The Daily Reckoning
Ouzilly, France
Wednesday, August 02, 2006
The Daily Reckoning PRESENTS: Today, Byron King wraps up his look at the
history of bankruptcy and how not confronting national debt has ultimately
led to the destruction of empire. Read on...NATIONAL BANKRUPTCY, PART IIby Byron King
SourceEarly 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 labor 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."
Indentured servitude was a means by which debtors could work off their
debt through physical labor 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 neighbors.
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.
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 U.S., 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 U.S. 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.
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
Editor's Note: Byron King currently serves as an attorney in Pittsburgh,
Pennsylvania. He received his Juris Doctor from the University of
Pittsburgh School of Law in 1981 and is a cum laude graduate of Harvard
University. He is a regular contributor to the free e-letter, Whiskey and
Gunpowder, which covers resources, oil, geopolitics, military history,
geology and personal freedom.