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Chapter IV - The Articles of Confederation
and Money Matters The Articles of Confederation and Money Matters 1781 - 1783
Washington, who would take the oath of president in 1789, was well aware of the dissimilar elements that made up the new American society and the difficulties which the nation might face. In his commencement address at Harvard College in July of 1787, future President John Quincy Adams also acknowledged that there would be a "critical period" as the newly formed United States struggled to establish themselves as a nation while ridding themselves of "accumulated evils." Both were correct in their assumptions, for in the years between the writing of the Articles of Confederation in 1781 and the ratification of the Constitution in 1787, various special-interest groups continually disagreed over how best to forge a national republic from a collection of loosely connected state republics. This ongoing controversy would be resolved by a series of intricate political compromises which allowed the New England merchants and Southern planters to consolidate their economic and political control.
The Articles of Confederation, America's first governmental document, created a unicameral legislature in which each of the original thirteen colonies had one vote. This unprecedented legislative body could conduct foreign relations, settle disputes between states, regulate Indian trade and determine the valuation of state and national money. The Articles, however, did not authorize the national government to "tax effectively" or to enforce a "inform commercial policy." Instead, this document characterized the United States of America as a "firm league of friendship" in which every state retained its "sovereignty, freedom and independence, and every power, jurisdiction and right which was not expressly delegated to the United States." Furthermore, the Articles required unanimous consent of state legislatures for ratification of amendments, giving many Americans exactly what they wanted - a decentralized, less powerful government.
The particular disadvantages of such a powerless central government soon became apparent in the critical areas of finance, foreign affairs and land policies. During and after the war, the most persistent problems faced by the state and national governments were financial. Since government officials were reluctant to levy taxes, both Congress and individual states had attempted to finance the war by printing currency. Its value rested on faith in the government, a faith that was lost after the humiliating military setbacks through the South in 1779 and 1780. By early 1780 it took forty paper dollars to purchase one in silver, and shoes sold for $100 a pair. A year later "continental currency" deemed worthless.
In 1781, faced with total collapse of the shaky wartime monetary system and revolts against the high inflation rates, state delegates attempted major reforms. After creating a Department of Finance, they asked the states to let Congress levy a duty on imported goods. This plan failed when New York and Rhode island (called "Rogue Island" by its detractors) speedily rejected the import tax. They were not alone in fearing that a new tax would ultimately lead to a "too-powerful central government." As one apprehensive American predicted in 1783, "If permanent funds are given to Congress, aristocratical influence, which predominates in . . . a major part of the United States, will fully establish an arbitrary government."
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