NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What If Alexander Hamilton Had Been Argentinean? A Comparison of the Early Monetary Experiences of Argentina and the United States

Michael D. Bordo, Carlos A. Vegh

NBER Working Paper No. 6862
Issued in December 1998
NBER Program(s):Development of the American Economy, Monetary Economics

The contrast between the early nineteenth century Argentinean experience of high inflation and the American experience of low inflation is interpreted in terms of a dynamic monetary model of optimal taxation. It is argued that the two countries' experiences diverged because of the different constraints they faced in financing wartime government expenditures. In the presence of frequent wars, ever-tightening access to foreign capital, and an inadequate tax base, Argentina's use of the inflation tax may be viewed as an optimal solution to its wartime problems. By contrast, with the exception of the Revolutionary War, the absence of such constraints in the United States required full-tax smoothing, with only a temporary use of the inflation tax during wartime. Such policies were embodied in Alexander Hamilton's fiscal package of 1790, which allowed the United States to bond-finance most subsequent wartime expenditures.

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Document Object Identifier (DOI): 10.3386/w6862

Published: Bordo, Michael D. and Carlos A. Vegh. "What If Alexander Hamilton Had Been Argentinean? A Comparison Of The Early Monetary Experiences Of Argentina And The United States," Journal of Monetary Economics, 2002, v49(3,Apr), 459-494. citation courtesy of

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