Working Paper: NBER ID: w19008
Authors: George J. Hall; Thomas J. Sargent
Abstract: In 1790, a U.S. paper dollar was widely held in disrepute (something shoddy was not 'worth a Continental'). By 1879, a U.S. paper dollar had become 'as good as gold.' These outcomes emerged from how the U.S. federal government financed three wars: the American Revolution, the War of 1812, and the Civil War. In the beginning, the U.S. government discriminated greatly in the returns it paid to different classes of creditors; but that pattern of discrimination diminished over time in ways that eventually rehabilitated the reputation of federal paper money as a store of value.
Keywords: fiscal policy; government debt; paper money; historical analysis
JEL Codes: E4; E6; H5; H6; N11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| U.S. government's discrimination against certain classes of creditors (F34) | negative perception of paper money (E42) |
| diminishing discrimination over time (J79) | improved reputation of federal paper money (E59) |
| improved reputation of federal paper money (E59) | acceptance as a reliable store of value by 1879 (E42) |