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With the Hamilton (a musical by Lin-Manuel Miranda about Alexander Hamilton's life) craze going around, I've heard a few of the songs. While they are typically very easy to understand, one lyric I didn't understand was in "Washington on Your Side" when Madison, Jefferson, and Burr say:

"[MADISON] So he’s doubled the size of the government / Wasn’t the trouble with much of our previous government size?

[BURR] Look in his eyes!

[JEFFERSON] See how he lies

[MADISON] Follow the scent of his enterprise

[JEFFERSON] Centralizing national credit / And making American credit competitive

[MADISON] If we don’t stop it we aid and abet it

[JEFFERSON] I have to resign".

What does it mean that Alexander Hamilton made American credit competitive?

  • Suggest you read Chernow's book that is what that musical is based from. It's very good. He explains very well how the Revolution put the fledgling nation into staggering debt ... and the various ways that were tried to sort that out. – KorvinStarmast Mar 15 '17 at 2:58
  • KorvinStarmast: I read Chernow's book and that definitely helped with understanding how Hamilton managed to help US credit and the debt, but it didn't use the phrase "competitive credit" or anything like it, if I remember correctly. Correct me if I'm wrong, though. – 米凯乐 Mar 15 '17 at 11:18
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    Well, Chernow didn't have the limitation of needing to make his sentences flow and rhyme. – T.E.D. Mar 15 '17 at 13:16
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In my eagerness to write about Hamilton, I missed that the core of the question was the word "competitive". As @T.E.D points out, the use of that word is doubtless influenced by meter and rhyme. I would have to check to see if the playwright's use is supported by contemporary language, but the meaning is that those who have capital and want to lend it are looking for the best deal. Primarily, they want to get their capital back, and with the best mix of risk and reward. One can view this as a competition for the capital. The Articles of Confederation were not competitive credit risks - there was strong evidence that they couldn't even make the interest payments. After Hamilton's reforms, there was enough evidence that the USA was a competitive potential creditor.

At the end of the Revolutionary war the United States had a massive war debt (If I recall correctly, it was higher than any time other than the present, or possibly WWII). The new countries primary trade partner was Great Britain, who was reluctant to trade with a country that had a huge war debt to Great Britain and no practical way to pay that debt.

The new country was also a Republic - a type of government that was effectively untested (my Dutch ancestors force me to qualify the statement), and there was widespread doubt that the government could be effective - the rest of the world employed some form of Monarchy to maintain order and property rights, and the notion of giving a bunch of debtors the right to vote themselves money from the public purse was perceived as quite insane.

Aside: How creditworthy is a republic?

technically most European and colonial municipal governments were non independent republics. There were a number of semi independent republics in Europe at the time - Venice, Genoa, Swiss cantons, imperial free cities, etc., so a republic was not exactly a totally untested form of government in Europe. @magolding in a comment

Excellent point - I believe that the tax collection powers of a sovereign republic (vice the subordinate republics you mention) affect the competitiveness of credit. Development of that thesis in the context of your observation would, I think, be interesting, but outside the scope of OP's question.

The new country rapidly demonstrated a thorough and complete inability to collect taxes. Any state could veto any tax collection, or could vote yes and simply fail to provide any money. Functionally the Articles of Confederation was what we would now call a failed state.

Given those things, who in their right mind would lend to the new country?

Hamilton consolidated the debt and organized the revenue service to begin to make payments on the debt. He created a national bank to stabilize the money supply. American credit had been a bad junk bond; after Hamilton, our was competitive with other countries. We were still a huge credit risk, but Hamilton raised our credit rating to the point where we could borrow.

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    Mark C. Wallace - technically most European and colonial municipal governments were non independent republics. There were a number of semi independent republics in Europe at the time - Venice, Genoa, Swiss cantons, imperial free cities, etc., so a republic was not exactly a totally untested form of government in Europe. – MAGolding Mar 16 '17 at 2:10
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As Secretary of the Treasury, Hamilton produced the First Report on the Public Credit of the U.S. This was the kind of report that would nowadays be published by the rating agencies like Moody's or Standard & Poor's, except that it was a "self-report." Basically, it broke down the public debt and outlined a plan to pay it, using tariffs and excise taxes.

Such a plan was exactly what creditors wanted to see. This allowed the U.S. to "refinance" at an interest rate of 4%, which was the high end of "competitive."

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