The last key element of America's system of limited government is the principle of federalism. In a federal system, some key powers are held by a centralized national government while others are reserved for the various states governments.

American federalism existed even before the Constitution. At the time of the Constitutional Convention, there were already 13 states that had grown used to wielding a great deal of power in managing their affairs. Those 13 states weren't likely to choose to go out of business in order to transfer all their powers to one national government—especially considering the important cultural, economic, and social differences (slavery foremost among them) that divided them.

Furthermore, the American Revolution had been, in essence, a revolt against a distant and powerful centralized government. Why would the Framers want to recreate such a potentially tyrannical structure?

Still, by 1787 most of the Framers had come to believe that the state governments created after the Revolutionary War, and the Articles of Confederation which tied them loosely together, were maybe a little bit too democratic and decentralized. The United States needed a more powerful central government in order to effectively deal with the greatest challenges facing the young nation. But the Framers remained wary of making that central government too powerful.

Federalism helped to solve the problem. The division of powers between the states and the national government was a kind of compromise, ensuring that states would continue to exercise a great deal of local control even while the new national government would take on more and more responsibilities. Federalism would also provide another kind of check and balance, as the state governments and federal government would both have certain ways to limit and influence each other.