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

56 Pages Posted: 10 Jun 2000

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Carlos A. Vegh

University of Maryland - Department of Economics; University of California at Los Angeles; National Bureau of Economic Research (NBER); Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1998

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.

Suggested Citation

Bordo, Michael D. and Vegh, Carlos A., What If Alexander Hamilton Had Been Argentinean? a Comparison of the Early Monetary Experiences of Argentina and the United States (December 1998). NBER Working Paper No. w6862. Available at SSRN: https://ssrn.com/abstract=227624

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Carlos A. Vegh

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

University of California at Los Angeles ( email )

Box 951477
Los Angeles, CA 90095-1477
United States
310-825-7371 (Phone)
310-825-9528 (Fax)

HOME PAGE: http://vegh.sscnet.ucla.edu

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
27
Abstract Views
983
PlumX Metrics