On June 7, 1776, Richard Henry Lee of Virginia, introduced a resolution in the Second Continental Congress proposing independence for the American colonies. The resolution read:

Resolved, That these United Colonies are, and of right ought to be, free and independent States, that they are absolved from all allegiance to the British Crown, and that all political connection between them and the State of Great Britain is, and ought to be, totally dissolved.

That it is expedient forthwith to take the most effectual measures for forming foreign Alliances.

That a plan of confederation be prepared and transmitted to the respective Colonies for their consideration and approbation.

Four days later, the Continental Congress appointed three committees in response to the Lee Resolution. One of these committee was created to determine “a plan of confederation,” and was composed of one representative from each colony. John Dickinson of Delaware served as the principal drafter.

After 16 months of debate, the Continental Congress adopted the Articles of Confederation and Perpetual Union on November 15, 1777. The Articles set out that

Each state retains its sovereignty, freedom, and independence, and every power, jurisdiction, and right, which is not by this Confederation expressly delegated to the United States, in Congress assembled.

And that

The said States hereby severally enter into a firm league of friendship with each other, for their common defense, the security of their liberties, and their mutual and general welfare, binding themselves to assist each other, against all force offered to, or attacks made upon them, or any of them, on account of religion, sovereignty, trade, or any other pretense whatever.

The Articles did not go into effect until March 1, 1781, when the last of the 13 states – Maryland – ratified it.

The Articles provided for a loose federation of the states; a single legislative body, where each state had one vote, and a president who chaired the legislative assembly. The Confederation Congress had the following powers: to make war and peace; conduct foreign affairs; request men and money from the states; coin and borrow money; regulate Indian affairs; and settle disputes among the states. The following powers were reserved to the states: enforcing laws, regulating commerce, administering justice, and levying taxes.

No provision was made for an executive authority to enforce the laws or a judicial system to interpret them.

Within a short time, the weaknesses of the Confederation became apparent:

[The Continental Congress] could — theoretically — declare war and raise an army, but it could not force any state to meet its assigned quota for troops or for the arms and equipment needed to support them. It looked to the states for the income needed to finance its activities, but it could not punish a state for not contributing its share of the federal budget. Control of taxation and tariffs was left to the states, and each state could issue its own currency. In disputes between states — and there were many unsettled quarrels over state boundaries — Congress played the role of mediator and judge, but could not require the state to accept its decisions.

The result was virtual chaos. Without the power to collect taxes, the federal government plunged into debt. Seven of the 13 states printed large quantities of paper money — high in face value but low in real purchasing power — in order to pay veteran soldiers and a variety of creditors, and to settle debts between small farmers and large plantation owners.

. . . .

A weak central government, without the power to back its policies with military strength, was inevitably handicapped in foreign affairs as well. The British refused to withdraw their troops from the forts and trading posts in the new nation’s Northwest Territory, as they had agreed to do in the peace treaty of 1783. To make matters worse, British officers on the northern boundaries and Spanish officers to the south supplied arms to various Indian tribes and encouraged them to attack American settlers. The Spanish, who controlled Florida and Louisiana, as well as all territory west of the Mississippi River, also refused to allow Western farmers to use the port of New Orleans to ship their produce.

Although there were signs of returning prosperity in some areas of the fledgling nation, domestic and foreign problems continued to grow. It became increasingly clear that the Confederation’s central government was not strong enough to establish a sound financial system, to regulate trade, to enforce treaties or to exert military force against foreign antagonists when needed. Internal divisions between farmers and merchants, debtors and creditors, and among the states themselves were growing more severe. With Shay’s Rebellion of desperate farmers in 1786 vividly in mind and only recently crushed, George Washington warned: “There are combustibles in every state which a spark might set fire to.”

As a result, the new nation was on the brink of political and economic chaos. In 1785, George Washington wrote to Henry Knox saying “it does not appear to me, that we have wisdom, or national policy enough to avert the evils which are impending—How should we, when contracted ideas, local pursuits, and absurd jealousy are continually leading us from those great & fundamental principles which are characteristic of wise and powerful Nations; & without which, we are no more than a rope of Sand, and shall as easily be broken.” (Emphasis Added).

On July 21, 1786, the Virginia General Assembly passed a resolution proposing “a joint meeting of the states to consider and recommend a plan for regulating commerce.”

That convention met in Annapolis, Maryland, on September 11, 1786. Only 12 delegates were present at the meeting, representing only the states of New York, New Jersey, Pennsylvania, Delaware, and Virginia. On September 14, Alexander Hamilton introduced a resolution calling for a special convention of all the states to amend the Articles of Confederation.

This ultimately led to what we now call the Constitutional Convention of 1787. You can read James Madison’s notes of the Constitutional Convention here.