Economic and the Articles of Confederation

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Economic and the Articles of Confederation

The Articles of Confederation represented a strong reaction against the strong central government of Britain, with its powerful King and Parliament. The political leaders of the new nation created a central government so weak that it could not function effectively. This lack of effectiveness extended to economic and financial affairs, so that the national climate was inhospitable to the growth and progress of the American economy.
Under the Articles of Confederation, the central government had no power to enforce any legislation it passed. Congress was denied the power to tax, and could only request money from the states. Since Congress' requests were generally ignored, the legislature never had enough money to run the government or to fulfill financial obligations to bondholders, soldiers, and others. In addition, Congress and the states shared the right to regulate currency and issue money. This led to an excess of currency, which pushed down the value of currency and created inflationary pressure on the Continental dollar.
The central government could not control interstate commerce, resulting in interstate tariffs and taxes, as well as navigational rights disputes. Foreign countries were unwilling to negotiate trade agreements with the United States, since the central government had no power to enforce them. When foreign governments interfered with the United States' freedom to trade, the Confederation government could not even issue reprisals. The weakness of the central government led to a national climate of political uncertainty.
The Confederation's inability to stabilize and revitalize the depressed economy caused many to become discontented with the Confederation government. The problem of war-related debt continued to plague the economy. Even more people fell into debt through foolhardy speculation, which was encouraged by the easy availability of credit. The lack of specie in circulation made this speculation inherently unstable, since few people could obtain reliable money (i.e., gold and silver) with which to pay back loans taken to finance speculative ventures. Unchecked by national authorities, speculation became so widespread that it would have been difficult for even a strong government to control its damaging impact on the economy.
The climate of instability and unrest, largely due to the nation's economic problems, convinced many to promote the development of a stronger central government. The states decided to send delegates to Philadelphia to create a more effective system of government. The result of this 1787 meeting was the US Constitution.

Marc Schulman