Page:The New International Encyclopædia 1st ed. v. 17.djvu/66

REPtTDIATION. 50 REPUDIATION". in the plea that the ohliyiitions previously ailniitleJ were illefjal and thi'iefoic invalid. Debt- scaling by ret u ml in;; operations freipiently ap- proaches repudiation in its practical elVeels, th()Uf,'h it generally escapes the reproach of the name unless there are obligations or classes of obligaticjns which are wholly ignored in the pro- cess. Among nations and States of weak public credit the practices mentioned are only too familiar, but the odium of the name attaches particularly to the history of the financiering of the American commomvealths. In 1790 all exist- ing IState debts had been assumed by the general (jovernment. partly on the ground of justice, be- cause they had been contracted in the prosecution of the Revolutionary War, partly on that of expediency, as a means of strengthening the pub- lic credit. For a period of 40 years thereafter the State governments remained almost free from liabilities, notwithstanding the fact that the War of 1S12 had called for extraordinary expendi- tures, and in 1S30 the aggregate debt of all the States was only .$13,000,000. 'Then began an era of extravagant speculation and reckless enter- prise. Population was increasing, and ijroduction was increasing even faster than population. The resources of the soil were more than equal to any demands that could be made upon them. But as yet no ade<|uate means of communication be- tween producer and consumer had been estab- lished, and a universal need was felt for such facilities of transportation as would insure quick delivery at moderate rates. To the sanguine colonist it seemed that the construction of rail- roads and canals was a work of pulilic importance which would justify almost anv financial assist- ance on the part of the State, and would return the investment a hundredfold. States issued bonds in aid of the construction of railroads and canals, and in the South espe- cially subscribed to bank stock, for the pur- chase of which they issued bonds. In other cases they simply indorsed the bonds of rail- roads and banks. Xor was it difficult for the States to secure loans. The United States national credit stood high abroad. Not only had the interest been promptly paid upon tlie national debt, but the United States offered the extra- ordinary spectacle of a nation which had actually paid the principal. European money-lenders, who had not j-ct learned to discriminate between national and State securities, felt confidence both in the honor and in the resources of the covmtry. The bonds of the several States were therefore easily disposed of in forei.an markets, until in 1842 their aggregate debt had swollen to the enormous total of fi!21.'!.000,000, an increase of more than 1500 per cent, since 1830. The panic of 1837 and the subsequent tightening of the money market precipitated the inevitable era.sh. First, Indiana found it impossible to meet the interest of her debts in 1840; Ohio was saved from following her example only by extra- ordinary efforts. Two years later the Bank of Pennsylvania failed, and every bank south of Philadelphia suspended payment. In the panic that ensued. Pennsylvania, Maryland, Missi.s- sippi, Michigan, Florida, Indian.a, and Illinois found themselves in a condition approaching bankruptcy. But though all these States sus- pended pa.vment of accruing interest, all of them, except Mississippi, Michigan, and Florida, finally weathered the storm without resorting to the repudiation of any part of the capital debt. It was in Mississippi that the word repudiation originated, in a message by Governor ilcXut of that State suggesting the plan of ■"reimdiating the sale of certain of the State bonds on account of fraud and illegality." The bonds, to tlie amount of .$.7,0()t),000, had been issued in 1838 as a sub- scription to stock of the Union Bank of Missis- sippi. As the bank succumbed early to reckless management and the security of the State be- came worthless, the State found itself saddled with a debt from whose expenditure it had had no benefit. It is not surprising that certain ap- parent irregularities in the issue of the bonds should be seized upon as a pretext for denying the debt, though the courts of the State later decided that these irregularities were not so material as to invalidate the bonds. The Legis- lature of Mississippi promptly branded this sug- gestion of repudiation as "a calumny upon the justice, honor, and dignity of the State." But though for the time being the bonds were thus saved from being formally repudiated, they fell into default. Successive Governors, indeed, urged their payment, but no provision was made for the purpose until 1852, when a proposition to levy a tax to pa.y the bonds and interest was submitted to the people and defeated at the jiolls by an over- whelming majorit.v. Florida, which in the thirties had borrowed aboiit $3,900,000 for the sujiport of banks, was caught in the bank failures and re- fused to pay her debts. In the meanwliile Michi- gan had repudiated a portion of its liabilities under the following circmnstances : Certain bonds had been disposed of to the Jlorris Canal and Banking Company, to be ]jaid for in install- ments. The Bank of Pennsylvania had become surety for the payment of tiiese installments as they fell due. But canal company and bank both failed. It was ascertained that a large amount of the bonds, for which only partial payment had been made, luid been transferred from the canal company to the bank, the latter having full knowledge, of course, of all the facts. It is true that the bonds had been h.vpothecated in foreign markets, and were now in the possession of inno- cent holders. Nevertheless, the State claimed that it was bound to repay onl.y the monev it had actually received, called for the surrender of the 'part paid' bonds, and issued new cer- tificates for the amount it had actually received, with interest thereon. The course pursued by Louisiana was equally open to criticism. The State had raised eapita'l for internal improvements by loaning her credit to banks whose stock was secured by mortgages on real estate. During the era of prosp'erity these banks discounted a great deal of business paper which turned out to be bad when the day of trial came. In 1843 the Legislature enacted that all debts due to the bank should be p.iyable in the depreciated State bonds issued by the banks, at their par value. In ante-bellum times, how^ever, repudiation was in its infancy. After the war it sjjrang to great proportion's, as the Southern States generally repudiated their debts. The burden of debts had gi-eatly increased from 18()0 to 1870, while the resources of the country had been wasted by the war. Practically no in'- terest had been paid upon the debt contracted before the war. The so-called period of recon- struction was, moreover, riotous in its expendi-