Taxation and the Imperial Crisis

By the time Edmund Burke’s Observations on A Late State of the Nation appeared in print in February 1769, British politics had been in a state of turmoil for years. That instability was due, in no small part, to long-running, intractable disputes over how Britain’s American colonies should be administered in the wake of the Seven Years War. Since the Treaty of Paris’s signing in 1763, a series of British governments had fallen in rapid order, one after the next—first the Bute Ministry, which collapsed amidst public dissatisfaction over the Treaty’s lenient terms towards France and Spain, then the governments of George Grenville (1763–65), the Marquis of Rockingham (1765–66), and Pitt the Elder, the Earl of Chatham (1766–68). Each had foundered on the shoals of the American question.

What responsibility, if any, did the colonists bear for the debts accumulated during the war effort? What trading relationship should the colonies have with Britain, and with foreign markets, in the war’s aftermath? Did Parliament have the constitutional authority to directly tax the colonists? If so, was it prudent to press the issue? In the years since the war’s end, reports of popular unrest in the colonies had appeared in the London press with unsettling regularity. Nevertheless, in mid-1768, the formation of a new government under the Duke of Grafton seemed to augur a sterner American policy than had been attempted before. The Bedfordite Whigs, who’d been excluded from the previous three administrations, favored hard measures to bring the Americans to heel, and they were now in power alongside Grafton. Burke feared the emergence of a destructive cycle of escalation. Thoughtless assertions of imperial power threatened to provoke understandable colonial resentment, which, in turn, could be used to justify further draconian measures. The situation was precarious.

This was the immediate context in which, in October 1768, William Knox—a close ally of former Prime Minister Grenville—released The State of the Nation. Knox’s tract was at once an apologia for the policies of the short-lived Grenville administration, a sketch of how Britain might regain its imperial and fiscal footing in the present, and a not-subtle argument that the Grenvillites were singularly positioned to extract the empire from the turmoil into which it had fallen. According to Knox, in the wake of the Seven Years War, the British economy had been in straits far more dire than the public had appreciated. To finance the war, Britain had amassed an enormous public debt, which it had been struggling to service ever since. Its balance of trade with foreign nations had declined during the conflict, and never really recovered, which had depressed the revenues coming into the Treasury.

Given those challenges—so Knox insisted—the reformist policies pursued by the Grenville administration in the mid-1760s had been necessary. New sources of revenue had to be located, and given the high cost of labor in Britain, raising domestic taxes would have been ruinous. So Grenville had championed the Stamp Act, which placed reasonable taxes on the colonial commercial class—printers, lawyers, businessmen, and so forth. That move was innovative, because Parliament had never levied a direct tax on the colonists before; but Knox believed it was also just, since the Americans had a moral responsibility to help defray the costs of their own protection. Simultaneously, Grenville’s Sugar Act had sought to improve Britain’s trade imbalance, by curbing the illegal importation of foreign wares into American markets, and by reducing duties on British exports to the colonies. Growing public revenues promised to gradually chip away at the debt, to repair British credit, and to improve Britain’s fiscal ability to defend itself in the future, if necessary. But just when those policies had begun to stabilize the British state, the new Rockingham government had scrapped them—repealing the Stamp Act in the face of colonial opposition, and moving to liberalize foreign access to American markets. In Knox’s view, those decisions were deeply misguided, borne of a naïve refusal to face the cold reality of the contemporary predicament. What was needed in the present, he argued, was a return to the Grenvillian status quo ante. New taxes needed to be placed on the colonists; and in exchange, Knox mused, it might be prudent to give the Americans representation in Parliament, to preempt their complaints about direct taxation from the metropole. Such reforms, if overseen by “men of ability and virtue”—here Knox was elliptically speaking of Grenville—could both mollify the colonists and stabilize the public fisc.

By 1769, Burke was the leading spokesman of the Rockingham Whigs, and his Observations were most directly a defense of the Rockingham government against Knox’s attempts to relitigate the Stamp Act’s repeal. To that end, much of Burke’s essay was dedicated to a forensic, point-by-point refutation of Knox’s picture of the national economy. It was true, he conceded, that Britain had amassed a large debt during the war, but it was hardly on the precipice of default when Grenville had assumed power. What’s more, Britain’s balance of trade had steadily recovered in the years since the war. When the Observations first appeared, it was this cool, emphatic deconstruction of Knox’s economic analysis that attracted the praise of readers and critics. Burke’s essay, Walpole later recalled, “solidly confuted Grenville, exposed him, and exploded his pretentions to skill in finance.”

But in hindsight, what’s most striking about the Observations isn’t its intervention into the economic debate Knox inaugurated. Rather, it’s that in this work Burke began to advance, for the first time, a series of related arguments—about the role of party in a parliamentary system, and about the constitutional position of the Americans within the British empire—that would come to characterize his distinctive political interventions in the coming years.

First, the Observations’ response to Knox’s essay foreshadowed a theory of party that Burke would lay out more fully and more systematically one year later, in his Thoughts on the Cause of the Present Discontents (1770). “Party divisions,” Burke wrote in the Observations, “are things inseparable from free government.” (Observations, p. 110) In a state where governments were formed by a majority of the people’s chosen representatives, it was natural that those representatives would associate with one another. Political writers had often viewed such associations with suspicion. Party was a necessary evil, perhaps, but it also represented a threat to political unity. In their basest form, parties were no more than tools through which mercenary politicians sought to gain and conserve power. On that framing, the converse of party was those independent, selfless “men of ability and virtue” whom Knox had extolled—leaders whose sole concern was the health of the body politic, who were willing to sacrifice private loyalties for the public good. In his Observations, Burke flipped Knox’s traditional framing on its head. Parties, Burke suggested, were indispensable for putting a cogent, principled plan of governance into effect: their members’ fidelity to their shared principles, and to one another, stabilized the state’s administration. Equally, effective parties were vital for preserving a unified opposition, holding out the possibility of a “healing coalition” which could, if called upon, assume power. But “no coalition, which under the specious name of independency, carries in its bosom the unreconciled principles of the original discord of parties, ever was, or will be, a healing coalition.” (Observations, p. 210) The virtue of individual politicians, on its own, would never be sufficient.

On that framing, Knox and his allies were wholly unprepared to form a ministry. When Knox wrote The State of the Nation in 1768, the Grenvillites and the Rockinghamites were both in opposition to the Grafton government, mutually distrustful of its designs on the Americans. In that context, old resentments between these Whig factions needed to be left in the past, so that they could cooperate in opposition. In needlessly reopening old wounds, Knox was unwittingly illustrating his own political unseriousness—failing to reckon honestly with the imperial crisis in which he was operating. Past his empty platitudes about political virtue, Knox’s essay presented a case study in that “studied disunion in government” that had paralyzed the British state for nearly a decade. (Observations, p. 165)

Second, in engaging with Knox’s program on the merits, Burke decried his arguments for imposing direct taxes on the colonists as equally unserious. Practically, given that “a fire is already kindled by his schemes of taxation in America,” it was fanciful to suppose that new taxes would be met with gentle acquiescence. “It is obvious that parliament, unassisted by the colonies themselves, cannot take so much as a single step in this mode of taxation.” To raise that destabilizing prospect nonetheless, and without any reliable method of seeing it through, was reckless in the extreme—“so frivolous, and so full of danger.” (Observations, pp. 167–68) But more fundamentally, the very idea of direct taxation of the colonists misapprehended their unique position within the architecture of the British state.

The American colonies were originally chartered to serve as markets for British exports, and as sources of raw material for British manufacturing. They were “founded in subservience to the commerce of Great Britain.” (Observations, p. 192) Their inhabitants accordingly played a different role in the national orchestra than their peers in the home country. The colonies stood “upon a principle of their own, distinction form, and in some respects contrary to, the relation between prince and subject. It is a new species of contract superinduced upon the old contract of the state.” In that respect, abstruse debates about whether Parliament was legally entitled to tax the colonies were just “a very unpleasant way of misspending time.” (Observations, p. 175)

The politically salient question was whether parliamentary taxation would unsettle the traditional constitution of the colonies. Burke was comfortable, in principle, with stringent restrictions on colonial trade. But to couple such restraints, “very alien from the spirit of liberty,” with direct taxes imposed from a distant metropole was simply extortionary. It was no wonder that the colonists had resisted the Stamp Act. “To hold over them a government made up of nothing but restraints and penalties, and taxes in the granting of which they can have no share, will neither be wise, nor long practicable. People must be governed in a manner agreeable to their temper and disposition; and men of free character and spirit must be ruled with, at least, some condescension to this spirit and this character.” (Observations, p. 194) On the assurance that they lived in “commercial colonies, which [are] an unfit object of taxation,” the Americans had grown accustomed both to the restraints on their trade that the Navigation Acts had prescribed, but also to their relative autonomy to manage their internal affairs as they saw best. (Observations, p. 166) To revise that implied contract unilaterally, against the colonists’ protestations, would shake the very foundations of the British empire, dissolving the ties that had long bound the Americans to the metropole.

Events over the coming years would bear out the prescience of these anxieties.