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Economic Causes of British Taxation

During the early seventeenth century Britain created a mercantile system to maintain close control and regulate trade of its colonies, they tried to make sure all revenues generated from the trade with its American colonies went back to the crown. This system did not allow  its colonies to freely trade with other countries other than Britain. The first of its protective measures was the Navigational Act of 1651. The law was designed to protect British economic interests in colonial trade and to protect its industry against the rapidly growing Dutch navigation trade, it essentially dictated that British foreign trade was to be carried out only by English vessels. This system clearly benefited the crown but not America as the financial gains were not reinvested in America.


Illegal trade allowed Americans to consume British goods in greater quantities.

As the transatlantic trade increased and the local American industry prospered it became more difficult for the British to keep close control of trade. Colonial entrepreneurs soon realized that other countries were ready to trade with them. They resorted to illegal trading which proved very profitable, smuggling allowed them to avoid paying escalating fees and have goods faster for trade rather than going through paper work and British bureaucracy. It also allowed them to reinvest the profits and consume British goods in greater quantities. As the table indicates, British exports to America increased annually as a percentage of total British exports, reaching its height in 1771 as colonial residents became more affluent. It slowly declined after1771 due to economic boycotts of opposition groups and colonial merchants.

YearExports to AmericaTotal English Exports% of Total British Exports
to America
Source: Alvin Rabushka, "Taxation in Colonial America", 725. Princeton University Press.

As part of its mercantile economic policy, the Molasses Act was enacted by the British parliament in 1733 with the purpose of protecting its sugar plantations in the West Indies. This act was not designed to raise revenue but it was a continuation of the Navigation Acts. To discourage colonial trade of molasses with countries other than Britain, especially France’s and Spain’s colonies in the West Indies , the government created a new tax of sixpence per gallon of molasses. This indirect tax further encouraged illegal trade and corruption among British officials as well as lack of respect for British law.

During the colony trade used to be conducted only in British ships like this one.


At the end of the French Indian War in 1763 Britain was in deep debt and the king decided it was time for America to pay for the bills it had incurred from defending its territory. In 1764 the Sugar Act was introduced. It reduced the previous tax on sugar and molasses in half with the purpose of curbing smuggling, those who violated the law were tried in admiralty courts rather than local colonial courts. The strict enforcement did accomplish it’s goal of reducing smuggling. The following year parliament passed the Currency Act to gain control of the colonial currency system. Paper money printed in the colony and used as legal tender was prohibited instead they introduced a hard currency system based on the British currency, the sterling pound. Americans argued that the British system interfered with the colony’s economic growth.

In 1765 when the Stamp Act was approved resistance began. Americans started to combine theirpolitical and economic views and argued against British policy. “No taxation without representation” became the slogan of the resistance. Americans believed that because the colonies had no seats in parliament and therefore no representation they should not be taxed. In addition they considered British taxation as an infringement on their private property. During the Stamp Act crisis Americans distinguished between taxation for regulation of trade and taxation for revenue. They argued that Britain had the right to the former but not the latter. Because the Stamp Act affected all colonial residents resistance was widespread, not only was it violent but for the first time they proved their economic power by boycotting British goods and resisting to pay their debts to British creditors. Prime Minister Marquis of Rockingham nullified the act before it even went into effect.

Americans realized that to advance economically they needed a voice in parliament and the political development of the colony. The Townshend Revenue Act of 1767 had the same reaction leading to the Boston Massacre and boycott of trade with Britain. Subsequently, the Tea Act of 1773 which gave the East India Company the monopoly of tea distribution in the colony, led to the violent Boston Tea Party. A political and economic ideology was maturing which led to the Independence War, a separation of America from the oppressive motherland.

Tea shipped by the East India Company destroyed by protestors During the Boston Tea Party

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