Moral shame or name of the game?

As we face consumer debt, bear markets, corporate scandals and bankruptcies, it is fitting that we can read one of the best commentaries available on America's comparable crises of two centuries ago. Bruce Mann, a noted authority on early American law and society, offers an incomparable study of 18th-century indebtedness and insolvency, tackling a tough subject with clarity and sympathy.

Europeans long suspected that American bankruptcy law was a cover for fraud and dishonesty, but also came to regard the ease with which people appeared to rebound from failure as denoting the US economy's elasticity and entrepreneurial flair. Near the end of the book, Mann considers whether bankruptcy did mark the chance for rebirth, rather than social death. His uncertain answer reflects the complexity of credit and debt, and their links with other aspects of the new republic's social and political life.

On the face of it, Republic of Debtors traces a straightforward story of transition during the 18th century. At first, debt was associated with sin, and insolvency condemned from pulpits as moral failure. But credit relationships in early America were ubiquitous, and most people were both creditors and debtors. Distinction came to be made between debts incurred in trade, which could be regarded as necessary, and those attributable to excessive consumption, which still carried implications of guilt.

The commercial expansion and growth in consumption that preceded the revolution drove a shift in understanding, by which debt and insolvency were increasingly seen as unfortunate consequences of risk, rather than personal failings. By the end of the 18th century, Mann argues, the moral connotations of debt and failure had been largely secularised, shorn of their religious implications.

Mann pursues two main themes: imprisonment for debt, and the law of bankruptcy. In early America, as in England, creditors could have debtors jailed, and although debt was not formally a crime, its consequences could be punishing. Escape to distant parts or confinement to one's home to avoid the process server or arrest often frustrated pursuit.

The book gives a compelling account of the conditions in debtors' prisons and of the constitution and "supreme court" operated by the inmates of New York's New Gaol from 1795 to 1798 - a "debtors' republic" indeed. Failed speculations in the 1790s put many prominent men, as well as poor men, behind bars: the most famous was Robert Morris, the country's richest man, whose land deals imploded in 1797, landing him and others in irretrievable trouble.

Mann argues that this fostered a campaign for the abolition of imprisonment for debt that furthered the evolution of the notion that insolvency was an economic not a moral condition. Simultaneously, Congress sought to enact the federal bankruptcy statute envisaged in Article I, Section 8 of the US Constitution. The Bankruptcy Act of 1800 sparked joyous celebrations in debtors' prisons, epitomising, in Mann's view, the emergent understanding of debt as misfortune. But that is only one version of the story. As Mann concludes, the tale was by no means complete. Imprisonment for debt did not end with the change of century: it would last in New York state for 30 years more and in Pennsylvania until 1842.

The vigorous campaigns needed to abolish it put the stirrings of the 1790s in the shade. The 1800 bankruptcy statute, devised to last five years, was repealed in 1803, a little-lamented victim of a widespread perception that it validated fraud. Later federal statutes of 1841 and 1867 also proved temporary. Only since 1898 has provision for bankruptcy been permanently a part of federal law.

Much remains left to be said about debt and credit in subsequent periods, yet it would be wrong to underestimate Mann's contribution. The clarity and liveliness of his treatment of the debt process, imprisonment and political debates on bankruptcy often disguise the ingenuity and imaginativeness with which he has teased out evidence from difficult sources. He offers a crucial insight into the class dynamics of debt and debt reform at the end of the 18th century.

Although he claims to have traced a clear trend in the ideology of debt and credit, Mann by no means suggests these issues became detached from concepts of morality. Though formal bankruptcy might discharge a debtor from his obligations, he was still said to have "failed". Late 18th-century Americans wrote earnestly about the links between solvency and "independence". Likening insolvency to slavery, they pondered the implications of a state of dependency for their sense of manliness. Even as the genteel obtained legal protections and privileges in their misfortune, they had to confront the legacy of a moral tradition that judged loss and failure harshly.

Though Mann does not dwell on it, the repeal of the 1800 Bankruptcy Act marked the existence of other views of debt and credit that were to sustain debate for the next century or more. Though they are often muted, contesting and opposing voices still underscore the harmonies of the American financial and business system today. Anyone interested in the history of American law and business will find this an enlightening book.

Christopher Clark is professor of North American history, University of Warwick.