America's first form of government was under the Articles of Confederation. The
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.