Categories: Economic History, Commerce, Debt, Early Republic, Morality, Speculation

Place: American Colonies, particularly New York and Philadelphia

Time Period: 1750-1800

Bruce Mann outlines the shifting attitude towards debt between 1750 and 1800. In a transition that often mirrored the extension of a commercial market economy, Americans increasingly began to see debt less as a moral sin than a consequence of economic risk. Originally, debt was cast as a moral failing and it was feared because of its connotations with dependency and religious sin. In the early 18th century, most debt took the form of more informal practices (especially account books) that were based on local familial or neighborly connections. With the spread of the market during the 18th century, increasingly formal written instruments that were legally enforceable became more and more common. The Seven Years War and its roller-coaster economic aftermath drove home the point to many people that economic forces were often beyond the control of individuals and spurred colonial legislatures to make some early experimental forays with insolvency legislation. The Revolutionary War and its immediate aftermath of financial chaos brought the issue of debt even more to the fore. With Shays Rebellion in 1786 and rampant speculation in western land and government bonds/securities that occurred in the 1780s and 1790s, more and more people fell under debt and ended up in debtor's prison (including the famous cases of William Duel, whose speculations caused the panic of 1792, and Robert Morris). Debtor's prison in particular, which had been unquestioned as a legacy of English law for much of the 18th century, came under fire. 

Debates over debt culminated in the 1790s with the eventual passage of the Bankruptcy Act of 1800. The Act provided a legal mechanism for those that were insolvent (unable to pay creditors) to go through a process by which they could declare bankruptcy (resolving their debts with creditors). The Act, however, was limited to large-scale commercial debtors (merchants, bankers, brokers, speculators, etc.), a limitation that was largely taken for granted. Debates over the Act often highlighted larger tensions, such as the one between commercial Federalists and agricultural Antifederalists or that between federal power and nationalism. Mann argues that the Act, although legally restrictive, was in practice used by debtors as a tool to help their situation, although it was comfortably repealed in 1803 under the Jeffersonian revolution.

- Changing morality of debt - from one of sin to one of risk, reflective of broader embrace of commercial revolution

- Growth of formal written instruments as a reflection of penetration of commercial market

- Growth of speculation after the Revolution (western land and Revolutionary war bonds/soldier's pay certificates)

- Difference between insolvency (anyone's inability to pay creditors) and bankruptcy (limited to only few that were eligible to go through the legal process of bankruptcy)