Postwar Depression

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Post-War Depression

Post-War Depression

When peace was declared, many American merchants took immediate advantage of the resumption of trade with Great Britain. In order to fill the large American consumer demand for British goods, they purchased goods using the easy credit that was available. Imports from Britain far outweighed exports to Britain, but American merchants were still in their pre-war mindset, expecting to be able to pay with domestic exports and profits from the West Indian and Mediterranean trade.

Unfortunately, effective demand for British goods was not as large as merchants had believed. In addition, the post-war economy was not well-equipped to produce a large supply of commodities for export, and trade with the British West Indies was forbidden in the peace treaty that ended the war. Thus, many merchants fell into debt. Worcester County, Massachusetts, for example, had twenty times more people in jail for debt than for all other crimes combined in 1786. Some American manufacturers were driven into bankruptcy. In New England and Pennsylvania, protective tariff acts were passed to protect these domestic industries. Personal debt, government debt and business failures pushed the national economy toward depression. After 1783, many Americans chose to migrate to the Western territories to escape debt and create new lives with new hope.

Continental paper currency fell out of use, largely because so much of it was printed during the war that its value fell drastically. There was not enough coined money in circulation to pay back the debt. Under the Articles of Confederation, the central government did not have authority to print dollars, or to set up a nationally-regulated system of currency. Some states intervened to compensate for the weakness of the central government. Several passed moratoria, suspending creditors' right to collect payment. Seven states—New York, New Jersey, North Carolina, South Carolina, Pennsylvania, Rhode Island, and Georgia—printed cheap paper money to augment the short supply of specie.

Debt-ridden citizens of the other states protested their states' failure to address their concerns. In Massachusetts, farmers and others had been struggling under the burden of debt. In the summer of 1786, farmers and other citizens from the western part of the state held local conventions to demand that the state government address their concerns. They drew up a petition, which expressed their objections to the expensive and aristocratic state senate (upper house of the legislature); high taxes on land; and the high fees of lawyers and county courts. After the conventions, groups of citizens took over the county courts, interfering with their functioning so that debts could not be collected. In the winter of 1786-1787, about 2,000 farmers in western Massachusetts, led by Revolutionary War veteran Daniel Shays, took up arms in rebellion. The Massachusetts militia easily controlled the rebellion, but the incident alarmed many across the nation, who were concerned about the potential dangers of anarchy. The national government Shays' Rebellion brought the inadequacies of the government created by the Articles of Confederation to the attention of the nation.

Marc Schulman