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How Our Founding Fathers Avoided National Bankruptcy

by | Jul 3, 2022 | Firm News, Patriot Courage

Patriot Courage for an Uncertain Time by Lawrence R. Anderson, Jr.- Attorney at Law

As we prepare to celebrate the 246th anniversary of America’s Declaration of Independence, our country is facing grim economic news. Joanne Hsu, Surveys of Consumers Director at the University of Michigan, reports that consumer sentiment fell in June “to its lowest point on record,”[1]  since the university began the surveys in 1952. Although economists are not ready to declare that we are in a recession, multiple factors explain the precipitous drop in the average American’s confidence.

The U.S. Bureau of Labor Statistics shows the consumer price index “increased 8.6 percent for the 12 months ending May, the largest 12-month increase since the period ending December 1981.”[2] The largest increases are in energy (34.5 percent) and food (10.1 percent). For those with fixed or low incomes, managing ongoing price hikes is and will continue to be especially difficult.

As an attorney with more than forty years of legal experience, I specialize in helping clients prepare for the worst. As Americans, we are fortunate to have a legal system that allows us to rise from misfortune to live our lives fully again. First and foremost, I ascribe to the sage advice from one of our Founding Fathers, Benjamin Franklin. “An ounce of prevention is worth a pound of cure.

Franklin also believed that “a penny saved is a penny earned.” Learning and practicing the basics of sound money management is a crucial first step if you wish to prepare your family or your business for an uncertain future. To be very clear, in the event of a catastrophe, there is no 100% safe guarantee. If the worst does happen, you and your family will be better off with some preparation than if you had not done any at all. And, hopefully, you will minimize any damage which may take place.

Historically we Americans have proved our resilience, determination, and ability to make the sacrifices necessary to overcome adversity. Our capacity for teamwork with diverse peoples from around the world has helped not only our country survive but also other countries as well.

Over the next few weeks, I will post a series of articles examining how Americans have survived turndowns to flourish in better days. I will also include advice on how to get your financial house in good shape.

In honor of July 4th, my first post focuses on three of our country’s greatest founders. Benjamin Franklin, our first Postmaster General, was a multi-talented, highly successful writer and publisher whose wit and wisdom remain timely today. George Washington, our first President, and Alexander Hamilton, our first Secretary of the Treasury, helped lay the foundation for our federal government and legal system.

George Washington in Prayer Relief New York City Federal Hall Wall Street Manhattan By pixs:sell

Most of us know how Washington and Hamilton fought and won our independence from Great Britain. Few of us know how they saved our young country from ruin.

In his online article for George Washington’s Mt. Vernon website, Ten Facts About the American Economy in the 18th Century, historian Scott C. Miller writes, “The Depression of the 1780s was as bad as the Great Depression. Between 1774 and 1789, the American economy (GDP per capita) shrank by close to 30 percent. Devastation of real property, a contraction of the labor force due to war deaths and injuries, the cessation of British credit, and exclusion from markets in Britain and West Indies resulted in widespread economic collapse.”[3]

Although the end of the Revolution in 1883 with the Treaty of Paris brought about a short boom, the newly freed colonies struggled to survive. Miller recounts that “… During the late summer of 1791, the first financial panic in American history erupted in Philadelphia and New York. Fueled by widespread speculation, stock of the new Bank of the United States (BUS) rose from its $25 opening price on July 4 to $312 in Philadelphia on August 11. That same day, the bubble burst in New York and panic quickly spread to Philadelphia, resulting BUS shares losing half their value in less than 48 hours.”[4]

Alexander Hamilton portrait by John Trumbull 1806

Treasury Secretary Alexander Hamilton, who was known to be “an astute and intellectually brilliant administrator, politician and financier,” was also “often impetuous.”[5] Nevertheless, his fast-acting temperament helped him to devise America’s first bailout. Over the weekend of August 13-15, “(t)hrough proxies in New York and Philadelphia, the Hamilton Treasury injected a total of $560,000 into financial markets, the 2011 equivalent of between $12.6 and $80 billion. Hamilton had to execute a similar plan just over six months later when financial markets collapsed again in the spring and early summer of 1792.’ “[6]

Despite continual challenges and difficulties, Washington and Hamilton did not quit. In the website’s accompanying video, The American Economy After the Revolutionary War, Founding Director of the Washington Library, Dr. Douglas Bradburn, explains how under President George Washington’s dynamic leadership, the regulations, policies, currencies, debts, and taxes from the thirteen states were united into one economic system which was regulated by the Constitution. Bradburn also cites Alexander Hamilton’s national acquisition of state debt to help “mobilize capital for investment”[7] in local communities. Our nation finally began to prosper “under the strength of the rule of law.”[8]

As our country grew, so did our laws and regulations. To manage debt more effectively, Hamilton supported the first federal Bankruptcy Act which was enacted in 1800 pursuant to the Constitution’s Bankruptcy Clause. The controversial legislation, which was a response to the crises of 1791 and 1792, was modeled on British law. It was creditor, not consumer, oriented. There was also room for abuse. As a result, the 1800 Bankruptcy Act was unpopular with the American people and was later repealed

Since that time, bankruptcy regulations have trended towards more and more consumer protection, allowing for much-needed debt relief. This help does not negate the need for consumers to take responsibility for their own destinies, however, July 4th is a good time to reflect upon the frugality encouraged by our Founding Fathers and Mothers and to put their good advice into practice.

A painting of Benjamin Franklin from 1778 by Joseph-Siffred Duplessis

Benjamin Franklin famously said, “Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety.” As 21st-century Americans, we are fortunate to be able to shape our own destiny and to pursue our ultimate happiness.

For the remainder of this post, I will focus on personal responsibilities consumers can take to organize their family and business finances for any event, good or bad. The following suggestions are taken from an excellent online article by Equifax, originally written for the COVID-19 recession. This section focuses on reassessing priorities and building a budget.

5 Ways to Prepare for the … Recession

(Accessed June 30, 2022) in Equifax.

Excerpt #1:

One of the hardest parts of a recession … is not knowing what comes next and when things will get better. That’s why it’s so important to be clear about where you stand financially. Ask yourself these key questions as you take stock of your financial situation.

  • How much cash do I have on hand?
  • How much cash can I get my hands on quickly, if I need it?
  • How much debt do I currently have (credit cards, student loans, etc.)?
  • What are my basic monthly living expenses, including food, shelter, health insurance, transportation and childcare?
  • Do you have any major life events (for example, weddings, a baby or retirement) coming up with significant expenses attached?

Now is the time to understand what you’re spending today and to anticipate your needs over the next six months. If you’re well-prepared for a recession, job loss or some other financial hurdle, you’ll have an emergency fund that covers three to six months of living expenses (and hopefully a healthy nest egg for retirement).

If you don’t have at least three to six months of basic expenses in cash, then set that as your financial goal. Start by developing a basic understanding of how you are spending your money and building a budget.

To start building a budget, figure out your total household income from all sources, including you, your spouse/partner and any side hustles that bring cash into the household. You should also include income from investments and any other sources, such as child support.

Next, list your monthly expenses, including your rent or mortgage payments, utilities, groceries, pharmaceutical and medical needs, childcare costs, home and auto maintenance, debt payments, and insurance premiums, as well as any other regular expenses, including those you only pay annually.

Add everything up to understand whether you’re spending more, less or roughly the same as your take-home pay each month.

Finally, prioritize your essential expenses and make sure you identify the minimum you can spend in a given month to get by — just in case you or your spouse/partner experiences a job loss.

Your budget may need to adapt in preparation for a recession, and that’s okay. Try to cut down on non-essential spending, like entertainment, cable and clothing.

While it’s unrealistic to think you can cut out all discretionary spending, it’s important to separate wants and needs. Look for areas where you may have overspent. Try to figure out why that happened. You might not have extra money right now to put toward your retirement or a down payment, which is all right for the short term.

Once you get in the habit of reviewing your finances and looking for problem areas, you’re off to a great start.[9]

I sincerely hope my first post highlighting three of our country’s greatest leaders’ words of advice and inspiring examples in times of distress, along with tips on budget preparation and organization, will encourage you and bring you peace of mind.

Next Monday, July 11, I will continue our personal finance preparation series with a post on American economics during the 1800s leading up to the Great Depression of 1930 and the importance of prioritizing debt repayment.

Meanwhile, I wish you and your family a happy and safe holiday.

If you would like more information about my new blog site, please call (225) 324-7459 or email [email protected]


[1] Hsu, Joanne, Director, Surveys of Consumers. (June 2022). Final Results for June 2022. University of Michigan.

[2]  Division of Consumer Prices and Price Indexes. (June 10, 2022). Consumer Price Index Summary. U.S. BUREAU OF LABOR STATISTICS.

[3]  Miller, Scott C., Ph.D. Candidate, American Economic and Business History Corcoran Department of History, University of Virginia. (Accessed 2022). Ten Facts About the American Economy in the 18th Century. George Washington’s Mt. Vernon.

[4]  ibid.

[5]  Alexander Hamilton. (Accessed June 30, 2022) in Wikipedia.

[6]  Miller, Scott C..

[7]  Bradburn, Dr. Douglas, Founding Director of the Washington Library. (Accessed June 30, 2022)  The American Economy After the Revolutionary War. George Washington’s Mt. Vernon.

[8]  Ibid.

[9]  5 Ways to Prepare for the Covid-19 Recession (Accessed June 30, 2022) in Equifax.