Society, Manners and Politics in the United States / Being a Series of Letters on North America

by Michel Chevalier

Note 7—page 49.

Failures in the United States.

It would be excessively unjust to the Americans not to acknowledge that they are improving daily in respect to failures. In a new country it is natural that a failure should be little thought of, because every thing is necessarily an experiment, and all speculation is a game of hazard. The public is very indulgent on this point, because it considers a failure what it really is, nineteen times out of twenty, a misfortune and not a fraud. The bankrupt is looked upon as a wounded soldier, who is to be treated with sympathy, and not with contempt. Congress has the power of passing a bankrupt law, but it has not yet exercised this power, and the different States have made temporary provisions for the case, which treat the insolvent debtor with great indulgence, discharging him from any further obligation towards his creditors on his giving up all his property for their benefit. It is felt that too much severity in regard to failures would have the tendency to check the spirit of enterprise, which is the life of the country. None of those rigourous provisions which disgrace French legislation and endanger the interests of creditors, exist here; and if the lenity of the laws is sometimes abused, the inconvenience is much less than that caused by the harshness of ours.

In the large maritime towns, however, it is felt, that if bankruptcy is not a disgrace, it is at least a private and public calamity, which is to be averted by every exertion. The history of the great fire in New York in 1835 affords ample proof of this. The amount of the loss exceeded fifteen millions, and the insurance companies found themselves unable to meet their engagements. On the receipt of the news in Europe, there was not a merchant who did not tremble for his American debts; for in Europe, in general, and in France, in particular, such an event would have deprived the sufferers of all credit, of all means of repairing their losses. In France the singular custom prevails of offering you credit, if you do not need it; but if you stand in want of it, you will get none. In the United States, on the contrary, immediately after this disaster, the President of the United States Bank hastens to place two millions at the disposal of the New York merchants, and the banks in general give out that they shall discount the paper of the sufferers in preference.

Although the sphere of the public authorities in the United States is very narrow, the corporation of New York and the State government, rivalled each other in offers of assistance; the former offered an advance of six millions, not to individuals, as was done in France in 1830, but to the insurance companies, whose ruin would have led to a general bankruptcy; it thus strengthened the hands of commerce, by relieving its citadel. Even Congress, which is not allowed to take a step out of its little district, and is scarcely permitted to notice what is going on beyond the Capitol, was moved, and extended the term of payment of custom dues. The result of this admirable co-operation of individuals, companies, and public authorities was to prevent any considerable failures.

The Americans have a courage in presence of commercial disasters, like that of the soldier on the field of battle. In a critical juncture, they face bankruptcy, as old grenadiers march upon a battery under a fire of grape-shot. If it is true that commerce is to supplant war in the future, it must be confessed that the Americans are more advanced on the march than we are; for they have applied all their energies and qualities to commerce, whilst we still devote ours to war. They have discovered a new sort of courage which produces and enriches; we shine only by that courage which perishes or destroys.

The merit of this new spirit does not belong exclusively to the Americans; they had the germ in their blood, and have received the gift from the mother country. At the period of the late calamity, the English were no more subject to a panic terrour than their New York descendants.—It is within my knowledge, that American merchants established in Paris and having houses in the United States, having applied to London bankers for a continuation of credit, were immediately assured, that not only the former amount of credit should be continued, but that they should be allowed an unlimited credit in order to enable them to repair their losses. Some French bankers, on the contrary, similarly situated, hastened to cut off the credit they had previously given.

In a country organized for commerce, and having the proper institutions of credit, the money and merchandise of the merchant, are not his only capital; the most valuable part of his capital consists of his experience, his correspondents and connexions, the weight of his name. This constitutes a moral capital, which conflagrations cannot destroy, nor accidents of any kind injure. In New York, by the aid of this moral capital, on which a high value is set in commercial countries, a merchant who has not property to the amount of more than 50,000 dollars, operates as if he had five or six times as much. In Paris, the same man, with the same fortune, would operate with only about twice as much. Thus the wealth of the United States increases in a much faster ratio than in France.