God Was the Poor Man’s Only Surety

The Conference opened with a talk on "Debt, Credit and Poverty in Early Modern England" presented by Dr. J. Craig Muldrew, a history professor from Cambridge (the one in England, not the one in the US).  (He used the term that is the title for this post.)

Though his paper related to Early Modern England, you'll notice striking similarities between what happened then, and what's going on now.  Indeed, Professor Edward Balleisen (a history professor at Duke) connected the dots between then, and now, in his response to Dr. Muldrew's paper.

Dr. Muldrew discussed the ubiquity of informal credit in 17^th and 18^th Century and explained that informality worked largely because of the numerous reciprocal bonds of trust between the contracting parties. Once those bonds were broken, the parties needed to find a way to make judgments about people’s creditworthiness. So, the contracting person’s reputation became a new form of currency. Despite the risks, selling to the poor on credit was essential, he observes, both for charitable and economic reasons. Charity influenced the creditors, because without credit there was no other way poor labourers could purchase necessities and the poor constituted almost 50% of society. Dr. Muldrew stated that the charitable forgiveness of debts (tempered by thrift and discretion) became a part of the market culture. Indeed, he suggested that income distribution through the forgiveness of debts was higher than direct contributions from wealthy households to the poor.

In response to a question posed by Prof. Elizabeth Warren, Dr. Muldrew added that creditors also had pure economic incentives to sell to the poor on credit. They understood that – without the poor – who would be their customers? Trade merchants thus sold to the poor knowing that there was a good chance that many of those debts would not be repaid (default rates were around 11%). One assumes, as well, that they priced goods accordingly.

Reviewing historical accounts from several towns in England in the 17^th and 18^th Centuries, Dr. Muldrew notes that after the bonds of trust were broken, there was a litigation explosion. In the 17^th Century, poor plaintiffs were involved in litigation both as plaintiffs and defendants. Little of the litigation, though, involved suing for bankruptcy. He noted, though, that things changed, and the trends shifted by the 18^th Century. While most of the defendants sued (and imprisoned) in the 17^th Century were formerly wealthy people, the poor increasingly became the defendants (and prisoners) in the 18^th Century though they continued to sue.

In commenting on Dr. Muldrew’s paper, Professor Balleisen noted the connections between the increasingly formal and distant credit transactions in 18^th Century England and the impersonal, bureaucratic, byzantine chain of transactions (mortgages, car loans that are slices of CDOs) that define the US consumer credit industry today. Prof. Balleisen noted a big difference between modern US debtors and 18^th Century British debtors is that few people now think of themselves as creditors and debtors (a point that the next speaker, Teresa Sullivan, raised as well). And, academics, government officials, and others don’t think of people as having this dual role, given the common use of the term "consumer" to describe people who are in debt.

Prof. Balleisen then mentioned a few enduring patterns. Then and now, debt was systemic, it invaded society, it rested on the capacity and the intent of people to pay their bills. Then, and now, the US and England suffer occasional shocks when people didn’t (or couldn’t) pay their bills because of a downward turn in business cycle. He concluded by discussing the law and how it operates to regulate debt. Then, and now, the economic society is governed by the lived experience of law, not simply the statutes that exist. Finally, then and now, parties used non-judicial methods to resolve disputes, including various forms of alternative dispute resolution (arbitration, mediation). They used these methods in part to keep down legal costs.