I’m going to talk about the way the Articles of Confederation functioned, how people acted under the Articles, and the three reasons why I think the Articles were dissolved. The signers of the Articles of Confederation were not happy with what was finally implemented. Indeed, once the Articles were sent to the States, it took nearly four years before they finally went into effect. Eight States ratified the document almost immediately in 1777 and early 1778, and the rest gradually ratified over the next several months, with the single exception of the State of Maryland. The control of that State lay in the hands of an oligarchy whose wealth rested in Western lands, and with Western land companies who were anxious to get their hands on even more Western land to which Maryland did not have title. Maryland officials blocked ratification of the Articles until Virginia surrendered its claims to the West. Governor Thomas Jefferson had blocked the surrender of Virginia’s titles because he knew that should the land be given to the Confederation, it would no doubt fall into the hands of land speculators. It should also be mentioned that Jefferson (and probably other Virginians) were suspicious of land companies in general because land companies had a history in the Colonial Period of a corrupt, incestuous relationship with the British Crown. Royal appointees rose through the ranks of colonial government by doing the Crown’s bidding and eventually they would be rewarded with land grants. Jefferson also might have had in mind how land company officials had encouraged the British to attack French territory during the French and Indian war. Land companies were very much in favour of that war because it was a perfect opportunity to grab France’s land and make an enormous profit through land speculation. The Virginia legislature actually refused to supply men and material for that war, and land company officials and British cabinet officials who were very angry at Virginia’s approach decided to crack down on colonial prerogatives once the French and Indian war ended. That’s how we got the American Revolution.
The hesitation of Maryland to ratify the Articles meant two things. First, the second Continental Congress remained the central governing body of the Union. It in turn depended upon the State assemblies, local associations, and local committees of public safety to operate a political system. So, power remained dispersed, and it forced ailing Americans to fight the Revolution using unconventional tactics (which is what ultimately gained them their victory), but few people at the time saw any advantage to this situation. Nobody at the time really liked the fact that: “We haven’t got a government yet. We still live under the second Continental Congress.” Governor Thomas Jefferson, for example, was very upset when the Continental Congress refused to financially support the war effort in the South. Congressmen assumed that the South was overwhelmingly loyal to the British Crown and that trying to win the war in the South was a lost cause. “You couldn’t trust these people. Let’s forget trying to send money down there. We won’t worry about it.” As a result, Southern States carried on the war effort using State militias and partisan outfits led by men like Thomas Sumter, Andrew Pickens, or Francis Marion. So even though the decentralized war effort would eventually bring victory, few Americans at the time saw anything other than God’s Providence in this. They didn’t say, “Well, we’re winning because we’re decentralized.” They said, “We’re winning ‘cause God is blessing us.” And it did help encourage support for stronger central government. That’s the first reason why this is important.
The second reason why Maryland’s hesitation is important is because it proved that divisive issues could be handled reasonably well under the Confederation, because even before the Confederation got off the ground major issues were settled. And one of the most deeply divisive issues in the United States from 1776 to 1860 was the settlement of the West and the disposal of Western public lands. The Federal government under the present Constitution, the Constitution of 1789, was unable to settle Western land issues because legislation for governing Western lands could be passed with the consent of only one half of the states plus one additional vote.
What do I mean by that? With regard to the States, a simple majority in the Senate was the only thing necessary to pass legislation. This meant that the issue of Western development was never really settled, because all you had to do was get the vote of 51 senators and that was it. You still had 49 who were disgruntled and angry and upset, who plotted, and conspired and did those sorts of things. So, the issue of the West was never really settled. Instead the issue continued to fester on like a cancer until it finally brought about a war. You don’t have a civil war under the Articles of Confederation. You have a civil war under the present Constitution. And it is unlikely that you ever would’ve had a civil war under the Confederation because the Confederation required consensus on the most important issues. The States and their interests had to reach some sort of consensus. They had to; they were forced to. You couldn’t just please 50% plus-one of the people and have 50% minus-one of the people mad at you. You had to get as many people together as possible.
The settlement of such a divisive issue is only one of the great accomplishments in the Confederation period. After Western lands were given up and the Confederation began operation, Congress eventually laid down a pattern of settling the West under the Northwest Ordinance (1787) and the Land Ordinance (1785). In text books, the Northwest Ordinance and the Land Ordinance are usually treated together, but they’re really two different creatures. The Land Ordinance (as anyone who has ever lived in the Great Lakes States knows) fostered a highly centralized pattern of settlement and organization. The land was drawn off in squares, and we all know centralizers and nationalists just love squares. They can’t get away from squares. So, the land is drawn off in squares and people would go out to the West and there they would really be required to create a State government. There was no option in this. You would reach a certain level and, “Oh, wait, we’re going to give you a territorial representative in Congress! Whether you want him or not, you’re gonna to get him!” The other thing about the Land Ordinance is that it encouraged large groups of people to settle the Northwest because the land was divided up and sold off in large blocks. A single individual rarely possessed the finances to purchase such a large block of land. Usually, either a company of stockholders came together and purchased the land to sell it off, or it could be groups of settlers banding together. And what happened in the Northwest was these groups (sometimes it would be entire villages, towns, or whole church congregations) would come together and purchase land and go out and settle it. They depended upon each other. They depended upon unity within the group to conquer the wilderness. And since they’re bringing all their family with them, the group had its minister, barber, blacksmith, and a bunch of farmers. Since they brought all of these things Westward with them, they assumed that they could immediately have in the West everything they had left behind in the East. But when they got out there and were confronted with the wilderness, with Indians and things like that, they started looking for other sources of assistance. So, the people who settled the Northwest in these large groups started looking toward the Federal government to help them in their settlement pattern. More and more as time goes on, they’re going to be requesting the Federal government to come and take care of the Indians. You know, they’re not gonna have Daniel Boone or Davy Crockett or something like that. They want the Federal army to come. They want a large standing army. They want fortifications to be built. And, more than that, they want the Federal government to build highways and public works projects linking the West with the East so that the people who settle in the West can go and get all those things they left behind much more quickly. These people didn’t have a lot of patience.
In the South it’s going to be a little bit different. Their Western States were Mississippi, Alabama Arkansas, Tennessee, and Kentucky. They largely settled those areas as individuals or as individual families. And these people were forced to deal with the environment. They were forced to deal with the wilderness on their own. That created a great deal of independence among them. It also created among them a very useful kind of unity. You unify for convenience; you unify to put down the Indians and that’s it. “We’ve taken care of the Indians, let’s go back home. You mind your own business. I’ll go mind mine.” I’m not going to go into this in any further detail. It’s enough to point out what’s happening with the Land Ordinance and its centralizing features. Remember, this is under the Articles of Confederation. That great decentralized government that was so weak? Well, it’s created this very unified form of land ownership in the Northwest, and it’s going to facilitate sectional jealousies. It’s going to facilitate tensions, and it’s going to be a contributing factor in the Civil War. After all, when these people in the Northwest are calling for a Federal sponsorship and Federal funding of roads and canals linking the West with the East, Southerners are gonna raise the question: “Why? Why must I pay for this? I’m never going to Michigan. Who’d wanna go to Michigan, right? It’s cold!”
The Northwest Ordinance was different than this, and it has a long history. In the early 1780s, Congressman Thomas Jefferson proposed a land ordinance only to see a lot of his proposals initially defeated. Elements of his proposals in the early ‘80’s found their way into the Northwest Ordinance. The Northwest Ordinance has often been called the first Bill of Rights of the country and first Bill of Rights for the whole people. It outlawed special privileges. It eliminated vestiges of feudalism. It prevented the permanent settlement of slavery in the area. (You could actually take slaves in the area, but you couldn’t keep them there very long). Now, the nationalists did all they could to strengthen the various land proposals in the Confederation and they did gain some very important victories. Ultimately, however, the Land Ordinance and the Northwest Ordinance laid the groundwork for a fairly decentralized political system because of one little clause that stipulated that new States coming into the Union would be considered the equals of States already in the Union. So, the States will remain equal to each other. The new States are not going to be inferior. They can’t be bossed around. “You have to mind your own business. You can’t go over there and tell ’em what to do.” The diffusion of power was thus preserved.
There’s a number of other advantages to the Articles, some of which deserve closer attention. I believe it is impossible to think in terms of promoting the common good of a country without taking a statist route of using political institutions. The only way of getting around this is to deal economically. And one of the greatest myths about the Articles of Confederation is that the economy of the 1780s was a disaster, and that the standard of living of most Americans consistently sank. Now there is some truth to this, it’s not all mythic. Though the causes of the economic problems are, I think, rooted in the centralizing tendencies of the Confederation, not in the Confederation’s weakness. But there are parts of this myth of economic collapse that are just a myth. To dispel the myths and separate fact from fiction, I’m going to briefly examine life under the Articles of Confederation. What was life like? Overall, Americans were freer and their lives more productive under the Confederation than when they were in the British Empire, especially in terms of trade. Several sectors of the economy did collapse. Once the States left the Empire, crops or other products that had received special attention or subsidies or protection under the British Empire dissipated and they dissipated very rapidly. How many of us have ever even seen an indigo plant? Well, you wouldn’t have seen it unless we remained under the Empire, because indigo was heavily subsidized. The naval storages industry suffered major setbacks once the States left the Empire because they lost their main customer, the British Navy. But overall, parts of the economy did improve and were bolstered by the decentralized nature of the economy under that political system. Foreign trade flourished. American ships were no longer required to go through British ports, nor pay mercantile fees and taxes. French territories in the West Indies (the Caribbean) were immediately opened up to American trade. What about those parts of the Caribbean (British and Spanish territories) which remained closed to American ships? Americans still traded with those areas because they relied on the time-honoured American tradition of smuggling, which they had perfected during the Revolution. Other European countries followed France’s lead and opened up their ports to American goods, especially the Dutch. Indeed, America’s trade with the Dutch increased faster than with any other country. And despite being out of the Empire, we still traded with the British. The importation of British manufactured goods and finished products rarely went down. Even during the Revolution, the importation of these things remained steady. And as Murray Rothbard reminds us, American traders went into new areas of the world. For example, American trade with Canton and China was opened up under the articles of Confederation. We exported ginseng and got tea in return.
Just as foreign trade flourished in some sectors but declined in others, the foreign trade of some States increased while the foreign trade faltered in other States, specifically those that traditionally had been tied to mercantilism. New England, for example, suffered overall in terms of its agriculture, the whaling industry, ship-building, and fisheries, because those colonies had depended heavily upon the British Navy and the British West Indies. But States from Pennsylvania south to the Carolinas benefited overall as their seaport towns grew and gradually recovered from the wartime depression. The exception to this prosperity was Charleston. Charleston in 1775 was the wealthiest city in North America. (And I forget, but if memory serves, it may have been the wealthiest city in the Western Hemisphere. I’m not quite sure about that, so don’t quote me on that one). During the Revolution and under the Confederation, Charleston was surpassed by New York City and Philadelphia. But this signifies something. It signifies that New York City and Philadelphia were prospering. Foreign investment flowed into the country from France and Holland and the slave trade resumed from the Caribbean. Contrary to popular opinion, the United States never reneged on its financial obligations to Holland. We always paid our interest on any loans we got from the Dutch. Now, France was a little different matter. We might have reneged on one or two loans there, but for the most part, the French were happy. I mean, they were bankrupt, too.
American manufacturing soared under the Confederation, especially in Pennsylvania where the first factories were being constructed. (By the way, we’re often told that the first factories were in New England. It’s not true. The first factories were in Pennsylvania). Western lands were open to settlement and freed from the feudal vestiges common on the Eastern seaboard, people were guaranteed more property rights under the Confederation, and property rights overall were stronger than they were before the Revolution. New careers were open to advancement based on merit, not one’s connection to the British government. And finally, because political power was diffused, Americans could settle in those States where opportunities were greatest. It’s often said that the economy was weak during the 80’s because the States erected tariff barriers among themselves and trading connections were stifled. That simply was not true. It is the case that State governments raised tariff barriers. Virtually every State constitution exempted citizens of other States from paying those duties. So, you’ve got to look close as to what’s actually going on. They’re not really paying those tariff duties if they’re from another State.
Before I finish painting such a glowing picture of life under the Confederation, there is one glaring flaw. There’s one major problem. The monetary system was in shambles. Americans suffered under the worst rates of inflation during the 1770’s and 1780’s than ever in our history (the only exception being Southerners during the Civil War). In explaining the failure of the monetary system, I’m going to introduce the first of three reasons why the Articles were dissolved. The first reason is the bankruptcy of the Confederation government. The second reason is the aftermath of tax revolts that took place in New England and in South Carolina in 1786 and 1787. These revolts are normally labeled Shay’s Rebellion, but they’re actually taking place all over the country at that period of time. The third reason is because of the extensive dissatisfaction with the Confederation, because it was too centralized, not because it was too weak.
Before I go into the bankruptcy of the Confederation, I think it’s important to address something of a mistake that is common among Americans. If I were to ask a group of people: “What’s the most important thing that a government can do in regulating its economy?” Most people would probably say, “Oh, it’s taxation,” or maybe, “It’s regulation, telling people what they can build or what they can’t build, that sort of thing.” Those things are important, but the strongest thing, the most influential thing that a government can do to shape its economy is to control the value of money, to control the monetary system. I would argue the single greatest thing that a modern state does is controlling the value of money. What we see in the history of the Confederation is the failure of a monetary system to sustain itself. This put into motion a series of events that worked to undermine the claims of the nationalists, and it very nearly gave us a government very different from what we live under today.
Now, let me explain why this took place. Why was the monetary system in such bad shape? One of the most fateful decisions made by the Continental Congress (and this in 1775) was to fight the British using a conventional standing army rather than rely on the militias. The problem was that a conventional army was a very expensive thing. Militias were cheap. Militiamen were largely responsible for their own supplies. They were responsible for their own weapons. They fought for short periods of time and they stayed near their homes. They might camp out, and they’d go back and stay with their wives for a few weeks. You didn’t have to house them all the time. Nation-states also have a very difficult time defeating this kind of force without destroying the very population that that nation-state wants to control, because in this kind of militia, unconventional warfare, these people go back and blend in with their communities and their inhabitants. Well, how do you tell the difference between a Patriot and a Loyalist? You can’t. You could shoot them both, but that’s self-defeating. What good is it to go and actually fight and try and conquer a group of people if you have to kill most of them in order to do so? But that’s not how the Continental Congress wanted to fight. And most of the country’s problems, I think, stem from the decision of Congress to raise the Continental Army. And the problem is that Congress didn’t have enough money to pay for the Continental Army. So, out of both desperation and what I’m sure many members of Congress must have thought was sound reasoning, Congress decided to invent what it did not have. It started the printing press, and once the printing presses began, it was nearly impossible to stop them. In the first year alone (1775) Congress issued $12 million in continental currency. $12 million. This is on top of a money supply in early 1775 of only $6 million in specie, whether it’s gold or silver. So, you’ve got a monetary base of $6 million, and then Congress issues, continental currency of $12 million. So, the money supply of the country in 1775 alone is tripled. Wasn’t that great?
Oh, it gets better. By the war’s end, Congress had issued $235 million in continental currency. And when you add to this the paper money of the States and all the various debt instruments that Congress issued, it gets even better. Congress issued loan certificates, and these loan certificates were pretty much like bearer bonds. They would (supposedly) pay interest in addition to (supposedly) paying face value of the note. Congress also issued IOUs. Supply officers could go to farms and then issue a sheet of paper in exchange for what they took. “I owe you, George Washington, $20,” something like that. So, all of these things were used, all of these things circulated as money and the States did the same thing. When we add all of this together, the total money supply of the country increased 50-fold to almost $600 million. The natural result of this increase was runaway inflation, which climbed to a rate of 140% between 1775 and 1780. Sounds like South American statistics! It has been to argued that financial mismanagement did more to harm Americans and undermine the war effort than anything the British did. One thing is certain: although this poignant example of centralized power inflicted great harm, advocates of decentralization were blamed for it. From 1780 to 1781 nationalists were able to gain control of the continental Congress and several state governments on the claim that localists were causing all the trouble. They did this by claiming that it was local attachments causing all of America’s problems. “You won’t send us any money. You won’t fight the war. You won’t impose price controls.” Once in control of Congress, nationalists led by James Dwayne of New York pushed through a reform of the Articles just after they were ratified. These reforms greatly centralized the political power of the government and created a plural executive based on departments. The most powerful department, that of finance, was placed under the control of the country’s arch-nationalist, Robert Morris of Pennsylvania. Morris went so far as to put conditions on Congress, if he was going to accept this appointment. He told them: “Look, okay, I’ll accept it, but you gotta do this, this, and this.” Among these conditions were giving Morris the ability to hire and fire anyone employed by the Confederation government. Morris had the ability to sign any piece of paper and make it official currency. His stationary was actually used as currency because he would say: “Alright, here’s $20. Signed, Robert Morris.” These were called Morris Notes. It’s the goal, I think, of every centralizer to have money named after them. By the end of the year 1781, Robert Morris controlled the Confederation government. He conducted foreign policy. He handled the war effort. He handled all contracts. No man in American history ever exerted as much power as Robert Morris. Lincoln did not. Wilson did not. Roosevelt did not. All three of those men still had to rely on agents to fulfill their will. Morris didn’t. He just did it. So much for the Articles being a weak government!
One of the first things that Morris did was create a quasi-central bank for organizing control over the country’s debt and currency. This was called the Bank of North America. The Bank of North America was the first commercial bank in American history and it operated on what is called a fractional reserve basis. What does that mean? Fractional reserve means that the Bank issued more notes than it actually had specie to cover those notes. So, it may have $10 million of specie, gold and silver, but it would actually issue notes of $20 million. People preferred paper notes because who’d want to carry around twenty pounds of gold to go to the grocery store or something like that? Paper was much easier to use, but it issued far more. That’s what fractional reserve is all about. This artificially created more money in the economy. It increased the money supply. Now, it didn’t increase the money supply as much as happened in 1775 to 1780, but it did increase it enough that there was significant inflation. What Robert Morris wanted the Bank of North America to do was to forge a strong relationship between the central government and the country’s wealthy elite. He wanted to keep the country on an inflationary basis, just not as much. He didn’t want 140% inflation rates, but 10% would be okay. And he wanted to ensure that his friends got first use of that money because it still actually retains its value for the people who use it first. It’s only after it floats around the economy for a while that it’s been depreciated. If you can print a bunch of money and then spend it really quickly before prices adjust to the devaluation (i.e. the increased amount of money), you can make a pretty penny.
As powerful as he was, Morris faced a major obstacle to his nationalist goals. In an effort to keep some grasp on the depreciating continental currency, (remember the 140% inflation rates) in 1780, the Continental Congress suspended the old debt. These are called old loan certificates and in 1780, it issued what are called new loan certificates. So, we have old loan certificates and new loan certificates. This is good. They did not pay the old loan certificates back at face value. They paid them back at market value, which was substantially less than face value. Now, remember, this is a market price. It’s not a fair price, right? But it’s a market price, because if it was going to be a fair price, we have to decide who’s it gonna be fair for. The people who hold it? Well, they want as much money as they can possibly get. Or the people who have to pay the taxes to buy back the loans certificates? Those people who owned the old certificates did get more money than they had invested in the certificates. They got a return, but they didn’t get as much as they wanted. The rest of the country didn’t have to pay the burdensome taxes to finance that old loan certificate issue at face value. Now, this did not mean that all national and State debts were eradicated. Far from it. Everybody was still in debt. There was still considerable debt in the economy and these debt certificates traded as money. Now, the chief goal of the nationalist men like Robert Morris was to keep that debt alive and prevent the country from returning to a system of hard currency. If they could keep the debt alive, you would still have something like a paper currency, you would still be able to have plenty of inflation, and inflation can be manipulated to make people money. But if the debt was ever paid off, America would go back to a specie standard, and that would limit what Morris and his cronies could do with the Confederation government. Remember, the Confederation couldn’t tax people directly. Why tax people when you can inflate? Why tax people when you can just print the money you want? It’s a great idea if you’re at the top and profiting by the indirect theft that is currency devaluation.
So, Morris wants to keep that debt alive, and in order to do that, he’s gotta do two things. First, he’s gotta make sure that the bulk of the debt remains in the hands of the national government. Ideally, he wanted to get the State governments to surrender their debts to the national government. So far as Morris is concerned, the more debt the national government controls, the better. Second, Morris wanted the States to surrender their taxation privileges. Inflation can only go so far. So, if we’re gonna keep this debt alive, we’ve gotta actually feign that we’re paying it off somewhat. So, we’ve gotta get some taxation powers, and what they propose to do is to give a tariff power to Congress. Both issues, keeping the debt national and giving Congress taxing powers, would be scuttled if that debt is paid off. So, Morris can’t let that happen. He devised a plan. He was convinced that the problem lay with the State governments. So, what he decided to do was to discredit the State governments in the eyes of the public. He and other nationalists spread alarm throughout the country that public debt was a great evil – the public debt they had created. The next step after spreading alarm was to increase pressure on all those recalcitrant State governments, to make sure the State governments surrendered their control over their debts and their monopoly on taxation. To do this (and this is brilliant), in 1782, Robert Morris suspended interest payments to domestic holders of the national debt. He quits paying them off. So here you have all these public creditors who are no longer getting their interest payments. Morris claimed that the government was out of money. They were not out of money, and he hid that fact. Morris lied. Robert Morris did this arbitrarily. He suspended interest payments because he hoped that these debt holders would be so alarmed by not getting their money, that they would convince their state government officials to give Congress a taxing power in the form of the ability to raise tariffs. Morris also decided to suspend pension payments to revolutionary veterans. So, we’ve got public debt holders and we’ve got all the soldiers, and by Morris’s order, none of them are getting paid, and thanks to Morris’s smear campaigns, everybody is angry at the State governments.
The next step in Morris’s plan was the creation of a national tariff, which nationalists said would bring unity and save the country. Every State agreed to an amendment to the Articles of Confederation granting Congress a tariff. Every State except little-bitty Rhode Island. Angry at Rhode Island’s stubbornness, Robert Morris sent teams of Congressmen to Rhode Island to lobby the State legislature. The press vilified Rhode Island: “This little-bitty place out in the middle of nowhere! Who cares about Rhode Island? Let’s conquer them!” Rhode Island nearly relented. They were debating the tariff bill and it looked like Morris was going to win until out of nowhere appeared one of the unsung heroes of the Confederation Period, a man by the name of David Howell. David Howell was a staunch libertarian and he ran a one-man crusade against the tariff. He even revealed what Morris had kept secret – the United States had just gotten a loan from France. We were no longer bankrupt, but Congress had voted to keep this information secret. Howell revealed it. And guess what they did to Howell? They threw him in jail! But even from prison, Howell continued his crusade against the tariff, and he was successful in getting Rhode Island to postpone consideration of the tariff amendment. Then tragedy struck the nationalist movement because in December of 1782, the Virginia Assembly (now that the threat of war was over and people were returning to their senses) decided to rescind their approval of the tariff amendment. And so, the tariff movement died in 1782. But it was only a momentary defeat. However, the defeat of the tariff was enough to drive many nationalists out of office, including Robert Morris. Unfortunately, localists and libertarians who gained control of the Confederation in 1783 were blamed for the depression of 1784, a depression whose chief cause was Robert Morris and the Bank of North America’s inflationary schemes. There was an unsustainable boom beginning in 1780-1782, and then came the inevitable crash by 1784. Nationalists took advantage of this situation to place all blame on their opponents and they continued to clamor for a tariff. Once the depression occurred, people began clamoring for some kind of relief. State governments relented to this pressure and commenced issuing their own paper currency. So, you have still have a few Continental dollars around, you have the new loan certificates circulating, you have Bank of North America notes circulating, and now on top of all the rest of that, you’ve got State government notes, circulating. Inflation rates increased rapidly and taxation became more burdensome. The problem was not decentralization. The problem was the consolidation of political power so that governments have control over money. The expansion of paper currency drove hard money out of the economy. Gresham’s Law went into operation. Specie disappeared and this evacuation of specie eventually bankrupted the Confederation. So yes, it did eventually become bankrupt, but it was bankrupt because the specie was pretty much gone and nobody accepted its paper anymore.
Now, here’s the fun part of the story. Morris’s nationalist policies began to backfire at this point, 1784, 1785, and into 1786. Remember all those people who were lobbying State governments, telling governing officials to give the Confederation more power? Well, once the tariff movement lost out, those people (public creditors, etc.) finally went to their State officials and said, “Why don’t you pay me?” And State governments said, “Okay, we’ll do it.” The State governments began servicing the national debt. By 1786, Pennsylvania, Massachusetts, and New York were making interest payments. Those three States alone were making interest payments on one-half of the Federal debt. By early 1787, the legislature of Virginia was considering payment of principle of the Federal debt, not just servicing the interest, but actually commencing paying it off. It’s over for the nationalists. They have lost. They are about to lose the debt. People are saying, “Let’s get rid of the debt.” Yes, the Confederation was bankrupt, but the bankruptcy of the Confederation did not mean that the country as a whole was bankrupt. It did not mean the States had no money or that the economy was collapsing. Only the nationalists thought the world was coming to an end. The rest of the country welcomed this return to a truly decentralized form of political economy.
The second reason the Articles were dissolved explains why the nationalists –though it appeared that they were defeated– were finally able to gain victory and get a new constitution. By the fall of 1786, nationalist enthusiasm was at an all-time low. They had lost their economic agenda as the States not only took over the national debt, but now the States were determined to pay that debt off. It would’ve been over completely had a small rebellion not broken out in Western Massachusetts and then spilled over into several other New England States. Even that might not have been enough had they not occurred simultaneously with another small tax revolt in South Carolina. New England did not leave the Revolution as financially stable as it had entered the Revolution. New Englanders really did suffer after the Revolution, there’s no question about that. They had lost valuable trading connections with the British Empire, their shipping was down, their agriculture was down. New Englanders also suffered during the unsustainable boom and inevitable bust of early 1780s. When the bust came in 1784, many poor New Englanders were left with overvalued land. People’s overpriced land was assessed for taxation during the boom period. When the bust came, those land prices crashed. But some State governments insisted on assessing the land at the boom-era value, thereby sticking land-owners with exorbitant tax bills. The Massachusetts legislature was in the hands of public creditors. Unlike most other State governments, the public creditors who controlled Massachusetts insisted that their debts be paid off at face value, not at market value. They’re one of the few states that did this. Other States like Virginia, for example, paid it off at market value. It would’ve been difficult for a sheriff in Virginia to go and confiscate somebody’s farm. You know, here comes the sheriff to take your farm for nonpayment of taxes, and he’s met with a with a musket. So, the sheriff decides, “Okay, I’ll come back tomorrow.” And this keeps repeating itself for a few months until eventually the farmer has some money, but he’s clearly not gonna have enough money to pay that debt off at face value.
To pay off public creditors as quickly as possible, the State of Massachusetts levied very high taxes, and many people in the depressed agricultural areas could not afford to pay these taxes, nor did they have any specie to pay them. So, courts imposed fines on farmers for neglecting to pay their taxes and they eventually foreclosed on their farms. So, we have a tax revolt, and this tax revolt is going to gradually mutate into open rebellion after the Massachusetts leadership refused to grant any kind of relief. On October 23rd, 1786, future U.S. Secretary of War Henry Knox wrote the following in a letter to George Washington:
“Our political machine constituted of thirteen independent sovereignties, have been constantly operating against each other, and against the federal head, ever since the peace—The powers of Congress are utterly inadequate to preserve the balance between the respective States, and oblige them to do those things which are essential to their own welfare, and for the general good. The human mind in the local legislatures seems to be exerted, to prevent the federal constitution from having any beneficial effects. The machine works inversly to the public good in all its parts. Not only is State, against State, and all against the federal head, but the States within themselves possess the name only without having the essential concomitant of government, the power of preserving the peace; the protection of the liberty and property of the citizens.
On the first impression of Faction and licentiousness the fine theoretic government of Massachusetts has given way, and its laws arrested and trampled under foot… The numbers of these people may amount in Massachusetts to about one fifth part of several populous counties, and to them may be collected, people of similar sentiments, from the States of Rhode Island, Connecticut and New Hampshire so as to constitute a body of 12 or 15000 desperate & unprincipled men…Having proceeded to this length for which they are now ripe, we shall have a formidable rebellion against reason, the principles of all government, and the very name of liberty.”
This aptly sums up the nationalist response to the tax revolts in New England and similar revolts taking place in the South. There’s just one problem. It was a lie. It was all a lie. Never at one time did the rebels amount to more than 1,500 people. Few people were killed. The fact that the insurgents wore their old Continental Army uniforms never made Henry Knox pause and think about their demands or question what he called treachery. George Washington (who history will never remember as being brilliant) dashed off a series of letters to public officials around the country. He insisted that the country had gone mad and that if something was not done to strengthen the Confederation, then all would be lost. Congress attempted to raise troops to send to Massachusetts and they did do so. They did get an army together and the army got to Massachusetts to put down the rebellion. By the time they arrived, all the rebels had already gone home. It wasn’t there. They looked for it, but they couldn’t find it. But nationalists took advantage of the opportunity to arouse public attention to the Articles’ defects, and what was really a problem of too much government and the unwillingness to resist nationalist financial demands was turned into an indictment of diffused power and local attachments.
This brings us to the third and final reason for the Articles’ demise. In January of 1787, Congress debated and agreed to call a convention in order to propose reforming the Articles, not creating a new constitution, just reforming the Articles. However, it mattered little that delegates to the Philadelphia Convention exceeded their mandate. Public appreciation for the Articles of Confederation had already plummeted. Americans were disillusioned. They were disaffected with a Confederation and ready for a change, but it is a great mistake –one that Federalists learned by late 1787 and one which I think historians have still failed to learn– it’s a mistake to assume that dissatisfaction with the Articles rested on an embrace of centralizing power. It is quite possible that the bulk of the country supported plans to change the Articles of Confederation because they hoped to weaken them. Perhaps it may just have been thought that by giving Congress its own source of revenue, the financial crimes of the a past could be swept away. Perhaps by giving Congress the source of its own revenue, we would finally pay off the debt. We finally get rid of it and we would finally have no need for a more centralized government. Perhaps without constant financial crises, there would be no longer any need for the shenanigans of Robert Morris and company. We may never know exactly what was on the public mind in the Spring and Summer of 1787 when nationalists took over the Philadelphia Convention. But what we do know is that once the nationalists produced a document in July of 1776, the bulk of the population, or at least a significant part of the population, rejected that document. Only after promises were made to significantly reduce the power of the central government with a Bill of Rights were enough votes mustered to ratify it. Now, let me close with this. It is true that nationalists ultimately won in 1787. They opened a Pandora’s box whose consolidating tendencies seem to have no end. However, we must remember that every modern state has an Achilles heel. It must have money. It cannot go on forever without sustainable revenue, and the lessons of central governments, whether these central governments be the final days of the French monarchy under the Louis XVI, whether they be the Republican administrations in the 1860’s in the United States, whether they be the Confederation in the 1780’s, the Weimar Republic, or even the Communist states in the late 20th century, the lesson is this: They carry with them the seeds of their own destruction. And just to make sure things are never completely lost, there will always Providentially appear on the scene a man like David Howell of Rhode Island, a man who will speak for Liberty. Thank you.