The Articles of Confederation, in force from 1781 to 1789, affected interstate commerce by leaving almost all of it to the individual states. Congress had no power to regulate trade between states, no power to tax, and no way to enforce commercial treaties abroad. States responded by taxing each other’s goods, printing their own paper money, charging tolls on shared rivers, and cutting separate deals with foreign powers. The resulting economic chaos was the single strongest argument for replacing the Articles with the Constitution.1National Archives. Articles of Confederation
Why the States Held the Commercial Power
Article II of the Articles reserved to each state “its sovereignty, freedom and independence, and every Power, Jurisdiction and right” not expressly delegated to Congress. The power to regulate commerce between the states was never delegated. That silence decided everything that followed.1National Archives. Articles of Confederation
Congress did receive a few narrow economic authorities under Article IX: regulating trade with Native American tribes, running the post office, and setting the value of coins. But the Articles explicitly protected each state legislature’s authority over commerce inside its own borders. Congress could not set trade policy between states, impose uniform standards, or override a state’s import and export rules. Article VI added one thin restriction, barring state duties that interfered with treaty obligations to France and Spain, but it was narrow and largely unenforceable. Thirteen states shared a border but not a market.
Interstate Tariffs and Trade Retaliation
Without a national commercial standard, states treated goods from neighboring states much like foreign imports. A merchant moving lumber or produce across a state line faced unpredictable taxes that raised prices for buyers and cut into margins for sellers. States imposed these duties partly to raise revenue and partly to protect local producers.
Port states had particular leverage. Baltimore in 1783 charged tonnage fees that scaled by a ship’s home port: cheapest for Maryland vessels, higher for ships from other states, higher still for British ships. Those were not service fees for piloting or loading; they were sovereign charges meant to raise revenue or discourage outside commerce.2The Heritage Foundation. The Heritage Guide to the Constitution – The Tonnage Clause
New York was among the most aggressive, taxing goods arriving from New Jersey and Connecticut. New Jersey retaliated by taxing a New York-owned lighthouse standing on its soil. Tit-for-tat escalations of this kind ran through the 1780s. Congress had no authority to intervene. No national tribunal existed to hear disputes between states, and no mechanism let the central government strike down a state tariff. Retaliation was the only tool available, and it predictably made things worse.
Competing Currencies and a Credit Collapse
Monetary policy fractured along the same lines. Each state could print its own paper money and set its own rules on what counted as legal payment for debts. Some states exercised restraint. Others flooded their economies with paper that quickly lost value.1National Archives. Articles of Confederation
This turned interstate commerce into a guessing game. A debt owed in Virginia might be paid in Rhode Island currency worth a fraction of its face value. Merchants doing business across state lines constantly evaluated which notes to accept and at what discount. Long-term contracts were especially risky, because the currency in which payment would arrive might depreciate before the contract closed out.
Rhode Island’s Forced-Acceptance Laws
Rhode Island became the extreme case of a state trying to prop up worthless paper through legal coercion. In June 1786, its legislature passed a penalty act that fined anyone who refused the state’s paper money at face value £100 for a first offense, with half the fine going to the state and half to the informer. A second offense carried the same fine plus loss of voting rights. When merchants resisted, the legislature escalated in August 1786 by requiring that paper-money disputes be tried in special courts with no juries and no right of appeal. A proposed “test act” that fall would have stripped voting rights from any citizen, law licenses from any attorney, and shipping privileges from any merchant who refused the currency. That proposal failed, and the penalty acts themselves were repealed in December 1786.
Hard Money Shortages
The currency turmoil fed a wider credit crisis. Creditors burned by depreciated paper stopped issuing new loans and began demanding gold or silver. Hard currency was scarce. The cash shortage put borrowers on impossible repayment schedules and pushed farmers who couldn’t pay into foreclosure. That pattern set the stage for open rebellion.
Tolls and Fights Over Shared Waterways
Rivers and coastal waters that bordered multiple states became constant sources of conflict. States claimed exclusive control over segments of shared waterways and charged tolls on vessels passing through. A ship traveling a river that touched three states might pay separate navigation fees to each, often dressed up as maintenance for lighthouses or channel markers but functioning as revenue. Cargo could be seized and crews detained for failure to pay. Domestic shipping was slower, riskier, and more expensive than it needed to be.
The Potomac dispute between Maryland and Virginia produced one of the few workable fixes. In March 1785, commissioners from both states met at George Washington’s Mount Vernon estate and produced the Compact of 1785, declaring their shared waterways “forever considered as a common Highway Free for Use and Navigation” for vessels from either state.3Maryland State Archives. The Mt. Vernon Compact and The Annapolis Convention The compact worked, but it also underlined the problem: if two states could resolve a trade dispute only by meeting privately at a plantation, the national government was failing at a basic function.
No Taxing Power at Home, No Leverage Abroad
The Articles gave Congress no independent power to tax. Instead, Congress used a requisition system, calculating what the national government needed, apportioning the amount among the states by land value, and asking each state to pay its share. States routinely ignored or underfunded these requests.
The United States had borrowed heavily to finance the Revolutionary War, including large loans from France plus debts to Spain and to private Dutch investors. Without reliable revenue, Congress stopped paying interest on the French loans in 1785 and defaulted on scheduled payments in 1787.4Office of the Historian, U.S. Department of State. U.S. Debt and Foreign Loans, 1775-1795 Two attempts to amend the Articles to allow a national import duty, the Impost of 1781 and the Impost of 1783, failed because amendments required unanimous consent from all thirteen states.
The same weakness showed up in foreign trade. Congress could negotiate treaties but could not compel individual states to honor them. Britain figured this out quickly, closing its West Indies trade to American ships while Congress lacked the authority to retaliate. Foreign powers negotiated separately with individual port cities, playing states against each other to drive down prices for American exports. Trade sanctions from abroad hit some states hard and left others untouched, deepening the divisions at home.5National Constitution Center. The Commerce Clause
From Commercial Breakdown to Constitution
By 1786 the accumulated damage produced an armed uprising. Revolutionary War veterans in western Massachusetts had received little pay for their military service and returned home to farms burdened by debt. When creditors demanded hard currency that farmers didn’t have, foreclosures surged. The state legislature ignored petitions for relief. In August 1786, Daniel Shays and a group calling themselves “Regulators” began blocking debt collectors at county courthouses. Henry Knox, the Confederation’s Secretary of War, argued that the uprising proved the government needed to be “braced, changed, or altered to secure our lives and property.”
Shays’ Rebellion was not caused by any single commercial defect, but the Articles’ commercial failures created the conditions: depreciated paper money, a credit drought, no federal revenue to pay veterans, and state legislatures too strapped or divided to help. The rebellion gave urgency to reformers who had been arguing for years that the Articles had to go.
In September 1786, delegates from five states met at the Annapolis Convention in Maryland to discuss uniform interstate trade rules. The turnout was thin, but the delegates, among them James Madison and Alexander Hamilton, concluded that the commercial problems reflected “important defects in the system of federal government” reaching well beyond trade. Hamilton drafted a report calling for a full convention in Philadelphia the following May.
The Philadelphia convention produced the Constitution, which attacked the Articles’ commercial failures head-on:
- The Commerce Clause in Article I, Section 8 gave Congress the power “to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes,” creating a national free-trade zone and centralizing foreign trade negotiations.5National Constitution Center. The Commerce Clause
- The Import-Export Clause in Article I, Section 10, Clause 2 barred states from laying duties on imports or exports without congressional consent, except for fees strictly necessary to execute inspection laws, and directed any approved revenue to the U.S. Treasury.6Legal Information Institute. U.S. Constitution Annotated – Article I, Section 10, Clause 2 – Import-Export Clause
- The Contract Clause in Article I, Section 10, Clause 1 barred states from passing laws impairing the obligation of contracts, and the same clause prohibited states from coining money or emitting bills of credit, ending the competing-currency problem.7Legal Information Institute. U.S. Constitution Annotated – Article I, Section 10, Clause 1 – Limits on Issuing Legal Tender
The Constitution also gave Congress the direct power to tax, ending the requisition system that had left the national government broke. The commercial breakdown of the 1780s did more than expose the Articles’ weaknesses. It supplied the specific blueprint for what the Constitution had to fix.