Impact of the US constitution on the American economy
The United States constitution, enacted on 17th September 1787, is the supreme law in the United States of America. The constitution outlines the organizational framework of the United States government. The US constitution also describes the relationship between the federal government, the states and all the people within United States. Enactment of the constitution has had a major influence on the American economy over the years. Analysis of the events that transpired before enactment of the constitution is necessary in order to understand the economic benefits that that inspired the founding fathers to come up with the document.
The federal government was unable to raise taxes during under the Articles of Confederation. Consequently it was difficult to repay domestic and foreign debts. The only source of funds available to the government was the states that provided requisitions to the federal government (Clark 25). However, there were no mechanisms to ensure that the states would send money to the government. During the same period, all the thirteen states were required to vote and agree to make any changes to the requirement. If a single state did not vote on this, then federal taxes would be enacted. One state had the ability thus to block tax legislation by the federal government (Clark 25).
The federal government did not have the capacity to make trade regulations in the domestic market as well as the foreign scene which would be necessary growth of the economy. The problems arising from to inability raise funds to run the government and the inability to repay debts created a certain degree of anxiety (Clark 25). The financial capacity of the federal government was also put to question. Commercial interests feared that local and state barriers to trade could arise in the future under the Articles of the Confederation. Western landowners were at loggerheads with the federal government for failing to establish order on the frontiers. The above problems were compounded by the Shay’s rebellion, which put a strain on the federal government’s capacity.
Before the US constitution came into being, there was Shay’s rebellion that caused fear that the federal government was losing its grip of power. The business community was worried about of their investments. This led to a group of people coming together to try and increase the powers of the government by making ratifications to the Articles of Confederation-the equivalent of the constitution that was in use, in that era.
Later, the Philadelphia convention was formed. People had come to the realization that the articles on government were inefficient. Shay’s rebellion was an eye opener. It showed how weak the government when faced with opposition from people who are against some policies. The imminent threat of violence also sobered up Americans.
This led to a series of meeting that led to the Philadelphia convention whose responsibility was to rescript the Articles of Confederation and strengthen the central government. One of the people who attended convention was James Madison who proposed formation of a new government to replace the articles. Other delegates agreed with this idea, which led to the formation of Virginia and New Jersey plans. The New Jersey addressed the weaknesses of the Articles while the Virginia plan favored the large states. A compromised was reached to resolve the issue and the new constitution came into being. This marked the birth of a new constitution that has impacted the economy in a number of ways.
The US constitution made it possible for the government to create a taxation structure and settle past debts incurred by federal governments. Article I section 8 of the constitution stipulates that congress has the power to control trade with foreign countries and within the several states. This strengthened the central government financially and provided for improvement of capital markets. For instance, the constitution provided for adjustments of the tax structure with a simple majority of the votes by delegates to the chambers of the national congress. The US constitution made the states lose their power to determine duty with other states and foreign nations. They also lost the power to emit credit papers. This made the US a common market economy. The integrated national markets that are enjoyed today are the fruits of the changes instituted by the constitution.
In a bid to improve the capital markets, the constitution provided that only the federal government is mandated to ensure printing of money and regulate its movement. Article I section eight provides that only congress has the power to regulate the minting of money. The clause also stipulates that punishments will be meted to those people who counterfeit securities and coins. This, in effect, controls the movement of money (Clark 30).
It is well known that money should be scarce in order to retain value. By setting this clause, the constitution appreciates the fact that for an economy to thrive, money should be scarce in supply in order to affect the distribution of the scarce resources. This is the coinage clause. The states were also prohibited from issuing credit bills. Initially, there was a threat to interstate trade in the period before the enactment of the constitution. However, the constitution put this in check by allowing the federal government to regulate interstate commerce (Clark 30).
For instance, national standards number 7 has the provisions that stipulate existences of markets as the point of interaction between buyers and sellers. This determines allocation of the scarce resources for production of goods and services. It, therefore, is the determiner of the prices of goods and services in the markets. The US constitution also has the Export clause. This is contained in article I section 9 states that no tax or duty would be levied on articles exported from any state. Section 10 states that no states should charge duty on imports or exports without approval of the congress. This opened up businesses. It is well known fact that a lot of control and duties ate harmful to thriving of businesses.
In a market economy there are several key factors that constitute success or failure. This is captured by articles of the constitution that were meant to promote business. For instance, a thriving economy requires respect of private property. The national standards number 16 stipulates the government’s role in fostering economic growth (Clark 37). The government should provide security and protect the rights of people to own property. Economists know too well that security is an essential tool for businesses to thrive. A calm political environment attracts investments into that area. Investors do not want to invest their money in a place that is not secure enough. Without the protection of owners’ property, it is difficult to operate businesses.
Consequently the competitiveness of the market is increased. It is known that goods and services are produced by private investors and companies. All the factors necessary for production (labour, capital and land) are owned by individuals and not by the government. Protection of private property and respect for private property provides the basis upon which goods and services may produce in an efficient and effective manner. This combines well with the freedom to negotiate legally binding contracts and, therefore, provide people with a choice to obtain and use resources.
Another significant influence was the provision to protect private property and the respect for contractual agreements. This is captured in the contract clause that also requires respect for contracts. Businesses are operated on, mutual agreement, and this is usually put down on paper in the form of contracts. The obligations of meeting contracts are thus met by businesses in accordance with the constitution. Contracts form the basis of working in companies and businesses. This is considered the cornerstone of a market economy (Clark 40).
Some economists argue that this move led to specialization as individuals could concentrate on the economic activities that provide them with the maximum benefits. At the same time, it allowed for individuals to enter into mutual agreements to carry out trade with other individuals who had specialized in other fields, as well. Amendment IV prohibits searches and seizures of people and businesses without any reason. As a result, this has established some degree of confidence that their property may not be seized on the basis of breaking laws. This is further strengthened by Amendment V, which stipulates that people would not be deprived of their life, liberty or property without due process of law (Clark 43).
The benefits of exchange were further helped by provisions in the constitution that prevented state governments and the national from making any laws that dishonor the obligation made by contractual arrangements. This made the economic activities more secure since the government could not interfere with economic exchanges. This is a crucial tool for growth of market economy.
A robust economy requires entrepreneurs who are free to get and organize their resources in order to produce goods and services and sell to the preferred market. This requires creation of an environment where consumers are free to buy products that suit their economic wants. Employees and workers should also be free to work at jobs that suit their choice. The driving force in market economies is the entrepreneurs and the consumers whose aims are the greatest satisfaction. Consumers aim to get goods that suit their budgets and satisfy them while entrepreneurs require wants the maximum profits for their businesses. Employees’ want jobs that pay them the highest salary possible. Property owners aim at getting the maximum returns from the sale of property resources. Competition is the driving force in a good economy. The constitution recognizes that it is the competition and not government regulation that diffuses economic power and limits the chances of abuse by a single economic unit. Competition encourages the buyers and sellers freely enter and leave markets.
The US constitution has a copyright clause. Article I section 8 recognizes that in order to promote sciences and useful arts, there should be limited times to authors and investors. This gives them exclusive right to their writing and discoveries. This has the effect of alleviating infringement of copyright laws. The original inventors and authors have the right to their work. In some countries piracy, losses the countries a lot of money (Clark 56). However, the US constitution has kept this in check. The arts and film industry is thriving now. If one wants to buy any work, it has to be the original work of the author. This has opened doors creating a remarkably large and stable industry where many families are supported through this business. The copyright law is geared towards influencing and encouraging people to do creative works. It is an incentive.
The constitution is an economic document as it is a political one. The founders of the American constitution believed in economic and political freedom. These two are essential for economic growth as well as prosperity. However, the intentions of the founding fathers have been overly reviewed time and again. Charles Beard is one of the people who questioned the economic rationale behind the US constitution (Clark 199). He argued that formation of the constituent was a conflict between the competing economic interests: the federalists and the anti-federalists. He argues that the federalists were the ones who formed the constitution. Federalists argued for the formation of a strong federal government in order to consolidate their economic interests in personal property. The federalists consisted of merchants, bankers, security holders and shippers. Beard used a clause in the constitution that provided for the assumption of the federal debt by the new government to support his arguments.
Charles Beard’s work faced criticism from other researchers, as well. Robert Brown dismissed Beard’s work and proved that the democracy achieved in America came along with economic gains that were being distributed to the American populace. Brown examined the support that the constitution gains from people of all social classes to prove that the document offers the best chance to guarantee economic freedom in America (Clark 199). Modern evidence points out that the people who ratified the constitution would have voted differently if they came from less commercially endowed areas. It is no wonder that the constitution advocated for strengthening of the central government in order to provide for the development of the market economy. The founding fathers thus were competent to provide for a constitution that favored for protection of private property and abolishment of duty on exports in order to grain from the benefits accrued from carrying out international trade (Clark 200).
The economic benefits of the constitution were not realized overnight since the thirteen states were not interconnected economically. The consequences of the constitution on the economy came late into the 19th century. The constitution only provided for the fundamental aspects that led to the ultimate supremacy of the federal government and economic prosperity (Clark 160). Some economists agree that the US constitution was inspired by the need to establish the fundamentals of market economy. This has paid off in the last years. The US constitution has provided incentives to entrepreneurs who have expanded their operations thus enjoying economic freedom. For instance, provision made in the copyright clause provides incentives to scientists and authors to come up with creative work. Individuals and businesses have been able to specialize and carry out trade with other businesses, as well. The federal government is now stronger since the taxes are pooled together, unlike the era when the constitution was being ratified (Clark 160).
Clark, Cynthia L. The American Economy: A Historical Encyclopedia. Santa Barbara: ABC-CLIO, 2011.