Defects_of_the_Articles_of_Confederation_10 <=== PDF version
Dear readers:
This essay discusses the problem of coinage and currency experienced under the Articles of Confederation. It also contains a full history of the issue and depreciation of the Continental currency. It is available only in pdf format owing to its length.
Thanks,
EDD
Defects_of_the_Articles_of_Confederation_9 <== PDF version
Every viable government must possess the means to fulfill its duties and to keep its promises. A national or federal government, whether it is a republic, aristocracy, or some other, naturally has the duty to manage the nation’s defenses, engage in diplomacy, manage trade relations, and maintain a judicial system; all these must be paid for in some way or another. In the American system, the states likewise exercise many powers for which considerable revenue is required, and so on down to the local level. Our early history instructs us on one thing in particular with regard to finances: a government must have the financial means to execute its respective powers and duties. It cannot, in the long run, depend on another level of government for money; it will become captive to the interests and prejudices of the politicians and bureaucrats within the other government entity. A prime example of this principle is contained in the most serious defect of the Articles of Confederation: Congress, as the only federal power, was dependent entirely on the states for revenue. This disconnect caused a radical divergence between need and ability: Congress’ needs were great, even after the war, but the states, attending to their own problems, soon found ready excuses not to meet their financial obligations to Congress. By the mid-1780’s, Congress had neither credit nor credibility, and the thinkers of that time realized that Congress’ lack of a revenue stream caused many other problems. If the states were to stay together, a more consistent federal government would be required, and that government must have its own independent revenue source.
At the beginning of the Revolutionary War, Congress assumed emergency powers to manage the war effort. Although the Articles of Confederation were proposed and debated from 1776 to 1778, they did not actually go into operation until the spring of 1781. Congress attempted to fund the war effort prior to the implementation of the Articles by three means: borrowing, issuing its own currency, and asking requisitions from the states. The first two will form the subject of the next essay, but the last will be considered here since it emulates so closely the provision in Article VIII of the Confederation:
Article VIII. All charges of war, and all other expenses that shall be incurred for the common defence or general welfare, and allowed by the United States, in Congress assembled, shall be defrayed out of a common treasury, which shall be supplied by the several States, in proportion to the value of all land within each State, granted to, or surveyed for, any person, as such land and the buildings and improvements thereon shall be estimated according to such mode as the United States in Congress assembled, shall from time to time direct and appoint. The taxes for paying that proportion shall be laid and levied by the authority and direction of the legislatures of the several States, within the time agreed upon by theUnited States, in Congress assembled.
Under this system, Congress allocated to each state a requisition, based on an estimate of the total value of land and buildings. The state was obligated to raise this sum by internal taxation, which was then to be forwarded to Congress. The system never worked as envisioned, and the proof of it lies in these facts. In the following, all amounts have been converted to Spanish milled dollars, a coin in common use at the time, which was reckoned at 386.7 grains of pure silver.
First, consider requisitions issued by Congress prior to the ratification of the Articles of Confederation:
22 Nov 1777: Congress issued a recommendation that the states raise $5,000,000, apportioned according to population, to be paid in quarterly installments starting 1 Jan 1778 to pay the expenses for 1778.
5 Jan 1779: Congress issued a requisition to the states for SM$15,000,000 for 1779. Congress passed additional resolutions urging the states to pay it on 7 Oct 1779 and 18 Mar 1780.
19 May 1779: Congress requisitioned $45,000,000 from the states.
None of the above requisitions were ever paid. In fairness to the states, Congress was not acting under any constitutional authority, only as an emergency institution.
But the requisition system under the Articles, in which the states were obligated by the compact, did not fare much better:
30 Oct 1781: Congress issued its first requisition to the states under the Articles of Confederation for SM$8,000,000.
4 Sep 1782: Congress requisitioned SM$1,200,000 from the states, but did not require it be paid directly to Congress. The states were to use the revenue to pay down interest in their own states.
16 Oct 1782: Congress requisitioned another SM$2,000,000 from the states.
18 Apr 1783: A standing annual requisition of SM$1,500,000 was requested as part of resolution to give Congress the power to levy import duties.
27 Apr 1784: Of the $SM8,000,000 requisitioned on 30 Oct 1781, SM$1,436,511 had been received from the states. The states were credited with having paid the SM$1,200,000 requisitioned on 4 Sep 1782 as it was for local interest payments. Of the requisition of 16 Oct 1782 for SM$2,000,000, none had been paid. The request for the standing requisition of 18 Apr 1783 had been ignored. Congress decided to lower its expectations down to half of the original requisition of SM$8,000,000, subtracted the amount paid, and accordingly requisitioned SM$2,670,988 for 1784. This amount would meet the immediate minimal needs of the government.
27 Sep 1785: Congress requisitioned SM$3,000,000 from the states.
31 Dec 1785: Of the original SM$8,000,000 requisition of 30 Oct 1781, about SM$1,600,000 had been paid by the states.
15 Feb 1786: The total receipts since 1781 amounted to SM$2,457,987: a) from requisitions made between 1 Nov 1781 and 1 Nov 1784, SM$2,025,089; b) from requisitions made between 1 Nov 1784 and 1 Jan 1786, SM$432,898.
31 Dec 1786: Congress had received only SM$500,000 of the money requisitioned from the states over the past two years.
In summary, ignoring the standing requisition of 18 Apr 1783 and the requisition of 4 Sep 1782, Congress had requisitioned $SM13,000,000 from the states, but had received about $SM2,525,000, which is a little less than 20%. This was clearly not a workable system; Congress could not meet its basic obligations (including paying the men in the army). Congress survived on borrowed money, usually at very high interest rates, because its credit and means were so bad.
During the debate leading up to the 15 Feb 1786 requisition, Congress issued a report by a committee consisting of Pinckney, King, Kean, Monroe, and Pettit, declaring that the Articles of Confederation were inadequate. It laid out several conclusions, two of which were: a) the requisition system of raising revenues had been a failure for its entire eight year duration; and b) the requisition system could not be relied upon in the future.
There were some proposals to alter the Articles to give Congress an independent revenue source by granting it a power to levy duties on imports. Twelve of the states agreed to it, but New York refused on the grounds that a general import duty levied by Congress would serve to weaken New York’s position as a trade center. The persistent financial crisis and New York’s intransigence, coupled with Shays’ Rebellion, led to the calling of the Constitutional Convention in 1787.
James Madison wrote an undated paper near the end of his life in which he recounted this period as Congress and the nation as a whole suffered under this defect [1]:
“But the radical infirmity of the “Articles of Confederation” was the dependence of Congress on the voluntary and simultaneous compliance with its requisitions by so many independent communities, each consulting more or less its particular interests and convenience, and distrusting the compliance of the others.”
This problem was resolved by the adoption of the U. S. Constitution, in which Congress was given power to raise revenue independent of state influence:
[Article 1] Section 8. Congress shall have the power to lay and collect taxes, duties, imposts, and excises to pay the debts and provide for the common defense and general welfare of theUnited States; but all duties, imposts, and excises shall be uniform throughout theUnited States.
[1] Jonathan Elliot, Debates on the Adoption of the Federal Constitution in the Convention Held at Philadelphia in 1787, With a Diary of the Debates of the Congress of the Confederation; As Reported by James Madison, Philadelphia: J. B. Lippincott & Co., 1881, Vol. 5, p. 112
Defects_of_the_Articles_of_Confederation_8 <== PDF version
Dear readers:
In this eighth essay on the defects of the Articles of Confederation, the topic of a lack of a federal-state guarantee is discussed. At issue is the ensuring that every state will maintain a republican form of government. At the time of the Constitutional Convention, this problem was fresh in the minds of the founders due to the recent rebellion in Massachusetts led by Daniel Shays. Because of its length, this essay is available only in pdf format.
Thanks,
EDD
Defects_of_the_Articles_of_Confederation_7 <== PDF version
A republican political system is one in which a large fraction of the general population exerts power indirectly through representatives of their choice. The great attraction of a republic is that those representatives will, over the long run, reflect the views of a majority of the people, but at the same time, will tend to attenuate excessive demands by the public in times of difficulty or uncertainty. A republic is therefore somewhere in the center of the styles of political organization. At one end are the forms in which power is concentrated in a few people. Among these are: a) a dictatorship or absolute monarchy, in which one person has nearly all the power; b) a monarchy and hereditary nobility composed of a small but stable number of people; and c) ruling oligarchies, in which power is assumed by a small number of people who are not members of a permanent class. At the other extreme is pure democracy, in which every eligible person has a direct voice in public affairs.
There are two main classes of systems that can be correctly called republics. In the first type, a purely federative style, the members of the federation are actually subordinate political divisions. Each political subdivision chooses delegates to represent it at an upper political level. In the second type, the general public chooses delegates to the top political level in their capacity as individuals. A mixture of these prevailed under the Articles of Confederation: the eligible voting public, in their capacity as individuals, chose delegates to their state legislatures; those state legislators in turn chose delegates to Congress. In Congress, each state had an equal vote. At the state level then, it was of the second type of republic, but at the national level, was purely federative. The provision is found in the first portion of Article V:
Article V. For the more convenient management of the general interests of the United States, delegates shall be annually appointed in such manner as the legislature of each State shall direct, to meet in Congress on the first Monday in November, in every year, with a power reserved to each State to recall its delegates, or any of them, at any time within the year, and to send others in their stead for the remainder of the year.
No State shall be represented in Congress by less than two, nor by more than seven members; and no person shall be capable of being a delegate for more than three years in any term of six years; nor shall any person, being a delegate, be capable of holding any office under the United States, for which he, or another for his benefit, receives any salary, fees or emolument of any kind.
Each State shall maintain its own delegates in a meeting of the States, and while they act as members of the committee of the States.
In determining questions in the United States, in Congress assembled, each State shall have one vote.
It is clear that such a system is republican in the sense that the public chose representatives at the state level who in turn represented the state in Congress. The people thus had an indirect choice in who represented them in Congress. This is a satisfactory system, because ultimately the people are able to determine the makeup of Congress, although the process is one step removed from direct election. But, if we recall the basic premise of a republic, that the views of a majority of the people will usually prevail, it is equally clear that a purely federative system such s the Articles can maintain this premise only if each state has approximately the same population. Such was not the case with the original thirteen states. As Hamilton pointed out in The Federalist #22, seven states (Delaware, Georgia, Maryland, New Hampshire, New Jersey, Rhode Island, and South Carolina) could constitute a majority of votes in Congress, yet their combined population was not more than a third of the entire population. On the face of it, there was no remedy for this problem other than the hope that these states would have such diverse interests that they would not combine together, thus requiring that some other combination of states vote one way or the other, and that by this means, opinions shared by of a majority of the population could be expressed. It is true that these seven states rarely agreed, so little harm was done, but it was accidental, not by virtue of the system.
The Articles did contain one other provision that tended to mitigate this problem somewhat, at least at first glance. It is found in the second-to-last paragraph of Article IX:
The United States, in Congress assembled, shall never engage in war, nor grant letters of marque and reprisal in time of peace, nor enter into any treaties or alliances, nor coin money, nor regulate the value thereof, nor ascertain the sums and expenses necessary for the defense and welfare of the United States, or any of them, nor emit bills, nor borrow money on the credit of the United States, nor appropriate money nor agree upon the number of vessels of war to be built or purchased, or the number of land or sea forces to be raised, nor appoint a commander-in-chief of the army or navy, unless nine States assent to the same, nor shall a question on any other point, except for adjourning from day to day, be determined, unless by the votes of a majority of the United States, in Congress assembled.
As seen here, concurrence of nine of the thirteen states was required to enact legislation on the important issues, such as treaties, coining money and issuing currency, and military expenditures. In this way, the defect mentioned earlier was avoided: any nine states, including the seven whose population totaled only one-third, would likely constitute a majority of the people. Secondly, history shows that requiring a supermajority on important issues having a great impact on the whole is an excellent idea. But the wide diversity of state populations, the provincial outlook of many states, and the nine-of-thirteen rule sometimes led to a pernicious defect in the operation of the Articles when taken together. For, if nine states were required to pass significant legislation, a combination of five states, whose combined population may total only 20% of the entire American population, could prevent necessary legislation from being passed – rule by the minority, contrary to the basic goal of a republic. It was similar to, but not quite as bad as the Polish system, which required unanimity on every issue.
Two examples illustrate the problem. In 1784, Congress was deprived of a quorum to do business from 11 Aug to 30 Nov because three New England states decided not to attend. An even worse example was a vote taken on 23 Apr 1784 regarding the administration of western lands. The issue was whether slavery would be allowed in those territories. Because not all the states were present this vote required 7 of 10 states to retain a previous resolution that prohibited slavery. New Jersey’s lone delegate refused to vote, and the delegation from North Carolina was divided. So, the previous resolution was repealed by the votes of three states: Virginia, South Carolina, and Maryland; thus three states, with a combined population very much in the minority compared to the whole, was able to re-institute slavery in all the western territories. Fortunately, this act of 1784 was superseded by the Northwest Ordinance of 13 Jul 1787.
The U. S. Constitution as proposed in 1787 preserved the excellent feature of a two-thirds requirement to confirm treaties in the Senate, which represented the states in their sovereign capacity. But to avoid the main representative defect discussed here, most other legislation was to be decided by a simple majority in both branches of Congress: the House, which represents the people through their directly-elected representatives, and the Senate representing the states. In this way, the sentiments of a majority of the people, through representation in the House, are always guaranteed a voice in every vote. These provisions lay out a workable framework by cannot address the case wherein the interests of the members of Congress diverge from the interests of the people; there is no cure for that except elections.
In Part 1 is a tutorial on basic economics, covering wealth, money, prices, capital, rent, labor, economic expansions and contractions, inequality, debt, credit, monetary inflation, and national debt. It details the causes and consequences of monetary inflation, and the role of central banks contributing to it.
In The Federalist Companion, author Edward D. Duvall explains in detail why the Articles of Confederation failed after the Revolutionary War. The result was a union of the states under the U.S. Constitution. This book is a great aid to understanding the defense of the Constitution presented by Hamilton, Madison, and Jay in The Federalist Papers.
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a) Growth and nature of the money supply;
b) The various banking systems (First & Second Banks of the U. S., State-chartered Banks, the National Banking System, and the Federal Reserve);
c) U. S. Government revenues and expenditures;
d) U. S. national debt;
e) Coinage;
f) Banking system condition statements;
g) CPI and median income from 1800 to 2020, along with a "standard of living index"; and
h) A description of significant monetary and financial legislation since the adoption of the Constitution.
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