Later, new classical economists like Robert Lucas and Thomas Sargent demonstrated that once people understand that inflation is being manipulated to generate market optimism, the monetary authorities actions lose their impact. The result is higher prices and no job creation.

Specifically, for European states groaning under unbearable debt burdens, Hamilton s negotiation in 1790 of the new federal government s assumption of the states large debts looks like a tempting model. Indeed, after Thomas Sargent won the Nobel Prize in Economics last year, he cited it as a precedent in his acceptance speech.