Why did states agree to a U.S. Constitution that prohibits them from issuing their own money? This article argues that two common answers to this question—a fear of inflation and a desire to control what money qualifies as legal tender—do not fit the facts. The article proposes a better answer: a desire to form a viable monetary union that both eliminates the variability of exchange rates between various forms of money and avoids the seigniorage problem that otherwise occurs in a fixed exchange rate system. Supporting evidence is offered from three periods of U.S. history: the colonial period (1690–1776), the Revolutionary War (1776–83), and the Confederation period (1783–89).
This article is adapted from a chapter prepared for a book, _Varieties of Monetary Reforms: Lessons and Experiences on the Road to Monetary Union_, edited by Pierre Siklos, published by Kluwer Academic Publishers (Norwell, Mass.). The article appears here with the permission of Kluwer Academic Publishers.