Repudiation

[ole]

Stumbled over a mention of some state's repudiating their debts to Great Britain on or about 1840. First I heard of it, but apparently Mississippi was in on it.

I also discovered that English money was invested heavily in American enterprise. Something like $400 millions. This kind of investment funded things like railroads and factories and such.

Anyone know anything about the "repudiations"? Care to fill me in or point to something?

ole

[elektratig]

Ole,

Off the top of my head, I believe what happened was this. In the mid-1830s, a number of states began to invest in internal improvements -- railroads, canals. Among other things, some of the states issued bonds, or guaranteed bonds to be issued by (say) the railroad company.

Ironically, these investments took place right on the eve of the Panic of 1837. When the Panic hit, the railroad companies went under, the bonds became due, and some states were faced with huge liabilities if they made good on the bonds. Particularly in some southern states, the liabilities were orders of magnitude greater than the entire state budget. I believe it is correct that Mississippi, and a few other states, ultimately passed legislation repudiating their debt altogether.

I do not believe this was an an anti-British move. Some of the bonds were held locally. But they were also held by investors in the north and in Britain.

The only book I have at hand happens to be Daniel Walker Howe's What Hath God Wrought, which refers to the issue as follows:

"The depression dealt harshly with state-sponsored internal improvements, and state-run banks suffered even more. Before the downturn had run its course, eight states plus Florida Territory defaulted on interest payments of their bonded indebtedness. All were in the South or West except for Pennsylvania, two-thirds of whose bonds were held overseas . . ..

"After prosperity returned, Pennsylvania and most of the other states resumed interest payments, but Arkansas, Mississippi and Florida (a state after 1845) repudiated the principal itself, as did Michigan in part."

Howe goes on to point out that these repudiations had an effect on Confederate credit during the Civil War:

"This repudiation had long-term effects on the credit rating of states in the South. A generation later, when the Confederacy tried to market securities in London, British banks remembered that their worst credit experiences had been with southern states and that Jefferson Davis of Mississippi had defended repudiation. Accordingly, they limited their commitment."

[unionblue]

elektratig,

Why do I get the feeling your above post should go on the MONEY, THE Cause? thread?

Sincerely,
Unionblue