Front and Center Vol. 2 No 5 May 2023

During our war for independence from Britain, states printed significant quantities of paper money, that is notes not backed by gold or silver, and this inflation of the money supply caused soaring prices that in turn created serious and painful economic panics (as depressions were called then). Perhaps the biggest offender in this regard was Rhode Island, and that state’s leaders were determined to keep printing. This was among Rhode Island’s prime objections to the Constitution.

Under the Articles of Confederation, the general government (so-called because it had only a few general responsibilities) had no original taxing power. The Articles created a “requisition system” beloved by federalists like Patrick Henry of Virginia and hated by nationalists like Alexander Hamilton and Gouverneur Morris, both of New York. The general government consisted simply of a unicameral Congress: no senate, no executive, no court. It could act on none of its delegated responsibilities without the prior approval of nine states. Importantly, in order to acquire funds to carry out its duties, the Congress had to send requisitions for payments to each state that were based on a formula prescribed in the Articles. However, compliance was up to each state, so if a state failed adequately to comply, which many did, Congress had no power of enforcement.

Arguments for a new constitution emerged almost as soon as the Articles went into force in 1781. Prominent among them was the assertion that the requisition system made it impossible for the legislature to raise the money needed adequately to fund the Continental Army during the War for Independence. This likely was true, but we should take note of the argument advanced by many historians that the war was won by the state militias, not the Continental Army. Perhaps the heaviest fighting of the War took place in South Carolina where the militia acquitted itself with courage and lethality. But there were other problems with the Articles in the minds of the nationalists. With no original taxing power, the general government could not impose protectionist tariffs on goods imported into the country. This was an unbearable restriction to the merchants and emerging manufacturers of the North, especially New England, who wanted high tariffs in order to protect their nascent industries from competition with European producers, and to provide them with seed money believed to be important to growing their economies.

Among the powers the nationalists most wanted was authority to charter corporations which would permit them to establish a national bank. With a bank of its own, however structured, the general government would be free to grow at its ease since it would have the ability to raise its own money, regulate the money supply, and regulate the expansion of credit (as the Federal Reserve System does today). In short, what the nationalists wanted, and the federalists adamantly did not want, was an American version of the British state established here under American control. The federalists reminded the nationalists that they had seceded from the British Empire in order to escape the abuses of a unitary national state with few enforceable limits on its power.

The federalists knew what the nationalists were up to, and any lingering doubt they might have had was dispelled when the nationalists began calling themselves “federalists,” which they were not, but the term was very popular among Americans, and took to calling the federalists “anti-federalists.” Why, then, would the federalists negotiate with and compromise with the nationalists? Union. The nationalists were growing increasingly angry and insistent in their demands to “reform” the Articles of Confederation, and the concern was that without some kind of compromise, the union would break up and the uncertainty to follow would be very dangerous to the security and the liberty of the states.

The Constitution that came out of Philadelphia was not what the nationalists wanted (Alexander Hamilton condemned the Constitution as “a frail and worthless fabric”), but it gave them enough to build on. The nationalists got a chief executive in whom power could be consolidated, they got a Supreme Court, they got the power to levy protectionist tariffs, and they got a path to establishing a national bank. And the rest is history.