The Debts We Never Paid

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In 1841 Arkansas defaulted on its bonds; a constitutional amendment (some forty years later) made it illegal ever to pay them. And in Mississippi, the story was even worse. This state had, during the 1830’s, chartered two banks, the Planters’ and the Union, and issued some eighteen million dollars in bonds to get them going. These banks financed the great cotton plantations which covered most of the fertile land in the state. After the Panic of 1837 a touch of recklessness crept into their mode of operation. They speculated strongly in cotton futures; and the most carefree investor might have been disturbed to learn that the Union Bank was refusing to show its books to the state commissioners because “their minds were biased.”

But as long as the price of cotton was going up, nobody cared. The English were delighted to buy the bonds, and the Mississippians were even more delighted to sell them. When news came that five million dollars’ worth had been unloaded on the London Exchange in 1838, “the smoke of great guns,” says the Encyclopedia of Mississippi History , “filled the capital city [Jackson] with a pillar of cloud by day and bonfires and illuminations lighted it with a pillar of fire by night.”

Within three years a different sound was coming out of Mississippi. Estates that had cost $30,000 were being sold for $3,200. The banks were broke. The balance in the state treasury in 1842 was thirty-four cents. Governor Alexander McNutt, described in the histories of the time as a man of “slovenly appearance and intemperate habits,” had in 1839 proclaimed that “the honor of the state must be preserved unsullied.” He discovered in 1841 that there had been certain technical defects in the sale of the bonds: they were not supposed to be sold below par, but some of them had been—perhaps because there were different definitions of the word “par” in America and in England. Consequently he moved to declare all the bonds null and void. The legislature rebuffed him that year, but thought better of it later. In 1852, the state’s High Court of Errors and Appeals ruled that the bonds were a legal obligation, despite any irregularities in their sale; the only practical effect of this decision was to deprive the judges of any chance of ever being elected to office in Mississippi. Sacred obligations were all very well in their way, but not if they meant that people were going to have to pay taxes. “The beds on which your wives and children sleep,” said a newspaper, “the tables on which you eat your daily bread will be taken by the excise men for the benefit of those who sleep in splendid brick palaces, who sleep in mahogany bedsteads, eat with gold knives and forks, and drink champagne as the ordinary beverage of the day.” Are we going to make our children serfs, asked the Governor, to “Baron Rothschild, with the blood of Judas and Shylock in his veins, who has advanced money to the Sublime Porte and taken as security a mortgage upon the holy city of Jerusalem and the sepulchre of our Savior"? That was the kind of talk that appealed to the voters, and a series of electoral triumphs established “the sacred truth that the toiling millions never should be burdened with taxes to support the idle few.”

The action of Mississippi received great criticism from the world at large. A learned judge tried to explain to the more civilized British bondholders that it was unfair to judge Mississippians as you would Londoners. They were more like Highland chieftains: “They mean to pay, but they did not expect when they contracted the debt to distress themselves about the payment. If a friend wants a thousand dollars for a loan or a gift, he can have it, though perhaps a creditor wants it also.”

Friends before creditors remained the watchword as the years went by. In 1875, an article was added to the Mississippi state constitution forbidding any payment on either the Planters’ or the Union Bank bonds. It was added at the suggestion of General Adelbert Ames, then governor, a man detested as a vile carpetbagger by the conservative Democrats of the state. But by 1890, when the Democrats regained control of the state government and rewrote the constitution, they were careful not to leave out the repudiation clause.

By that time, buyers of state bonds had many fresh wounds to weep over. All the states that had joined the Confederacy came out of the Civil War in financial chaos. Their treasuries held nothing but worthless paper. Half of their taxable property had been destroyed by the invading armies or set free by the Emancipation Proclamation. The Reconstruction governments imposed by Northern arms had to borrow money to get a semblance of normal life going again. Bonds were issued more or less haphazardly, and squads of agents were dispatched to Europe to unload them for what they could get. Prudent investors noted that the regimes issuing these bonds were not very stable and that if they were overthrown, their paper would not be worth any more than the Confederacy’s. But there were plenty of imprudent investors.