Debt and Society: Newly Timely Historical Perspectives


“Two new books about the historical roots of debt could hardly be more timely,” I wrote for The Washington Post Bookworld in (gulp) 2003. I would have simply posted the link, but you can’t get the review online any more because archives only go back to 2005. But I pulled the review out of my files and it’s newly relevant.

Here’s the original: “American consumers owe more than $1.7 trillion, not even counting home mortgages. A record 1.5 million bankruptcies were declared over the past year. Meanwhile, war with Iraq could cost as much as $2 trillion –roughly equivalent to a full year’s U.S. federal budget, and much of it likely to be financed by borrowing.” [NB -A couple of smart-alecks tried to give me grief for the $2 trillion estimate. Later estimates of the cost of the war –including direct military spending, ongoing medical and disability claims, State Department spending, and interest on the debt– include $3 trillion by Nobel Prize winning economist Joseph Stiglitz and Harvard University Economist Linda Bilmes, and $1.9 trillion by Boston University economist Neta Crawford. So there.]

Updated, this might read: “American consumers owe more than $14 trillion, including $9.7 trillion in mortgages. Just shy of nine percent of US mortgages are in forbearance. We’ve already seen a wave of corporate bankruptcies declared in recent weeks, with many more expected in a “Covid-19 cliff.” A wave of personal bankruptcies is expected to follow. The US government enacted a $2.2 trillion pandemic stimulus plan in March, and trillions more in spending is being debated.”

Herewith, the rest of the review of the two books and the authors’ insights into the historical roots of the debt dynamics that are so urgent today:

Bruce Mann’s Republic of Debtors: Bankruptcy in the Age of American Independence(Harvard University Press, 2003; 347 pages) opens in 1800 as debtors toast America’s first national bankruptcy law. How far the young country had come since the sermons of Samuel Moody and Cotton Mather, who condemned debt as moral turpitude! Mann shows how insolvency in America shed its status as grievous sin and became a mere business risk.

James Macdonald’s A Free Nation Deep in Debt: The Financial Roots of Democracy* (Farrar, Straus & Giroux, 2003; 550 pages) convincingly links the development of government debt to war and to the emergence of democracy. Macdonald, a former investment banker, traces the history of government borrowing from the first foreign bond issue in 283 B.C., through the days of profligate medieval kings, to the patriotic savings bonds that financed the wars of the twentieth century. Cogent and thoughtful, A Free Nation Deep in Debt is a challenging yet fascinating work. Though readers not versed in finance will have to digest it slowly, they will still find a wealth of material here, written clearly and accessibly.

By the early fourteenth century, credit markets were thriving in Italy. Yet government bankruptcies were rife because there were no incentives to control the size of the public debt. Soon, the Netherlands likewise created markets for the trading of government debt but established regular taxes from its league of cities and held its debt in check. This helped it win independence from Spain in 1648 after 80 years of war. “Even if the country has no money, it still has its credit, and the enemy has neither funds nor credit, that I could not deny that we might wear out the enemy through this war, because this land has sufficient funds,” wrote a seventeenth-century Dutch pamphleteer.

War prompted governments to borrow, even as the resulting birth of citizen-creditors laid the foundation for profound political change. A government funded willingly had to be more accountable than one that borrowed only from the privileged classes, who expected to be repaid in more privileges as well as cash.

The disastrous state of royal finances in England, for example, led to the Glorious Revolution of 1688, which toppled James II. Adapting the Dutch model, England set out to build a stable parliamentary government, reliable tax revenues, and a system of long-term borrowing to support its credit markets. In 1694, it created the Bank of England, which issued banknotes not secured by coin and bullion. For the first time, a government could manipulate the money supply and thus prices; this began England’s rise as a world financial power.

For Macdonald, the American Revolution crystallized the link between debt and democracy. The infant United States of America was the first nation to rely on paper money instead of coins and bullion –that is, to finance itself entirely by debt. The debate over how to handle the money supply and Revolutionary War debts, created financial chaos and Wall Street’s first crash, in 1792.

Robert Morris, a financier of the American Revolution and briefly the wealthiest man in America, nearly convinced the new nation to issue currency backed by future tax revenues as the English and Dutch did, instead of printing dubious notes like “a common prostitute among chaste and respectable maidens.” This would have increased the national debt but made it payable. Instead, Morris was among those who lost their fortunes during the inexperienced government’s tug-of-war over debt.

Landlords and creditors wanted a solid currency. Tenants and debtors wanted the greenback to weaken and thus lighten their obligations. Merchants wanted a steadily growing money supply without inflation. In the end, the mercantile class prevailed under policies instituted by Andrew Hamilton.

Bruce Mann’s account of bankruptcy in revolutionary America portrays Morris as a greedy speculator who nonetheless deserved pity and grudging admiration for standing up to his creditors. Broke, Morris holed himself up in his Pennsylvania country home, his own “Castle Defiance,” for seven months. In 1798, he ended up in debtors prison.

Republic of Debtors is rich with anecdotes and characters like Morris. Its detailed portrait of early American life makes up in part for the book’s scattered organization and tendency to repeat itself. Mann, a professor of law and history at the University of Pennsylvania, illustrates the powerful moral and political forces that inflamed the bankruptcy debate in eighteenth-century America.

Many Americans considered their economic troubles to be the fault of poor government. If a man’s business failed through no fault of his own, then how could his insolvency be a sin? In the 1750s and 1760s, pamphleteers –many of them writing from the very debtors prisons they decried—raised a clamor for the end of debtors’ prisons. If debtors were not free, then how were they different from slaves? Meanwhile, creditors wanted to keep other creditors from stepping ahead in line for payment and to prevent crafty debtors who used jail to avoid paying. Nationalists argued against federalists in favor of a commercial bankruptcy law that was enforceable across state lines.

The commercial interests that propelled the 1800 Bankruptcy Act into being also doomed it. Applause for the law masked boos and hisses, for it promised relief only to large commercial borrowers. The majority of debtors –small merchants and farmers- remained out in the cold. The law was repealed after only a few years.

More than two centuries later, Congress wants to make it harder to declare personal bankruptcy. [NB: This indeed happened in 2005 with the Bankruptcy Abuse Prevention And Consumer Protection Act, which Democratic Senator Elizabeth Warren has openly criticized.]

This time, commerce has redeemed the humble American consumer, who now is lauded in the business media as the hero keeping the U.S. economy above water. With bankruptcies up 8 percent in the last year [2003] and the law tightening, we may soon see a new debtors revolt akin to that of eighteenth-century entrepreneurs. Benjamin Franklin’s alter ego, “Father Abraham,” have come back to haunt us with his warning: “He that goes a borrowing goes a sorrowing.”

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Michele Wucker

About Author

Michele Wucker is a global thought leader and the author, most recently, of THE GRAY RHINO: How to Recognize and Act on the Obvious Dangers We Ignore (St Martin's Press, 2016). Learn more about her at

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