1: The problem. After the Revolutionary War, Congress faced enormous debt. The United States owedmoney to the French, who had helped to support the war. Money also was owed to American citizens whohad bought bonds from the government to help support the war. The total debt was so steep that someAmericans recommended simply not paying it back. They argued that, since the war bonds had changedhands several times, payment now would not go to the people who originally helped to support the war;instead, it would go to speculators who had purchased the bonds from the original bond holders. Underthe Articles of Confederation, moreover, Congress had no power to tax and thus no way to raise money touse in paying off war debts. Predicting consequences. You are a member of the Congress of Confederation (the new name for theContinental Congress) in 1781, considering the issue of war debts. Predict the consequences likely to followif war debts are not repaid. Explain your prediction briefly, making use of the economic principle that people respond to incentives in predictable ways.

2: The problem. Under the Articles of Confederation, Congress had no power to tax. It could levy a tax only if the revenue it raised were turned back to the states on the basis of each state’s population. In other words, the U. S. government was severely restricted in its capacity to handle debts and expenses. Even if it seemed prudent to repay war debts, therefore, Congress in 1781 had no obvious means of raising the revenue that would be needed for repayment.

Predicting consequences. You are a member of the Congress of Confederation, considering whether the federal government should be granted new powers to tax. Predict the consequences likely to follow if Congress gains no new power to tax. Explain your prediction by reference to the economic principle that people respond to incentives in predictable ways.

3: The problem. Under the Articles of Confederation, the federal government had little power, but the states were empowered to act independently, as sovereign bodies. In matters of trade, they could pursue their self-interest even at the expense of neighboring states. Thus it seemed likely that tariff wars would erupt, pitting states against states. For example, New York imposed a fee on vessels traveling to and from Connecticut and New Jersey. Not to be outdone, New Jersey imposed its own tax on a New York owned lighthouse on New Jersey soil. New Jersey, lying between New York City and Philadelphia, found its imports heavily taxed. Leaders in other states watched attentively and considered placing their own taxes on products from neighboring states.

Predicting consequences. You are a member of the Congress of Confederation, considering whether Congress, rather than the several states, should be authorized to regulate interstate commerce. Predict the consequences likely to follow if the several states retain exclusive authority to govern interstate commerce. Explain your prediction by reference to the economic principle that people gain when they trade voluntarily.

4: The problem. Although America won the Revolutionary War, Britain continued to occupy territories

in the Great Lakes region, in open violation the Treaty of Paris. British occupation interfered with

Americans who sought to develop the Northwest Territory for settlement and trade. At the same time,

Spain refused to grant Americans navigation rights on parts of the Mississippi River; and in parts of the

Mediterranean Sea, Barbary pirates were attacking American shipping. Pockets of civil unrest — the

armed rebellion of poor Massachusetts farmers led by Daniel Shays in 1786, for example — also threatened

the peace in some places at home. Having separated themselves from the British Empire,

Americans now faced the need to provide for their own security in these cases. Under the Articles of

Confederation, however, the federal government had no means to provide for Americans’ defense and

security.

Predicting consequences. You are a member of the Congress of Confederation, considering whether

the federal government should be authorized to develop a strong military force to provide for Americans’

defense and security. Predict the consequences likely to follow if no such authority is granted. Explain

your prediction by reference to the economic principle that people gain when they trade voluntarily.

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