Economics of the Constitution
Lesson 8 Problems under the Articles of
Confederation
Lesson 9 The U.S. Constitution: Rules of
the Game
A New Nation in Economic Crisis
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No protection of
the Navigation
Acts
No British navy
Huge debts
No power to tax
Tariff fights
between the states
Economics of the Constitution
Lesson 8 Problems under the Articles
of Confederation
Visual 8.1 The Problems Following
Independence
The Problems Following Independence
 “There is scarcely anything that can wound the pride or
degrade the character of an independent nation which we do
not experience . . . we owe debts to foreigners and to our
own citizens. . .these remain without any proper or
satisfactory provision for their discharge . . . .We have
neither troops, nor treasury, nor government. . . . Are we
entitled by nature and compact to a free participation in the
navigation of the Mississippi? Spain excludes us from it. Is
public credit an indispensable resource. . .? We seem to have
abandoned its cause. . . . Is commerce of importance to
national wealth? Ours is at the lowest point. . . . Is
respectability in the eyes of foreign powers a safeguard
against foreign encroachments? The imbecility of our
government [under the Articles of Confederation] even
forbids them to treat with us.”
 “The Federalist, No. 15” (December 1, 1787)
Visual 8.2 Be Careful What You Wish
For
Activity 8.1
A New Beginning in 1781: One nation of
Thirteen?
1. Debt
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You are a member of the Congress of
Confederation in 1781, considering the
issue of war debts.
Predict the consequences likely to follow if
war debts are not repaid.
Explain your prediction briefly, making
use of the economic principle that people
respond to incentives in predictable ways.
Activity 8.1
A New Beginning in 1781: One nation of
Thirteen?
2. The Power to Tax
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You are a member of the Congress of
Confederation in 1781, considering
whether the federal government should
be granted new powers to tax.
Predict the consequences likely to follow if
the Congress gains no new power to tax.
Explain your prediction by reference to
the economic principle that people
respond to incentives in predictable ways.
Activity 8.1
A New Beginning in 1781: One nation of
Thirteen?
3. Tariff Wars
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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.
Activity 8.1
A New Beginning in 1781: One nation of
Thirteen?
4. Military Strength
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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.
Economics of the Constitution
Lesson 9 The U.S. Constitution: Rules
of the Game
A Constitutional Mystery
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Many nations have
adopted written
constitutions but have
failed nonetheless to
grow economically.
How is it that the U.S.
Constitution became
an effective force in
promoting economic
growth within a
market system?
Wealth of Nations, 1776
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Smith attacked
mercantilism.
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Government
subsidies, bounties,
monopolies
Such practices
fostered inefficiency
Smith proposed:
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Competition
Free markets to
provide incentives
Specialization and
division of labor
Interest Groups
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James Madison argued
that the aim of the
founders should be to
prevent one interest
(faction) from
controlling the political
system.
Madison’s idea was to
make it more costly to
redistribute resources
from rich to poor or
from poor to rich.
Well-Defined Property Rights
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The Constitution provided a system of
well defined property rights that allowed
for a market economy to develop.
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Checks and balances
Enforcement of contracts
Regulation of interstate commerce
Enforcement of due process of law
Congressional power to tax
Congressional power to coin money
Enforcement of copyrights
Activity 9.1 The Constitution: Rules for the
Economy
A. Contract Clause
 Use economic
reasoning to predict
what would happen if
apartment renters
today did not have to
hold to the provisions
of the lease
agreements they
signed.
Activity 9.1 The Constitution: Rules for
the Economy
B. Commerce Clause
 The Illinois state
legislature, grown
weary of the unearned
and boastful pride of
Wisconsin
“cheeseheads,”
approves a 10 percent
tax on all cheese
“imported” from
Wisconsin.
 Use economic
reasoning to predict
what would happen if
Illinois could impose
such a tax.
Activity 9.1 The Constitution: Rules for the
Economy
C. Fifth Amendment
 The Soviet Union took
possession of the land
of millions of peasant’s
forcing them into
collective farms by
1934. Soviet
agriculture declined.
 Use economic
reasoning to explain
how the decline in
agriculture might be
related to the power of
the government to take
property by force.
Activity 9.1 The Constitution: Rules for
the Economy
D. Taxation Clause
 The United States has
often run budget
deficits.
 What would happen to
confidence in U.S.
bonds if the federal
government did not
have the power to tax?
Activity 9.1 The Constitution: Rules for the
Economy
E. Coinage Clause
 The 25 nations of the
European Union
established a common
currency, the euro, in
2002.
 Explain how the
establishment of a
common currency
might help to stimulate
economic growth in
Europe.
Activity 9.1 The Constitution: Rules for
the Economy
F. Copyright Clause
 Imagine that the work
of musicians could be
acquired electronically
without compensation
to the artists.
 Explain how the
prospect of not being
able to copyright
songs, and enforce
copyrights, would
influence the
production of
musicians.