Financial History of the United States: Fiscal, Monetary, Banking, and Tariff, Including Financial Administration and State and Local Finance

By Paul Studenski; Herman E. Krooss | Go to book overview

CHAPTER 3: FINANCING THE REVOLUTION

When the Revolutionary War began, the colonies had a central government in name only. The Continental Congress was little more than a debating society or an assembly of ministers of states. It had the power to borrow money and spend it, but it could not levy taxes. It could pass resolutions, but it could not enforce them without implementation by the states. It could appeal to the states for money but could not force them to supply it, for each one of the thirteen colonies had retained its full sovereignty at the time it entered into a union for the common defense.

Congress tried to persuade the states to contribute to its treasury. When they failed to respond, it was forced to resort to the crudest method of raising funds--printing paper money. In time these paper-money issues depreciated and either were converted into a new tenor at a fraction of their value or completely disappeared from circulation as worthless money. Meanwhile, specie was circulated in the colonies by the English and the French, and a line of credit was opened to Congress in Europe, making it possible to change radically the methods of war finance. As the war progressed and assumed a more crucial character, Congress developed bolder action. After the adoption of the Articles of Confederation, it actually began to be spoken of as the "national" or "Federal" government, even though it continued to lack the most important single attribute of a government--the power of taxation. At the same time the states responded better to Federal requisitions.

The Revolutionary War, therefore, divides itself into two periods: 1775 to 1780, when paper money provided most of the funds, and 1780 to 1783, when foreign loans and requisitions on the states were the mainstay of the finances.

Organization of Fiscal Machinery . Immediately after fighting began, Congress proceeded to organize its fiscal machinery. Beginning in June, 1775, it appointed several committees, each to attend to different phases of finances, and two joint treasurers to receive and disburse money.1 In 1776, it replaced most of these committees by a single standing committee "for superintending the treasury" and dispensed with one of the two treasurers. It also established an Office of Accounts headed by an auditor general. This was the beginning of the present Treasury. But henceforth,

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One committee was to recommend financial measures; another, to supervise printing the bills of credit; a third, to number and sign them; a fourth, to prepare estimates; and a fifth, to pass on public claims.

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