Why was a soaring trade deficit with Great Britain a serious problem after the end of the Revolution? What solutions did the national and state governments propose?
What will be an ideal response?
The ideal answer should include:
- Inflation: origins in the Revolution; resulted from a combination of shortage of goods caused by British blockade, demand for supplies by army and militias, and flood of paper currency issued by Confederation Congress and the states
- Economic chaos and depression: British merchants dumped manufactured goods in American markets with easy terms of credit; trade deficit grew because of reduction of exportable goods due to Revolution; left country with little silver or gold coin in circulation; banks insisted on repayment of old loans and refused to issue new ones; prices fell by 25 percent in two years
- Political problems: national and state governments owed creditors over $75 million; Congress unable to raise taxes on its own and had to requisition the states for debt repayment funds
- Solutions: legal tender laws required creditors to accept a state's paper currency for all debts, public and private; Rhode Island currency law-paper money supply was greater in relation to the population and was declared legal tender; creditors who refused to accept it meant that debtors could satisfy their obligation by depositing currency with a county judge who then advertised the debt as paid; states enacted high tariff barriers to curb imports and protect domestic industries, but tariffs avoided by unloading cargo in states without tariffs; showed the necessity of regulating commerce at the national level
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