Continental Army, Continental Congress, Inflation, Wage & Price Controls, Paper Money, Specie, IOUs, Impressment and Repudiation

Posted by PITHOCRATES - May 3rd, 2012

Politics 101

The Articles of Confederation made the United States of America a Confederacy of Sovereign States that had Little Power to Raise Revenue

By the time the Continental Army left Valley Forge they could hold their own against the British Army.  The British couldn’t push them around any longer.  They became so good that they fought the war to a standstill.  They came close to some major wins on the field of battle.  But close didn’t diminish the staying power of the British Army.  And they stayed.  On the battlefield.  And in their cities.  Dragging the conflict out for a total of 8 years.  And no matter what era of warfare you use to measure war-years 8 years of war is very costly.  Someone has to pay for it.  And, ultimately, it’s the people.  Either through taxation.  Or the loss of wealth through inflation.  Or simply the loss of wealth through the losing of your stuff.  And going without.  Because the army fighting for your liberty had no choice but to take what was yours.

This made the Revolutionary War unlike other wars.  For this war was about liberty.  Property rights.  The tyranny of a distant power.  And unjust taxation.  In other words this war was against all the things that made fighting a war possible.  You can’t really draft men to fight in a country that stands for liberty.  You just can’t confiscate the things you need to wage war from your people in a country built upon the principle of property rights.  You can’t declare martial law and suspend the rule of law on people you deem not to be patriotic enough in supporting the cause when you’re fighting the tyranny of a distant power that does.  (Even the Americans gave British soldiers a fair trial for the Boston Massacre).  And taxes?  The people that dumped tea into Boston Harbor over the principle of no taxation for revenue purposes without representation in Parliament was not going to be able to tax their people on a federal level.  Which proved a big obstacle in paying for the war to win their liberty.

The Articles of Confederation made the United States of America a confederacy of sovereign states.  And those sovereign states held the real power.  Virginia.  Massachusetts.  Pennsylvania.  New York.  And the other 9 sovereign states.  Not the United States of America.  That confederation that was waging war against the mightiest power in the world.  Which made raising funds difficult.  For without the power to levy taxes all they could do was ask.  Just like George Washington did all of the time.  Especially during that horrible winter at Valley Forge when his army was naked and starving.  He asked the Continental Congress for provisions.  And the Continental Congress asked the several states for their apportioned funds raised by their state legislatures.  Per the Articles of Confederation.  If they didn’t pay these funds timely or in full (or at all) they could ask again.  And that’s all they could do.  Which is why George Washington’s army suffered through that horrible winter.  Because the funds weren’t there to buy Washington the provisions his army needed.

Thanks to Inflation the Continental Army often had No Choice but to Take what they Needed from the People they were Fighting For 

The Americans never had enough money.  Which makes it amazing that they held off losing for 8 years.  Eight very costly years.  And won.  Especially considering how bad the economy was during the war.  Unable to tax or get sufficient loans from Europe they had little choice but to print money.  Which caused a whole lot of trouble.  For the more money they printed and put into circulation the more the value of their currency fell.  And soon a Continental was “not worth a Continental.”  And when the currency lost its value it took more of it to buy things.  Which led to price inflation.  The price of material and parts grew so high that it increased the cost of American manufactured muskets over the cost of imported French muskets.  Which they had to bring in through a British blockade.  Giving what should have been a cost advantage to the Americans.  Had it not been for the inflation.

To try and keep prices under control they implemented wage and price controls.  Which didn’t work.  The continued devaluation of the currency forced sellers to raise their prices to cover their rising costs.  Forcing them to sell below their costs would just put them out of business.  Voluntarily.  Or involuntarily.  Creating shortages in the market place.  Some offered lower prices for specie (gold and silver coins).  You can’t print hard money (specie).  So it held its value.  Unlike the paper money.  So a little of specie went a long way compared to paper money.  Of course, this didn’t help their wage and price controls.  It just made the paper more worthless.  And raised prices further.

There was yet another ugly side to this sordid business.  High prices and shortages created opportunity to profit handsomely.  There was speculation and market manipulation (hoarding, cornering the market, etc.) to take advantage of those highly priced items that were in scare supply.  Further raising prices for the people.  And compounding the problems of provisioning the army.  Which infuriated the low-paid soldiers.  Who the Continental Congress paid in that worthless paper money.  Angry mobs arose to address this profiteering.  As well as new laws and enforcement.  But they helped little.  The army often had no choice but to take what they needed from the people they were fighting for.  Either outright.  Or in exchange for IOUs.   Promises that the Continental Congress of the United States of America would make good on.  Just as soon as the several states paid their apportioned funds raised by their state legislatures. 

If you Violate the Ideals you’re Fighting for while Fighting for those Ideals it can Complicate the Peace

Fighting for an ideal makes war complicated.  If you’re just a tyrannical dictator looking to rape and pillage it makes things easier.  You don’t have to worry about liberty.  Property rights.  Debt.  Or taxes.  In the short term.  Or the long term.  Which made the American Revolutionary War a very difficult war to fight.  Because at the heart of the United States of America were those ideals.  To win this war to grant liberty to the people required taking their liberty away.  A little.  To win this war to guarantee property rights you had to violate property rights.  A little.  To win this war against tyranny you had to use excessive force against your people.  A little.  To win this war to establish taxation only with representation caused the destruction or personal wealth.  A lot.  Through impressment (taking things from the people).  Borrowing from foreign countries.  Or through inflation.

When the French joined the Americans in 1778 inflation was already out of control.  They printed twice as many Continentals in 1778 as they did in the last three years combined.  And there was serious discussion about doing the unthinkable.  Repudiation.  To simply escape the inflation by escaping the currency.  To retire the bills from circulation.  At a fraction of their value.  And that’s what they did in 1780.  Issuing new currency based on specie for the old currency at a 40 to one ratio.  The states were to tax their people to raise the funds for the new currency.  So the people took a huge short-term loss.  For a stable long-term future.  Based on specie.  That they couldn’t inflate.  This hard money would come from in large part the Spanish and the French.  The Spanish in Cuba buying American flour with specie.  And French aid.  As well as their army and navy spending their hard money in the American economy.

Wars are costly.  And they are rarely nice.  Trying to make them nice can make them last longer.  Which will make them more costly.  Of course, if you violate the ideals you’re fighting for while fighting for those ideals it can complicate the peace.  Luckily, for the Americans, they won their peace.  Their allies, the French, were not so lucky in their revolution.  The French Revolution.  Fought less than a decade after the American Revolution came to a close.  And unlike the Americans the French peace that followed was a bloody one.  That would eventually replace the king they executed with an emperor.  Napoleon Bonaparte.  Who the Americans helped bring to power in part due to the crushing debt King Louis XVI incurred supporting the Americans in their revolution.

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