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 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 “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 or Thirteen? 1. Debt 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 or Thirteen? 2. The Power to Tax 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 or Thirteen? 3. Tariff Wars 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 or Thirteen? 4. Military Strength 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 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 Smith attacked mercantilism. Smith proposed: Government subsidies, bounties, monopolies Such practices fostered inefficiency Smith proposed: Competition Free markets to provide incentives Specialization and division of labor

Interest Groups 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 The Constitution provided a system of well defined property rights that allowed for a market economy to develop. 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

Guide to Economic Reasoning 1. People choose. 2. People’s choices involve costs. 3. People respond to incentives in predictable ways. 4. People create economic systems that influence individual choices and incentives. 5. People gain when they trade voluntarily. 6. People’s choices have consequences that lie in the future.

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.