The history of the imminent US bankruptcy

Byron King - Thu 10 Aug, 2006

...It is interesting to speculate what would have happened in the early exploration and development of North America had France followed a similar path in its bankruptcy laws and procedure...

 
 
Early American law closely followed English law. Hence, the legal process of bankruptcy was available during the first days of American colonization. Bankruptcy proceedings and remedies followed the English template and occurred from the British Maritime provinces of Canada to the Massachusetts Bay Colony to the Virginia settlements. English bankruptcy procedure spread wherever English colonization carved a trail. The State of Georgia was founded as a "debtors' colony," to which English debtors were sent in lieu of debtors' prison in England.

The concept of "indentured servitude" became established in the Colonies, as both a means of emptying the English jails and of populating the New World with a labour force. The religious nature of many early American settlements provided an overt intellectual foundation, if not also a moral justification and a stern warning, for what followed. One verse that was oft cited was Proverbs 22:7 - "The rich rule over the poor and the borrower is slave to the lender."

The history of the imminent US bankruptcy: Indentured servitude

Indentured servitude was a means by which debtors could work off their debt through physical labour to benefit the creditor. Many individuals in England, looking for a way out of a system stratified by class and rigid economic limits, booked passage to the New World by signing up as indentured servants to pay the fare. The indentured servitude concept evolved to where creditors bought and sold indentured servants in a manner that paralleled slave ownership. Instead of being based on race, however, indentured servitude was based on economic condition and debt. The worth of any given indentured servant could actually be reduced to a net value.

In pre-Revolutionary America, indentured servitude became an established legal remedy. There was a well-defined system of chasing down, apprehending and returning indentured servants who had "escaped" from their situation, which formed the model for later fugitive slave laws. One of the most famous indentured servants in American history was a young man named Benjamin Franklin, whose later views on avoiding and staying out of debt were very much formed and informed by his early indentured experiences.

It is interesting to speculate what would have happened in the early exploration and development of North America had France followed a similar path in its bankruptcy laws and procedure. France, too, had many poor people and not a few debtors who owed quite a bit of money to creditors. But instead of adopting a national policy to send its poor and indebted to the New World, France sent Jesuit priests (and some explorers and traders) to its territories in Canada.

Apparently lacking an understanding of the use to be made of indentured servants in overseas colonies, France kept much of its debtor class at home. French society and legal process was content merely to throw the debtors into a French version of debtors' prison. In many instances, French authorities took these "sweepings of the jail," as they were called, and put them to work serving in the army and fighting wars with France's neighbours.

So in the 17th and 18th centuries, Britain sent debtors to the New World. France sent priests and a few trappers and traders, and remarkably few women. After a century of such divergent immigration patterns, France was confronted with a populous group of English-speaking, British-controlled colonies to the south of its own holdings in Quebec, Ontario, and beyond Michigan and Wisconsin to as far west as the Rocky Mountains. And by the 1750s, the English-speakers south of the Great Lakes were expanding west into the French territories of the Ohio River Valley.

The history of the imminent US bankruptcy: Conflict

Thus, there came a time when French interests came into direct conflict with the expanding colonial and demographic interests of Britain. Open warfare between Britain and France erupted in western Pennsylvania (involving, by the way, a young Virginian named George Washington). The French enlisted Indian allies and waged the Seven Years' War (1756-1763). This war expanded from its roots around the Great Lakes region to oceans and colonies throughout the world.

At one stage of the fighting in North America, the French and their Indian allies pushed English settlement back east of the Appalachian Mountains and into present day York County, Pa. (For the next 200 years, the collective memory of Indian atrocities toward white settlers during this war would carry great weight in the thinking processes of both colonial, and later US, policies toward the otherwise native Americans. This is another discussion for another time.) But eventually, the manpower and resources of the British territories prevailed against the French. Not a few formerly indentured servants in Colonial America "bought" their freedom with service to the English king during the Seven Years' War.

The Seven Years' War put an end to French territorial expansion in Canada and severely curtailed what the French were able to do in their lands west of the Mississippi. At war's end, Canada became a British territory. In the late 1770s and early 1780s, the French monarchy attempted to regain some advantage in North America by supporting the US Revolutionaries who were fighting against the British. Famous names such as Marquis de Lafayette and Comte de Rochambeau assisted the Americans ashore. And it was a French fleet under Comte de Grasse that sealed the fate of the British under Gen. Charles Cornwallis by trapping the British Army at Yorktown in 1781.

The history of the imminent US bankruptcy: Legislature

But fighting a battle for empire is expensive, even for a French king. By the late 1780s, the French leadership had to summon together a legislature for the purpose of raising revenue to meet the otherwise unpayable debts of the French nation. Once convened, the legislature had a few ideas of its own. And the French monarchy, having no emigration outlet for its vast debtor class, ultimately faced many of its impoverished citizens in the streets of Paris during the French Revolution in 1789.

The French Revolution was an outgrowth of the need for the French government to confront its national debt. This revolution was truly an example, writ large, of the ancient Roman concept of bancus ruptus, except that in this case, the French people smashed the entire national system of governance and a whole lot more. The national debt of France was a result of a long series of efforts by the monarchical government to gain and hold empire. Yet the French effort to gain and hold empire did not include a national policy of "exporting" large numbers of the nation's poor people to distant lands where they could find some hope, if not make trouble for others.

The French Revolution gave rise to Napoleon. And in 1803, Napoleon found himself badly in need of funds and facing an indefensible situation in North America. So Napoleon sold France's Louisiana Territories to a young and rising United States of America and its ambitious and prescient President Jefferson. The price for the Louisiana Territories was all of three cents per acre. For France, this was truly a national bankruptcy sale.

Until we meet again...


Byron W. King
for The Daily Reckoning
 

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