First Report On The Public Credit - Government Debt Under The Articles of Confederation

Government Debt Under The Articles of Confederation

During the American Revolution, the Continental Congress, under the Articles, amassed huge war debts, but lacked the power to service these obligations through taxation or duties on imports. As an expedient, the revolutionary government resorted to printing money and bills of credit, but this currency rapidly underwent depreciation. To avoid bankruptcy, the Continental Congress eliminated $195 million of its $200 million debt by fiat. In post-war years, Continental currency - "Continentals" - would be deemed worthless.

With its finances in disarray, the legislature abdicated its fiscal responsibilities, shifting them to the thirteen states. When the state legislatures failed to meet quotas for war materiel through local taxation, the patriot armies turned to confiscating supplies from farmers and tradesmen, compensating them with IOU’s of uncertain value. By the end of the war, over $90 million in state debt was outstanding. . Much of the state and national fiscal disorder, exacerbated by an economic crisis in urban commercial centers, remained unresolved at the time the Report was issued.