Continental Currency
Financing independence proved a costly endeavor. Declaring independence from a merchant mother country with world-recognized credit was a bold economic venture. After the challenges of financing a revolution and winning a war, the United States found itself in debt, in an economic depression and without national governance to address the challenges. The Articles of Confederation gave little power to the governing congress to tax, negotiate or unify the states’ efforts toward economic goals.
During the Revolutionary War (1775-1783), financiers, well-to-do merchants and statesmen all played their parts in financing the revolution. The Continental Congress could not force states to pay expenses and had the limited power to strongly ask states to contribute to the war effort with money, troops and supplies. By 1781, the Continental Congress turned to Robert Morris—one of the wealthiest men in former Colonial America—and asked him to take the position of Superintendent of Finance. Though Morris asked for unprecedented powers, congress agreed, and Morris started using his own credit, wealth and business knowledge to assist. He managed to slow the rate of inflation and worked with American diplomats in Europe to secure large loans. Benjamin Franklin helped to negotiate a loan of $5.9 million and John Adams helped to secure $2 million as a loan from the Dutch. Additionally, Morris tried to set up a tax on imported goods to put money into the national treasury through the methods allowed under the Articles of Confederation in 1782, but Rhode Island stalled the efforts, and the plan collapsed. With the signing of the Treaty of Paris in 1783, the United States won the Revolutionary War and secured independence from Britain. Now, saddled with debts—state and national—and with outstanding loans and states unwilling to help generate revenue through import taxes, the new country faced a grim economic future.
Money itself proved to be another challenge. During the Colonial Era, coins were rare. Acting against the British Parliament’s prohibitions, many of the colonies created their own currencies; sometimes they also used a receipts system (like credit) or did business with foreign coins. During the Revolutionary War, the Continental Congress created “Continental Dollars.” This form of paper currency had little backing and lost value rapidly, leading to phrases like “not worth a Continental.”
Under the Articles of Confederation, no national banks were established, though a few states made banking efforts. The Bank of North America opened in 1781 in Philadelphia, mostly to help finance the Continental Army. The Bank of New York and then the Massachusetts Bank joined the scene in the mid-1780s. These banks provided loans to merchants, lent mortgages on land, took deposits, and gave bills of credit—meaning they cashed checks for a percentage of the value.
The United States had resources that were tradable. After-all, the natural resources had made the 13 Colonies valuable to Britain and even influenced the British strategy during the Revolutionary War, with efforts to hold the Southern Colonies and retain the agricultural exports of that region. Fishing, lumber, tobacco, and cotton numbered among the many exports the United States could provide to a ready market. However, the vast trading British empire had closed doors to the former colonies in the years immediately following the Treaty of Paris. It would take time and negotiations to re-establish commerce with Britain and its colonies, and arranging treaties was not easy under the Articles of Confederation. During the 1780s—with British colonial restrictions no longer a factor—American merchants opened trade with countries in the Far East, importing cargoes from India, China and other countries in that region.
Limited trade with Europe and within the British Empire, devalued currency, lack of strong banks and high debts and loans contributed to an economic depression in the United States in the 1780s that has been compared to the Great Depression of the 1930s. Compounding the issues, states vied against each other for opportunity and did not easily cooperate for interstate commerce. Delegates gathered in 1785 at the Mount Vernon Conference and in 1786 at the Annapolis Convention, hoping to find solutions and unity on interstate commerce which could help the floundering economy. These gatherings did not ultimately gain their desired results, but they underscored the weaknesses of the Articles of Confederation and how disunity was hurting the opportunities for state and national prosperity; eventually, delegates gathered in Philadelphia, Pennsylvania, during the summer of 1787, and drafted the Constitution of the United States.
The Constitution did not solve the nation’s economic troubles, but it did create a federal government which had more negotiating power for trade agreements, the ability to levy taxes to pay national debts, and — under Alexander Hamilton’s broad interpretation — the creation of a national bank began to create more economic stability. The concept of a national bank became a point of political debate for decades, and currency still varied from state to state for years.
The economic depression of the 1780s and governance under the Articles of Confederation brought financial hardship to many Americans. It also highlighted questions of power, common good and uniting for better opportunity. The financial and economic situation weighed on the minds of many of the delegates who gathered at Mount Vernon, Annapolis and eventually Philadelphia seeking ways to find “a more perfect union.”
Further Reading:
- We Have Not a Government: The Articles of Confederation and the Road to the Constitution by George William Van Cleve (University of Chicago Press, 2019)
