Outrage echoed across the country even before Hamilton's plan got adopted. Jefferson denounced the currency speculators as loathsome creatures and had this to say about debt in general: "The modern theory of the perpetuation of debt has drenched the earth with blood and crushed its inhabitants under burdens ever accumulating." He and others denounced the speculators as squadrons of counter-revolutionary "moneycrats" who would use their power and wealth to undo the democratic accomplishments of the revolution.
In contrast, Hamilton saw them as a disinterested monied elite upon whom the country's economic well-being depended, while dismissing the criticisms of the Jeffersonians as the ravings of Jacobin levelers. Soon enough, political warfare over the debt turned founding fathers into fratricidal brothers.
Hamilton's plan worked—sometimes too well. Wealthy speculators in land like Robert Morris, or in the building of docks, wharves, and other projects tied to trade, or in the national debt itself—something William Duer and grandees like him specialized in—seized the moment. Often enough, however, they over-reached and found themselves, like the yeomen farmers and soldiers, in default to their creditors.
Duer's attempts to corner the market in the bonds issued by the new federal government and in the stock of the country's first National Bank represented one of the earliest instances of insider trading. They also proved a lurid example of how speculation could go disastrously wrong. When the scheme collapsed, it caused the country's first Wall Street panic and a local depression that spread through New England, ruining "shopkeepers, widows, orphans, butchers... gardeners, market women, and even the noted Bawd Mrs. McCarty."
A mob chased Duer through the streets of New York and might have hanged or disemboweled him had he not been rescued by the city sheriff, who sent him to the safety of debtor's prison. John Pintard, part of the same scheme, fled to Newark, New Jersey, before being caught and jailed as well.
Sending the Duers and Pintards of the new republic off to debtors' prison was not, however, quite what Hamilton had in mind. And leaving them rotting there was hardly going to foster the "enterprising spirit" that would, in the treasury secretary's estimation, turn the country into the Great Britain of the next century. Bankruptcy, on the other hand, ensured that the overextended could start again and keep the machinery of commercial transactions lubricated. Hence, the Bankruptcy Act of 1800.
If, however, you were not a major player, debt functioned differently. Shouldered by the hoi polloi, it functioned as a mechanism for funneling wealth into the mercantile-financial hothouses where American capitalism was being incubated.
No wonder debt excited such violent political emotions. Even before the Constitution was adopted, farmers in western Massachusetts, indebted to Boston bankers and merchants and in danger of losing their ancestral homes in the economic hard times of the 1780s, rose in armed rebellion. In those years, the number of lawsuits for unpaid debt doubled and tripled, farms were seized, and their owners sent off to jail. Incensed, farmers led by a former revolutionary soldier, Daniel Shays, closed local courts by force and liberated debtors from prisons. Similar but smaller uprisings erupted in Maine, Connecticut, New York, and Pennsylvania, while in New Hampshire and Vermont irate farmers surrounded government offices.
Shays' Rebellion of 1786 alarmed the country's elites. They depicted the unruly yeomen as "brutes" and their houses as "sties." They were frightened as well by state governments like Rhode Island's that were more open to popular influence, declared debt moratoria, and issued paper currencies to help farmers and others pay off their debts. These developments signaled the need for a stronger central government fully capable of suppressing future debtor insurgencies.
Federal authority established at the Constitutional Convention allowed for that, but the unrest continued. Shays' Rebellion was but part one of a trilogy of uprisings that continued into the 1790s. The Whiskey Rebellion of 1794 was the most serious. An excise tax ("whiskey tax") meant to generate revenue to back up the national debt threatened the livelihoods of farmers in western Pennsylvania who used whiskey as a "currency" in a barter economy. President Washington sent in troops, many of them Revolutionary War veterans, with Hamilton at their head to put down the rebels.
Debt Servitude and Primitive Accumulation
Debt would continue to play a vital role in national and local political affairs throughout the nineteenth century, functioning as a form of capital accumulation in the financial sector, and often sinking pre-capitalist forms of life in the process.
Before and during the time that capitalists were fully assuming the prerogatives of running the production process in field and factory, finance was building up its own resources from the outside. Meanwhile, the mechanisms of public and private debt made the lives of farmers, craftsmen, shopkeepers, and others increasingly insupportable.
This parasitic economic metabolism helped account for the riotous nature of Gilded Age politics. Much of the high drama of late nineteenth-century political life circled around "greenbacks," "free silver," and "the gold standard." These issues may strike us as arcane today, but they were incendiary then, threatening what some called a "second Civil War." In one way or another, they were centrally about debt, especially a system of indebtedness that was driving the independent farmer to extinction.
All the highways of global capitalism found their way into the trackless vastness of rural America. Farmers there were not in dire straits because of their backwoods isolation. On the contrary, it was because they turned out to be living at Ground Zero, where the explosive energies of financial and commercial modernity detonated. A toxic combination of railroads, grain-elevator operators, farm-machinery manufacturers, commodity-exchange speculators, local merchants, and above all the banking establishment had the farmer at their mercy. His helplessness was only aggravated when the nineteenth-century version of globalization left his crops in desperate competition with those from the steppes of Canada and Russia, as well as the outbacks of Australia and South America.
To survive this mercantile onslaught, farmers hooked themselves up to long lines of credit that stretched back to the financial centers of the East. These lifelines allowed them to buy the seed, fertilizer, and machines needed to farm, pay the storage and freight charges that went with selling their crops, and keep house and home together while the plants ripened and the hogs fattened. When market day finally arrived, the farmer found out just what all his backbreaking work was really worth. If the news was bad, then those credit lines were shut off and he found himself dispossessed.
The family farm and the network of small town life that went with it were being washed into the rivers of capital heading for metropolitan America. On the "sod house" frontier, poverty was a "badge of honor which decorated all." In his Devil's Dictionary, the acid-tongued humorist Ambrose Bierce defined the dilemma this way: "Debt. n. An ingenious substitute for the chain and whip of the slave-driver."
Across the Great Plains and the cotton South, discontented farmers spread the blame for their predicament far and wide. Anger, however, tended to pool around the strangulating system of currency and credit run out of the banking centers of the northeast. Beginning in the 1870s with the emergence of the Greenback Party and Greenback-Labor Party and culminating in the 1890s with the People's or Populist Party, independent farmers, tenant farmers, sharecroppers, small businessmen, and skilled workers directed ever more intense hostility at "the money power."
That "power" might appear locally in the homeliest of disguises. At coal mines and other industrial sites, among "coolies" working to build the railroads or imported immigrant gang laborers and convicts leased to private concerns, workers were typically compelled to buy what they needed in company scrip at company stores at prices that left them perpetually in debt. Proletarians were so precariously positioned that going into debt—whether to pawnshops or employers, landlords or loan sharks—was unavoidable. Often they were paid in kind: wood chips, thread, hemp, scraps of canvas, cordage: nothing, that is, that was of any use in paying off accumulated debts. In effect, they were, as they called themselves, "debt slaves."
In the South, hard-pressed growers found themselves embroiled in a crop-lien system, dependent on the local "furnishing agent" to supply everything needed, from seed to clothing to machinery, to get through the growing season. In such situations, no money changed hands, just a note scribbled in the merchant's ledger, with payment due at "settling up" time. This granted the lender a lien, or title, to the crop, a lien that never went away.
In this fashion, the South became "a great pawn shop," with farmers perpetually in debt at interest rates exceeding 100% per year. In Alabama, Georgia, and Mississippi, 90% of farmers lived on credit. The first lien you signed was essentially a life sentence. Either that or you became a tenant farmer, or you simply left your land, something so commonplace that everyone knew what the letters "G.T.T." on an abandoned farmhouse meant: "Gone to Texas." (One hundred thousand people a year were doing that in the 1870s.)
The merchant's exaction was so steep that African-Americans and immigrants in particular were regularly reduced to peonage—forced, that is, to work to pay off their debt, an illegal but not uncommon practice. And that neighborhood furnishing agent was often tied to the banks up north for his own lines of credit. In this way, the sucking sound of money leaving for the great metropolises reverberated from region to region.
Facing dispossession, farmers formed alliances to set up cooperatives to extend credit to one another and market crops themselves. As one Populist editorialist remarked, this was the way "mortgage-burdened farmers can assert their freedom from the tyranny of organized capital." But when they found that these groupings couldn't survive the competitive pressure of the banking establishment, politics beckoned.
From one presidential election to the next and in state contests throughout the South and West, irate grain and cotton growers demanded that the government expand the paper currency supply, those "greenbacks," also known as "the people's money," or that it monetize silver, again to enlarge the money supply, or that it set up public institutions to finance farmers during the growing season. With a passion hard for us to imagine, they railed against the "gold standard" which, in Democratic Party presidential candidate William Jennings Bryan's famous cry, should no longer be allowed to "crucify mankind on a cross of gold."