A severe depression, bank contraction, a heavy burden of taxes to pay state debts, all this turned men’s thoughts to issuing paper money to finance government. Historians influenced by the Populist struggles of the late nineteenth century have always identified proponents of inflation with “farmer-debtors” and hard-money men as “merchant-creditors.” Actually, while it is true that debtors, especially during hard times, tend to favor inflation, merchants are even more likely than farmers to be heavily in debt since they have higher credit ratings and can borrow more.

Part of the drive for state paper money came from the public creditors as well as the states; for the federal creditors were anxious to get paid by some organ of government, and after the collapse of Robert Morris’ nationalist program they began to agitate for the states to assume their share of the federal debt. Hence, the nationalists came to see that public creditors could prove to be a troublesome two-edged sword.

A key to the politico-economic problems of the Confederation period, as well as one of the leading arguments for centralized power, was the swollen corpus of war-born public debt. The mass of federal and state debt could have depreciated and passed out of existence by the end of the war, but the process was stopped by Robert Morris. Morris and the nationalists moved to make the depreciated federal debt ultimately redeemable at par, and also agitated for federal assumption of the states’ debts.

It has been alleged—from that day to this—that the depression which hit the United States, especially the commercial cities, was caused by “excessive” imports by Americans beginning in 1783. But this kind of pseudo-explanation merely betrays ignorance of economics: a boom in imports reflects voluntary choices and economic improvement by consumers, and this expression of choice can scarcely be the cause of general depression. In short, an improved standard of living for the bulk of consumers reflects improvement and not depression.

Every depression generates a clamor among many groups for special privileges at the expense of the rest of society—and the American depression that struck in 1784–1785 was no exception. If excess imports were the culprit, then voluntary economizing could help matters, and the press was filled with silly fulminations against ladies wearing imported finery. Less foolish and more pernicious was a drive by the beleaguered and often sub-marginal artisans and manufacturers for the special privilege of protective tariffs.

After peace came in 1783, the new republic faced a two-fold economic adjustment: to peacetime from the artificial production and trade patterns during the war, and to a far different trading picture than had existed before the war. The largest change between the two eras of peace was the shift in trading patterns resulting from independence.