First Congress Unit - Lesson 4

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Congress Seeks Ways to Build National Credit: The Funding Debate

“All Debts contracted and Engagements entered into, before the Adoption of this Constitution, shall be as valid against the United States under this Constitution as under the Confederation.”
—Article IV, United States Constitution

Congress’s inability to repay war debts was a major factor in the decision to "revise" the Articles of Confederation at the Philadelphia [Constitutional] Convention in 1787. At the FFC, Alexander Hamilton submitted a funding plan under which he proposed a system by which the new national government would repay those who currently held government bonds or "certificates." The main goal of the plan was to restore the credit of the national government. Opposition to the funding plan centered on its failure to "discriminate" between what was owed to the current bondholders and what some believed was owed to the original bondholders who had to sell their deflated bonds at greatly reduced prices.
In this lesson, students will engage in a mock congress to debate the plan to fund ("repay") the national, domestic debt.

Targeted Audience: Students of early American history and government.

Goals: This lesson is designed to help students understand (a) the role that Congress plays in helping to promote the financial health of the nation and regulate economic growth, (b) the impact of government action on economic choices and the functioning of market economies, (c) one of the causes of sectional tensions in United States history, and (d) a purpose of taxes.

Focus Questions

  • Why did bondholders sell their bonds prematurely?
  • What role did Congress play in restoring the credit of the United States?
  • How did Hamilton’s Funding plan add to the emerging sectional tensions within the United States?
Time to Complete: 1-2 class periods

Standards Addressed

Delaware

  • Civics 1 (Grades 4-5): Understand that the United Sates government is divided into executive, legislative, and judicial branches, each with specific responsibilities and powers.
  • Economics 1 (Grades 4-5): Understand that consumers and producers make economic choices based on…demand…and the actions of government (e.g., sale of bonds).
  • Economics 2 (Grades 6-8): Analyze the…ways in which government taxes…affect the functioning of market economies (e.g., government builds credit… more services…).
  • Economics Standard 1 (Grades 4-5): Understand that prices in a market economy are determined by the interaction of supply and demand, with governments intervening to deal with market failures.

National

  • Civics Grades 9-12: Students should be able to identify major uses of tax revenues received by the national government (e.g., interest on the federal debt).

Materials Needed: Copies of Handout 1, plus Handouts 4-2 and 4-3 (see Unit Resources).

Terms to Know: funding, bond, bondholder, credit, manufacturing

Prior Knowledge

  • The Constitution specifies that revenue bills must originate in the House of Representatives.
  • The failure to grant the Confederation Congress the power to tax contributed to the financial problems experienced in the United States following the War for Independence.

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For more information, contact Fran O’Malley (302-831-8443).