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Alexander Hamilton's Market Based Debt Reduction Plan

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  • Peter M. Garber

Abstract

In 1790, Alexander Hamilton, the first Secretary of the Treasury of the United States, initiated a program to refund the U.S. debt. Debt that had sold at 75% discount two years earlier would be refunded at par into new funded debt of the new federal government. All foreign indebtedness would be repaid. I present evidence that Hamilton's actual refunding policy did not differ in nature from that envisioned under the recent Brady plan. I will show that the bond package for which the old debt exchanged had a market value well below par. Thus, a large part of the face value of the debt was effectively written off. I compare the Hamilton restructuring package to the recent Mexican restructuring package to find points of similarity to the Brady plan.

Suggested Citation

  • Peter M. Garber, 1991. "Alexander Hamilton's Market Based Debt Reduction Plan," NBER Working Papers 3597, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3597
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    1. Calomiris, Charles W., 1988. "Institutional Failure, Monetary Scarcity, and the Depreciation of the Continental," The Journal of Economic History, Cambridge University Press, vol. 48(1), pages 47-68, March.
    2. Jeremy Bulow & Kenneth Rogoff, 1991. "Sovereign Debt Repurchases: No Cure for Overhang," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1219-1235.
    3. Michael D. Bordo & Eugene N. White, 1990. "British and French Finance During the Napoleonic Wars," NBER Working Papers 3517, National Bureau of Economic Research, Inc.
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    1. Grubb, Farley, 2008. "The Continental Dollar: How Much Was Really Issued?," The Journal of Economic History, Cambridge University Press, vol. 68(1), pages 283-291, March.
    2. Cole, Harold L & Dow, James & English, William B, 1995. "Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 365-385, May.
    3. Farley Grubb, 2008. "The Continental Dollar: What Happened to It after 1779?," NBER Working Papers 13770, National Bureau of Economic Research, Inc.
    4. Hall, George J. & Sargent, Thomas J., 2014. "Fiscal discriminations in three wars," Journal of Monetary Economics, Elsevier, vol. 61(C), pages 148-166.
    5. Herschel I. Grossman & Taejoon Han, 1991. "A Theory of War Finance," NBER Working Papers 3799, National Bureau of Economic Research, Inc.
    6. Vitor Gaspar, 2014. "The Making of a Continental Financial System: Lessons for Europe from Early American History," IMF Working Papers 2014/183, International Monetary Fund.

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