Eric
Tousaint’s study of the odious debt doctrine
by
Eric Toussaint
Part
8 - Three waves of public-debt repudiations in the USA during the
19th century
In the
1830s, four of the United States repudiated their debts –
Mississippi, Arkansas, Florida and Michigan. The creditors were
mainly British. Sack writes in this regard: “One of the main
reasons justifying these repudiations was the squandering of the sums
borrowed: they were usually borrowed to establish banks or build
railways; but the banks failed and the railway lines were never
built. These questionable operations were often the result of
agreements between crooked members of the government and dishonest
creditors.” (p. 158).
Creditors
who attempted to prosecute the States that had repudiated their debts
in a US federal court had their suits thrown out. To justify its
rejection of the actions, the Federal justice system used the
Eleventh Amendment to the Constitution of the USA, which stipulates
that “The judicial power of the United States shall not be
construed to extend to any suit in law or equity, commenced or
prosecuted against one of the United States by citizens of another
state, or by citizens or subjects of any foreign state.”
Consequently
this unilateral act of repudiation was a success. Sack does not
mention this decision of the Federal courts, probably because it
would have weakened his argument that private creditors should be
able to win litigation against a State which does not repay its
debts. The justifications for the repudiation were improper use of
the borrowed funds and the dishonesty of both the borrowers and the
lenders, and Sack correctly sums up this point. There is no mention
of any despotic regime.
Following
the American Civil War (1861-1865), the Federal government required
the Confederate States to repudiate the debts they had contracted in
order to carry on the war. That is one purpose of the Fourteenth
Amendment to the US Constitution, which stipulates that “[…]
neither the United States nor any State shall assume or pay any debt
or obligation incurred in aid of insurrection or rebellion against
the United States”.
The
creditors had purchased securities issued by European bankers on
behalf of the Confederate States, mainly in London and Paris. The
justification for the repudiation was that the loans had served to
finance the rebellion of the Southern States, united against the USA
in the Confederacy. The issue was not whether the Confederate regime
was or was not despotic in nature. It was the purpose of the loans,
and above all the fact that they had been contracted by rebel forces,
that was cited as justification.
A third wave
of repudiations took place in the USA after 1877. Eight Southern
States repudiated their debts on the grounds that the bonds issued
during the period between the end of the American Civil War and 1877
had been used for illicit loans to corrupt politicians (including
former slaves) who were supported by the Northern States. This
repudiation was thus decided upon by racist government officials
(generally members of the Democrat party) who had returned to power
in the South after the withdrawal of the federal troops who occupied
the South until 1877. Sack does not mention this repudiation.
Source
and references:
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