Midterm Identifications-8 Financing a New Nation: The U.S. Financial revolution" of the 1790s Flashcards
The US “economic miracle”
1790-1840 GDP grew at 1%+ compared to flat growth in the colonial era. Many more corporations founded, banks, etc.
Authoritarian political economy
George Grenville, PM 1763-1765. Hated gov’t spending and debt Debt raises prices, makes goods uncompetitive, led to unemployment and disorder. Solution: Austerity
George Grenville
PM 1763-1765 leading proponent of authoritarian political economy
The “Continental” (dollar)
June 1775, Continental Congress issues first paper money
Articles of Confederation vs US Constitution (as it relates to public finance)
AoC (1781): Unable to tax, manage currency, govern commerce, borrow money
Constitution (1787): Taxes, commerce, money, post office, patents
Alexander Hamilton’s plan, 1780
Creation of a national bank: secure a large foreign loan (in hard currency), the loan would fund the bank as would private investors. Bank would issue notes backed by hard currency, restore confidence in paper $. Gov’t would own part (but not all) of the bank and receive a loan at 4% to finance the war. The bank would be like the Bank of England, except not a monopoly.
Full restoration of American fortunes would require a stronger central government
Robert Morris and the Bank of North America
1782: founds Bank of North America; funded by French loan
More modest than Hamilton’s proposal; had only cash (no gov’t debt) as funding
America’s first “IPO”
Did help attract foreign investment, increase credit
Hamilton’s “Federalist” financial reforms, 1789-1795
Takes strong measures to prevent default. Arranges for refinancing of foreign debt (mostly through the Dutch) Agrees to locate new capital on the Potomac. Strongly advocates setting up the Bank of the United States.
Assumption of state debts
Assuming the states’ debts led to a more cohesive nation.
