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Bankruptcy, Discharge, and the Emergence of Debtor Rights in Eighteenth-Century England

Published online by Cambridge University Press:  16 October 2018

ANN M. CARLOS ,
EDWARD KOSACK  and
LUIS CASTRO PENARRIETA
ANN M. CARLOS
Affiliation:
Ann M. Carlos is a professor of Economics at the University of Colorado Boulder. She received her Ph.D. from the University of Western Ontario. Contact: Department of Economics, University of Colorado Boulder, Boulder CO. E-mail: ann.carlos@colorado.edu
EDWARD KOSACK
Affiliation:
Edward Kosack is an assistant professor of Economics at Xavier University. He received his Ph.D. from the University of Colorado Boulder. Contact: Department of Economics, Xavier University, Cincinnati OH. E-mail: kosacke@xavier.edu
LUIS CASTRO PENARRIETA
Affiliation:
Luis Castro Penarrieta is an assistant professor of Economics and Business at the Universidad Privada Boliviana. He received his Ph.D. from the University of Colorado Boulder. Contact: Faculty of Business and Law, Universidad Privada Boliviana, La Paz, Bolivia. E-mail: luiscastro@lp.upb.edu
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Abstract

Bankruptcy is a precise legal process defining, ex ante, the rules for allocation of assets when debtors fail to repay their legally constituted debts. Ultimately, these rules determine willingness to lend and to borrow, and thus economic growth. In 1706, Parliament in England passed a bankruptcy statute that allowed, for the first time, bankrupts to exit the state of bankruptcy prior to full repayment of all debts. This represented a fundamental change in English bankruptcy rules: creditors could now choose to discharge a bankrupt. Obviously, bankrupts benefitted from such a discharge, but creditors could also benefit from greater asset revelation. We document that discharge was quickly adopted, and estimate that many bankrupts received a second chance in business.

Type
Article
Information
Enterprise & Society , Volume 20 , Issue 2 , June 2019 , pp. 475 - 506
Copyright
Copyright © The Author 2018. Published by Cambridge University Press on behalf of the Business History Conference. All rights reserved. 

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Footnotes

The authors are grateful for the many comments received. Earlier versions of the paper were presented at the Economic History Association meeting in Evanston, Illinois; the “Financial Crises and Workouts: Historical Perspectives” conference at Australian National University, Canberra; the Western Economics Association meeting in Denver, Colorado; and seminars at the University of New South Wales Sydney, London School of Economics, University of Warwick, California Institute of Technology, and University of Michigan.

References

Bibliography of Works Cited

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Sgard, Jerome. “Do Legal Origins Matter? The Case of Bankruptcy Laws in Europe 1808–1914.” European Review of Economic History 10, no. 3 (2006): 389–419.CrossRefGoogle Scholar
Smith, David A. “The Error of Young Cyrus: The Bill of Conformity and Jacobean Kingship, 1603–1624. Law and History Review 28, no. 2 (2010): 307–341.CrossRefGoogle Scholar
Vause, Erika. “‘He Who Rushes to Riches Will Not Be Innocent’: Commercial Values and Commercial Failure in Postrevolutionary France.” French Historical Studies 35, no. 2 (2012): 321–349.CrossRefGoogle Scholar
Wallis, John Joseph. “Institutions, Organizations, Impersonality, and Interests: The Dynamics of Institutions.” Journal of Economic Behavior & Organization 79, no. 1–2 (2011): 48–64.CrossRefGoogle Scholar
White, Michelle. “Bankruptcy Law.” In Handbook of Law and Economics, edited by Polinsky, A. M. and Shavell, Steven, 1016–1072. Amsertdam: Elsevier, 2007.Google Scholar
White, Michelle. “Bankruptcy: Past Puzzles, Recent Reforms and the Mortgage Crisis.” National Bureau of Economic Research, Working Paper No. 14594, 2008. http://www.nber.org/papers/w14549Google Scholar
British History Online, The Statutes of the Realm, https://www.british-history.ac.uk/search/series/statutes-realmGoogle Scholar
London Gazette, https://www.thegazette.co.ukGoogle Scholar
The National Archives, Kew, EnglandGoogle Scholar
Proceedings of the Old Bailey, 1674–1913, http://www.oldbaileyonline.org/Google Scholar
Defoe, Daniel, and Secord, Arthur Wellesley. Defoe’s Review, reproduced from the original editions published in London. New York: Columbia University Press, 1938.Google Scholar
Finn, Margot C. The Character of Credit: Personal Debt in English Culture, 1740–1914. Cambridge: Cambridge University Press, 2003.Google Scholar
Greif, Avner. Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. New York: Cambridge University Press, 2006.CrossRefGoogle Scholar
Hart, Oliver. Contracts and Financial Structure. Oxford: Oxford University Press, 1995.CrossRefGoogle Scholar
Hoppit, Julian. Risk and Failure in English Business 1700–1800. Cambridge: Cambridge University Press, 1987.CrossRefGoogle Scholar
Leonard, Adrian. Marine Insurance: International Development and Evolution. History of Finance Series, edited by Leonard, Adrian. Basingstoke, UK: Palgrave Macmillan, 2015.Google Scholar
Muldrew, Craig. The Economy of Obligation: The Culture of Credit and Social Relations in Early Modern England. New York: St. Martin’s Press, 1998.CrossRefGoogle Scholar
Safley, Thomas Max, ed. The History of Bankruptcy: Economic, Social and Cultural Implications in Early Modern Europe. London: Routledge, 2013.CrossRefGoogle Scholar
Burley, Kevin H. “An Essex Clothier of the Eighteenth Century.” Economic History Review 11, no. 2 (1958): 289–301.CrossRefGoogle Scholar
Carlos, Ann M., Fletcher, Erin, and Neal., Larry “Share Portfolios in the Early Years of Financial Capitalism: London, 1690–1730.” Economic History Review 68, no. 2 (2015): 574–599.CrossRefGoogle Scholar
Carlos, Ann M., and Lamping., Jennifer “Conformity and the Certificate of Discharge: Bankruptcy in Early Modern England.” Working Paper, University of Colorado, 2010. http://eh.net/eha/wp-content/uploads/2013/11/Carlos.pdfGoogle Scholar
Carlos, Ann M., and Neal., Larry “Women Investors in Early Capital Markets, 1720–1725.” Financial History Review 11, no. 2 (2004): 197–224.CrossRefGoogle Scholar
Cohen, Jay. “The History of Imprisonment for Debt and Its Relation to the Development of Discharge in Bankruptcy.” Journal of Legal History 3, no. 2 (1982): 153–171.CrossRefGoogle Scholar
Di Martino, Paolo. “Approaching Disaster: Personal Bankruptcy Legislation in Italy and England, c. 1880–1939.” Business History 47, no. 1 (2005): 23–43.CrossRefGoogle Scholar
Di Martino, Paolo. “Legal Institutions, Social Norms, and Entrepreneurship in Britain (c. 1890–c. 1939) 1.” Economic History Review 65, no. 1 (2012): 120–143.CrossRefGoogle Scholar
Duffy, Ian P. H. “English Bankrupts, 1571–1861.” American Journal of Legal History (1980): 283–305.CrossRefGoogle Scholar
Fan, Wei, and White, Michelle J.. “Personal Bankruptcy and the Level of Entrepreneurial Activity.” Journal of Law and Economics 46, no. 2 (2003): 543–567.CrossRefGoogle Scholar
Glaeser, Edward L., and Shleifer., Andrei “Legal Origins.” Quarterly Journal of Economics 117, no. 4 (2002): 1193–1229.CrossRefGoogle Scholar
Hautcoeur, Pierre-Cyrille, and Di Martino, Paolo. “The Functioning of Bankruptcy Law and Practices in European Perspective (ca. 1880–1913).” Enterprise & Society 14, no. 3 (2013): 579–605.CrossRefGoogle Scholar
Jones, W. J. “The Foundations of English Bankruptcy: Statutes and Commissions in the Early Modern Period.” Transactions of the American Philosophical Society 69, no. 3 (1979): 1–63.CrossRefGoogle Scholar
Kadens, Emily. “The Last Bankrupt Hanged: Balancing Incentives in the Development of Bankruptcy Law.” Duke Law Journal 59, no. 7 (2010): 1229–1319.Google Scholar
Kadens, Emily. “The Pitkin Affair: A Study of Fraud in Early English Bankruptcy.” American Bankruptcy Law Journal 84 (2010): 483–570.Google Scholar
La Porta, Rafael, Lopez-de-Silanes, Florencio, Shleifer, Andrei, and Vishny, Robert W.. “Law and finance.” Journal of Political Economy 106, no. 6 (1998): 1113–1155.CrossRefGoogle Scholar
Laurence, Anne. “Daniel Defoe and Imprisonment for Debt.” Text and Context: A Journal of Interdisciplinary Studies 1, no. 1 (1986): 59–69.Google Scholar
Leonard, Adrian. “Politics, Insolvency, and Consensus: The 1693/4 Miscarriage of English Schemes of Arrangement.” Presented at the World Economic History Congress, Kyoto, 2015. http://www.wehc2015.org/pdf/allprogramme.pdfGoogle Scholar
Marriner, Sheila. “English Bankruptcy Records and Statistics before 1850.” Economic History Review 33, no. 3 (1980): 351–366.CrossRefGoogle Scholar
McCoid, John C. “Discharge: The Most Important Development in Bankruptcy History.” American Bankruptcy Law Journal 70 (1996): 163–193.Google Scholar
Milgrom, Paul R., North, Douglass C., and Weingast, Barry R.. “The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges, and the Champagne Fairs.” Economics & Politics 2, no. 1 (1990): 1–23.CrossRefGoogle Scholar
Muldrew, Craig. “Credit and the Courts: Debt Litigation in a Seventeenth–Century Urban Community.” Economic History Review 46, no. 1 (1993): 23–38.CrossRefGoogle Scholar
North, Douglass C. “Institutions.” Journal of Economic Perspectives 5, no. 1 (1991): 97–112.CrossRefGoogle Scholar
Pearlston, Karen. “Married Women Bankrupts in the Age of Coverture.” Law & Social Inquiry 34, no. 2 (2009): 265–299.CrossRefGoogle Scholar
Safley, Thomas Max. “Bankruptcy: Family and Finance in Early Modern Augsburg." Journal of European Economic History 29, no. 1 (2000): 53–76.Google Scholar
Safley, Thomas Max. “Business Failure and Civil Scandal in Early Modern Europe.” Business History Review 83, no. 1 (2009): 35–60.CrossRefGoogle Scholar
Sgard, Jerome. “Bankruptcy, Fresh Start and Debt Renegotiation in England and France (17th to 18th Century).” In The History of Bankruptcy, edited by Safley, Thomas Max, 229–241. London: Routledge, 2013.Google Scholar
Sgard, Jerome. “Bankruptcy Law, Majority Rule, and Private Ordering in England and France (Seventeenth–Nineteenth Century).” Oxford Sciences Po Research Group, Working Paper, Sciences Po–CERI, 2010. https://hal-sciencespo.archives-ouvertes.fr/hal-01069444/Google Scholar
Sgard, Jerome. “Do Legal Origins Matter? The Case of Bankruptcy Laws in Europe 1808–1914.” European Review of Economic History 10, no. 3 (2006): 389–419.CrossRefGoogle Scholar
Smith, David A. “The Error of Young Cyrus: The Bill of Conformity and Jacobean Kingship, 1603–1624. Law and History Review 28, no. 2 (2010): 307–341.CrossRefGoogle Scholar
Vause, Erika. “‘He Who Rushes to Riches Will Not Be Innocent’: Commercial Values and Commercial Failure in Postrevolutionary France.” French Historical Studies 35, no. 2 (2012): 321–349.CrossRefGoogle Scholar
Wallis, John Joseph. “Institutions, Organizations, Impersonality, and Interests: The Dynamics of Institutions.” Journal of Economic Behavior & Organization 79, no. 1–2 (2011): 48–64.CrossRefGoogle Scholar
White, Michelle. “Bankruptcy Law.” In Handbook of Law and Economics, edited by Polinsky, A. M. and Shavell, Steven, 1016–1072. Amsertdam: Elsevier, 2007.Google Scholar
White, Michelle. “Bankruptcy: Past Puzzles, Recent Reforms and the Mortgage Crisis.” National Bureau of Economic Research, Working Paper No. 14594, 2008. http://www.nber.org/papers/w14549Google Scholar
British History Online, The Statutes of the Realm, https://www.british-history.ac.uk/search/series/statutes-realmGoogle Scholar
London Gazette, https://www.thegazette.co.ukGoogle Scholar
The National Archives, Kew, EnglandGoogle Scholar
Proceedings of the Old Bailey, 1674–1913, http://www.oldbaileyonline.org/Google Scholar