Welcome back to our series of blog posts on the history and philosophy of the economy, bankruptcy, and debt – today we continue to discuss public benefits in the 20th-century public, other than traditional social security. 

Last time we did a slap-dash history of specie currency, so now let’s turn to the modern concept of fiat currency. Fiat money is issued by a government (or a just a bank but that is out of scope). It is not backed by a commodity. Rather, the government merely backs U.S. dollars as legal tender. Furthermore, as a product of the money no longer being tied to a physical item of limited source, they could print as much money as they wanted. 

First off, for the sake of simplicity, let’s limit our discussion to 18^th century America. Money is a store of value, and there are many kinds of money. In the colonial era, money was (arguably) much more complicated than it is now: each colony would issue their own bills of credit, which all had their own values. So, for example, a Pennsylvania pound might be worth less than a New York pound of the same denomination. Also worth noting about money in the colonial era is that the “stored value” of the bills of credit were redeemable for actual gold or silver. Money that is redeemable for gold or silver are known as specie (pronounced SPEE-sha). 

In my last post, we discussed the first bankruptcy code in the United States, the Bankruptcy act of 1800; in this post we will turn to the second incarnation, The Bankruptcy Act of 1841. Clearly, congress was not interested in creative nomenclature. Nonetheless, there were other improvements in the content of the new code. First, debtors could now file bankruptcy for themselves, voluntarily. Second, bankruptcy was available to individuals rather than just merchants. Third, the more informal processes utilizing administrators was left behind in favor of using the district courts. 

In my last post, we discussed whether paying back debts is a moral issue – now let’s turn that question to the issue of interest. It is believed that interest rates originated as early as 2400 BC and were primarily used to stimulate agricultural and urban development. Aristotle viewed money not as a good in itself, but primarily as a means of exchange, and so viewed “money begetting money” as unnatural. In a similar vein, Plato saw the potential for interest leading to social instability – perhaps like the municipal bankruptcies we discussed in the last post.