The treaty was finalized in September 1783. This gave the thirteen states, formerly the thirteen colonies, the final degree of certainty that they would now be recognized as sovereign. Markets are fond of reliable definitive conditions, and so the confirmation of American independence and autonomy were good for the American economy.
But there were negative factors under the surface of the initial economic enthusiasm: the thirteen states had accumulated debt in pursuing the war; private property had been destroyed in military action; there was not much capital for investment into new businesses; the currencies used as a means of payment were uncertain — individual colonies had printed their own paper money, denominated in pounds, shillings, and pence — and it was not clear if a shilling from Massachusetts was equal to a shilling from Virgina; coinage included a mix of Spanish dollars, colonial coins minted prior to the revolution under British auspices, and coins minted by the United States starting in 1783; counterfeit money was circulating.
The Continental Congress had begun printing money in 1775 and did so until 1779. Confusingly, one Continental dollar when issued was valued at 5 Georgia shillings, 6 Connecticut shillings, or 8 New York shillings. The value of the Continental dollars fell steadily. By 1780, they were valued at around one-fortieth of their face value.
Shortages of paper currency and coin caused instances of bartering or the use of “commodity money” — tobacco or desirable animal skins used as currency.
The British ended their blockade of the thirteen states when the treaty was signed in 1783. While this allowed an influx of goods into the new states, it dampened any domestic aspirations to start new businesses: competing with the British imports was difficult.
Under such circumstances, trade was sluggish.
The economic environment gave little motive for entrepreneurial expansion of business, as historian Ron Chernow writes:
After the Revolution, New York experienced a brief flush of prosperity that faded and then vanished in 1785, snuffed out by swelling debt, scarce money, and dwindling trade. Falling prices hurt indebted farmers, forcing them to repay loans with dearer money. As a Bank of New York director, Hamilton worried that defaulting debtors would also feign poverty and ruin their creditors. He later said of the deteriorating business climate, “confidence in pecuniary transactions had been destroyed and the springs of industry had been proportionably relaxed.”
Having only recently gained independence and sovereignty, the thirteen new states were facing a grave economic threat. The conditions were not the same in all thirteen, but the common elements were an oversupply of dubious confusing paper currency and large amounts of debt.
Although there was some improvement in economic conditions by 1786, the structural problems of the economy remained: the thirteen states were relying on large quantities of imported goods, and the revenue from exports had fallen from its pre-Revolution levels.
Ultimately, the solution to the economic problems would be the solution to the political problems. The government created by the “Articles of Confederation” was not up to the task of creating the stable environment needed for economic growth. Britain and France controlled much of the trading in and around the Americas and across the Atlantic.
The call for a new Constitution, written in 1787 and ratified in 1789, would create a political climate which promoted entrepreneurship. The political question was an economic question. The result would be a more unified economy, founded on a more unified form of government, as Ron Chernow notes:
With the possible exception of James Madison, nobody had exerted more influence than Hamilton in bringing about the convention or a greater influence afterward in securing passage of its sterling product. His behavior at the convention itself was another matter. It would long seem contradictory — and, to Jeffersonians, downright suspicious — that Hamilton could support a document that he had contested at such length. In fact, the Constitution represented a glorious compromise for every signer. This flexibility has always been honored as a sign of political maturity, whereas Hamilton’s concessions have often been given a conspiratorial twist. For the rest of his life, Hamilton remained utterly true to his pledge that he would do everything in his power to see the Constitution successfully implemented. He never wavered either in public or in private. And there was a great deal in the document that was compatible with ideas about government that he had expressed since 1780. His reservations had less to do with the powers of the new government than with the tenure of the people exercising them. In the end, nobody would do more than Alexander Hamilton to infuse life into this parchment and make it the working mandate of the American government.
The new Constitution provided for a national currency, which reduced the confusion of using everything from Spanish dollars to pre-Revolutionary local coinage to the flood of paper currency generated by the individual states: one standard coin and currency had a unifying effect on the economy.
Likewise, the new government stipulated, in the Constitution, that there be no internal taxes or tariffs on interstate commerce. This energized trade.
After the end of the Revolutionary War, the U.S. showed great economic potential, but also faced great economic obstacles. Many of those obstacles would be removed by the new Constitution.
The United States economy was on a more solid footing after the ratification in 1789. To be sure, there were new obstacles to be overcome. The British began to interfere more with American trans-Atlantic trade precisely because the U.S. economy was doing better. This was one factor leading to the war of 1812.