Colonial America

by Richard Middleton, Anne Lombard

  5 Money and Taxation

  One problem faced by all the colonies in the period 1689–1760 was a lack of specie. The condition used to be attributed to a chronic imbalance of payments with Britain, but modern scholars have largely discounted this interpretation. Although exports to the mother country often equaled only half the value of imports, the imbalance was generally corrected by colonial surpluses on trade with the West Indies and southern Europe.24

  Even so the domestic economy was invariably short of specie. Minting fresh coinage was not permissible, since this was a Crown prerogative. The colonies in any case had little gold or silver to mint. Barter solved the problem on the frontier, but it was a hindrance elsewhere as the colonial economy became more sophisticated.

  One alternative was the use of commodity money, the most common forms of which were tobacco and wampum, though the latter was largely a seventeenth-century device. Most colonies passed acts regulating such items in terms of their sterling value. North Carolina, for instance, rated 16 commodities in 1715, including tobacco, corn, wheat, tallow, leather, beaver, butter, cheese, pitch, whale oil, pork, and beef.

  The difficulty was fixing the value of a commodity satisfactorily. In times of a glut, the commodity was devalued and the creditor was hurt; in times of scarcity, the debtor was at a disadvantage. In addition, commodities used in payments could often be spoiled or become unmarketable. Complaints were made in New Haven that worthless wampum was being put into the church collection plate, to the distress of the minister and his family. Although the provincial assemblies constantly tried to regulate commodity prices, it was an almost impossible task.

  A third option was the use of bills of exchange, whereby those wishing to settle an account or buy some goods would go to a local merchant and buy a bill that was negotiable with a third party with whom the purchaser wanted to do business. This procedure was really only feasible for merchants or persons dealing in large sums, usually overseas or in another colony.

  Most colonists had to make do with whatever specie was available: Spanish pesos or pieces of eight, Flemish ducatoons, Portuguese crusadoes, Dutch guilders or florins, German and Danish talers or dollars, and French ecus. Apart from their bewildering variety, such specie often had variations in their silver or gold content. Many coins were also clipped. Nevertheless, some specie was better than none, and many colonial legislatures passed laws placing higher values on certain coins to attract them to their province. The ploy was rarely successful, since it merely stimulated other colonies to do the same. This practice so alarmed British merchants, who were apprehensive of being paid in artificially inflated coin, that in 1704 the Privy Council issued a proclamation regulating the value of foreign coins according to their silver content. In the future such specie was not to exceed the sterling equivalent by more than one-third. Three years later Parliament enacted legislation to this end, though with only limited effect.

  By this time the colonies had discovered a new solution to their lack of money, namely the printing of paper. Essentially two types of paper currency were issued during the colonial period: tax anticipation bills, or notes to be redeemed from tax receipts, and asset-backed currency. Tax anticipation notes were first issued by Massachusetts in 1690 to finance the expedition of Sir William Phips against Québec. The bills had to be repaid within a short time at the insistence of the British merchants, who feared that otherwise they would be paid in depreciated paper. The Board of Trade in consequence was under constant pressure either to prevent their issue or to ensure that such notes were not legal tender and obligatory in the settlement of debts. Nevertheless, the device was too useful to ignore, especially in wartime, and other colonies followed Massachusetts' example: South Carolina in 1703, New York and New Jersey in 1709, and North Carolina in 1712.

  Most of the notes were in denominations of between 5 shillings and £20 and were more like bills of credit than modern currency. The individual had to purchase them from the provincial treasurer and pay interest for the privilege of doing so. The advantage was that they could be circulated more widely than bills of exchange, which were restricted to the name of the eventual payee.

  So useful did these emissions prove that a number of colonies continued their use long after the official redemption date, sometimes to pay their government expenses, sometimes to redeem other bills, and sometimes as a means of stimulating the economy. However, their unpopularity in London led some colonies to experiment with the second type of paper money: asset-backed currency based on land. The most notable scheme was that of Pennsylvania in 1723 whereby individuals could obtain notes ranging from £10. 10s. to £100. 0s. from the local loan office. The borrower had to pay five percent interest and provide as security land twice the value of the total loan, for what was effectively a mortgage. That same year New Jersey adopted a similar scheme, using the interest on the notes to meet the expenses of government.

  The benefit of paper currency was not lost on some royal officials. As Governor William Burnet of neighboring New York explained in November 1724, such schemes had widespread advantages: “The officers of the government might otherwise be kept out of their money for a very long time and have difficulty to subsist.” Essential expenditures like repairs to the fort and diplomatic contacts with Native Americans would also suffer. Indeed, Burnet asserted, “Under good regulation, these acts are both of service to the trade of the plantations and of Great Britain.” Burnet also pointed out that the colonists were merely imitating Parliament, anticipating revenues by means of paper.

  In the aftermath of the 1720 South Sea Bubble in Britain, in which thousands of investors were ruined by fraudulent share schemes, Burnet's arguments were not appreciated. Hence in 1725 the Privy Council ordered South Carolina to redeem its £55,000 of outstanding bills. Nevertheless, the need for a circulating medium led to the acceptance of two New Jersey acts in 1730 and 1733 for an emission of £60,000 and one in Maryland. The following year Connecticut managed to secure an issue of £35,000 “to promote trade.” Even the South Carolina assembly managed to pass another bill in 1736 for an emission of £210,000, arguing that its trade was in great distress for want of a circulating medium.

  The problem of sustaining the value of such currency became acute only in the late 1730s when there was a renewed threat of war. By then the Massachusetts pound was trading at £5. 5s. to £1 sterling; and the South Carolina currency at £7. 19s. to £1. Fearing new issues of depreciated paper, the Privy Council sent a circular letter in August 1740 telling the governors to allow no more emissions. If any such acts did have to be passed, they must contain a suspending clause until they had been approved in Britain. The following year the Board of Trade ordered the Massachusetts assembly to retire all its paper money, except for £30,000 to finance its government.

  In response, a group of merchants decided to set up a Land Bank to print notes, using their landholdings as security. The idea had been mooted during the previous decade, but it was the recall of the provincial bills which now led to its execution. A more conservative group then proposed a rival Silver Bank, with notes redeemable in silver. Both groups proposed to operate without a charter from the provincial legislature. At this point the British vetoed both measures by declaring that they fell within the scope of the 1720 Bubble Act, which had been passed to prevent just such enterprises. The closing of the Land Bank hurt a number of people, including the father of Samuel Adams.

  Nonetheless, the Privy Council's attempts to restrict the issue of paper proved difficult in the 1740s, for military expenditures would not wait. A number of issues were accordingly made, much to the dismay of British officials. The New England colonies were particular offenders, though they were provoked by the need to meet the cost of capturing Louisburg in 1745. Worse, their emissions were not well managed, lacking any redemption date or security in the form of tax revenue. By the end of the war the exchange rate had slumped to £12 of Massachusetts currency for £1 sterling. Fortunately Massachusetts was owed a large
sum in reimbursement for its war effort, and Thomas Hutchinson persuaded the assembly to use this to redeem its near worthless currency.

  Despite this far-sighted initiative, Parliament passed an act in 1750 requiring the redemption of all existing bills in New England. In future, only sufficient paper for the government salaries and other necessary expenditures could be issued, and this amount had to be redeemed in two years, though in an emergency the period could be extended to five years. Such notes were not to be legal tender, thus restricting their use as a circulating medium.

  Nevertheless, further emissions continued to be made, especially of asset-backed paper, which suffered little depreciation due to the rising value of the land offered as collateral. Hence New Jersey was allowed another £60,000 worth of bills in 1754 in recognition of its earlier judicious handling of paper. As the Board of Trade commented, the previous issues were “found to be the least burthensome method of levying taxes for the support of government” and had “also been of great service in enabling the inhabitants to extend and improve their trade.” The bills were not to be legal tender.

  Even that restriction had to be lifted to stimulate the colonial war effort during the final conflict with the French and their Indian allies. The British merchants then renewed their clamors, even though Virginia stipulated in its first issue of 1755 that any discount would be made good in the settlement of sterling debts. The issue of paper was to be one element in the subsequent conflict between Britain and the colonies after 1760.

  The supply of money generally seems to have sufficed. Even Britain in the eighteenth century had to manage with a mixture of barter, commodity money, paper, and coin. The colonial economy was no exception.

  One aspect of the colonial economy which was favorable throughout the period was tax rates. Though the colonies had to pay the navigation duties, which could be heavy, the burden fell on the consumer rather than on the population at large. In contrast, internal taxation was light, since the government expenses were low except in wartime. The bureaucracy was tiny, and there was no standing army or fleet. Poor relief was the responsibility of the local authorities. Spending on roads or other facilities was minimal.

  One reason for the popularity of paper money was that it could finance extraordinary expenditures in wartime, though ultimately such issues had to be redeemed and other obligations met. To this end taxes were most commonly levied on land or personal property. Poll taxes on adult males over 16 were another option; in the Chesapeake an export duty on tobacco was imposed, and excise duties on liquor were also adopted. But with the exception of quitrents, none was so onerous as to cause significant protest before 1760.25

  6 The Standard of Living: Poverty and Prosperity

  Whatever the restraints of the mercantilist system, the colonies developed at a remarkable pace throughout the later colonial period. Growth was by no means even, there being periods of stagnation. Nevertheless, the evidence suggests that the system cannot have been too restrictive. Colonial trade with Britain grew by 700 percent in the period 1689–1760, while the population of the British North American colonies increased from 250,000 to around 1.5 million. At the same time average per capita income rose by at least 0.5 percent a year in real terms, so that the standard of living for most of the population improved by between 50 and 100 percent. The British North American colonies were among the first societies to escape the Malthusian cycle in which increased resources merely stimulated population growth and ultimate decline in per capita income. British North Americans never experienced the kind of famines which afflicted most European societies until the nineteenth century.

  One indication of colonial well-being was the reaction of visitors. In the seventeenth century it was the wild appearance of the continent which drew comment, whereas by the 1750s visitors were impressed by the general prosperity of the inhabitants. Most white men appeared to have land, and European travelers noticed little poverty or unemployment. As a British officer commented, “Everybody has property and everybody knows it.” The general progress was well symbolized by the rise of Philadelphia, a town that did not exist in 1682, but which by 1760 was on a par with Dublin, Edinburgh, or Bristol. Benjamin Franklin, too, constantly emphasized the material benefits of living in British North America. After a trip through Scotland he commented, with characteristic irony, “I should never advise a nation of savages to submit to civilization,” suggesting that he thought even the Indians in North America were better off than tenant farmers in the British Isles.

  The same points were made more prosaically by Thomas Hutchinson in his History of Massachusetts. He wrote, “Property is more equally distributed in the colonies … especially those to the northward of Maryland than in any nation in Europe. In some towns you see scarce a man destitute of a competence to make him easy.” The reason, of course, was the availability of land, which led “most men as soon as their sons grow up endeavour to procure tracts in some new township where all except the eldest go out one after another with a wife, a yoke of oxen, a horse, a cow or two and maybe a few goats and husbandry tools … A small hut is built and the man and his family fare.”

  Though a few such statements could be misleading, other types of evidence such as wills and contemporary depictions of household furnishings tend to support the view that living standards were improving, at least for the middling ranks of the settler population. Whereas in the seventeenth century most decedents left a few tools, some rough furniture, and livestock, eighteenth-century inventories often reveal a much richer standard of living, including china rather than coarse pottery, silverware, furniture, clocks, warming pans, and other household items designed for decoration or comfort rather than mere survival. Additional evidence can be obtained from the records of colonial imports. After 1700 these increasingly included what earlier would have been considered inessential luxury items: tea, coffee, French wines, Indian silks and calicos, glass, porcelain, and even furniture. Previously colonials had made their own, found substitutes, or done without. The first 60 years of the eighteenth century witnessed a consumer boom which seems to suggest a standard of living 20 percent higher than in Britain, for the middle classes at least.26

  Of course, this wealth was not evenly spread, even within the colonial elite. The evidence from wills for the year 1774 reveals that the Charleston area of South Carolina, with its large rice plantations, had by far the highest concentration of wealth, with the estates of decedents there averaging £2,337. The next most wealthy area was Ann Arundal in Maryland, with an average inventoried estate of £660. Slaveholding planters in the South were substantially wealthier than elites elsewhere, including northern merchants. Philadelphia, for all its commerce, had an average estate of no higher than £396, while the figure in Suffolk County, Massachusetts, was just £312. New York City was even lower with a mere £278, suggesting the presence of many middling people who enjoyed a comfortable existence, rather than a conspicuously wealthy upper class.27

  How was this prosperity achieved? One answer was greater efficiency. Although historians have generally condemned the British North American colonial farmer for his wasteful land usage, improvements did occur through greater knowledge of the climate and terrain. Some modest technological improvements occurred in manufacturing and commerce, though less so in farming. Most colonials were still using tools similar to those of their seventeenth-century ancestors, though implements like plows were now used more widely. In addition, the colonial period was generally one of price stability. The price of manufactured goods actually fell as production methods improved and transport became cheaper, giving settlers greater purchasing power. Throughout the period the colonists continued to enjoy that almost unique combination of abundant land, cheap food, and unlimited fuel.

  Lastly, the growth in living standards was ironically fueled by consumer behavior itself. Many historians now argue that British American colonists underwent their own consumer revolution in the eighteenth century. Whereas colonial families had once soug
ht to replicate the familiar and traditional as they made decisions about food production and architectural styles, they now began to hunger for the new. Colonial elites led the way, developing new tastes in architecture, furniture, food, clothing, and manners so that they could present themselves as “refined” or “genteel” in the eyes of the British gentry. Middling people followed suit, adopting new customs like drinking tea out of imported china teacups, signaling new aspirations to refinement or, at least, comfort.

  As consumer behavior changed, moral judgments of consumption changed along with them. Until the end of the sixteenth century only gentlefolk were expected to live sumptuously as a sign of their rank and a means whereby the social order could be maintained. Ordinary people, it was assumed, would merely be corrupted by such consumption into idleness and vice. (The purpose of sumptuary laws, which virtually all colonial governments enacted in the seventeenth century, was to prevent ordinary people from engaging in excess consumption.) By the end of the seventeenth century such attitudes had changed in favor of personal improvement. Now it was argued that many of these same luxuries were items of refinement which could be defended on moral grounds as leading to gentility.