It is understandable that they should miss the significance of this passage because most people these days do not know what it means. A bill of credit is an IOU by the government promising to pay the holder at some date in the future. As these IOU’s are often used by the holders to buy and sell, they become “paper money.” During the Revolution, both the United States government and the states financed the war largely by writing IOU’s and more IOU’s and IOU’s paid with IOU’s, all of which led to serious inflation. (Soldiers expressed their contempt for the IOU’s issued by the Continental Congress in the phrase “Ain’t worth a Continental.”) At the end of the war, Congress stopped issuing IOU’s and attempted to return the country to a system of gold and silver coins. Severe inflation gave way to an equally devastating deflation. On top of that, Britain, previously America’s leading trade partner, stopped importing American products and closed ports throughout the British Empire to American ships. The United States was unable to retaliate because the Continental Congress had no power over foreign trade. If one state tried to retaliate against British imports, they would simply switch importing through another states. Except for France, our eternally patient ally, other countries were unwilling to enter into trade agreements with a country that had no power to enforce them. U.S. exports and shipping income languished, while imports continued to drain gold and silver from the country, further aggravating the deflation. However, states were able to effectively retaliate against trade restrictions in at least one instance – they frequently retaliated against each other (which was forbidden by the Articles of Confederation) and were busy at work strangling domestic trade.
Deflation is particularly oppressive to debtors because their cash incomes fall, even as their debts remain unchanged. Even if the debtor’s property is seized and sold, it is likely to sell at a deflated price that does not cover the full debt. Adding to the crushing weight of private debt were crushing taxes to pay for public debt. Each state had war debt of its own to pay off, and since the federal government had no independent power of taxation, its own debts had to be paid by quotas to the states. States with major ports could raise the amounts relatively painlessly by taxing their foreign trade, which meant taxing their neighbors’ trade without representation. States without major ports, and Massachusetts, which was dominated by merchants who resisted taxes on trade, were forced either to default on their payments or to tax their citizens at rates that were unbearable under the existing deflationary conditions. All this led to pressure for the states to issue paper money (bills of credit) again and re-ignite inflation, or to allow payment of taxes or debts in some other form than gold and silver, or to pass debt relief legislation. It was these measures that Article I, Section 10, Paragraph 1 was intended to measure, and all members of the Convention agreed in deploring paper money and debt relief.
This is important and needs to be said; it does indicate a lack of sympathy for the financial hardships ordinary people were experiencing and a tendency to side with creditors. What Convention members considered an attempt to defraud creditors was merely an attempt to avoid financial ruin.
On the other hand, inflationary and debt relief measures threatened to wreck systems of credit and ruin prospects of a commercial revival, and in the end it was really a commercial revival that was needed. The original purpose of the Convention was not to permit federal intervention in future rebellions, but to give the central government authority to tax and regulate foreign trade. Regulation of foreign trade would force concessions for foreign countries and allow American exports and shipping to revive. Taxation of foreign trade would allow the federal governments to pay its debts (and, many people hoped, state debts as well) relatively painlessly. Allowing the central government to regulate trade among the states would allow it to stop them from strangling each other’s trade.
In short, many of the economic problems that led to pressure for inflationary and debt relief measures were, in fact, caused by the weakness of the central government. And the adoption of the Constitution did actually lead to the anticipated economic revival and relieve pressure on debtors. This, too, is important and needs to be said. It means that the Constitution and its Framers were not as unsympathetic to debtors as Article I, Section 10, Paragraph 1 may suggest on the surface.
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