More on Original Understanding of the Bankruptcy Clause:

The argument is actually more complicated that that and turns to some extent on an interesting linguistic debate over the meaning of the term “bankruptcy,” which may have had a very specific meaning at the time, applying only to business, not personal insolvency. For centuries, under English common law, only merchants and traders could be declared “bankrupt,” which enabled them to have their debts discharged upon the satisfaction of certain requirements. By contrast, non-merchants had to seek refuge under “insolvency” laws, which did little more than to release a debtor from debtor’s prison but did not discharge the debtor from his indebtedness. Thus, many understood the Constitution’s grant of power to Congress to regulate “bankruptcies” as creating federal power to regulate only with respect to merchants and traders and not with respect to those individuals traditionally subject to “insolvency” laws, which remained under State control. Others argued that this traditional distinction between had disappeared by the mid-Eighteenth century, such that by the time of the Constitution, the terms became interchangeable so as to give Congress the power to regulate all insolvent debtors.

So for originalists, the open question is whether the traditional distinction was still valid at the time of the Constitution. For the Supreme Court, by contrast, the issue was resolved in 1819 when it ruled that the term “bankruptcy” was not a term of limitation, thus Congress could regulate in both realms (although Congress chose to do so only sporadically during the 19th century, leaving debtor-creditor relations mainly to the states).

So, unless Mann is is saying that the Founding Fathers believed that “bankruptcy was every citizen’s right” and created a constitutional guarantee of a fresh start for consumer debtors, then I don’t see what is historically inaccurate about my statement. I said that it is an open issue as to whether the term took the narrower or broader interpretation, but that there was substantial historical evidence pointing to the narrower construction of the term, but that it was unclear whether the narrower interpretation still prevailed by the time of the Constitution.

Professor Mann also notes that the distinction between insolvency and bankruptcy was not a clear one, “Moreover, in a pre-corporation age in which even the largest merchants traded as individuals, the distinction between business and personal insolvency was hardly a clear one.” This doesn’t mean that the distinction did not or could not exist conceptually, which he seems to acknowledge. And, as noted, common law and state law often attempted to distinguish between them. That the line was unclear is certainly true–this ambiguity is precisely why Marshall decided in Sturges v. Crowninshield that the Court would not try to enforce the line judicially.

But Marshall clearly recognizes in Sturges that the terms are conceptually distinct, but simply permits Congress to be the one to draw the line between the two. Marshall notes that the conceptual distinction:

But the subject is divisible in its nature into bankrupt and insolvent laws; though the line of partition between them is not so distinctly marked as to enable any person to say, with positive precision, what belongs exclusively to the one, and not to the other class of laws. It is said, for example, that laws which merely liberate the person [from debtors’ prison] are insolvent laws, and those which discharge the contract, are bankrupt laws. But if an act of congress should discharge the person of the bankrupt, and leave his future acquisitions liable to his creditors, we should feel much hesitation in saying, that this was an insolvent, not a bankrupt act; and therefore, unconstitutional. Another distinction has been stated, and has been uniformly observed. Insolvent laws operate at the instance of an imprisoned debtor; bankrupt laws at the instance of a creditor.

After noting that they are conceptually distinct, he observes that the difficulty lies in drawing the line between them as a practical matter:

When laws of each description may be passed by the same legislature, it is unnecessary to draw a precise line between them. The difficulty can arise only in our complex system, where the legislature of the Union possesses the power of enacting bankrupt laws; and those of the states, the power of enacting insolvent laws. If it be determined, that they are not laws of the same character, but are as distinct as bankrupt laws and laws which regulate the course of descents, [17 U.S. 122, 195] a distinct line of separation must be drawn, and the power of each government marked with precision. But all perceive that this line must be, in a great degree, arbitrary. Although the two systems have existed apart from each other, there is such a connection between them, as to render it difficult to say how far they may be blended together. The bankrupt law is said to grow out of the exigencies of commerce, and to be applicable solely to traders; but it is not easy to say, who must be excluded from, or may be included within, this description. It is, like every other part of the subject, one on which the legislature may exercise an extensive discretion.

This difficulty of discriminating with any accuracy between insolvent and bankrupt laws, would lead to the opinion, that a bankrupt law may contain those regulations which are generally found in insolvent laws; and that an insolvent law may contain those which are common to a bankrupt law. If this be correct, it is obvious, that much inconvenience would result from that construction of the constitution, which should deny to the state legislatures the power of acting on this subject, in consequence of the grant to congress. It may be thought more convenient, that much of it should be regulated by state legislation, and congress may purposely omit to provide for many cases to which their power extends. It does not appear to be a violent construction of the constitution, and is certainly a convenient one, to consider the power of the states as existing over such cases as the laws of the Union may not reach. But be this as it may, the power granted to congress may be exercised [17 U.S. 122, 196] or declined, as the wisdom of that body shall decide. If, in the opinion of congress, uniform laws concerning bankruptcies ought not to be established, it does not follow, that partial laws may not exist, or that state legislation on the subject must cease. It is not the mere existence of the power, but its exercise, which is incompatible with the exercise of the same power by the states. It is not the right to establish these uniform laws, but their actual establishment, which is inconsistent with the partial acts of the states.

As I read this, Marshall is clearly acknowledging that a conceptual dividing line may exist between “bankruptcy” laws applicable to merchants on one hand, and “insolvent” laws applicable to consumer debtors on the other, but that the difficulty in defining the line makes it impracticable to enforce judicially. It is also clear that he is acknowledging that this is one originalist interpretation of the concepts. But Marshall’s conclusion is based on functional, not formalist and originalist concerns, about the difficulty of drawing the dividing line. His argument here, of course, also follows the logic of many of his other opinions of the era striking the federal-state balance in functional rather than formal terms by giving the Congress fairly broad powers to define the scope of the federal government’s reach.

As for the pro-creditor purpose of the bankruptcy clause and collection of interstate debts, Mann states, “The underlying issue was whether a legislative discharge obtained in one state would protect the debtor from arrest in another state.” Here’s what I said, “Congress’s power to ‘enact uniform laws on the subject of bankruptcies’ was designed to enable creditors to collect interstate debts more easily and to eliminate the power of state legislatures to try to discharge the debts of their residents (as often was the case during the Articles of Confederation era).” Again, I’m not sure that what I said was “historically inaccurate” (as opposed to simply being expressed differently) when compared to what Mann says.

This problem of dealing with debts (or debtors) involving interstate commerce was precisely why the bankruptcy power was vested in the federal government under the Constitution. If the question of the enforceability of a discharge arose as the result of a debtor moving from one state to another, i.e., interstate movement by the debtor, then again I’m not sure what the big disagreement is here. If Mann’s point is to make a friendly amendment to restate the point differently to say that the particular problem was primarily one of debtors who moved interstate, rather than interstate debts, then that’s fine. Although I’m not sure that this changes the bottom-line conclusion.

Moreover, “virtually none” of the debts is not the same as “none” of the debts. And the Framers were clearly held a general concern about the chronic hurdles faced by out-of-state parties trying to collect debts in rural state courts, a concern that is reflected throughout the Constitution, including one reason for the creation of federal courts and contemplation of diversity jurisdiction generally. Moreover, while out-of-state bankruptcy debt was small at the time (as was interstate commerce and lending generally, of course) the Framers clearly feared that as interstate commerce grew under the Constitution, the problem of collecting interstate debts in populist local courts inevitably would grow as well. Not every state issued paper money or erected tariff barriers either, but the Framers saw fit to ban those activities as detrimental to the growth of interstate commerce. Indeed, one reason the Antifederalists criticized the Bankruptcy Clause was because it would transfer debt collection from bankrupts into “distant” and “elitist” federal courts and out of more debtor-friendly state courts. Similar concerns were one motive underlying the Antifederalist’s insistence on the 7th Amendment’s protection for jury trials. So unless Mann is saying that easing interstate debt-collection played no part at all in enacting the bankruptcy clause, a claim that at the least seems to be belied by his own admission that there was some (albeit small amount) in the system, and is furthered undermined by the Framers’ recognition that the problem would likely grow over time as interstate commerce grew, then again, I don’t see what I said that is “historically inaccurate” about what I said. Again, it seems to be at best a question of emphasis, and the Framer’s anticipation as to how much this obvious problem would likely grow over time, not historical inaccuracy.

Also, for what its worth, I did not invoke this argument as part of a modern policy debate. I invoked it as a purely historical point regarding the DC Bar article. It seems an obvious point that to say this would be the correct originalist understanding is different from saying that it is the interpretation that the Supreme Court should adopt and enforce judicially, but apparently it is not always obvious enough.

So my impression is that the disagreement may lie in Professor Mann misreading of my post, or ascribing to it things that I didn’t say, rather than any historical inaccuracies supposedly contained there. As far as I can tell, we seem to be saying the same thing in all substantive ways. Perhaps he doesn’t like my emphasis or phraseology or he thinks that I have expressed myself poorly–if so, so be it, but that is different from saying that my post is “historically inaccurate.” If the problem was some ambiguity in my presentation, as opposed to simply failing to read it carefully and accurately before commenting, then I apologize. But if so, then it seems that the polite response would be to try to clarify the point, rather than misreading what I said and then criticizing arguments that I didn’t make. There is only a limited amount of time and space for readers’ attention, so ambiguities are bound to creep in in this format. When dealing with ambiguities, I have tried to interpret Professor Mann’s arguments in the best light possible, rather than the alternative. Professor Mann is a leading legal historian on this subject, and I appreciate that he took the time to comment on my short post. I certainly admire his book as a valuable intellectual contribution to this question. But I don’t believe that gives him license to misrepresent or mischaracterize my arguments, especially in that from what I can tell, they are substantively identical to his (and were formed in part by reading his book, as well as many, many other sources).

And unless Professor Mann is agreeing with the DC Bar magazine article by saying that the bankruptcy clause of the federal constitution was designed to guarantee a fresh start for consumers (and I don’t read him as saying that), then I don’t see that the central point of my post was historically inaccurate. If he is agreeing with the historical argument made in the magazine article that the Founding Fathers believed that banrkuptcy relief was every citizen’s right, then that is surely a contestable proposition.

Update:

I should have added a link to the materials in The Founder’s Constitution on the Bankruptcy Clause. See especially Blackstone’s and William Rawle’s comments. Blackstone writes about English law, for instance:

The laws of England, more wisely, have steered in the middle between both extremes: providing at once against the inhumanity of the creditor, who is not suffered to confine an honest bankrupt after his effects are delivered up; and at the same time taking care that all his just debts shall be paid, so far as the effects will extend. But still they are cautious of encouraging prodigality and extravagance by this indulgence to debtors; and therefore they allow the benefit of the laws of bankruptcy to none but actual traders; since that set of men are, generally speaking, the only persons liable to accidental losses, and to an inability of paying their debts, without any fault of their own. If persons in other situations of life run in debt without the power of payment, they must take the consequences of their own indiscretion, even though they meet with sudden accidents that may reduce their fortunes: for the law holds it to be an unjustifiable practice, for any person but a tradesman to encumber himself with debts of any considerable value.

To emphasize again, this is not the modern understanding of the Bankruptcy Clause. The distinction between merchant and non-merchant filers only goes to what chapter applies to an entity or person seeking bankruptcy relief (corporations versus consumers), not their eligibility to file.

Update:

Added new paragraph on interstate debt collection in response to point raised in the Comments that I hadn’t fully recognized originally.