Financial History Issue 112 (Winter 2015) | Page 22
Debt and Democracy
Forging a More
Perfect Union
By Edward J. Larson
Library of Congress
The drive to establish a new Constitution for the United States during the
late 1780s and replace 13 sovereign states
with one energetic national union had
many sources. But perhaps none was more
important than debt. Congress and the
states had run up massive foreign and
domestic debts during the Revolutionary
War that, with peace, were falling due.
Although some states had less debt or
more resources than others, all of them
at least had the power to tax citizens and
impose tariffs to finance past debts and
fund current services. Congress did not. It
lacked the means to pay even interest on
its debt, much less repay principal.
During a period of nationalist ascendency from 1781 to 1783, Congress made
two attempts to get the general government’s fiscal house in order by passing
measures to impose a 5% duty on imported
goods. The first would have been collected
by national agents; the second, in a concession to the states, would have been
collected by state agents and transferred
to Congress. Under the Articles of Confederation, however, all 13 states needed to
approve any national tax, and neither plan
gained universal assent.
Congress was forced to rely on requisitions from the states, which often went
unpaid. In a 1786 letter to the Confederation’s brilliant but beleaguered Foreign Secretary John Jay, the then retired
but still concerned wartime Commanderin-Chief George Washington lamented,
“Requisitions are a perfect nihility where
13 sovereign, independent, disunited
20 FINANCIAL HISTORY | Winter 2015 | www.MoAF.org
George Washington full-length portrait
by Charles Willson Peale, circa 1918.