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

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  • Michael D. Bordo
  • Carlos A. Vegh

Abstract

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6862.

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Date of creation: Dec 1998
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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:6862

Note: DAE ME
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  1. Kimbrough, Kent P., 1986. "The optimum quantity of money rule in the theory of public finance," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 277-284, November.
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  3. Gerardo della Paolera & Alan M. Taylor, 2000. "Economic Recovery from the Argentine Great Depression: Institutions, Expectations, and the Change of Macroeconomic Regime," NBER Working Papers 6767, National Bureau of Economic Research, Inc.
  4. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
  5. Calomiris, Charles W., 1988. "Institutional Failure, Monetary Scarcity, and the Depreciation of the Continental," The Journal of Economic History, Cambridge University Press, vol. 48(01), pages 47-68, March.
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Cited by:
  1. della Paolera, Gerardo & Taylor, Alan M., 2013. "Sovereign debt in Latin America, 1820-1913," Revista de Historia Económica, Cambridge University Press, Cambridge University Press, vol. 31(02), pages 173-217, September.
  2. Bordo, Michael D., 2012. "Could the United States have had a better central bank? An historical counterfactual speculation," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 597-607.
  3. Sophia Lazaretou, 2004. "The Drachma, Foreign Creditors and the International Monetary System: Tales of a Currency during the 19th and the Early 20th Century," Working Papers 16, Bank of Greece.
  4. Maurer, Noel & Gomberg, Andrei, 2004. "When the State is Untrustworthy: Public Finance and Private Banking in Porfirian Mexico," The Journal of Economic History, Cambridge University Press, vol. 64(04), pages 1087-1107, December.
  5. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
  6. Lazaretou, Sophia, 2005. "The drachma, foreign creditors, and the international monetary system: tales of a currency during the 19th and the early 20th centuries," Explorations in Economic History, Elsevier, Elsevier, vol. 42(2), pages 202-236, April.
  7. Rauchway, Eric, 2006. "The Role of Federalism in Developing the US during Nineteenth-century Globalization," Working Paper Series RP2006/72, World Institute for Development Economic Research (UNU-WIDER).
  8. Joshua Aizenman, 2013. "The Eurozone Crisis: Muddling through on the Way to a More Perfect Euro Union?," Social Sciences, MDPI, Open Access Journal, vol. 2(4), pages 221-233, October.
  9. Huberto M. Ennis, 2006. "The problem of small change in early Argentina," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Spr, pages 93-111.
  10. Rockoff, Hugh & White, Eugene N., 2012. "Monetary Regimes and Policy on a Global Scale: The Oeuvre of Michael D. Bordo," MPRA Paper 49672, University Library of Munich, Germany, revised May 2013.
  11. Benjamin Eden, 2007. "The Friedman Rule in an Overlapping Generations Model: Social Security in Reverse," Vanderbilt University Department of Economics Working Papers 0717, Vanderbilt University Department of Economics.
  12. Meissner, Christopher M., 2005. "A new world order: explaining the international diffusion of the gold standard, 1870-1913," Journal of International Economics, Elsevier, vol. 66(2), pages 385-406, July.
  13. Matias Vernengo, 2005. "Economics Ideas and Institutions in Historical Perspective: Cairú and Hamilton on Trade and Finance," Working Paper Series, Department of Economics, University of Utah, University of Utah, Department of Economics 2005_08, University of Utah, Department of Economics.
  14. Osvaldo Meloni & Ana María Cerro, 2005. "Crises & Crashes: Argentina 1885 – 2003," Economic History, EconWPA 0505001, EconWPA.
  15. Huberto M. Ennis, 2003. "Shortages of small change in early Argentina," Working Paper, Federal Reserve Bank of Richmond 03-12, Federal Reserve Bank of Richmond.

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