Articles of Confederation - Business in United States of America
Identification: First constitution of the United States
Date: Ratified on March 1, 1781
Significance: The Articles of Confederation created an extremely weak central government, leaving each state in control of its own trade, taxation, and currency. The failure of this system led the states to produce a new constitution that centralized economic and trade powers in the new federal government.
The Articles of Confederation and Perpetual Union—a “league of friendship” among the former colonies—were adopted by the Second Continental Congress on November 15, 1777, and went into effect on March 1, 1781, following state ratification. The Articles, which reflected the former colonists’ distrust of a strong central government, created a confederation in which each state retained its “sovereignty, freedom, and independence.” The national government consisted of a one-house Congress with no independent executive or judiciary. Congress had few powers: It could make peace and war, coin money, and negotiate treaties, but little else. Most important, coining money and negotiating treaties were not its exclusive province, as the states were free to do so as well. This proved to be the chief weakness of the government.
Published copy of the Articles of Confederation. (Hulton Archive/Getty Images)
The Articles contributed to political and economic near disaster. Because all important proposals required support from two-thirds of the states, any five states could prevent action. While the national government could coin money, it had no resources to back up the value of its currency. Congress could ask, but not compel, the states to pay taxes, leading to perpetual bankruptcy. The national government lacked the authority to regulate commerce, resulting in limited foreign trade and many commercial disputes among the states. Finally, because the Articles did not prohibit states from printing their own money, which was often unsupported by gold or silver, the new nation’s economy produced rampant inflation, angry creditors, and public rebellions.
The economic problems created by the Confederation contributed to the impetus for constitutional reform. The Articles were replaced by the U.S. Constitution on June 21, 1788.
See also: Annapolis Convention; First Bank of the United States; banking; Land laws; U.S. Mint; Revolutionary War; Shays’s Rebellion; George Washington.
Currency: Revolutionary War and Confederation
Shays’s Rebellion
First Bank of the United States
Annapolis Convention