The Freeman 1972 - The Ludwig von Mises Institute

1972 THE CRITICAL PERIOD 621Several Moslem principalities, orwhatever they should be called,had long preyed on shipping in theMediterranean. Countries whowished to avoid their depredationswere expected to pay bribes. Oncethe Americans cut themselves loosefrom British protection, they wereexposed to these pirates. Algeria.went to war with the UnitedStates, or so rumor had it, seizedtwo American ships, and enslavedtheir crews. The enslaved Americans"were forced to carry timberand rocks on long hauls overrough mountainous roads."4 Congressoffered to ransom the sailors,but the amount they couldand did offer was too small. A"diplomat" from another principalityapproached the UnitedStates with the proposition thatthe harassment of shipping wouldcease if tribute in sufficientamount were paid. As thingsstood, however, the United Statescould neither afford to pay tributenor assemble the necessaryforce to suppress the pirates. 5financial ProblemsMany of the troubles of theConfederation can be traced to financialdifficulties. These were frequentlytied in and contributed tothe ineffectiveness in dealing withforeign nations. A country thathad repudiated its currency at theoutset and whose diplomats had togo cup in hand, as it were, toother nations seeking funds washardly in a good bargaining position.There were, of course, domesticas well as foreign consequencesof the financial shamblesof the Confederation.The methods used to finance thewar had left not only a debt (despitethe repudiation of the currency)but also a legacy of consequenceswhich many do notascribe to the inflation. Inflationthrough the· year of 1780 was followedby a drastic deflation. Thereis no mystery about the cause ofthe deflation; when the tenderlaws were removed the Continentalpaper ceased to circulateas money. Much the same thinghappened to the paper money thathad been issued by the states duringthe war. Specie replaced thepaper as currency, but there wasmuch less of it than there hadbeen of the other. Prices thenhad to be adjusted downward tomake trade feasible in the newcurrency. The supply of currencywas further depleted· when tradewith Britain was resumed, for theUnited States had an unfavorablebalance. Americans still showed amarked preference for Britishgoods andlarge quantities of themwere imported, but the British didnot buy goods of nearly the samevalue from Americans. There hadlong been an imbalance between