Adam Smith and the repeal of the Stamp Act (part 2 of 2)

As I mentioned in my previous post, Adam Smith was in France when the infamous Stamp Act was approved in the summer of 1765 and later repealed in the spring of 1766. As it happens, Smith refers to the Stamp Act and devotes considerable space to the topic of stamp taxes in The Wealth of Nations, going as far as to acknowledge that stamp duties are one of the major sources of public revenue. In Chapter 3 of Book 5, of his magnum opus (“Of Public Debts”), for example, Smith writes: “The land-tax, the stamp-duties, and the different duties of customs and excise constitute the four principal branches of the British taxes.”[1]

The original Stamp Act, which had been enacted in 1765, was a formidable piece of tax legislation, 13,000 words in all, spread across 63 sections, each marked by a Roman numeral.[2] Nearly every piece of paper would henceforth require a tax stamp: real estate transactions, wills and other legal documents, newspapers, broadsides, almanacs, bills of sale, liquor licenses, even playing cards. The courts could not open without them nor would ships be allowed to sail. Ominously, the penalty for making counterfeit stamps was death “without benefit of clergy.” The Stamp Act, however, was enormously unpopular in Britain’s North American colonies.[3] And it would define the most fundamental issue of political economy of the era, one that would lead to the American Revolution of 1776: the role of consent in political affairs and the slogan “no taxation without representation.”[4]

Opposition to the Stamp Act of 1765 was not just limited to the overseas colonies. Merchants and manufacturers in Britain also opposed the Stamp Act as matter of expedience, since trade was likely to decline due to the imposition of stamp duties on their exports to the colonies. For example, in Chapter 7 of Book 4 of The Wealth of Nations, in the subsection titled “Of the Advantages which Europe has derived from the Discovery of America, and from that of a Passage to the East Indies by the Cape of Good Hope,” Smith writes:

The expectation of a rupture with the colonies, accordingly, has struck the people of Great Britain with more terror than they ever felt for a Spanish armada, or a French invasion. It was this terror, whether well or ill grounded, which rendered the repeal of the Stamp Act, among the merchants at least, a popular measure. In the total exclusion from the colony market, was it to last only for a few years, the greater part of our merchants used to fancy that they foresaw an entire stop to their trade; the greater part of our master manufacturers, the entire ruin of their business; and the greater part of our workmen, an end of their employment.[5]

In fact, a resolution to repeal the Stamp Act was introduced in the House of Commons on February 21, 1766, while Adam Smith was residing in Paris, and the repeal was eventually approved by a vote of 276 to 168.[6] At eleven o’clock on the morning of March 17, 1766, while Smith was in Paris, merchants in London approved a petition to King George III to accept Parliament’s vote repealing the Stamp Act and then boarded 50 coaches and traveled as a caravan to the House of Lords. The King gave his royal assent the next day, March 18, 1766, but the reprieve was short lived because Parliament enacted the Townshend Acts in 1767, which reiterated its right to tax the colonies. The Stamp Act was thus the beginning, not the end, of a new political and economic crisis.

For what it is worth, Smith himself recognizes this conundrum in Chapter 3 of Book 5, of The Wealth of Nations (“Of Public Debts”):

By extending the British system of taxation to all the different provinces of the empire inhabited by people of either British or European extraction, a much greater augmentation of revenue might be expected. This, however, could scarce, perhaps, be done, consistently with the principles of the British constitution, without admitting into the British Parliament … a fair and equal representation of all those different provinces, that of each province bearing the same proportion to the produce of its taxes as the representation of Great Britain might bear to the produce of the taxes levied upon Great Britain.[7]

The problem, according to Smith, was that the “private interest of many powerful individuals [and] the confirmed prejudices of great bodies of people seem, indeed, at present, to oppose to so great a change such obstacles as it may be very difficult, perhaps altogether impossible, to surmount.”[8] Nevertheless, be that as it may, Smith devotes a considerable part of Book 5 of The Wealth of Nations exploring “how far the British system of taxation might be applicable to all the different provinces of the empire, what revenue might be expected from it if so applied, and in what manner a general union of this kind might be likely to affect the happiness and prosperity of the different provinces comprehended within it.”[9] Although Smith will not “pretend[] to determine whether such a union be practicable or impracticable,”[10] for Smith “Such a speculation can at worst be regarded but as a new Utopia, less amusing certainly, but not more useless and chimerical than the old one.[11]

What other amusing speculations did Smith entertain during his sojourn in Paris?

Credit: Andrea Richardson

[1] The Wealth of Nations, Glasgow edition, p. 934 (para. 69). In this same chapter, he also notes that stamp-duties “might be levied without any variation in all countries where the forms of law process, and the deeds by which property both real and personal is transferred, are the same or nearly the same.” Ibid. p. 935 (para. 71).

[2] See generally Morgan & Morgan 1963.

[3] See, e.g., Testimony of Doctor Benjamin Franklin, before an August Assembly of the British House of Commons, relating to the Repeal of the Stamp-Act, &c., 1766. See generally Morgan & Morgan 1963; see also Wood 2002.

[4] But see Jenyns 1765, who famously argued that the colonists were “virtually” represented by land-owning electors and representatives who had common interests with them.

[5] The Wealth of Nations, Glasgow edition, p. 695 (para. 43).

[6] Middlekauff 2005, p. 121.

[7] The Wealth of Nations, Glasgow edition, pp. 933-934 (para. 68).

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] Ibid. The reference to “Utopia” is no doubt to the great work of the same name by St Thomas More.

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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