Before the opening shots of the war with Britain, despite taxes, duties and repressive regulations, most colonists were doing well. All manner of goods and materials flowed into and out from the colonial ports providing a stable flow of revenue throughout the colonies. When the conflict began, the British seized many port cities, and the Royal Navy drove American merchant ships from the sea. Trade and the revenue it generated disappeared; the American economy nearly collapsed.
A battle with the Royal Navy
Attempts by the Congress to alleviate the situation by printing its own currency Continental dollars--were not successful. As more and more of the paper dollars were printed with no hard currency to back them up, their value fell until they were nearly worthless. In response, prices of goods rose creating an inflationary (Links to an external site.) spiral that devastated the citizenry.
At the close of the war, the economic situation did not improve. England banned American imports from its West Indian colonies. Trade between the states was hampered by states printing their own currency that was again not backed by gold or silver, but only by “full faith and credit” that the state would pay its debts. Merchants trading between different states were reluctant to accept currency that they were not sure would be accepted at home, and so trade suffered
Colonial currency
In addition, states attempting to pay off the war debts they had incurred were taxing property holders heavily. This caused an increase in borrowing money, and drove up the cost for such loans. The situation was worsened in many cases since the taxes were only acceptable if paid in gold or silver of which there was very little in circulation. In addition to Shays’s Rebellion, conflicts arising from currency and banking would continue to plague the nation for decades to come.