Confronting the National Debt

Learning Objectives

  • Explain how the British government responded to the debt crisis following the French and Indian War

The Aftermath of the French and Indian War

Great Britain’s newly enlarged empire in North America meant a greater financial burden, and the mushrooming debt from the Seven Years’ War was a major cause of concern. The war nearly doubled the British national debt, from £75 million in 1756 to £133 million in 1763. Interest payments alone consumed over half the national budget, and the continuing military presence in North America was a constant drain. The Empire needed more revenue to replenish its dwindling coffers. Those in Great Britain believed that British subjects in North America, as the major beneficiaries of Britain’s efforts during the French and Indian War, ought to shoulder their share of the financial burden.

The British government began increasing revenues by raising taxes at home, even as various interest groups lobbied to keep their taxes low. Powerful members of the aristocracy, who were well-represented in Parliament, successfully convinced Prime Minister John Stuart to refrain from raising taxes on land. The greater tax burden, therefore, fell on the lower classes in the form of increased import duties, which raised the prices of goods such as sugar and tobacco, which were primarily imported from the New World colonies. George Grenville succeeded Stuart as prime minister in 1763. Grenville hoped to curtail government spending and make sure that, as subjects of the British Empire, the American colonists did their part to pay down the massive debt.

Imperial and Colonial Reforms

The new era of imperial reforms indicated a growing British interest in the American colonies and picked up steam in the mid-1760s. In 1764, Prime Minister Grenville introduced the Currency Act of 1764, which prohibited the colonies from printing additional paper money and required colonists to pay British merchants in gold and silver instead of the colonial paper money already in circulation. The Currency Act aimed to standardize the currency used in Atlantic trade, a logical reform designed to help stabilize the Empire’s economy by maintaining the value of the currency in line with the actual availability of gold and silver. This rule brought American colonial economic activity under greater British control. Colonists relied on their own paper currency to conduct trade and, with gold and silver in short supply, they found their finances tight. Not surprisingly, they grumbled about the new imperial currency regulations.

Money Backed by Gold

Gold and silver have been used as currency throughout the world since ancient times as commodity money, which is currency made from actual valuable materials. Commodity money is difficult to transport and carry, so many nations eventually began switching to representative money, which is often printed on paper and represents a specific value of gold or silver which is retained by the government or the bank as backing. In theory, representative money can be exchanged at any time for commodity money or specie (raw gold or silver not made into coins).

The Gold Standard is a system where the value of the means of exchange (currency) has a fixed external value in terms of gold that is independent of the inherent value of the means of exchange itself. So, theoretically, $1 in paper currency would be worth a set weight of actual gold (usually measured in grains or grams). This also ensured an equal exchange rate between nations who used the Gold Standard.

However, most countries went off the Gold Standard around the beginning of World War I since they could not back the amount of money needed to pay for the war with gold reserves. In 2021, the U.S. Gold Reserves were valued at about $11,041,059,957.90, while the ratio of all cash in circulation plus the value of checking/savings accounts in the U.S. to the U.S. gold reserves is about 28.5 to 1. This means that if everyone in the U.S. suddenly decided to exchange their currency for gold, there would not be enough gold to back the currency, banks would fail, and the dollar would become essentially worthless.

Grenville also pushed Parliament to pass the Sugar Act of 1764, which actually lowered duties on British molasses by half, from six pence per gallon to three. Grenville designed this measure to address the problem of rampant colonial smuggling with the French sugar islands in the West Indies. The act attempted to make it easier for colonial traders, especially New England mariners who routinely engaged in illegal trade, to comply with the imperial law.

The 1764 Sugar Act also strengthened enforcement provisions. Prior to the Sugar Act, colonial violations of the Navigation Acts had been tried in local courts, where sympathetic colonial juries refused to convict merchants on trial. However, the Sugar Act required violators to be tried in vice-admiralty courts. These crown-sanctioned tribunals, which settled disputes that occurred at sea, operated without juries. Some colonists saw this feature of the Sugar Act as a threat to their civil liberties. They argued that trial by jury had long been honored as a basic right of Englishmen under the British Constitution. To deprive defendants of a jury, they contended, meant reducing liberty-loving British subjects to political slavery. In the British-Atlantic world, some colonists perceived this loss of liberty as parallel to the enslavement of Africans.

As British subjects, many colonists in America cherished the Constitution of the United Kingdom, an uncodified system of government that prescribed the roles of the King, the House of Lords, and the House of Commons. Each entity provided a check and balance against the others. If the King had too much power, the result would be tyranny. If the Lords had too much power, the result would be an oligarchy. If the Commons held too much power, democracy or mob rule would prevail. The British Constitution promised representation for British subjects (Ashby v. White, 1703: “A right that a man has to give his vote at the election of a person to represent him in Parliament, there to concur to the making of laws, which are to bind his liberty and property, is a most transcendent thing, and of a high nature.”) and without such representation, even the indirect tax of the Sugar Act was considered a threat to colonists’ rights as British subjects. Furthermore, some Americans felt the colonies ought to be on an equal political footing with Great Britain when it came to representation and privilege. The Sugar Act meant they were secondary, mere adjuncts to the Empire. All subjects of the British crown knew they had liberties under the constitution. The Sugar Act suggested that some in Parliament hoped to deprive the colonies of their liberties, which they found unacceptable.

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Review Question

What did British colonists find so onerous about the acts that Prime Minister Grenville passed?


import duties: an import duty is a tax paid on goods that are imported into a country. The American colonists were resentful of these taxes because they raised the cost of imported goods and put a financial strain on American merchants who imported them

indirect tax: a tax imposed on businesses, rather than directly on consumers

uncodified constitution: this is a constitution that is not contained or written within a single document, and some parts may not be written at all, but simply maintained by tradition or custom. The United Kingdom Constitution is uncodified because there is no single document containing every law, amendment, right, or statute. The United States Constitution is codified because it is one single document.

vice-admiralty courts: British royal courts without juries that settled disputes occurring at sea