Tuesday, May 31, 2011

What They Don't Teach Economists: Hamilton

Google Hamilton's famous phrase and "macroeconomics" and you will get less than a page of links:
"the powerful cement of our Union" + macroeconomics

Hamilton felt that the Federal government would not be able to borrow money from anyone in the future if these debts were not paid. By selling bonds to pay the debt, bondholders would have a direct financial interest to help the new United States government survive and thrive. Creditors who purchased the bonds could use them as collateral for loans, stimulating the economy even more.
He also reckoned that failure to establish the creditworthiness of the Federal government would weaken the United States, and called a permanent, reasonably-sized public debt "the powerful cement of our Union."

Like it or not, the idea worked.