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Nobel Lecture: United States Then, Europe Now

  • Thomas J. Sargent

Under the Articles of Confederation, the central government of the United States had limited power to tax. Therefore, large debts accumulated during the US War for Independence traded at deep discounts. That situation framed a US fiscal crisis in the 1780s. A political revolution—for that was what scuttling the Articles of Confederation in favor of the Constitution of the United States of America was—solved the fiscal crisis by transferring authority to levy tariffs from the states to the federal government. The Constitution and acts of the First Congress of the United States in August 1790 gave Congress authority to raise enough revenues to service a big government debt. In 1790, the Congress carried out a comprehensive bailout of state governments’ debts, part of a grand bargain that made creditors of the states become advocates of ample federal taxes. That bailout created expectations about future federal bailouts that a costly episode in the early 1840s proved to be unwarranted.

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File URL: http://www.jstor.org/stable/full/10.1086/665415
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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 120 (2012)
Issue (Month): 1 ()
Pages: 1 - 40

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Handle: RePEc:ucp:jpolec:doi:10.1086/665415
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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