America’s first form of government was under the Articles of Confederation. The Articles of Confederation was written after the Revolutionary War, compiled of ideas by the Continental Congress. Under the Articles of Confederation its powers included conducting foreign relations, settling disputes between states, controlling maritime affairs, regulating Indian trade, and valuing state and national coinage. It purposely did not give the national government all the power in fear of tyranny like in Britain. In the end, the Articles of Confederation proved to be both inadequate in economic conditions and foreign relations.
Under the Articles of Confederation the national government was not allowed to raise revenue to finance the war and other essential needs that a country need money for. The state governments had control of taxing the American people but many were unwilling to do so. So to try and finance the war the government and the states started to print currency. Although the currency was just paper and not backed by anything it was given out freely without excessive downgrading during 1775 to 1776.
As 1776 went on the demand for both military supplies and civilian goods began to increase as the war progressed. America also encouraged trade and local production between the states. As the end of 1776 was approaching, the armies suffered reverses in both New York and New Jersey causing the prices to rise and inflation to finally set in. The state governments tried to fight inflation by taking control of wages and prices, and accepting paper money equal to hard money.
They would also borrow funds, establish lotteries and even levy taxes to try and stop inflation. Their efforts were useless, though Congress attempted to stop printing currency altogether, they relied solely on money contributed by the states. By 1780, currency was worthless. Congressmen started to take action by establishing a department of finance with help from Robert Morris, a wealthy Philadelphia merchant. The government then asked the states to amend the Articles of Confederation and allow the Congress to levy duty of 5% on imported goods. Robert Morris had put national finances on stable balance, but the customs that Congress asked for were never adopted. The states’ had resisted in fear that the central government would become too powerful.
As the war was ending Congress had to face major diplomatic problems. In the Articles of Confederation Article 4 had promised repayment of prewar debts, most of which were owed to by Americans to British merchants. In Article 5 it stated that states should allow loyalists to recover their confiscated property, which aroused considerable opposition. The state governments passed lass that denied the British subjects the right to sue for the recovery of property or debts in American courts. Since Congress had no power under the Articles of Confederation to overturn the decision, many loyalists were unable to get back what had rightfully been theirs to begin with. With this decision it gave the British an excuse to main their military posts on the Great Lakes long after when troops were supposed to have withdrawn.
This had showed Congress weakness in the area of trade because the Articles of Confederation denied power to establish a national commercial policy. Right after the war had ended, Britain, France and Spain limited American trade with the colonies. The Americans were outraged but were unable to do anything about it. They thought that after the war, their independence would bring about trade with all nations. Members of the Congress, watched as British manufactured goods started to flood the states, while American produce could no longer be sold in British West Indies, once its prime market of trade.
In the areas of finance, overseas trade and foreign affairs the Articles of Confederation were obviously inadequate. Congress was not allowed to levy taxes, nor was it able to impose its will on the states to establish a commercial policy. The Articles of Confederation, led the economy into a depression. The Continental Congress gave little power under the Articles of Confederation to the central government in fear of tyranny. In the end it only proved that too little power is not sufficient in controlling both economic conditions and foreign relations.