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What most weakened the colonial economy was the end of the French and Indian War, which meant that British spending in the colonies slackened. Under the influence of William Pitt, Parliament had voted for enormous grants to the colonies during the war, and these grants dried up. Additionally, many of the colonies had issued paper money during the long conflict, and after the war was over, they raised taxes in order to get this currency out of circulation. Both policies contributed to a rather severe currency shortage in many colonies. This was exacerbated by the refusal of British merchants to accept colonial currency in payment for debts, which had the result of causing bankruptcies even as it drained hard British sterling from colonial economies.
Indeed, in 1764, Parliament passed the Currency Act, which forbade the use of paper money (issued by the colonies) to satisfy public or private debt. To make matters worse, there were also fewer British soldiers in the colonies to spend their pay in the cities and the countryside, and fewer orders for food and other supplies from British and colonial militia supply officers. The effect of all this was a severe economic depression that provides a crucial context to understanding colonial responses to British legislation, especially taxation. As historian Fred Anderson has observed:
the single most important factor [in colonists' reactions to British policy] was the depression that by 1764 had fastened a clammy grip on trade in every colony, and which would not fully release it until the decade had ended.
To cite one example, Virginia planters, heavily in debts that they were increasingly unable to pay, had come to see land speculation in the Ohio Valley as a way out. When Britain issued the Proclamation of 1763, banning expansion into the region and essentially negating all land claims by Virginia planters (including such luminaries as George Washington) it caused enormous consternation among these planters.
Source: Fred Anderson, Crucible of War: The Seven Years' War and the Fate of Empire in British North America, 1754-1766 (New York: Vintage Books, 2001), 588-589.
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