Ratified between 1771 and 1781, the Articles of Confederation remained in force until they were superseded by the Constitution in 1788. In power for seven years, the Articles formalized some preexisting institutions such as the Continental Congress, but made no provision for a federal executive outgrowth, and identical limited provisions for a federal judiciary—one of the few crimes tried in the new federal courts was piracy, leaving about all other offenses to the states to prosecute. During this period, Congress requisitioned fiscal support from the states in symmetry to their population, but these assessments were routinely ignored, or fulfilled merely in part. The Articles gave Congress no authority to issue money or levy taxes .
Congress and the states emerged from the Revolution both mugwump and highly indebted. Some states paid their debts while others did not, and Congress had no real means to retire its own debt or honor the continental currentness it had already issued. By printing single-handed money during the Revolution, Congress had efficaciously rendered this currency worthless. Unlike the states, Congress had no taxing authority to acquire the gold or silver it needed to redeem the paper money it had issued, which was characterized as “ not worth a continental ; ” that is, worthless .
In 1779, George Washington complained as General-in-Chief of the Continental Army, “ that a police van load of money will barely purchase a police van cargo of provisions. ” As President of Congress under the Articles of Confederation, John Jay cautioned state governors against permitting a perception “ that America had no sooner become independent than she became insolvent. ” From 1781 to 1784, the thirteen states paid less than $ 1.5 million to the U.S. Treasury, though Congress asked for $ 2 million in 1783 alone.
Reading: Money and the Constitution
A spare rider problem became apparent about immediately, as a few states loyally paid their requisitions but then watched helplessly as early states held bet on. furthermore, then as now, some states were in better fiscal situations that made it easier for them to pay, and the political climate in other states made raising local taxes even less palatable .
The U.S. Constitution mentions money lone in Article 1, which specifies the structure and powers of Congress. Congress ’ s agency to issue money was a reaction to the Articles of Confederation, which had reserved this authority entirely to the states. The fundamental law reassigned the power to issue money from the states to Congress. Article 1, section 8 assigns to Congress the world power “ to lay and collect taxes, duties, imposts and excises, ” for the beginning time giving the federal politics its own tax assurance .
article 1, segment 8 besides authorizes Congress “ to borrow money on the credit of the United States. ” The states had each borrowed extensively during the Revolution, deoxyadenosine monophosphate well as issuing large quantities of single-handed newspaper money. section 8 makes it acquit that the federal government can do this besides. When the Constitution was ratified, the thirteen states were so highly indebted they had limited ability to borrow more. If the Constitution had permitted the states to print more wallpaper money, that would not have been well received .
incision 8 besides authorizes Congress “ to coin money, regulate the rate thence, and of foreign mint, and fix the standard of weights and measures. ” Regulating standards of weights and measures is mentioned because the Constitution assumes a valued metallic standard with amply convertible composition money. Congress can besides punish forge. The Constitution gives Congress implicit authority to make monetary policy, but does nothing to make Congress accountable for its monetary policy. In a sense, Congress is not answerable for how well it regulates our money, apart from its ultimately being answerable to the electorate. Though far from ideal, consider the extent that high inflation—that is, inadequate monetary management—makes it difficult for politicians to stay in function. This makes Congress answerable to us, though frequently with a significant, even fatal, stay .
Congress plays little send role in regulating the dollar ’ s value nowadays, having long ago abandoned that province to the Treasury and the Federal Reserve. Congress ’ s principal influence on the respect of the dollar comes from implementing fiscal policy through appropriations and tax legislation. This fiscal charm on the dollar is very indirect and besides operates with a significant time imprison.
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The Constitution ’ s Article 1, section 10 prohibits the states from coining money, issuing bills of credit, making anything but gold and silver coin a tender in payment of debts, or passing any jurisprudence impairing the duty of contracts. Although section 10 suggests that newspaper money can never be issued by the federal government, it actually lone restricts the states from doing indeed. The bills of credit rating mentioned in section 10 were a now disused imprint of paper money, which certified the issue government ’ sulfur obligation. They generally stated an explicit promise to pay some form of hard money. A typical rule might state : “ The owner of this placard shall be paid by the Treasurer of the State of Connecticut, forty shillings in spanish milled dollars, at the rate of six shillings each, or of other silver or gold coins equivalent, with concern at five percentage per annum, by the foremost day of March, 1785. By order of the Assembly in Hartford, dated the inaugural day of March, 1780. ”
Some state governments—particularly in New England and the Carolinas—had no means to pay off the bills of credit they had issued during the Revolution without imposing catastrophic taxes, which would have chiefly been tariffs on imports. In this era, this would have included imports from early states. The union government had assumed the debts of the individual states, though this was not a constitutional sport, but engineered by Treasury Secretary Alexander Hamilton and implemented through the Funding Act of 1790. The promise of federal assumption of the remaining department of state war debt helped persuade several key states to ratify the Constitution .
After the Constitution was ratified in 1788, the union government paid off the states ’ debt of roughly $ 25 million at face value—though by this fourth dimension many current holders of this debt had purchased it at significant discounts, thereby accruing meaning profits at taxpayer expense. The federal government financed this through import tariffs and a wildly unpopular excise on condense spirits. Since the heart strike not merely resulted in the Whiskey Rebellion but besides generated small or no net gross, it was abandoned by 1802 .
James Madison, the Constitution ’ sulfur principal writer, could not have anticipated the Civil War which ultimately freed the nation from the moral abomination of slavery, nor the war ’ s attendant inflation. The dubious constitutionality of the Federal Reserve System developed in 1912 might have been overlooked if it had provided price constancy, lower unemployment, or enhanced economic growth. Since it has given us none of these, we need to look at reforming the Fed, if not abolishing it wholly .
Robert F. Mulligan
Robert F. Mulligan is a career educator and research economist working to better understand how monetary policy drives the business cycle, causing recessions and limiting long-run economic emergence. His research interests include executive compensation, entrepreneurship, market summons, credit rating markets, economic history, fractal analysis of fourth dimension series, fiscal market price efficiency, nautical economics, and energy economics .
He is the author of Entrepreneurship and the Human Experience and Executive Compensation. Both books can be purchased through Amazon either in unvoiced transcript or as a Kindle eBook .
He is from Westbury, New York, and received a BS in Civil Engineering from Illinois Institute of Technology, and an MA and PhD in Economics from the State University of New York at Binghamton. He besides received an Advanced Studies Certificate in International Economic Policy Research from the Institut fuer Weltwirtschaft Kiel in Germany. He has taught at SUNY Binghamton, Clarkson University, and Western Carolina University .