The financial importance of a U.S. Constitution that just marked its 237th birthday: Jason Opal

MANSFIELD, Ohio - The economic news last week centered on the Fed's decision to cut interest rates. But it's also worth remembering that last week marked the 237th anniversary of the publication of the U.S. Constitution, because the Framers of that document had a vision of growth — and, in their minds, of justice — that continues to underpin the American economy.

First, we need to remember that during the so-called Confederation period that preceded the Constitution, the various states did whatever they wanted, often with serious implications for the economy.

Although the 1783 Treaty of Paris forbade the confiscation of British or Loyalist property, for example, several states continued this wartime practice, scaring off potential investors from England. States also raised their own tariffs, sometimes on goods from other states.

Most importantly, they passed well-intentioned but often damaging debtor protections.

South Carolina, for one, declared three straight "stay" laws — one-year moratoriums or "stays" on foreclosures and other debt actions — followed by a 1785 law enabling a debtor to repay his creditors with whatever property he wanted. Dodgy speculators with bad debts used this "Pine Barren Act" to fob off low-quality stands of pine trees as payment in full. Ten states also experimented with fiat money, simply printing bills that could be used to "pay" debts or taxes.

To be fair, state legislatures were trying to protect the many thousands of poor people who faced potential eviction during hard times. And yet there also were plenty of poor and honest creditors who suffered because of the stay laws and paper money.

For example, a poor man who had sold his horse to settle another account could only stand helpless, and horse-less, as his buyer rode away without paying. A storekeeper who had supplied Continental troops had no way to recover the IOUs he held. And governments were unable to borrow the funds they needed to rebuild because no one wanted to sink their money into a place where contracts weren't upheld.

In response, one pastor decried paper money and debt relief as an assault on the "sanctity of public and private Faith." Contracts were promises, after all, and the states were enabling people to break those promises. In a less pious vein, Alexander Hamilton wrote of "public credit" as a nation's most precious resource. In a just society, he and other supporters of the new Constitution believed, people made good on their agreements and received their due, creating a general pool of trust and faith in each other and in the future.

And so, in the Constitution's preamble, the Framers declared that one of their main goals was to "establish Justice." They proceeded to do so through Article I, Section 10. "No State shall enter into any Treaty, Alliance, or Confederation," it began. So, no more state-level tariffs or foreign policy. The section then forbade any state from emitting bills of credit or passing any law "impairing the Obligation of Contracts." So, no more fiat money, and no more stay laws.

Within a few years, federal courts were striking down state-level debt relief by citing Article 1, Section 10 of the Constitution. Newly confident that people would be held to their words, local leaders began to invest in turnpikes, canals, and bridges. After the War of 1812 established our independence once and for all, British capital poured into the United States, helping to finance generations of economic growth.

The super-fast world of American business has little time for anniversaries. But take a moment to consider the document that still secures all the deals — and all the promises - that we make to each other, in business and in life.

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