1776—War Financing Crisis

America had been in and out of major wars since the 1740s, but seeking its independence by going to war with Great Britain created special economic problems for the colonies. Because Great Britain was the main holder of colonial debts, war with Britain would relieve some debt problems for the colonies; however, the colonies themselves lacked gold and silver to print their own specie-backed currency. The war would also cause America to lose its main trading partner, Great Britain.War would require money to purchase key war materials such as gunpowder. As in past conflicts, American factories could be ramped up to manufacture some war materials, but not everyone supported the war. Furthermore, some merchants, traders, manufacturers, and businesses were suspicious of paper money after the inflationary problems of the 1740s, 1750s, and 1760s. They were leery of beginning to produce war material only to be paid with worthless currency.

The American Revolution would be as much a financial crisis as a political conflict, and victory would be as much financial as military. The colonists, how-ever, realized that continued economic ties with Britain provided no better future either. They came to realize that it was time for economic freedom as much as political freedom. Not surprisingly, the northern urban centers and the southern plantation owners were the centers of support for revolution as they had been the most negatively affected by the British mercantilism that had harmed and constricted the colonial economy for decades.By 1774, the die of war was cast. British soldiers were in the colonies enforcing oppressive regulations and acts of Parliament. 

The colonists were organizing a boycott, and the British were blockading major ports. The First Continental Congress met in Philadelphia. A major boycott was being planned; but before that, merchants such as Robert Morris of Philadelphia sent many ships filled with flour to Europe to obtain goods and establish credit before the fighting began. Credit had already been tightened in anticipation of a major conflict with Great Britain.Congress formed the Committee of Safety and filled it with prominent merchants. The committee’s first assignment was to arm 4,500 soldiers. The most critical need was gunpowder, and Robert Morris was given the first government contract. Fulfilling the contract was a high-risk investment of Morris’s ships but the profit would be more than 30 percent, high enough that one shipment could pay for the loss of two or three shipments. American merchants like Morris would find war to be profitable. 

Morris was able to establish a European trade that had gun-powder, cannon, and arms flowing into America before the Declaration of 1776. Congress started to print continental dollars and to let contracts for war materiel. The public lacked confidence in paper money, but there was little silver or gold available for Congress to use in the fight.

In late 1775, Robert Morris was a key member of many congressional committees and had procurement responsibilities for the Congress. Many in Congress were upset with the profit margins of the merchants, but these profits brought victory by giving merchants the incentive to risk their money and property against the British navy. British blockades began in 1776 as the war officially started. 

Benjamin Franklin was able to get a secret credit deal from France that would prove critical to the American war effort.Morris established a trading network throughout Europe and the colonies. He had, for example, been given sole responsibility for the Virginia tobacco trade. American ships were also sailing in search of British ships to capture for their cargo and money. The economics of war often received little attention but the America victory depended on it. Morris’s network supplied the muskets, gunpowder, blankets, lead, and money to support Washington’s famous Christmas Eve crossing of the Delaware to defeat the Hessians. 

During this campaign, the enlistment period was up for many of Washington’s soldiers, and they were due to return to their homes in the next few days. Washington offered a $10 bounty for soldiers to sign up for another year. Morris was able to collect the necessary funds in coin to hold on to the soldiers.It would be a long war and would involve a string of financial ups and downs. Congress considered imposing new taxes to support the war, but that was politically impossible as the war was being waged over British taxes. In 1777, Congress, hoping to borrow money to help pay for the war, approved the issuance of $5 mil-lion in certificates paying 4 percent. There was a lot of competition with individual states, which were issuing their own certificates at the 4 percent rate. The bonds found few takers until Congress raised the interest rate to 6 percent. Still, by the end of 1777, more French loans were needed to pay for the war. 

Morris set up an informal bank that sold six-month certificates, and the bank would circulate paper notes to be used as currency. This bank was successful with providing credit for merchants, who preferred bank notes to Continental dollars.As 1780 approached, all forms of paper money that had been issued were highly inflated. The state of circulating currency was a mass of state-issued paper, Continental dollars, and some interest-bearing bank notes. The crisis peaked in 1781 when 10 regiments of Pennsylvania soldiers, tired of the lack of supplies and pay, marched on Congress. This was not an isolated rebellion but was the largest to directly threaten Congress. Congress was printing money to pay for the war with no formal agreement between the individual states to back the money—that is, to accept the responsibility to pay back the debts after the war. Congress decided that the currency and the war financing required central control, and Robert Morris was named superintendent of finance. 

The need for unity in taking responsibility for the war spending ultimately resulted in the ratification of the Articles of Confederation.Morris founded a private national bank to issue currency backed by silver and gold. The idea was to attract patriotic investors and French support. Most important, Morris used the bank as a central bank to control the value of the currency. Under the bank, all states would share the war debt. However, Morris planned to use poll taxes, import taxes, excise taxes, and land taxes to pay off the debt. He used a 6 percent interest rate to attract foreign money. Morris also aggressively sold grain to Spain for gold and silver to back his new bank. Many critics looked at Morris as a financial alchemist and could not understand why he was buying back Continental dollars and bank paper while limiting new money. The French were still giving loans to the colonies because manufacturing gunpowder and other war supplies had created an economic boom for them, and France’s earlier investments required them to stay for the long haul or lose everything.Morris also proved creative in saving money on supplies for the army. 

He replaced an elaborate system of government agents and army supply officers with contractors who became responsible for collecting and delivering supplies to the army. This also allowed the army to put more troops in the fight. The use of con-tractors was years ahead of its time, but the system worked extremely well in the north. Merchants lined up to bid on contracts at the rate of 10 cents per soldier per day. If supplies were captured by the enemy, the government would cover the loss. The concept would come to be frowned on by the professional armies of Europe, however, because of the lack of control over contractors. The idea would be resurrected by the Bush administration during the Iraq War. The problem of pay, how-ever, was not to be resolved for over a decade. 

George Washington had spent years begging soldiers to stay on with little money available for pay. Some of these soldiers still had worthless paper dollars from the French and Indian War. The average soldier was patriotic but the soldiers were also farmers and laborers with families to feed. The years of fighting had taken their toll, and although a military end was in site, inflation and a lack of hard cash were big obstacles to success. 

Even Washington’s ultimately successful southern campaign to Yorktown was in jeopardy for lack of funds. But the arrival of the French fleet not only brought troops but also kegs of silver coins for the soldiers’ pay.

The American victory at Yorktown brought money from Holland—the first major loan outside of France. The financial work of Robert Morris had been behind the ultimate American victory, but it would take another 10 years to settle the debt created. The pattern of war, boom, inflation, peace, and recession that had been seen in the past was repeated during the Revolutionary War period and would be repeated in the future.

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1772—Credit Crisis

By early 1770, the colonies, led by new manufacturing and trade, were coming out of the depression of the 1760s. Great Britain and Europe, however, were facing their own financial crisis as the new boom in trade created a credit bubble. Scottish and British banks had begun expanding credit starting in 1770. Once again, this was accompanied by over speculation in trading stock companies. The printing of paper money not backed by gold or silver created a European bubble, which when it burst caused failures of major banks throughout Europe and stock market crashes in London, Amsterdam, and Paris. The key colonial trading company, the East India Company, defaulted in 1772 as well. Britain once again looked to resolve the problem by monopolizing trade with and levying additional taxes on the colonies. Although the banks managed to stabilize the situation, the penalties on America stopped the expansion of the colonial economy. These new taxes and regulations such as the Tea Act would lead to the American Revolutionary War.

The credit crisis of 1772 followed the typical boom-bust cycle that has been common throughout the history of the United States. The period from 1770 to 1772 was one of boom and growth. The repeal of the Townshend Act opened up trade after the trade restrictions and colonial boycotts of the 1760s. In response to the pent-up demand, a flood of British goods was shipped to the colonies between 1770 and 1772. In return, crop failures in Europe also created huge demand for corn and wheat from the colonies. Tobacco also boomed during the period, hitting new highs in shipments. European banks eased credit to support this increase in trade, in particular Scottish banks that wanted to support the growth of Scottish merchants. Scottish merchants had made Glasgow a key trading point for American agricultural products, and the colonists could get cash and credit by trading with these middlemen. Great Britain, in contrast, still preferred to deal in reciprocal trade of tobacco for British goods. However, by 1770, many planters did not need large amounts of imported goods from Great Britain and preferred cash or notes of credit.

The old plantation trade system was breaking down because the value of the tobacco the colonies sold was greater than the value of the reciprocal goods offered in exchange by the British government. Tobacco planters wanted the cash equivalents offered by going directly to British merchants or Scottish agents, bypassing government agents. To support this change, British banks increased credit to European merchants. Paper money issued on the European side increased dramatically by 1772. The Ayr Bank of Scotland was founded in 1769 to liberalize credit with Scottish traders and merchants, and by 1772, it had almost two-thirds of the capital of Scotland. The increased number of paper bills of credit were also shared with, or sold to, London banks. The approach was very similar to the way American banks bundled credits for sale to other banks in the 2009 U.S. credit crisis. Speculation in the bank notes took off from 1770 to 1772.

At the end of 1771, traders and merchants were concerned about a commodity glut. American agents were reporting overstocks of tobacco that had been shipped from the colonies. The bubble burst when a major London bank, the Fordyce Bank, which dealt with the Ayr Bank, collapsed on June 8, 1772. The failure touched off a number of smaller bank closings and a panic in Scottish capital markets. Finally, on June 25, the Ayr Bank also closed, bankrupting many wealthy investors. Bank and personal bankruptcies increased rapidly. In the next six months, the crisis spread to continental Europe and Russia. The credit crisis crossed the sea, hitting plantation trading in Virginia, South Carolina, and the West Indies. 

The credit crisis took the West Indies plantations to the breaking point and affected the triangular trade with New England traders. The East India Company was also bankrupted but received support from the British government.In Virginia, tobacco backed up in warehouses as demand and prices dropped. British credit dried up and colonial credit followed. The colonial treasuries were still in debt from the 1760s. Debt due to British merchants soared, and prominent Virginians appealed to Parliament for help. The famous Tidewater plantation owners were forced to take austerity measures unknown before 1772. Other planters moved west to reduce costs. Rice and indigo plantations in South Carolina experienced a similar depression. 

The other American colonies were indirectly affected when the European economies failed. The biggest problem for the New England and middle colonies was a new round of British taxation and regulation in the midst of this downturn. Parliament passed the famous Tea Act of 1773. The act’s purpose was to raise revenue by tightening regulation and ownership of trade. The Tea Act actually reduced taxes but increased revenue for Britain by eliminating smuggling and giving the East India Company a monopoly. Giving the East India Company the right to authorize the only merchants that could sell tea eliminated colonial merchants who dealt in smuggled or Dutch tea and the growing class of smugglers and middlemen. In addition, the royal regulators were given new authority to seize goods and ships. 

These regulators got a third of the taxes and fines, which further motivated them to enforce strict, if not excessive, regulation. Colonial protests included the destruction of tea shipments in actions like the Boston Tea Party and attacks on British soldiers and officials. In North Carolina, a guerrilla militia was formed to attack the king’s commissioners and regulators. Riots occurred, even in conservative New York, as merchants, artisans, and businesses went bankrupt.

Depression and political unrest hit all levels of society in 1773. Violence became commonplace as the British took more police actions. The economic crisis of 1772 had united many different groups, such as New England merchants and artisans with southern plantation owners. It became obvious that the economic arrangements with Britain had chained the colonies and disrupted their economies, and the road to revolution was now clear.

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1764–1765—Sugar Act, Currency Act, and Stamp Act Boycotts

By the early 1760s, all the British colonies in America were experiencing a postwar recession. The depression was affecting the full spectrum of industries and colonists. Most historians think that, by 1764, it had become America’s first depression. Great Britain too was struggling with massive debts from the French and Indian War and believed the colonies should pay more of its war debts. To reduce British war debt, Parliament passed a series of acts—the Sugar Act, the Stamp Act, and the Townsend Act—placing new duties and regulations on Britain’s American colonies. 

Great Britain also strengthened its restriction on the printing of paper currency in the colonies with the Currency Act of 1764, at a time when the colonies had low reserves of gold and silver. The colonies had used their reserves to pay their bills from the French and Indian War. Tight money—from currency restrictions and a shortage of specie—and new taxes from Parliament restricted the colonies’ means of expanding the economy. These British taxes and restrictions created a major economic crisis in the colonies that moved from recession to depression. Many believe this depression was the root of the American Revolution.

The Sugar Act of 1764 is better described by its name—the American Rev-enue Act. The act placed import duties on sugar, wine, coffee, indigo, and textiles brought into the colonies. It also required stricter enforcement of the Molasses Act of 1733. New regulations required merchants to submit customs forms. Interestingly, the act actually cut the tax rate on molasses in half in hope of better compliance. However, the rum distilleries of New England had become adept at avoiding the taxes on rum for 30 years.

Merchants in all the colonies protested the Sugar Act and its taxes on imports the most. Boston merchants even sent a letter of protest to Parliament. The tight money and the influx of cheaper British pewter and metal tableware destroyed the business of craftsmen such as Paul Revere. Merchants and craftsmen were also hurt by the Currency Act, which restricted colonial paper money, causing currency shortages. The return to a currency backed by gold and silver in effect stopped the making of silverware by American craftsmen, except where the customer supplied his own silver to be melted down.

The Stamp Act of 1765 proved to be even more politically explosive during these colonial hard times because it directly taxed goods moving within the colonies. In 1765, many prominent Boston merchants, such as Nathaniel Wheelwright, went bankrupt. The Stamp Act imposed a tax on printed materials, including legal papers, deeds, newspapers, and playing cards. This time people took to the streets in reaction to the new act, and riots occurred in all the colonies. The lieutenant governor’s mansion was burned in New England. The discontent caused by the Stamp Act gave rise to the Sons of Liberty patriotic group. Local craftsmen moved to manufacture household goods themselves instead of buying British imports. Merchants and groups like the Sons of Liberty started local boycotts of British goods. As during any depression, the unemployed and the poor joined in the political movement out of frustration.

The Stamp Act solidified colonial governments against British taxation. Pat-rick Henry led the Virginia effort, Sam Adams led the New England effort, and Ben Franklin led the Pennsylvania effort. The colonies moved toward a unified front, calling a meeting of colonial representatives in New York. Representatives signed the Nonimportation Agreement to boycott British goods. Colonists enthusiastically joined the boycott and British merchants were soon feeling the pain.The British Parliament pressed for a compromise. It was clear that the colonies continued to be in a depression, and the urban centers had high unemployment. The Stamp Act was repealed in 1767, though Parliament reaffirmed its right to tax the colonies. Parliamentary repeal of the Stamp Act gave rise to celebrations in the streets of the colonies.

The celebrations were short-lived when the Townshend Act was passed in 1767. This new set of taxes targeted imported goods such as paper, glass, and tea. Tea became a flash point as colonists boycotted it, and a brisk smuggling trade in Dutch tea developed. Tea was the national drink; little coffee was consumed in the colonies at that time. Another unpopular element of the legislation was that the taxes helped pay for royal commissioners to enforce the Townshend Act, which took away the enforcement authority previously held by the colonists. The new cus-toms system, where merchants had to submit customs forms, made it difficult for the colonists to cheat and elude the new taxes. Britain sent two regiments to Boston to keep the peace. Besides the obvious political issues, British soldiers added to the local economic woes by working off-hours for low wages, creating tension with the large number of unemployed. Incidents of British soldiers replacing colonial laborers in the workforce brought the lower classes into the struggle with the motherland.

The colonists boycotted more goods and were again successful. In 1767, New York City imported more than 350,000 pounds of tea. By 1770, after the boycott of imported British tea, fewer than 150 pounds of tea was imported into New York. Parts of the Townshend Act were repealed but were replaced with new parliamentary taxes in the 1770s.

The colonial economy remained stuck in recession, but a new manufacturing sector started to emerge. Lancaster, Pennsylvania, became a crafts and manufacturing center that supplied frontiersmen during the boycotts and high taxes on goods in the 1760s. In 1770, Lancaster had 13 blacksmiths, 22 masons, 15 coopers, 19 tailors, 7 hatters, 6 gunsmiths, 3 clockmakers, 3 silversmiths, more than 50 various craftsmen in woodworking, and hundreds of apprentices associated with them. In addition, the surrounding area had iron furnaces and glassmaking factories as well as weavers and leather craftsmen.Depressions often result in infrastructure changes in the economy. One positive side of the depression and high taxation in the 1760s was the rise of colonial manufacturing. Before the 1760s, Virginia and South Carolina exported most textiles from Great Britain. 

After the new taxation laws, southern plantations began to produce their own textiles. Similarly, textile manufacturers were encouraged in New England. Stocking production started in Pennsylvania. New England started to manufacture shoes, which by the end of the decade, they were supplying to the colonies to replace British imports. In addition, South Carolina and other colonies expanded their export trade in rice and indigo. By the end of the decade, colonial exports exceeded the value of imports.

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1762—Colonial Recession

The recession of 1762 was the first truly American recession affecting all the colonies. It was a classic type of recession, created by war and inflation, and one that would be repeated throughout the centuries. This economic crisis was caused by the clash of two empires over the assets of the New World.

By the middle of the 18th century, Great Britain was in control of the coastal colonies of America, and France controlled Canada and the western territories of the Mississippi Valley; the Ohio territory was claimed by both countries. The real crisis was over who would control the fur trade and the rich bottom land of the Ohio Valley. The governor of Virginia formed the Ohio Company, headed by a young colonel, George Washington, to explore and lay claim to land in the Ohio Valley. A small, deadly encounter between Washington and his troops and a French force in the Ohio territory would launch a world war in 1753. The resulting Seven Years’ War was fought in America and Europe. The war debt acquired by the colonies and Brittan was staggering. Massachusetts alone ended up owing over £500,000, which represented five times the annual revenues of the colony.

This war drained colonial and British treasuries. To continue to pay for the war, colonial governments created an excess of paper money that was not backed by gold or silver. This fiat currency, paper money printed without being backed by physical commodities that have a value, ended up creating war inflation as too much paper money drove up the price of the goods available for purchase. Inflation during the war was at its highest in commercial Massachusetts, which sold treasury bonds that paid 6 percent interest to raise money to finance the war. Prices for New England commodities, such as molasses, rum, and fish, increased 44 percent from 1755 to 1762. The war would be one of the world’s most costly for a century.

The war initially created an economic boom in the colonies. The colonists generally profited from the war by selling their wares for higher and higher prices, while the colonial governments sunk into deep debt. But the colonial governments’ use of unbacked paper money and deficit spending created an inflationary spiral while the war spending continued. The end of the war in 1762 brought a con-traction in the colonial economy. War spending stopped, and the paper money in circulation began to depreciate. In addition, Great Britain wanted the colonies to pay more for the costs of the war. To accomplish this, Britain imposed more taxes and enforced the earlier Navigation Acts, such as the Molasses Act, more severely. Great Britain’s quest to pay off its war debt by taxing the colonies would become the economic background for the Revolutionary War.

The British colonies themselves imposed heavy real estate taxes to help pay their debt to the king. North Carolina added a liquor tax as well. Several colonies issued paper money and notes, and others used deficit spending by supplying IOUs to Great Britain. Virginia was originally the only colony that refused to increase taxation to pay for the war, preferring to use deficit spending. However, deeply indebted to Great Britain after the war, Virginia levied additional taxes on tobacco planters to pay its share of war debts, creating a depression in which many planters were left bankrupt.

Some Virginia planters, such as George Washington, switched to wheat production, which was free of British rules and fees. However, the demand for grain decreased at the end of the war. In addition, by the end of 1762, there was a major drought in the colonies, which required them to import expensive grain from Europe. The story was similar for South Carolina and its rice planters. And because both of these colonies were dependent on Great Britain to finance their plantations, planters experienced a credit crisis. Great Britain was not anxious to make loans to colonies that could not repay their previous debts. Not surprisingly, these Virginia and South Carolina planters would be supporters of the decision to break away from Great Britain a decade later.

The recession of the 1760s lasted most of the decade. Possibly the worst hit was Massachusetts. Having issued treasury bills redeemable in coin and paying 6 percent interest, the colony had heavy war debts to repay. The payments had to be made in coin—actual gold or silver—which increased the burden on the colonial government. After the war, Massachusetts imposed huge taxes on the population. Real estate taxes in Boston were raised to more than 60 percent.Britain would soon launch a number of new governmental acts, imposing new taxes on the colonies to pay for the war just as the colonies were in the middle of this deep recession. The combination of high taxes and economic recession made this postwar period very painful for New England traders, craftsmen, and shop owners as well as the planters of the southern colonies. This colonial middle class would never fully recover and would be part of the movement supporting independence in 1776.

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1750—Iron Act

Iron had determined the world’s economic and military powers for centuries. In biblical times the Philistines forbade the Israelites from making or working iron, and other countries followed in trying to limit nations from producing or obtaining this strategic metal. In the 18th century, iron had increased in importance, as it was the metal of cannon makers and toolmakers. American iron works dated back to 1621 in Virginia and grew steadily from smelting pig iron to processing pig iron into iron and steel implements.

Pig iron was made by smelting iron ore in a charcoal furnace. Pig iron is cast iron, and although strong, it is brittle. By reheating and hammering pig iron in a forge it can be made into wrought iron bar and steel that could be used in tools, guns, tinplate utensils, and agricultural implements. By 1750, the American colonies were exporting iron products; in particular, iron bar went to the West Indies and Africa as part of the triangular trade. In 1750, America was the third biggest exporter of bar iron after Russia. The production of iron bar was the beginning of American industry in general.

John Winthrop had come to Massachusetts to establish iron making in the colonies. In 1651, he teamed up with English and colonial investors to build Saugus Iron Works, which had a furnace, rolling mills, forges, and slitting mills. It was a state-of-the-art operation comparable to world-class iron operations. Winthrop’s success led to his building two more iron operations in Connecticut in 1670. Short on labor, Winthrop obtained Scottish prisoners from Cromwell’s England to man the operations.

In 1732, in response to the tobacco depression, Governor Alexander Spotswood of Virginia moved to build an iron works as well. Spotswood’s furnace and forge was manned by 70 Germans and 100 slaves. Another successful operation, Cornwall Furnace in eastern Pennsylvania, was producing 50 tons a week in 1750. In central Pennsylvania and Maryland, iron plantations emerged that employed 200 workers plus slaves to process iron. By 1750, Iron had become central to America; the colonies had many charcoal furnaces in operation and many foreign investors. Even Virginia plantation owners, who were self-sufficient in most needs, purchased processed American iron bar for blacksmiths to make such things as horseshoes.

Initially, Britain did not oppose American iron making for fear of her colonies arming for war but because it feared the loss of pig iron processing back in Britain. Exported processed iron and steel tools were a big business for the forges and iron mills of Great Britain. The Iron Act of 1750 was aimed at forcing the American colonies to ship all pig iron processing to Britain so that it could be shipped back to the colonies as tools and implements. Great Britain was also short on pig iron at home because iron processing required huge amounts of wood to make charcoal for the smelting process, and Britain had been deforested by its own iron production.

In addition, Great Britain’s main source of imported pig iron, Sweden, had joined an alliance against Britain. Without pig iron imports from the colonies, British manufacturers would no longer be able to forge tools in Britain. Britain also wanted to stop the colonies from moving into more manufacturing trades like gunsmithing. The act hit the iron-working colonies of Massachusetts, Connecticut, Pennsylvania, Maryland, and Virginia particularly hard. All the colonies suffered, however, as the price of critical iron and steel increased dramatically.

The Iron Act of 1750 prohibited any new nail mills, slitting mills, and forges from being built in the colonies. Existing furnaces were to ship their pig iron product to Great Britain. Governors were to list and report all colonial operations in detail. One problem, of course, was that many of the governors had invested in the iron industry, seeing it as fundamental to the colonial economy. Other prominent people in the iron business included George Washington’s father and brother and many of the signers of the Declaration of Independence.

The Iron Act loomed as a potential crisis to shut down colonial industrial growth, though initially the downturn created by the act was short-lived as colonists found ways to avoid enforcement. Iron bar had become a key part of barter trade with non-British colonies. Just as important was the economic boom the iron industry was creating. Tool making—hatchets, axes, guns, and plows—was aiding western expansion and reducing plantation costs in the southern states. Connecticut iron, for example, was famous in the making of American rifles, and gunsmiths and all the colonies depended on its continued production.

The threat to colonial growth from the enforcement of the Iron Act encouraged many governors to ignore the act and to give under counts of colonial furnaces and forges to the king. Owners and investors moved their pig iron operations further into the interior to avoid government agents. At the ports, bar iron was smuggled to non-British destinations. Ultimately, the conflict over the Iron Act of 1750 was overwhelmed by international events. 

The British force of 1753 raised to attack the French colonies in America took priority by mid-decade, when the colonies were required to financially back the war. It proved difficult for the British to enforce the Iron Act, which could have done great harm to the colonial economy at the very time they sought colonial funds to support the war against the French. The British government made some minor amendments to the act in 1757, and the act actually stayed on the books until 1867.

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1749—Colonial Hyperinflation and Currency Deflation

The American colonial financial crisis of the late 1740s was the confluence of a number of growing currency problems throughout the British colonies, exacerbated by war and trade issues. Periods of hyperinflation, shortages of specie, the uneven quality of colonial paper currencies, the costs of wars with France, and trade issues with Britain all contributed to the colonial crisis.

Hyperinflation was particularly problematic in the colonies of Massachusetts, Rhode Island, Connecticut, and New Hampshire. During the 1740s, the annual inflation rate was above 19 percent. (By comparison, during the period of high inflation in the United States in the 1970s, it never rose above 13.3 percent.) Inflation increased the price of basic commodities, such as molasses, by 60 percent from 1745 to 1749. Extreme increases in the prices of raw goods created a nightmare for British trade, which counted on a supply of cheap colonial raw materials for their manufactured goods. Parliament was pressured to enact the Currency Act of 1751, which prevented the colonies from printing their own paper money. The resulting lack of money in circulation, along with the high cost of goods, ultimately caused riots in the streets of Boston.

Currency problems had plagued the colonies from the start. Great Britain promoted a barter system for goods from its American colonies because it gave an advantage to British manufacturing and the goods were carried in British ships. Colonial exports of skins, ginseng, and tobacco were paid for in English goods such as clothing, pewter, and glass windows. The colonists preferred to receive specie (gold and silver coins) as payment, but coins were in short supply. Unlike Spain, Britain did not have colonial gold and silver mines as a source of the precious metals needed to make additional specie.

The best source of coins for the colonies was from piracy, as British and colonial pirates and adventurers captured Spanish treasure ships sailing between Spain and its colonies. The most common coin in the British colonies was the Spanish dollar, which could be divided into eight pieces. The activities of such pirates were welcomed by the colonists and were responsible for the wide circulation of the Spanish dollar. More coins in circulation helped improve the terms of trade for colonial merchants and farmers, because a currency-based trade is more efficient than barter.

The king of England had refused to allow the colonies to mint their own coins. During King William’s War (1689–1697), when British colonists first began to pay for their own defense forces, the king had allowed the colonies to pay soldiers in paper money known as “bills of credit.” Slowly, the creation of these bills of credit by fiat outpaced the silver in circulation, which was needed to lend the bills legitimacy. This resulted in inflation throughout the colonial economies from 1710 to 1750. These bills of credit were backed by the colonial governments and had to be accepted for goods; thus, they had the attributes of paper money. Like our paper money today, the bills of credit were not backed by silver or gold. Inflation increased as spending on King George’s War (1744–1748) and on the French and Indian War (1754–1763) put more of this paper money into circulation and created demand for more goods.

The tight trade links between British merchants and the colonies exacerbated colonial inflation. English merchants had begun accepting these bills of credit as payment for the goods they shipped to the colonies. As the value of the bills began depreciating because of inflation in the colonies, British merchants began to charge more for their goods in compensation. A spiral of inflation began.

The currency crisis created local economic turmoil and recession as well as inflation. In the 1740s, the rate of inflation was in the double digits, creating street riots. American traders were at odds with British merchants as their barter system broke down. Another problem arose because the New England colonies could not collect taxes from farmers and merchants who were not making any money. Small farmers found themselves in deep debt to merchants in Boston, who made the currency shortage in the colonies—and thus the recession—worse by shipping much-needed colonial coins to Great Britain in return for goods.

The colony tried another form of bills of credit backed by land, known as the Land Bank. In effect, the Land Bank would create more paper money and allow more money in circulation. The idea was extremely popular with the colonists. The governor and the king did not like the idea of the Land Bank, however, judging it would further increase inflation and allow colonists to escape full payment for goods. The Land Bank idea went forward because it was popular in elections but ultimately failed. The father of Samuel Adams, one of America’s founding fathers, was one of those who went bankrupt when the Land Bank failed.

The combination of the economic downturn and inflation made life miserable in the colonies. Shortages of silver required customers to supply their own old silver if they wished new silver implements made. The shortage of currency prevented landholders from paying taxes, which in turn often resulted in their property being seized. Merchants could not sell their goods because their buyers lacked currency.

In Massachusetts, political pressure mounted for reform as tax revenues dropped, trade tightened for lack of money, and street protests continued. Massachusetts began currency reforms in 1750, which offered a way out of the crisis, but the other colonies refused to join it. Massachusetts worked with Great Britain to retire bills of credit through the payment of specie to the colony. Colonists had four months to turn in the bills, after which they became worthless. No future paper money would be allowed. Shortfalls would be covered by additional taxes. Massachusetts also banned the use of paper money from other colonies. The state could still issue bills backed by specie but retained an exception in case of a major war.The immediate effect was a shortage of currency, which made things worse in the colony for a brief period. But Massachusetts issued a new type of paper currency called a Treasury Note, which was redeemable in specie and earned interest while it was held. Although Massachusetts had not planned for these treasury bills to circulate, they did and became a type of currency. The backing of these bills with specie restored confidence in the colony’s currency. The Massachusetts reform proved highly successful as prices fell and inflation declined. By the 1740s, the Boston Land Bank had circulated these new land-backed notes at an alarming rate, and Parliament used the old Bubble Act of 1720 to restrict the practice. 

Finally, Parliament moved to further restrict paper money in 1751.Britain passed the Currency Act of 1751 to impose the Massachusetts reform on Rhode Island, New Hampshire, and Connecticut. More wealthy colonists and some farmers who owned bills of credit from the Land Bank were bankrupted. New England once again suffered a mild recession. The Currency Act did not apply to the middle and southern colonies, which at the time had a stable currency. Unfortunately New York, Pennsylvania, and Delaware continued to print bills to finance the French and Indian War. Eventually, all the colonies would be covered under the Currency Act of 1764. Virginia remained a special case because of its direct tobacco trade with Great Britain. Virginia’s high currency demands during the French and Indian War allowed it to continue issuing paper bills.

Economists still use the hyperinflation in colonial Massachusetts as a case study for understanding modern-day inflation. It is striking that this colonial inflation was far more problematic than even America’s experience with high inflation in the 1970s. The currency reforms that arose in Massachusetts and that Britain imposed on the colonies helped to return some stability to colonial economies. The failure of individual currencies from each colony would ultimately lead to the use of a common currency, under a common government.

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1733—Molasses Act

Britain had a large stake in molasses from its slave-worked plantations in the West Indies. Sugar cane was grown in large quantities on the islands of Barbados, Jamaica, and Antigua in the Caribbean West Indies. On these plantations, sugar cane was harvested and distilled into thick, syrupy molasses and sugar crystals. The sugar crystals were shipped to Great Britain directly while molasses went to New England for rum making. The non-British West Indies sent molasses to New England as part of what became known as the triangular trade, which Britain did not control. One common triangle involved picking up slaves in Africa, selling those slaves in the West Indies for molasses, shipping molasses to New England, and then taking rum produced in those colonies back to Africa to barter for more slaves. There the triangular trade would begin again. A great deal of this trade was barter, but the West Indies was also a source of currency in Spanish dollars for New England. New England ships also made up a growing part of the triangular fleet.

Rum was a huge industry in colonial America, with local demand requiring four gallons per year for every man, woman, and child. Distillers in Boston alone were making more than a million gallons a year by 1733. Rum was the standard alcoholic beverage throughout the colonies, and was even critical to the fur trade with the Indians. The molasses trade was an integral part of the triangular barter trade system between Africa, the colonies, and the islands of the West Indies. In this respect, the growth of the molasses trade was instrumental in the rise of colonial shipbuilding, fishing, whaling, and the slave trade. Molasses had become the main commodity bartered by traders in the West Indies for New England salted fish—another major colonial industry.

In the early 1600s, rum was made where molasses was made, in the British West Indies. The price of rum remained high because the British held a monopoly on the trade. In response, the Yankee traders of New England developed a major rum industry by purchasing better-quality and cheaper molasses from non-British sources to be distilled in New England. The British West Indies and New England were not well-matched trading partners, however; New England wasn’t interested in buying the more expensive British molasses, and the West Indies did not need the lumber or fish New England produced.

The French West Indies, on the other hand, were prevented from shipping rum or molasses to France because of French laws to protect the country’s brandy industry. This gave the French West Indies an incentive to barter and trade with the New England colonies, and they worked out a deal to exchange their molasses for New England fish. This arrangement ultimately cut the price of rum produced in New England to one third that of rum produced in the British West Indies.

The loss of their New England market for molasses put the British West Indies into an economic depression. At the time, sugar from the West Indies was one of the major imports into England. Plantation owners in the British West Indies pressured the British Parliament to regulate the molasses trade with Britain’s American colonies to help these owners recapture their previous advantage.

In acting to help these plantation owners, Parliament underestimated the importance of the molasses trade to New England and overestimated its ability to regulate colonial trade. The Molasses Act of 1733 imposed a heavy tax on molasses (the major sweetener of the colonies), sugar, and rum imported into Britain’s American colonies from non-British sources. The act affected some 40 distillers in New England as well as all of the North American colonies.

The passage of this Molasses Act caused a panic in New England because trade with the islands of the West Indies was critical to the whole colonial economy. The act’s tax on molasses caused a major reduction in molasses supply and a price increase. The price of rum rose as a result. The amount of currency in circulation declined because of the reduction in trade with the Caribbean islands that were not British, and even local merchants in New England felt the pain from lost business.

Because of the economic threat, New England traders soon found ways to avoid the tax. New Englanders were seasoned world traders on a par with traders in European nations. Early on, smuggling and smuggling routes for molasses and rum developed as a growing network to evade the tax, but the prices continued to increase. Piracy increased with the illegal networks as smugglers worked outside the protection of the British navy. Another technique used to evade the molasses tax was to have ships carrying molasses from the Caribbean rendezvous with another smaller ship to offload the molasses at sea. The routes were changed to avoid government tax collectors at various ports.

Bribery was also was very common because of the heavy tax of six cents a gallon. The tax collector could be bribed a penny a gallon to turn his head to not see the illegal imports, saving the trader five cents a gallon in tax. Even colonial governors did not enforce the Molasses Act to the fullest extent, understanding the importance of this trade for the overall health of the colonial economy. Britain had also underestimated the negative impact of the act on the traders of other colonies such as Rhode Island and South Carolina, who were sometimes part of triangular trade. After a few years, the tax avoidance network became well established.

The Molasses Act was really part of a series of Navigation Acts to limit colonial production. The first of several British acts to discourage colonial manufacture and support British mercantilism was the Hat Act of 1732, which was a reaction to the production of more than 10,000 hats in New England in 1731. The Hat Act limited the number of colonial apprentices and prohibited the exportation of hats. The Molasses and Hat acts were an effort by Britain to destroy the booming manufacturing community in New England. Had the Molasses Act tax been fully implemented, it would have shut down the New England rum industry, destroyed the highly profitable triangular trade of the colonies, and been a major inflationary factor on staple goods for the colonies. The crisis caused by the Molasses Act was the first to demonstrate the interrelationships among mercantile trade systems.The Molasses Act created a major economic crisis for the British colonies of North America. It cut off the New England rum industry’s best source of molasses by a tax on non-British sources. It was not designed to be a revenue act but one aimed at the control of colonial trade. Britain operated under the economic philosophy of mercantilism, which assumed that the primary function of colonies was to supply natural resources for the mother country’s factories.

Ultimately, the Molasses Act backfired on Britain. It impeded instead of promoting its goal of controlling trade from its colonies. Instead, the colonies developed a non-British network to move all colonial trade goods. Increasingly this included flour, grain, horses, and livestock as well as molasses. In the long term, it also produced an economic loss for New England, as competition returned in the form of British rum production. The act forced the British West Indies to produce their own rum with their own molasses, because American markets rejected their higher-priced molasses. British slave traders were also hurt indirectly as the direct trade routes from the American colonies to Africa were strengthened.

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1719—Mississippi Bubble

The Mississippi Bubble was the first European financial bubble to reach the shores of America. This bubble was caused when the central bank of France over inflated French currency by issuing paper money and government-backed bonds to fund a speculative trading company created by John Law, a Scottish economist, to help the French government cover its national debt. High expectations about the potential value of beaver skins and precious metals in France’s New World colonies underlay the scheme, which ultimately led speculators from all social classes to lose vast sums.

The roots of the Mississippi Bubble went back to the financial collapse of the French treasury in 1715. Years of paying for wars with Great Britain in Europe and in America had bankrupted France. Participation in the War of the Spanish Succession (1701–1714) had not only strained the French treasury but had also slowed income from the French colonial fur trade. War debt had left France deprived of gold and silver, the basis of most national currencies at this time, which limited any growth in the French economy. France’s debt had overwhelmed it, forcing it to default on most of its bonds and to cut back its interest payments to its creditors. 

John Law, a Scottish economist and monetary expert, was brought in to help. Beginning in 1716, Law established a bank that ultimately became the French national bank (Banque Royale). Under Law’s guidance, the Banque Royale, in a novel move for this age, issued paper money that was only backed by gold and silver. This ingenious creation of paper money increased monetary liquidity in the French economy and brought brief economic stability. However, France still did not possess enough gold and silver to fully back, or pay for, the paper money the Banque Royale had put into circulation.

Law had seen that Spain’s success in gold mining in South America had helped Spain’s economy by putting more Spanish gold into circulation. Law hoped that the shareholder trading company he created, the Mississippi Company, would find gold or silver in France’s Louisiana colonies and would be able to exploit the French fur trade. Based on the potential of finding this New World gold and silver, Law convinced the Banque Royal to print paper currency well beyond any physical amount of precious metal in the French treasury. They thus created currency by fiat, based on speculation, on the hope that precious metals would be discovered.

Another part of Law’s plan was his scheme to merge the Banque Royale and the Mississippi Company. The French government backed the company’s bonds and promised a high return to investors. High expectations and wild speculation drew in investors from all social classes. Shares in the Mississippi Company rallied from 500 livres per share to 10,000 livres per share in 1718 and to more than 20,000 livres per share in 1719. This created Europe’s first major investment bubble.

Meanwhile, Law expanded the Mississippi Company’s operations by sending colonists and supplies to search for mining opportunities, hoping to duplicate Spain’s success in finding gold and silver. The company expanded settlements in Mississippi and other parts of the Louisiana colony. Furthermore, Law’s company was granted a full monopoly on the French tobacco, fur, and slave trade. Law also took over tax collections on trade in French America with the idea of backing French debt with company bonds and stock.Finding settlers for swampy Louisiana was a tough sell, though, and Law had to advertise all over Europe. He was able to induce many poor Germans to join the venture, and he used French convicts to establish a foothold of settlements around New Orleans and the Mississippi. France’s initial success with the Mississippi Company scheme led Great Britain to copy it with its own South Sea Company, which would create a historic bubble in Britain as well.

The rapid rise of prices in Mississippi Company stock and the uncontrolled printing of paper currency created a huge, inflationary, bubble-driven speculative mania. It is believed that the first use of the term “millionaire” came into being to refer to the Mississippi Company stockholders. In 1720, investors wanted to take their profits in the company in gold, but the French government did not have enough gold to cover the payments, so the Banque Royale imposed a limit on the amount of paper currency that could be converted back into gold.

Slowly, word got out among investors that there was a problem. Law’s next response was to lower the price of Mississippi Company shares and to stop gold payments. Panic hit, and the company’s shares traded down to less than 500 livres, devastating investors and causing the loss of many fortunes. As a result, an economic crash occurred in France in 1720. France’s trade in its American colonies was destroyed. Law came to be viewed as a scam artist and was exiled from France.

John Law died in poverty, unheralded, even though many see him as the world’s first practitioner of the monetarist school of economics. The Mississippi Bubble also had a devastating effect on French-American colonists. Supplies stopped flowing to Louisiana, and many of the company’s colonists died of starvation. Some of the Germans migrated to the English colonies for better land after it became apparent no relief was coming from France. A few colonists built settlements on high ground between the Mississippi River and Lake Pontchartrain and survived by fishing. It took decades, but this small colony developed into a trade center that we now know as New Orleans. In Great Britain, where a similar scheme evolved, Parliament passed the Bubble Act of 1720, which put tight restrictions on paper money in Britain and its colonies to prevent the re occurrence of another Mississippi Bubble.

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1703—Tobacco Depression

The great tobacco depression of the early 1700s was a result of over dependence on tobacco as the main cash crop in the British colonies of Virginia, Maryland, and the Carolinas. The period was probably America’s first depression as trade and commerce declined. Prices of tobacco dropped below the sum of production costs, shipping costs, and taxes. The drop in prices was a result of overproduction in previous years, the British monopoly on trade via the Navigation Acts, and the War of the Spanish Succession.

The large planters, who shipped massive quantities of tobacco, often in hogs-head barrels directly to warehouses and auction houses in Scotland, were able to make a nominal profit during these years. This depression, however, would finally drive small farmers and non-slave labor out of the tobacco business and push large growers to the slave system in an attempt to reduce costs. The widespread loss of planter income filtered down, ruining the businesses of town merchants. One positive result of the tobacco depression was the growth of colonial manufacturing, as planters responded to high import prices by creating their own manufactured goods on-site.

Virginia, Maryland, and the Carolinas had experienced an economic boom from the 1600s to 1703 as Europe acquired a taste for smoking tobacco. After Bacon’s Rebellion (1676), the tobacco industry in these colonies became a controlled monopoly with the king and the colonial governors setting taxes on production and controlling shipping rates, thereby raising costs for growers. In addition, speculators had encouraged overproduction of tobacco in the American colonies to meet an expected increase in demand for tobacco in Europe due to the coming war in Europe. The war that came, known as the War of the Spanish Succession (or Queen Anne’s War in the colonies), was a war between France and the anti-French alliance of England, Austria, Holland, and Prussia.

Tobacco demand did not meet expectations, however, and prices fell. Prices in the fur trade in the colonies also fell because of overproduction. The downturn in these commodities brought shipping on America’s East Coast to a standstill. The War of the Spanish Succession had also disrupted shipping, creating high prices and shortages of manufactured goods. Planters were often forced to ship their commodities below the cost of production because they needed to acquire goods from England in exchange.

In response, the larger planters in the colonies began to manufacture more goods on their plantations. Plantations became tobacco factories, and coopers and black-smiths were trained to make barrels for shipping tobacco. Plantations produced nails as iron became available from colonial furnaces, and bricks were made on-site. Food was grown to support plantation communities of more than 200 people.Plantation owners found that they could only profit with large shipments of low-cost tobacco. One way to reduce the cost of tobacco was to reduce the costs of production, and that meant turning to slave labor. At the beginning of the tobacco depression, there were only 6,000 slaves in Virginia; by 1730 that number reached 28,500 as planters. Larger plantations required as many as 200 slaves to operate. The large plantations could buffer themselves from price fluctuation because they could afford to hold their product off the market when prices were low. They also achieved a degree of independence when they began manufacturing their own hard goods locally.

Although larger plantations were able to adapt with their new factory system and slave labor, smaller planters were devastated. These smaller planters had high debt, and the depression caused numerous bankruptcies. The depression ended the small planter, tenant farmer, and white farm labor systems in the British colonies.The tobacco depression did not lead to more crop diversification but to a diversification into manufacturing. Plantations started to manufacture cloth and shoes. Hard cider was produced in tough times to replace imported rum and wine. Many planters, including Governor William Berkeley, even looked to producing iron and invested in early iron works. They believed freedom from English goods would allow the planters to demand a higher price for their tobacco. Some southern colonies even began to grow rice as a cash crop. The New England colonies, while affected by the shipping decline, still maintained an active trade in salted fish. 

The southern planters also looked to other unexpected means of reducing labor costs. Some Maryland planters experimented with the slavery “task” system in which the slaves worked a daily quota on the plantation but were given their own land to farm to feed their families. Slaves were even allowed to own a musket to hunt food. The task system allowed the planter to reduce the costs of caring for and feeding his slaves. Clearly, the tobacco depression brought not only lower commodity prices but also major changes to the colonial plantation system in America.

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1676—Bacon’s Rebellion

Bacon’s Rebellion was the political result of a confluence of economic problems in the Virginia colony. Many believe it was the first sign of the serious economic distress in the English colonies that would fully surface as a cause of the American Revolutionary War 100 years later. Bacon’s Rebellion, which occurred during America and Virginia’s first recession, is an example of how economic conditions can cause a change in government and political instability. It is probably the first example of what became the great American tradition of “voting your pocketbook.”

In 1676, the English colony of Virginia was experiencing its first major economic downturn after years of growth and prosperity. Tobacco had been the main agricultural product of this rich colony, but in the 1670s, the colony of Mary-land had begun growing tobacco as well. The Carolinas were also increasing their tobacco production. As a result, tobacco prices were declining.

The governor of the Virginia colony, Sir William Berkeley, and his administrators got the money to run the colony from taxing the colony’s planters and participating in the very profitable fur trade with the Indians. With tobacco prices declining, the colony’s tax revenues declined as well. The governor decided to replace the loss of tobacco tax receipts by increasing the tax rates on planters. Virginia at this time was largely made up of wealthy tobacco planters who ran completely self-sufficient plantations. But there was another group of small planters and traders on Virginia’s frontier, including George Washington’s ancestors.

Under the English Navigation Act of 1651, the governor of Virginia had a total monopoly on shipping from the colony. This monopoly benefited the large plantation owners, with their large economies of scale, by providing them with a secure market for their products. At this same time, increased demand for manufactured British goods in the colonies had inflated the prices of manufactured goods. Even the Virginia weather of 1675—a summer drought and a hurricane—had exacerbated economic problems for the colony.

The small Virginia planters were severely hurt by the decrease in tobacco prices, the increase in tobacco taxes, and the higher cost of manufactured goods. Small planters also faced other cost disadvantages because they had to use an agent for shipping and had to pay a tax on the transfer of the tobacco to that shipping agent. The very large planters, such as the Lees and Carters of Virginia, were more insulated from tobacco price swings and the price of imported goods. Several of these large planters also benefited from a share in Governor Berkeley’s lucrative fur trade.

Berkeley had also started a trade in deerskins so he could sell the leather in Europe; this also hurt the small planters and traders on Virginia’s frontier. Deer were abundant on the frontier and offered another source of income for these poor Virginians, but Berkeley also set high taxes on this trade and controlled it through his shipping monopoly. Berkeley also tried to diversify the economy, testing silk-worms on his and other plantations and expanding hemp production, but the Virginia economy remained largely tobacco based.

The governor and larger plantation owners had begun to use black slaves as a means to reduce their production costs. Small planters generally employed poor white laborers and white indentured servants. These workers opposed the growing use of slaves on plantations, seeing them as competitors who were taking their work. White workers had been attracted from England with wages four times the rate in England. Planters paid for the transportation of these workers from England. In return, the workers indentured themselves to the planters until the debt was repaid. These “indentured servants” usually worked four to seven years before gaining their freedom. Once these white indentured servants paid off their debt, they could remain on the plantation earning a good wage or could become small farmers.

All of these factors led to tensions between the governor and the large planters on one side and the small planters, independent farmers, and white workers on the other side. The increasing costs of production, higher taxes, and lower tobacco prices hurt the small farmers. The competition from slaves hurt the white workers’ prospects and their hopes of paying off their indenture debt. The small planters and independent farmers also desired access to more land on the Virginia frontier because tobacco depleted the soil quickly. The large plantations, meanwhile, had access to fresh tobacco land in the Virginia heartland. As frontier farmers cleared new land for new tobacco fields, they provoked conflicts with the Indians who lived near them on the Virginia frontier.

Fights with the Indians over land had been common for decades. The governor, with his interest in the fur trade, was reluctant to fight the Indians who often traded furs with settlers and buyers on the frontier. Berkeley had built forts and sent troops in response to complaints from whites on the frontier, but to pay for these forts and troops, he taxed the frontier planters more, particularly after the decline in the tobacco market.Berkeley governed with a state council of 12 handpicked wealthy planters that made up the upper house. The lower house of burgesses comprised elected planters. The governor convened the council or house at his discretion and determined when elections to the house of burgesses took place. Berkeley had not called for elections for the decade before Bacon’s Rebellion because those in power were favorable to him. Without elections as a pressure-release valve, Virginia’s economic problems led to political rebellion.

Nathaniel Bacon, a large planter, a member of the state council, and the governor’s relative by marriage, organized a revolt. Still, Bacon’s roots were with the small planters. He put together an army of poor whites, slaves, and small planters to challenge Berkeley’s government. They issued a Declaration of the People of Virginia (1676) highlighting the issues of unjust taxes, Berkeley’s monopoly of the fur trade, and lack of protection against the Indians.

Bacon’s army took the capital of Jamestown and the seat of government, holding it for months. Berkeley asked the English king Charles II to send 1,000 troops and used them to defeat the rebels after Bacon died of natural causes during the war. Berkeley refused to pardon any of the rebels—they had burned Jamestown before abandoning it— and made no changes in his policy of high taxes. He was eventually relieved of his governorship by the king because of his harsh treatment of the rebels. Berkeley died before he could justify his actions in person before King Charles.

A similar rebellion (Culpeper’s Rebellion) occurred a year later in North Carolina over tobacco taxes for small tobacco growers. Ultimately, the Virginia economy improved as tobacco and fur prices rebounded, but the problem of high taxes and uneven representation in Virginia’s government remained until the American Revolution. Poor white servants, white laborers, and independent farmers were replaced by black slaves on most plantations. Bacon’s Rebellion remains an example of a local economic crisis caused by global competition, a transformation in the labor market (poor laborers to slaves), market realignments from price declines of an economy’s major crop, and import inflation in the price of manufactured goods.

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