"'Repudiation is Now Weighing Like a Mountain': U.S. State Debt and Foreign Bondholders in the 1830s-40s"

This paper centers on the transatlantic role of United States state debt in the era prior to the American Civil War (1861-1865.) In the 1830s, various state legislatures chartered banks to underwrite a drastic expansion in debt. In 1820, total American state indebtedness numbered some $12.7 million. By 1840, U.S. state debt reached more than $170 million. But then it came crashing down. Overextended states could no longer make their interest payments to creditors and refusal to do things like raise sufficient revenue via taxation only served to complicate matters. What happened afterwards troubled investors within the United States and abroad. Eight US states and one future state (the territory of Florida) repudiated their debts while another five states barely avoided repudiation. The U.S. state bond market in the antebellum period proved a fruitful ground of investment for European capitalists. As the debt and defaults mounted, however, conflict increased between the repudiating and even defaulting states and European financiers. As states defaulted or repudiated in the 1840s, however, European agents proved integral to stabilizing United States markets. These acts served their own self-interests, but likewise succeeded despite the vast array of Americans that worked against their efforts. In the end the active role taken by European banks and their respective agents in the United States stabilized some, but not all monetary obligations of various states in the pivotal decade of the 1840s. These institutions expended financial and political capital to ensure American states honored financial commitments and corrected debt defaults—even with some financial pariahs remaining, most notably Mississippi. By looking at government and financial archives, this paper explores the power of lobbyists, publicists, shadow networks, and acts of dubious legality that defined a period of great economic uncertainty— in essence a period of state building centered around scandal.