America's first form of government was under the Articles of Confederation. The Articles of Confederation was written after the Revolutionary War, compiled of ideas by the Continental Congress. Under the Articles of Confederation its powers included conducting foreign relations, settling disputes between states, controlling maritime affairs, regulating Indian trade, and valuing state and national coinage. It purposely did not give the national government all the power in fear of tyranny like in Britain. In the end, the Articles of Confederation proved to be both inadequate in economic conditions and foreign relations.
Under the Articles of Confederation the national government was not allowed to raise revenue to finance the war and other essential needs that a country need money for. The state governments had control of taxing the American people but many were unwilling to do so. So to try and finance the war the government and the states started to print currency.
The Articles of Conferderation, ratified in 1781. ...
Act of Maryland legislature to ratify Articles of ...
The Articles of Confederation, ratified in 1781. T...Although the currency was just paper and not backed by anything it was given out freely without excessive downgrading during 1775 to 1776. As 1776 went on the demand for both military supplies and civilian goods began to increase as the war progressed. America also encouraged trade and local production between the states. As the end of 1776 was approaching, the armies suffered reverses in both New York and New Jersey causing the prices to rise and inflation to finally set in. The state governments tried to fight inflation by taking control of wages and prices, and accepting paper money equal to hard money. They would also borrow funds, establish lotteries and even levy taxes to try and stop inflation. Their efforts were useless, though Congress attempted to stop printing currency altogether, they relied solely on money contributed by the states. By 1780, currency was worthless.