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Creditors and Debtors

The history of the United States can be examined through several lenses. It is the history of the power of ideas centering upon the natural rights of the individual. It is a history of our military power, fledging at first in Concord and Lexington, and later the supreme military power in the world in the destruction of Hiroshima. It is a history of the power of creditors over debtors as recession after recession demonstrated the struggle between the two. When Americans declared their freedom from Britain, they did so in part because of the struggle between British creditors and American debtors. In 1777, the Virginia legislature passed an act to sequester British property. Virginia citizens could nullify their debts to the British by paying the amount they owed to the Virginia’s treasury.[1] Of course payments could be made in Virginia’s paper currency, not British pounds, and the paper currency was worth only a tenth of the British pounds. Shay’s Rebellion (named after Daniel Shay, a revolutionary war hero) is another example of creditors and debtors at war with one another. After the Revolutionary War, in 1786, Massachusetts farmers protested the seizing of the farms for debts. The farmers, revolutionary retired soldiers, who returned home with government certificates treated as worthless paper money, found their land taxes horribly burdensome and were unable to pay their debts. Farms were seized by creditors (merchants and government officials). Over 4,000 farmers organized, marched on debtors’ courts to stop foreclosures.[2] The rebellion was over by 1787 when the Massachusetts Governor James Bowdoin organized a militia that fired upon the farmers and routed them. Shay’s Rebellion convinced the merchant class that a stronger national government was a must. In 1819, the nation’s economic expansion ended as the Second Bank of the United States tightened credit due to western land speculation. The Bank called in its loans which meant that state banks tightened credit upon land speculators who could not repay. State banks failed and with them, farmers and merchants lost needed credit. As a consequence, banks foreclosed on farms and the nation’s prosperity was curtailed.[3] Struggles between creditors and debtors continued through the 19th century culminating in the success of the “robber barons,” such as James Hill and J. P. Morgan, in the late 19th century.[4] Who controls the twenty first century financial interests? The creditors now are commercial and investment banks, individual American and foreign investors, pension funds, mutual funds, insurance companies and overseas countries. The financial interests who provide the support for financial services are the commercial and investment bankers. These financial leaders in the United States provide financial services to all levels of government – they buy and sell bonds. These financial leaders profit from the need for all levels of government to borrow funds for long-term capital improvements (bonds) and/or short term revenue needs (revenue anticipation notes or tax anticipation notes). Government bonds represent a promise by government to pay back lenders both the principal and interest of the amount borrowed. The borrowed funds are used for a vast array of projects. Does there still remain tension between creditors and debtors? Indeed there does. Today, these creditors control our local and state governments through the issuing of government bonds and the creditors’ willingness to deny loans to local and state governments that are considered risky investments. These creditors are, indeed, very powerful. [1] Smith, John. 1996. John Marshall, page 153. [2] For a detailed account of Shay’s Rebellion, see Richards, Leonard, Shay’s Rebellion, The American Revolution’s Final Battle. [3] For a detailed amount of the Panic of 1819, read Frederick Jackson Turner’s book, Rise of the New West, [4] For a radical interpretation, see Matthew Josephson’s The Robber Barons, and for a more conservative interpretation of industrial statesmen, see Allan Nevins, John D. Rockefeller, The Heroic Age of American Enterprise.


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