer growing season. Its ever growing number of farmers produced ever growing surpluses that could be traded. But the crops, such as wheat, that grew well in Pennsylvania (and in New York) were also those that grew in England. So there was a limited market in the mother country for the agricultural produce of the middle colonies. They, like the New Englanders, needed to develop other markets. The surplus wheat was turned into flour and sold to the West Indies, both French and British, in exchange for sugar and molasses. The export of flour became so important to New York’s economy that the seal adopted by the English in 1686 shows two flour barrels between the blades of a windmill.
Because the middle colonies, like New England, could not rely on a cash crop that was in demand in the mother country, they did not develop economically as typical colonies of that time did. The planters in colonies such as Virginia depended on so-called factors in England to market their tobacco for them, and to function as bankers and purchasing agents, shipping back to Virginia goods that were not obtainable there. Pennsylvania and New York, like New England, developed their own merchant class, every bit as sophisticated as that in the mother country and with contacts spread just as widely over the globe.
The area in which Britain traded greatly expanded in the seventeenth century as its American empire expanded as well. In 1600 the overwhelming bulk of English trade was with its neighbors in northwestern Europe. A hundred years later Britain had overtaken the Netherlands as Europe’s greatest trading nation. English ships reached as far as India, and trade with Asia and America accounted for 40 percent of the British merchant marine.
Not surprisingly, the government in London wanted to regulate this trade, and for two reasons. The first reason, of course, was to be better able to tax it. The second was to make it conform with the principles that then dominated economic thought. Those principles are now known as the “mercantile system,” a term coined, as so often happens, by one of its enemies, Adam Smith. (It would be Karl Marx who would coin the word capitalism.)
Mercantilism held that the best form of wealth was precious metals: gold and silver. If a country lacked mines of the precious metals, it should export as much as possible and import as little as possible, so as to run a favorable trade balance and thus accumulate gold and silver. This idea was never universally accepted. Sir Dudley North (1641–91), for instance, demonstrated that the idea that one nation could grow rich only at the expense of another was a fallacy and that the more trade, both exports and imports, the better. Adam Smith would draw heavily on North and others in writing The Wealth of Nations.
But mercantilism coincided with powerful economic self-interests among merchants and manufacturers who wanted protection from foreign competition, and it held intellectual sway until Adam Smith blew it away with one of the most powerfully argued and influential books in Western history.
In 1651 England began passing a series of Navigation Acts to regulate the trade of its American colonies. These acts restricted the colonies to using ships built, owned, and manned by British subjects. The Dutch, far more efficient merchant mariners than the English in the mid-seventeenth century, were able to profitably ship the tobacco of the Chesapeake to Europe for as much as a third less than English ships could. But as the English merchant marine grew and as New England became a major shipping center in its own right, shipping costs declined even without Dutch competition.
The Navigation Acts also required that certain commodities exported by the American colonies could be shipped only to England. Many of these commodities—tobacco, rice, sugar, indigo, furs, copper, and naval stores (tar, pitch, and turpentine)—were reexported to continental Europe. This assured both that these commodities passed through English customs and were taxed, and that English merchants handled the trade with Europe. Other colonial exports, such as flour from the middle colonies and pig iron, could be exported by the colonies directly to wherever markets could be found.
Third, the Navigation Acts required that European goods imported to America had to pass first through England and, of course, English customs, except for certain products of southern Europe that England didn’t produce in the first place, such as wine from Spain, Madeira, and the Azores. The main purpose of this legislation was to protect the American market for British manufactures. But as Britain quickly became the most efficient producer of these goods in Europe, British manufacturers almost always offered better prices anyway.
As the American colonies continued to develop in the eighteenth century, Britain placed increasing restrictions on American manufactures to protect its burgeoning domestic industries. No products were expressly forbidden, but the size of markets was limited and the building of new factories and mills for producing certain goods was forbidden.
Had these acts been scrupulously enforced, they would have severely impacted the developing economies of the North American colonies. Ships and cargoes that contravened the Navigation Acts were liable to seizure. But they were not enforced scrupulously. At times some of them were hardly enforced at all, and at all times a well-placed bribe could usually produce a studied lack of attention on the part of those charged with their enforcement. The office of collector of the port in the various American harbors was a particularly prized one, because of its profit potential. Throughout the colonial period, smuggling was rampant.
WHILE THE AMERICAN ECONOMY grew ever more productive and complex during the colonial era, it was never a complete economy, and the colonies remained dependent on the mother country for certain goods and services they could not provide for themselves. One of these services was banking.
British law effectively forbade the establishment of banks in the colonies and also forbade the export of British coinage from Britain, to preserve its own money supply. This left the colonies to create a money supply as best they could.
Money is a commodity, no different from pork bellies, legal services, or computer keyboards, except in one vital respect. Money, by definition, is a commodity universally acceptable in exchange for every other commodity. Money is one of the seminal inventions of Homo economicus. In a barter economy, someone wanting, say, to sell oranges and buy apples, needs to find another trader who has apples and wants oranges. Economists, with their usual talent for a clunky phrase, call this a “double coincidence of want.”
But in an economy that uses money, the first trader can sell his oranges for money to anyone who wants oranges and use the money to buy apples from anyone who has apples for sale. This enormously increases the number of transactions that can take place in an economy. Thus money functions economically in much the same way that a catalyst does in chemistry: it speeds up reactions while remaining itself unchanged.
Money serves two other functions besides acting as a medium of exchange. It is a unit of account; that is, the value of all other commodities is expressed in terms of money. And money acts as a store of value, a place to hold wealth temporarily between productive investments.
Many commodities have functioned in some respects as money. Cattle were often used, and indeed still are in some cultures. (The English word pecuniary, in fact, comes from the Latin Pecus, meaning ox.) When metals came into use, they were pressed into service as quasi money and had many advantages over cattle. A bar of copper, for one thing, can be divided to make smaller units. When pieces of metal that had traded by weight were stamped with a certain value and traded by count, they became coins. Coins are real money, a commodity with no other function but to act as money.
Gold, silver, and copper, being more valuable than iron, were the usual metals for coins. And because they were elements, they could not be manufactured, only dug, expensively, out of the ground. But if they could not be manufactured, they could be debased, alloyed with cheaper metals while carrying the same face value, or short-weighted. Rulers frequently resorted to these expedients when short of funds, as rulers usually are. The long-term result, of course, was always the same. The value of the debased coins fell relative to other commodities as people in the economy adjusted their notion of the value of the coinage to take the debasement into account. Because money is a special commodity, we have a special economic term for a fall in its price: inflation.
But inflation can be caused by other things than governments trying to pay their bills with shoddy goods. As we have seen, the vast influx of gold and silver to Spain from the New World in the sixteenth century caused a great inflation throughout the European economy. The reason was simply the inexorable operation of the law of supply and demand. As the supply of money (gold and silver) rose relative to other goods, the price of money fell.
With the English embargo on exporting coins, the new English colonies in America had to solve the problem of getting a money supply another way. In 1652 Massachusetts began minting its own coins, despite strict laws forbidding anyone other than the royal mint to do so. The pine tree shilling, the first coin minted in North America, was scrupulously produced. People had to bring in their own silver and have it assayed before coins with a silver content equal to three-quarters of an English shilling were minted from it. The pine tree shilling was such an asset to the Massachusetts economy that the British government did not suppress its production for more than thirty years. Only when the original Massachusetts charter was revoked in 1684 was the mint ordered closed.
Other colonists turned to the nearest thing to an international monetary standard then in existence, the Spanish dollar. The Spanish dollar accounted for perhaps half the coinage in circulation in the North American colonies, the rest being a hodgepodge of British coins brought by travelers, French coins, and so on. But because of the drain on American specie owing to the fact that the colonies all ran persistent trade deficits with Britain, it wasn’t nearly enough to meet the demand for money.
As with any superior technology, the English settlers of North America, used to using money in their economic exchanges, wanted to continue enjoying the benefits a money economy. They looked for substitutes for “real money.”
In New Netherlands and elsewhere, the fur-trading Indians used wampum as a medium of exchange, and so too did their Dutch- and English-speaking customers. Wampum is beads made from the shells of the freshwater clams that abound in the local lakes and rivers. They were sewn onto leather belts in elaborate patterns. Steel drills made it much easier to drill the holes in each bead and, therefore, greatly increased the amount that could be produced with a given amount of labor. This caused the value of wampum to decline significantly, but it continued in use as money until the latter part of the eighteenth century. In 1760, however, J. C. Campbell of New Jersey opened a factory for making counterfeit wampum, destroying the value of the genuine article.
Maryland and Virginia resorted to what economists call “commodity money,” using tobacco. The trouble with commodity money, however, whether tobacco or cattle, is that the commodity can be difficult and expensive to transport, vary in quality, and fluctuate in real value. When the price of tobacco collapsed in the 1680s as production in the Chesapeake caught up with and then temporarily surpassed world demand, the colonies were economically devastated. “Tobacco, our money, is worth nothing,” one Marylander complained, “…and [there is] not a shirt to be had for tobacco this year in all our country.”
Legislation setting standards for minimum quality revived the price of tobacco, and it again was used universally as money in the tobacco-growing areas. In 1696 Virginia clergymen were paid sixteen thousand pounds of tobacco a year in salary. By the turn of the eighteenth century, the legislatures had established tobacco as a legal tender for paying taxes and public debts.
In 1730 Virginia set up an inspection system, requiring planters to bring their tobacco to public warehouses where it would be inspected and warehouse receipts issued for its value. These warehouse receipts functioned in the same way as banknotes, although they fluctuated in purchasing power far more, being tied to a volatile commodity, tobacco, instead of gold and silver. Maryland quickly followed Virginia’s lead.
Banknotes had been issued by English banks since the turn of the eighteenth century. Redeemable in gold on deposit in the banks, they were negotiable instruments, the gold represented by them belonging absolutely to the holder in good faith. Banknotes had many advantages over other forms of money. They were cheap to produce (originally they were handwritten) and much easier to carry around than the gold or silver that backed them in the vaults of the issuing banks.
With no banks, American colonies could not use banknotes. That did not stop them from issuing paper money. In 1690 Massachusetts raised troops to fight against the French in King William’s War (called the Nine Years’ War in Europe). To pay them, the colony issued bills of credit—promises to pay in the future. Issued in denominations of 5, 10, and 20 shillings, they read, “This indented Bill…due from the Massachusetts Colony to the Possessor shall be in value equal to money and shall be accordingly accepted by the Treasurer and Receiver Subordinates to him in all Public payments and for any stock at any time in the Treasury-New England, February the third, 1690. By order of the General Court.”
Because they were legal tender in payment of taxes and other government obligations, they circulated as money (although often at a discount from face value). These instruments were not only the first paper money issued in North America, they were the first paper money issued in the Western world.
The idea worked so well that it soon spread to other colonies in New England and to Pennsylvania, which issued its first paper money in 1723. Benjamin Franklin, in 1729 when he was only twenty-three, published a pamphlet entitled “A Modest Enquiry into the Nature and Necessity of Paper Currency.” He was soon rewarded with a contract to print future issues of Pennsylvania ?bills of credit and, typically, devised several means of foiling counterfeiters, some of them still in use to this day.
Franklin, however, minimized the fatal flaw inherent in what economists call “fiat money,” money that is money only because the government says it is money rather than being made of or backed by a valuable commodity. Since the earliest days of civilization, politicians have faced tough choices between raising unpopular taxes and controlling popular spending. When they possessed the power to pay their bills with cheaper money, such as by debasing or short-weighting the coinage, all too often they did so.
But coins must be made of some metal and are expensive to produce. Paper money costs almost nothing to produce. The temptation to use it as a short-term solution to fiscal problems has proved irresistible to politicians. The politicians in British North America were no exception. The Massachusetts government, issuing more and more paper money, soon drove gold and silver coins out of circulation, owing to the operation of Gresham’s law (“Bad money drives out good”). People passed the paper money but kept the specie in the mattress because they regarded it as a superior store of value, which it was.
Inflation soon caused the paper money to shrink in value. In 1716 Massachusetts abolished paper money and imported Spanish dollars, but soon was back to printing bills of credit once more. Every province but Virginia eventually issued various forms of paper money, but it never replaced other forms of money. In North Carolina in the 1730s, there were no fewer than seventeen different forms of legal tender.
The one unifying factor was that the pound sterling was used as the universal unit of account, even though British coins made up only a small portion of the specie in circulation and British banknotes hardly circulated at all. The costs of evaluating and converting as needed the various forms of money was a very considerable cost on the aborning American economy.
DESPITE THE MONETARY CACOPHONY that characterized its economy, by the middle of the eighteenth century British North America was prospering as few other places on earth. Besides being a major, sometimes dominant, exporter of agricultural products and raw materials, builder of ships, and trader, it was increasingly supplying its own needs in manufactured items.
Nearly every town and village had a blacksmith, cooper, wheelwright, cobbler, carpenter, tanner, and other artisans able to supply local demand. Flour and sawmills grew in number and size of their operations. In the larger towns, many artisans were expanding their businesses into proto-industrial enterprises. William Johnson (1741–1808) had been born in New York City but came to Charleston, South Carolina, as a young man and established himself as a blacksmith. He was soon much more, running a substantial business with employees, apprentices, and slaves turning out iron products in large numbers. Johnson was successful enough to become a major landowner and join Charleston’s elite as a longtime member of the legislature and a vestryman of St. Philip’s Church. His son, also William Johnson, would serve on the U.S. Supreme Court for thirty years.
Boston, New York, Philadelphia, and the other American cities all had an increasing number of William Johnsons. By this time American rum distilleries were supplying 60 percent of the American market, and a growing number of sugar refineries were converting the West Indian brown sugar into the white sugar increasingly preferred by American consumers. The trade in rum, refined sugar, foodstuffs, and manufactured goods between the colonies was increasing rapidly. In 1770 some 20 percent of the tonnage clearing the port of New York was bound for other colonial ports, not Europe or the West Indies.
The British North American economy was ceasing to be colonial in nature and was becoming more like that of the mother country, a diversified and developed one. A clear sign of that is the growing production of luxury goods in the colonies. In 1774 Philadelphia had more than three hundred workers engaged in the production of carriages. Cabinetmakers such as Thomas Elfe in Charleston, Thomas Affleck in Philadelphia, John Townsend and John Goddard in Newport, and John Cogswell in Boston were producing masterpieces of furniture design that were every bit the artistic equal of those produced in Britain at the same time. Painters such as John Trumbull were doing a brisk business in portraits.
And that economy was not only developing rapidly, it was growing rapidly as well. The population of the thirteen colonies nearly doubled from 1750 to 1770, from 1,176,000, to 2,131,000, thanks both to immigration and to very large families, most of whose children reached maturity. The settled area of the colonies was also growing quickly and by the eve of the Revolution was about 180,000 square miles, half again as large as Britain and rapidly approaching the size of France, the largest country in western Europe.
This prosperity was widely shared among the population. Although in the 1770s the top 20 percent of the population owned about two-thirds of the wealth, while the bottom 20 percent owned only 1 percent, that raw datum gives a distorted picture because it does not take time into account. (Modern statistics do exactly the same thing, now usually for tendentious, political reasons.) The population of British North America was a very young one, and children usually do not possess significant wealth. As people get older they tend to get richer, and that was certainly true in the thirteen colonies. One economic historian has calculated that of the colonial population in their forties, only about 8 percent would have been considered poor by the standards of the day, and even fewer in their fifties.
The reason was, simply enough, that colonial America before the Revolution was a land of opportunity such as the world had not yet seen. The economy of the Western world in the mid-eighteenth century was beginning to change as the first effects of the Industrial Revolution stirring in the English midlands were felt. But it was still dominated by agriculture, and land remained the basis of wealth. Europe and the West Indies had little or no undeveloped land suitable for agriculture. Canada, while rich in land, had a very short growing season, limiting the number of crops that could be grown and the return from them.
But the thirteen colonies had millions of acres of potentially rich land for the taking. If the family farm did not have enough land for all the children, the frontier, where there was land aplenty, was seldom more than a day or two away by horseback. Moving on was soon an American characteristic, and America to this day is the most mobile society on earth.
And it wasn’t just the native-born children who felt the siren song of financial independence being sung in America. There was a steady flow of immigrants, although the number varied from year to year, climbing steadily after 1750, as word of America’s prosperity and opportunity spread. To raise the cost of their passage, these people were willing to accept a limited term of slavery as indentured servants.
In 1767 Sir Henry Moore, royal governor of New York, explained that “as soon as the time stipulated in their indentures is expired, they immediately quit their masters and get a small tract of land, in settling which for the first three or four years they lead miserable lives, and in the most abject poverty. But all this is patiently borne and submitted to with the greatest cheerfulness, the satisfaction of being land holders smooths every difficulty and makes them prefer this manner of living to that comfortable subsistence which they could procure for themselves and their families by working at the trades in which they were brought up.”
This willingness to accept present discomfort and risk for the hope of future riches that so characterized these immigrants, and the millions who would follow over the next two centuries, has had a profound, if unmeasurable, effect on the history of the American economy. Just as those who saw no conflict between worshipping God and seeking earthly success in the seventeenth century, those who sought economic independence in the eighteenth had a powerful impact on the emerging American culture.
And while there was a growing elite, the British colonies also had a larger percentage of their population in the middle class (not that the term was known in the eighteenth century, which called them the “middling sort” instead) than any other area of the Western world. The prosperity was very widely shared. The native-born American soldiers in the Revolution, for instance, averaged a full two inches taller than their British counterparts, who were overwhelmingly of the same genetic stock and, indeed, were often closely related. That can only be attributed to a far better childhood diet.
Of course, none of this prosperity applied to the slaves, who, by definition, had neither wealth, nor income, nor prospects, only endless unrequited toil for the benefit of others. But if the slaves were not free, at least their plight was increasingly being recognized and condemned. The first stirrings of the antislavery movement began in the late seventeenth century in England. George Fox (1624–1691), the founder of the Society of Friends, denounced slavery (but William Penn owned several slaves). Quakers would long be in the forefront of the abolition movement when it arose a century later. Many non-Quakers decried the horrors of the slave trade and the treatment of the slaves on the plantations in the West Indies, but not the institution of slavery itself. By the mid-eighteenth century, however, the institution itself was coming under attack.
The changing attitude of Benjamin Franklin, whose life spanned the eighteenth century, mirrors the evolving attitude of society at large. In his youth he regularly ran advertisements in the Pennsylvania Gazette for slaves he was selling. And he owned two, George and King, who worked in his household. By 1750 he regarded slavery as injurious to the welfare of a country because it bred a contempt for labor, and he thought that slavery was economically inefficient at best. By the last decades of his life, however, he was an abolitionist. The first abolitionist society was founded in Philadelphia in 1775, and Franklin accepted its presidency in 1787. By that time even major slaveholders such as George Washington and Thomas Jefferson thought that slavery was immoral, but neither knew how to rid the country, or even their own plantations, of it.
In 1772 Lord Mansfield, the lord chief justice, ruled that slavery was contrary to the common law and that slaves became free as soon as they set foot in the United Kingdom. But that, of course, did the slaves in the colonies no good. Their bondage continued even as the opprobrium regarding it spread ever deeper through society.
BY THE LATTER PART of the eighteenth century, Americans were quickly ceasing to think of themselves as colonial dependents of a mother country. The very word “American” is evidence of this. It was first used to denote a person of European descent living in British North America only in 1765, but quickly gained currency thereafter. Instead Americans increasingly thought of themselves as being both loyal subjects of the British crown and also fully the equal of other British subjects living in other parts of a great and growing Atlantic empire, including the mother country.
And like all British subjects, they felt themselves the heirs of a struggle for liberty, a struggle that was already more than five hundred years old.
The government in London had largely ignored the American colonies during much of the seventeenth and eighteenth centuries, other than to use them as a convenient dumping ground for convicts and other undesirables, and to protect the economic interests of both the crown and those with influence in Parliament, such as West Indian sugar planters and British merchants.
But the geopolitical position of Great Britain had been rapidly changing during that time. In the reign of Charles II Britain had been, at best, a middling European power. Charles II had even accepted a secret subsidy from Louis XIV, in return, of course, for acquiescing in French ambitions. But when the Glorious Revolution of 1688 replaced the openly Catholic brother of Charles, James II, with the Protestant and virulently anti-French William III, Britain embarked on a seemingly endless series of wars with France that had the result of transforming Britain into a Great Power.
Britain’s secret weapon in these wars was its advanced system of taxation and its ability to finance its military through a modern national debt. At a time when the other major European powers were still using tax farmers (men who promised a certain revenue to the government in exchange for the right to collect taxes in a given area, keeping any surplus for themselves), Britain turned its tax collectors into bureaucrats. As a result, a much higher percentage of taxes raised actually made it into the British treasury.
Before the eighteenth century, government debts were usually the personal debts of the sovereign, individually negotiated with the lenders. But in 1694 the British government gave a corporate charter to the Bank of England, which evolved in the next few decades into the country’s central bank. The Bank of England soon was arranging government loans, issuing bonds that could be bought and sold in the marketplace. The effect was to greatly liquefy the nation’s available wealth. Instead of keeping surplus capital in the form of gold and silver, investors could keep it in bonds that had a ready market and provided a steady income. These bonds could, in turn, serve as the collateral for personal loans to provide working capital for new enterprises. As a result, the British economy grew rapidly in the eighteenth century as more and more of its capital could be mobilized.
And a true national debt allowed Britain to wage war successfully with countries that were far larger in population and more richly endowed with natural resources. As the Roman statesman Cicero had explained two thousand years earlier, “the sinews of war are infinite money.” Because of its national debt, Britain became the linchpin of European power politics.
But Britain’s new status as a Great Power didn’t come cheap. Its national debt had stood at 16.3 million pounds in 1700, at the end of the Nine Years’ War. By 1748, at the end of the War of the Austrian Succession, it stood at 76 million pounds. Fifteen years later, at the end of the Seven Years’ War (called the French and Indian War in North America) it was 131 million pounds, an almost incomprehensible sum to a society where a family could live in reasonable comfort on 100 pounds a year and where an annual income of 1,000 pounds made one very rich.
The French and Indian War, fought across the globe from Fort Duquesne in western Pennsylvania to India, had ended in British triumph. France was forced to cede its North American empire to Britain, ending the menacing French presence at the back door of the British colonies. With the Royal Navy commanding the Atlantic, and ten thousand British soldiers stationed on the frontier to keep the peace with the Indians, the colonies were, for the first time in their short history, secure from foreign attack.
The British government, saddled with servicing a huge national debt—60 percent of the government’s budget in these years went to paying interest on it—while continuing to fund a large military, sought new sources of revenue. With the British Empire in North America rapidly becoming a major economic power in its own right, it is not surprising that Britain looked there. The colonists, after all, had greatly benefited from the outcome of the French and Indian War, and they were far more lightly taxed than were British subjects living in the mother country. The average Briton paid 26 shillings a year in taxes, the average American only one. It was only fair, the government in London quite reasonably thought, that the colonies should contribute more to the costs of empire.
Further, the closer attention that the French and Indian War had brought to the colonies revealed things that did not please the government in London one bit. The customs officials in the British colonies were so corrupt and inefficient that they brought in a tariff revenue to the state that was only one-fourth the cost of administering the tariff. And the parts of the Navigation Acts that the colonial merchants found inconvenient, they simply ignored. In 1733, at the behest of British sugar interests, Parliament had required that all molasses imported to the North American colonies come from British sugar islands. But molasses was much cheaper in the French West Indies, and the American merchants kept right on buying it there, even during periods when Britain was at war with France.
People with an economic advantage, however “unfair” that advantage may be, will always fight politically as hard as they can to maintain it. Whether the advantage is the right to benefit from another’s labor, or an unneeded tariff protection, or an exemption from taxation makes no difference. And because the advantage for the few is specific and considerable, while the cost to the disadvantaged many is often hidden and small, the few regularly prevail over the many in such political contests.
Certainly the colonists furiously resisted the very light taxes Britain sought to impose and the tightening of the trade regulations. They argued that British subjects could only be taxed by their representatives in Parliament, and they were represented in their colonial assemblies, not in the Parliament at Westminster. Ergo Parliament had no power to tax them. And, as British subjects were all equally entitled to liberty, what right had Parliament to pass laws advantageous to British merchants at the expense of colonial ones?
As so often happens in a family quarrel, as the argument deepened, neither side made much of an attempt to understand the other’s point of view, while more and more grievances were aired. The colonists frequently stated that knuckling under to British demands would reduce them from free men to slaves, a condition of servitude with which they were all too familiar. And, realizing that they no longer needed British military power for their own defense, they could not see its necessity for the empire as a whole.
The British commentary in the crisis, on the other hand, almost invariably uses words like plantations, and children, in reference to the colonies and their inhabitants. They were subordinates and needed to be treated as such. Further, most of the British establishment had no doubt that if push came to shove, their superb military could deal easily with any resistance the colonies might mount.
But they were wrong. William Pitt, Earl of Chatham, who as prime minister had been responsible for the triumph of the French and Indian War, knew better. “You cannot conquer America,” he told the British Parliament. But the members were in no mood to listen.