2. 1841, the USA against British creditors

A debt crisis following U.S. independence led several states in the Union to repudiate or default on debts to British creditors totaling about $121 million, equivalent to $4.4 billion today. Later, after winning the Civil War (1861-1865), the Union repudiated the debts incurred by the southern states to finance the war.

From 1861 to 1865, a civil war raged in Northern America between the Union in the North and the Confederacy in the South. It was common practice at the time for states to finance themselves through debt, with loans from creditors in Europe and England, especially. When the Union won the civil war, the debt of confederate states was repudiated, which means it was officially cancelled by the new government. This debt cancellation concerned the loans taken by the confederacy to finance the war, some of it was even guaranteed by the cotton fields where slaves from Africa were forced to work. The total amount of this debt repudiation is difficult to estimate (historians have tried). Creditors in England and Europe were private individuals, “gentlemen capitalists” who were hoping the Confederacy would win the war and pay their debt through slavery.

The story doesn’t end there. As documented by Eric Toussaint, the debt contracted by confederate states during the Civil War was only a part of the total debt that was never paid to British and European creditors in the 19th century. Before and after the civil war, large investments in railroads and infrastructure like waterways were financed by debt and never paid back by state governments, especially in the South. To the point that the federal U.S. government had to decline support if England came to wage war against the defaulting states. This situation created a bitter relationship between England and the United States, because most of the creditors of unpaid debt were part of the British governing class. As usual in this case, it is difficult to know who exactly these creditors were.  

This article is the second in a series dedicated to the timeline of debt cancellations in history.