The Debts We Never Paid

PrintPrintEmailEmail

William Wordsworth, the most benign of poets laureate and best remembered for his idyllic view of daffodils and country maidens, was capable, when provoked, of flashes of baleful fire. Thus, in a sonnet published in 1845:

All who revere the memory of Penn Grieve for the land on whose wild woods his name Was fondly grafted with a virtuous aim, Renounced, abandoned by degenerate Men For state-dishonour black as ever came To upper air from Mammon’s loathsome den.

These “degenerate Men” were the citizens of the commonwealth of Pennsylvania, and their reputation was low in the early 1840’s. “I never meet a Pennsylvanian at a London dinner,” wrote the Reverend Sydney Smith in a letter to a newspaper, “without feeling a disposition to seize and divide him; to allot his beaver to one sufferer and his coat to another—to appropriate his pocket-handkerchief to the orphan, and to comfort the widow with his silver watch, Broadway rings and the London Guide, which he always carries in his pockets. How such a man can set himself down at an English table without feeling that he owes two or three pounds to every man in company I am at a loss to conceive: he has no more right to eat with honest men than a leper has to eat with clean men.”

The reason for these outbursts? Pennsylvania, caught in the great depression that began with the Panic of 1837, had stopped paying interest on its bonds, thousands of which had been sold to English middle-class families like the Wordsworths and the Smiths. It is hard to imagine proper Pennsylvania doing anything of this sort. And, it is only fair to mention at once, it did resume payments in full in a couple of years, and received a commendatory footnote in Wordsworth’s collected works. The Wordsworth family held on through the dark period. Sydney Smith, on the other hand, sold his holdings at a forty per cent loss and sourly announced that he was switching to Abyssinian securities. But few defaulting states showed as much conscience as Pennsylvania.

Our schoolbooks and our political orators tend to leave us with the impression that the American pioneer went west and opened up the country with nothing but his axe, his Kentucky rifle, and his McGuffey’s Reader . If he had, he would have been condemned to a semibarbarous life in a log hut, trading surplus swine to an occasional peddler for calico and gunpowder. To open the way to a glorious and profitable future he needed two mechanisms which are now in ill repute among his descendants: Bureaucratic Planning, in the form of state-built canals and railroads that could take his produce to market cheaply; and Foreign Aid, in the form of capital from overseas to pay for these means of transportation.

The huge construction projects necessary were far beyond the means of private enterprise. There was little or no surplus capital in the United States available for investment. New York State found the solution by borrowing seven million dollars, mostly in England, to build the Erie Canal. This was so spectacularly successful—it opened the markets of the world to western grain, it made New York City the business capital of the country, and in addition it made enormous profits—that every other state, from staid old Pennsylvania to savage little Arkansas out in its wilderness, wanted to do likewise. The federal government at this period did not believe in spending money on public improvements, and so it was up to the states to draw up their own projects and raise their own funds.

Unlike the Pakistanis and the Ghanaians of today, the impecunious leaders of nineteenth-century states could not wheedle money out of cold-warring Great Powers. But there was plenty of private money in western Europe. The bourgeoisie there was beginning to cash in on the profits of the Industrial Revolution, and the money markets of London and Amsterdam were awash in funds waiting for lucrative investment opportunities. In Europe there were always wars or the threat of wars, and capital might go up in smoke any minute. But across the Atlantic was the brand-new land of America, with no enemies except ragged Indians, with unlimited resources, and moreover willing to pay considerably higher interest than European borrowers. The American states needed cash desperately, just to keep a minimum of governmental activity and commerce going, and though most of them could get away with paying six per cent interest, others were forced to go up to ten, fifteen, and even higher. The state of California, starting life from scratch in 1850, with a nonexistent treasury, offered thirty-six per cent on its fhst bond issue.

Every report from America emphasized the growth, the fantastic growth. And the Americans were generally believed to be thrifty and reliable. Hadn’t the government at Washington paid oft the entire national debt in 1835 and started passing out its annual surplus in loans to the states? (Those loans, incidentally, are still on the books, no state ever having offered to repay them.) No wonder that all England—bankers, dukes, clergymen, widows, orphans, poets laureate-hurried to invest. And to urge investors on even more, the bond-issuing states sent over special agents, fast-talking Yankees, to pass out prospectuses and spread the good tidings of perpetual profits.