Depression of 1784 - Business in United States of America
The Event: Severe economic downturn resulting from low production, an insufficient hard money supply, and few opportunities to export goods
Place: United States
Significance: The Depression of 1784 helped convince the nation that the central government created by the Articles of Confederation was too weak and that a new, stronger federal government with the power to issue currency, create tariffs, and regulate commerce was essential to national prosperity.
At the end of the Revolutionary War, the United States faced serious economic problems. Farmers had lost much of their livestock and had suffered destruction of their property as armies marched across the country. They lacked money to rebuild their farms. Manufacturers who had prospered during the conflict found that their war-related products were no longer needed. Once peace was made with Great Britain, the newly free colonists evinced a preference for British goods, which were cheaper and considered to be of better quality than those made in America.
Great Britain closed the markets of the West Indies and the North Atlantic fisheries to Americans and severely limited the importation of American goods into England. There was a shortage of hard currency, which had been used to pay for imports, and an overabundance of unregulated, worthless paper money, which creditors refused to accept. Merchandise remained on merchants’ shelves, as Americans became more impoverished. This set of economic problems combined to create the depression of 1784.
During the Revolutionary War, the government had used loan-office certificates and continental certificates to pay for supplies as well as to pay soldiers and officers. These non-interest-bearing notes quickly lost their value after the war. The holders of the certificates were for the most part farmers, small businessmen, and merchants who needed cash to operate their farms and businesses. Therefore, they had little recourse but to sell their certificates at rates of ten or twenty cents on the dollar. By the mid-1780’s, the majority of these certificates were in the possession of a few wealthy speculators.
The federal government had not been able to either fund the war or pay the war debt under the Articles of Confederation. The states—which had borrowed money from individual creditors to fund the war—were by the mid-1780’s heavily taxing landowners, farmers in particular, to pay their debts. They were demanding hard money, not paper. Impoverished farmers were unable to pay and feared loss of their land. This situation resulted in Shays’s Rebellion in Massachusetts, which some historians view as a major impetus to the replacement of the Articles of Confederation by the Constitution. Once the Constitution was ratified, control of funding and repayment of the debt passed to the federal government.
Brown, Richard D. Major Problems in the Era of the American Revolution, 1760-1791: Documents and Essays. Second ed. New York: Houghton Mifflin, 1999.
Morris, Richard B. The Forging of the Union, 1781- 1789. New York: Harper & Row, 1987.
Szatmary, David P. Shay’s Rebellion: The Making of an Agrarian Insurrection. Amherst, Mass.: University of Massachusetts Press, 1984.
See also: Annapolis Convention; Constitution, United States; Depression of 1808-1809; Panic of 1819; Revolutionary War.