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Commercial Associations and the Creation of a National Economy: The Demand for Federal Bankruptcy Law

  • Bradley Hansen (a1)
Abstract

Throughout the nineteenth century, merchants and manufacturers involved in interstate commerce sought federal bankruptcy legislation to overcome diverse and discriminatory state laws that raised the cost of credit and impeded interstate trade. In the last two decades of the nineteenth century, they formed a national organization to lobby for bankruptcy legislation. While many scholars have seen the passage of federal bankruptcy legislation as a response to the economic depression of the 1890s, this article shows that it was the formation of this national organization, rather than the economic crisis, that was the primary force behind the Bankruptcy Act of 1898.

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1 See Freyer, Tony, “The Federal Courts, Localism, and the National Economy, 1865-1900,” Business History Review 53 (Autumn 1979): 343–63; Merkel, Philip, “The Origins of an Expanded Federal Court Jurisdiction: Railroad Development and the Ascendancy of the Federal Court,” Business History Review 58 (Autumn 1984): 336–58; McCurdy, Charles, “American Law and the Marketing Structure of the Large Corporation, 1875-1890,” Journal of Economic History 38 (1978): 631–49, and The Knight Sugar Decision of 1895 and the Modernization of American Corporation Law, 1869-1903,” Business History Review 53 (Autumn 1979): 305–42; Graebner, William, “Federalism in the Progressive Era: A Structural Interpretation of Reform,” Journal of American History 64 (Sept. 1977): 331–57; Pisani, Donald J., “Promotion and Regulation: The Constitution and the American Economy,” Journal of American History 74 (Dec. 1987): 740–68; Scheiber, Harry, “Federalism and the American Economic Order, 1789-1910,” Law and Society 10 (Fall 1975): 57118; Hurst, James Willard, Law and Markets in United States History (Madison, Wis., 1982).

2 Legislators commonly referred to the bill as the Torrey bill, i.e., the bill drafted by Jay Torrey, the president of The National Convention of Representatives of Commercial Bodies, Congressional Record, 55th Cong. 2nd sess., 1898, 1905, 6296, 6429.

3 On the Constitutional limitations of state laws see Newmeyer, R. Kent, The Supreme Court Under Marshall and Taney (New York, 1968), 79-80, 85–6; Zainaldin, Jamil, Law in Antebellum Society (New York, 1983), 3940; Bailey, Hollis R., “An Assignment in Insolvency and Its Effects Upon Property and Persons Out of State,” Harvard Law Review 7 (1893): 281–99; and A Discharge in Insolvency and Its Effects Upon Non-Residents,” Harvard Law Review 6 (1892): 349368.

4 Congressional Record, 39 Cong., 2nd sess., 1867, 1004.

5 Earling, P.R., Whom to Trust: A Practical Treatise on Mercantile Credits (Chicago, 1889), 217.

6 Warren, Charles, Bankruptcy in United States History (Cambridge, Mass. 1935), 9.

7 Baird, Douglas and Jackson, Thomas, Cases, Problems and Materials on Bankruptcy (Boston 1985), 27.

8 Frimet, Rhett, “The Birth of Bankruptcy in the United States,” Commercial Law Journal 96 (1991): 160–88.

9 Sullivan, Teresa, Warren, Elizabeth, and Westbrook, Jay, As We Forgive Our Debtors (Oxford, 1989), 231.

10 Higgs, Robert, The Transformation of the American Economy, 1865-1914 (New York, 1971), 53.

11 Frimet, “The Birth of Bankruptcy in the United States”; Coleman, Peter, Debtors and Creditors in America: Insolvency, Imprisonment for Debt and Bankruptcy, 1607-1900 (Madison, Wisc., 1974), 29; and Friedman, Lawrence, A History of American Law (New York, 1973), 551.

12 Freyer, Tony, Producers versus Capitalists: Constitutional Conflict in Antebellum America (Charlottesville, N.C., 1994), 8690; and McCoy, Drew, The Elusive Republic: Political Economy in Jeffersonian America (Chapel Hill, N.C., 1980), 178–84.

13 On the operation of the bankruptcy laws before the Civil War, see Matthews, Barbara, “Forgive Us Our Debts: Bankruptcy and Insolvency in America, 1763-1841” (Ph.D. diss, Brown University, 1994); Balleisen, Edward J., “Vulture Capitalism in Antebellum America: The 1841 Federal bankruptcy Act and the Exploitation of Financial Distress,” Business History Review 70 (Winter 1996): 473516. On the expenses of the 1867 Act, see Expenses of Proceedings in Bankruptcy, 43rd Cong., 1st sess., Executive Document 19, 1873, serial 1580.

14 Barger, Harold, Distribution's Place in the American Economy since 1869 (Princeton, N.J., 1955), 33. For a description of the role of Chicago wholesalers as creditors, see Cronon, William, Nature's Metropolis: Chicago and the Great West (New York, 1991), 322–23.

15 Nystrom, Paul, The Economics of Retailing vol.1 (New York, 1924), 405.

16 Beckman, Theodore and Engle, Nathaniel, Wholesaling: Principles and Practice (New York, 1924), 158. In 1987 trade credit still accounted for 15 percent of nonfarm, nonfinancial business liabilities, see Elliehausen, Gregory and Wolken, John D., “The Demand For Trade Credit,” Federal Reserve Bulletin 79 (1993): 929–30.

17 On the terms and conditions commonly used for trade credit, see Barger, Harold, Distribution's Place in the American Economy (Princeton, N.J., 1955), 33; Foulke, Roy A., The Sinews of American Commerce (New York, 1941), 158; Hagerty, James, Mercantile Credit (New York, 1913), chaps. II and IV; and Beckman, Theodore, Credits and Collections in Theory and in Practice (New York, 1924), chaps. II and V.

18 Depew, Chauncey, One Hundred Years of Commerce (New York, 1895), 559.

19 For the rate of commercial failures, see U.S. Census Bureau, Historical Statistics of the United States: Colonial Times to 1957 (Washington, 1974), series V 23. This failure rate is calculated from Dun and Bradtsreet's records and counts as failure only firms that failed to pay their creditors. For the rate of business discontinuance, see Investigation of Concentration of Economic Power: Hearings Before the Temporary National Economic Committee, Economic Prologue (Washington, D.C., 1939), 227.

20 Charles Grosvenor, Representative from Ohio, Congressional Record, 55th Cong., 2nd sess., 1898, 1899.

21 Testimony and Arguments an Relation to a Uniform System of Bankruptcy, 46th Cong., 3rd sess., 1881, H. Misc. Doc. 9.

22 Lucius Eaton to Merchants Exchange of St. Louis, Miscellaneous Correspondence, Merchants Exchange Collection, Missouri Historical Society, 18 Oct. 1881. See Memorial of Many Commercial Bodies for Passage of Torrey Bankrupt Bill, 54th Cong., 2nd sess., 1897, S. Misc. Doc. 182, serial 2907 for a description of the variety in state laws.

23 Resolution of Retail Grocers Association of Illinois etc. on Bankruptcy, 55th Cong., 2nd sess., 1897, S. Doc. 155, serial 3600, 19.

24 For a review of state laws as they related to foreign creditors, see Bailey, Hollis, “An Assignment in Insolvency and its Effect upon Property and Persons Out of State,” Harvard Law Review 7 (1893): 281–99; and Whitney, S.Dunscomb, Bankruptcy: A Study in Comparative Legislation (New York, 1893), 151–67.

25 Proceedings of the Second Session of the National Convention of Representatives of Commercial Bodies (St. Louis, Mo., 1899), 87.

26 Memorial of Convention of Commercial Bodies for Passage of Torrey Bankruptcy Bill, 51st Cong., 1st sess., 1890, S. Misc. Doc. 245, serial 2700, 4.

27 Memorials, Press Clippings, Resolutions and Documents on Torrey Bankruptcy Bill, 54th Cong., 1st sess., S. Doc. 237, serial 3354, 89.

28 Memorial of Many Commercial Bodies in Favor of Torrey Bankrupt Bill, 54th Cong., 2nd sess., 1897, S. Doc. 182, serial 2907, 70.

29 Ibid, 77.

30 Quoted in Halsey, Roger F., “Man to Loan $1,500 and Serve as Clerk: Trading Jobs for Loans in Mid-Nineteenth Century San Francisco,” Journal of Economic History 54 (1994): 56.

31 Norvell, Saunders,Forty Years of Hardware (New York, 1924), 117.

32 Remington, Harold, “Bankruptcy Law and Peaceable Settlements of Business Failures,” Yale Law Journal 19 (1908): 591.

33 Credit Men's Bulletin (Jan. 1917): 30; Bradstreet's (9 Jan. 1909): 25.

34 Brewster, Stanley F., Legal Aspects of Credit (New York, 1924), 454.

35 On the history of adjustment bureaus, see Billig, Thomas, “What Price Bankruptcy: A Plea for Friendly Adjustment,” Cornell Law Quarterly 14 (1929): 413–46.

36 The figures for the number of adjustment bureaus are from the listings of adjustment bureaus in trie Dec. issues of the journal of the National Association of Credit Men, Credit Men's Bulletin, later Credit and Financial Management; adjustment bureaus were recognized by the Association and were typically associated with a board of trade or chamber of commerce.

37 Strengthening Procedures in the Judicial System, 72nd Cong., 1st sess., 1931, S. Doc. 65, 184; see also Billig, Thomas Clifford, “What Price Bankruptcy: A Plea For “Friendly Adjustment,’” Cornell Law Quarterly 14 (June 1929): 413–46.

38 Moeckel, Bill, The Development of the Wholesaler in the United States, 1860-1900 (New York, 1953), 118.

39 Advocates of the law spoke frequently of the high costs of the last bankruptcy law and the need to ensure that the many fees associated with it were not duplicated; see, for example, Proceedings of the National Association of Credit Men, 55th Cong., 2nd sess., 1898, S. Doc. 156, serial 3600, 11.

40 Testimony and Arguments in Relation to a Uniform System of Bankruptcy, 46th Cong., 3rd sess., 1881, H. Misc. Doc. 9.

41 Proceedings of the Second Session of the National Convention of Representatives of Commercial Bodies (St. Louis, Mo., 1899), xix.

42 New York Board of Trade to Merchants Exchange of St. Louis, Miscellaneous Correspondence, Merchants Exchange Collection, Missouri Historical Society, 26 July 1883.

43 Jay Torrey to Merchants Exchange of St. Louis, Miscellaneous Correspondence, Merchants Exchange Collection, Missouri Historical Society, 9 Feb. 1885.

44 Proceedings of the First Session of the National Convention of Representatives of Commercial Bodies (St. Louis, Mo., 1889).

45 St. Louis Post Dispatch, 3 Mar. 1889.

46 Proceedings of the Second Session of the National Convention of Representatives of Commercial Bodies (St. Louis, Mo., 1889), xx.

47 Ibid, xxi.

48 Hoffman, Jerald, “Colonel Jay L. Torrey And His Rough Rider Regiment,” (M.A. thesis, University of Wyoming, 1967), 4. Hoffman's thesis provides a biography of Torrey, with an emphasis on his military activities.

49 Hoar, George F., Autobiography of Seventy Years, vol. II (New York, 1903), 302.

50 Congressional Record, 51st Cong., 1st sess., 1890, 7570.

51 Congressional Record, 55th Cong., 2nd sess., 1898, 1928.

52 Congressional Record, 55th Cong., 2nd sess., 1898, 1886.

53 For a detailed account of Torrey's activities related to the war, see Hoffman, “Jay L. Torrey and His Rough Rider Regiment.”

54 Ibid, 127.

55 Proceedings of the Second Session of the National Convention of Representatives of Commercial Bodies (St. Louis, Mo., 1889).

56 Congressional Record, 55th Cong., 2nd sess., 1898, 1905; and Memorial of the National Convention of Representatives of Commercial Bodies, 51st Cong., 2nd sess., 1890, S. Misc. Doc. 24, serial 2819.

57 Jay Torrey to Merchants Exchange of St. Louis, Miscellaneous Correspondence, Merchants Exchange Collection, Missouri Historical Society, 23 Jan. 1890.

58 See, for example, Establishing a Uniform System of Bankruptcy, 51st Cong., 1st sess., 1890, H. Rep. 1386, serial 2811; Memorial of National League of Commission Merchants of United States on Torrey Bankruptcy Bill, 52nd Cong., 2nd sess., 1894, S. Misc. Doc. 92, serial 3167; and Resolution of Retail Grocers Association of Illinois, etc. on Bankruptcy, 55th Cong., 2nd sess., 1898, S. Doc. 155, serial 3600.

59 Broadhead, James in Proceedings of the Second Session of the National Convention of Representatives of Commercial Bodies (St. Louis, Mo., 1889), 83.

60 Proceedings of the First Session of the National Convention of Representatives of Commercial Bodies (St. Louis, Mo., 1889), 33.

61 Lester, Victor, Victorian Insolvency: Bankruptcy, Imprisonment for Debt, and company Winding-Up in Nineteenth-Century England (Oxford, 1995), 161.

62 Congressional Record, 51st Cong., 1st sess., 1890, 10208.

63 Congressional Record, 53rd Cong., 1st sess., 1893, 124.

64 Congressional Record, 54th Cong., 1st sess., 1896, 4670.

65 Conference Report on Bankruptcy Bill, Senate Document No. 294, 55th Cong., 2nd sess., 1898, serial 3615. The Nelson bill and the Henderson, or Torrey, bill differed in four ways. The Nelson bill did not specify the administrative features of the law with nearly as great detail, it also contained fewer provisions for involuntary bankruptcy, fewer grounds for imprisonment for fraud, and fewer opportunities for denial of discharge. See Congressional Record, 55th Cong., 2nd sess., 1898, 6297 for a comparison of the two bills.

66 Congressional Record, 54th Cong., 1st sess., 1896, 4752.

67 Congressional Record, 54th Cong., 1st sess., 1896, 4754.

68 On the role of the Federal Courts in promoting interstate commerce, see Freyer, Tony, Forums of Order: The Federal Courts and Business in America (Greenwich, Conn., 1979); McCurdy, “American Law,” 632, and The Knight Sugar Decision of 1895 and the Modernization of American Corporation Law, 1869-1903,” Business History Review 53 (Autumn 1979): 305–42; Hollander, Stanley, “Nineteenth Century Anti-Drummer Legislation in the United States,” Business History Review 38 (Winter 1964): 479500; Pisani, Donald J., “Promotion and Regulation: The Constitution and the American Economy,” Journal of American History 74 (Dec. 1987): 740–68; and Cochran, Thomas and Miller, William, The Age of Enterprise (New York, 1961), 179.

69 Congressional Record, 55th Cong., 2nd sess., 1898, 1803.

70 Congressional Record, 54th Cong., 1st sess., 1896, 4754.

71 Congressional Record, 55th Cong., 2nd sess., 1898,1793; see also the statements by Mr. Ball, Congressional Record, 55th Cong., 2nd sess., 1898, 1886; Mr Bland, Congressional Record, 55th Cong., 2nd sess., 1898, 1896; Mr Williams, Congressional Record, 55th Cong., 2nd sess. 1898, 1933; and Mr Bodine, Congressional Record, 55th Cong., 2nd sess., 1898, 1939.

72 Congressional Record, 55th Cong., 2nd sess., 1898, 1925.

73 Congressional Record, 55th Cong., 2nd sess., 1898, 1833; see also Mr Howe, Congressional Record, 55th Cong., 2nd sess. 1898, 1938; and Mr Henderson, Congressional Record, 55th Cong., 2nd sess., 1898, 1790; and Mr Grosvenor, Congressional Record, 55th Cong., 2nd sess., 1898, 1899.

74 Congressional Record, 55th Cong., 2nd sess., 1898, 1803.

75 Congressional Record, 55th Cong., 2nd sess., 1898, 6429.

76 Conference Report on Bankruptcy Bill, Senate Document No. 294, 55th Cong., 2nd sess., 1898, serial 3615.

77 Congressional Record, 55th Cong., 2nd sess., 1898, 6431.

78 Congressional Record, 55th Cong., 2nd sess., 1898, 6429.

79 Congressional Record, 55th Cong., 2nd sess., 1898, 6436.

80 Congressional Record, 55th Cong., 2nd sess., 1898, 6299.

81 On the exclusion of banks, railroads, and transportation companies, see Congressional Record, 55th Cong., 2nd sess., 1898, 6427. On the argument that railroad receiverships may have indirectly affected bankruptcy legislation by fueling the opposition to expanded federal court jurisdiction, see Kennedy, Frank R., “The Bankruptcy Court,” in The Development of Bankruptcy and Reorganization Procedures in the Courts of the Second Circuit of the U. S. (New York, 1995); see also Congressional Record, 55th Cong., 2nd sess., 1898, 1806. On the development of receiverships, see Martin, Albro, “Railroads and Equity Receivership: An Essay on Institutional Change,” Journal of Economic History 33 (Sep. 1974): 685709; Chamberlain, D. H., “New Fangled Receiverships,” Harvard Law Review 10 (Oct. 1896): 139–49; and John Franklin Crowell, “Railway Receiverships in the United States,” Yale Review (Nov. 1898): 319-30.

82 Congressional Record, 57th Cong., 1st. sess., 1902, 6940.

83 Congressional Record, 57th Cong., 1st. sess., 1902, 6944.

84 Congressional Record, 57th Cong., 1st. sess., 1902, 6957.

85 Report of the Attorney General of the United States (Washington, D.C., 1900); and Expenses of Proceedings in Bankruptcy, 43rd Cong., 1st sess., Executive Document 19,1873, serial 1580.

86 Davis, Lance and North, Douglass, Institutional Change and American Economic Growth (Cambridge, U.K., 1971), 43.

88 Weibe, Robert, The Search for Order, 1877-1920 (New York, 1967); Hays, Samuel, The Response to Industrialism, 1885-1914 (Chicago, 1957); see also Hurst, James Willard, Law and the Conditions of Freedom in the Nineteenth-Century United States (Madison, 1956), 85.

89 Weibe, 123.

90 Report of the Internal Commerce of the U.S., 51st Cong., 1st sess., 1890, House. Doc. 6, serial 2738.

91 Memorials, Press Clippings, Resolutions and Documents on Torrey Bankruptcy Bill, 54th Cong. 1st sess., S. Doc. 237, serial 3354.

92 Most of the dates (126) were obtained from Report of the Internal Commerce of the U.S., 51st Cong. 1st sess., 1890, H. Doc. 6, serial 2738; the others were found in National Industrial Conference Board, Trade Associations: Their Economic Significance and Legal Status (New York, 1925).

93 Becker, William H., “American Wholesale Hardware Trade Associations, 1870-1900,” Business History Review 45 (Summer 1971): 179200; and “The Wholesalers of Hardware and Drugs, 1870-1900” (Ph.D. diss., Johns Hopkins University, 1969); Moeckel, Bill, The Development of the Wholesaler in the United States, 1860-1900 (New York, 1986), 203; Fitzpatrick, F. Stuart, A Study of Businessmen's Associations (New York, 1925); and Foth, Henry, Trade Associations: Their Service to Industry (New York, 1930).

94 See, for example, Sturges, Kenneth, American Chambers of Commerce (New York, 1915); and Atherton, Lewis, Main Street on the Middle Border (Chicago, 1954), 331–2.

95 Chauncey Depew, One Hundred Years of Commerce, 624.

96 McCurdy, “American Law,” 632.

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