Money, Banks and Finance in Economic Thought

The dynamics of debt and bankruptcy in economics and literature in the 19th century.

Ingrao Bruna, Department of Social and Economic Sciences, La Sapienza

In nineteenth century literature many novels and stories portray insolvent debtors. They are a variety of characters: common people, who are driven to bankruptcy by misfortune or are surviving in a chronic state of indebtedness; young people getting into trouble because of improvident behaviour or false expectations of a change in fortune; ladies who are addict to speculations at the Stock Exchange or dissipate money for love or vanity; aggressive financiers going bankrupt after fraudulent speculations, and so on and so forth. These characters violate the balanced budget constraint and challenge the view of purposeful, rational, maximizing agents that prevails since the 1870s in economics. They suggest questions as regards the values attached to debt or bankruptcy, their causes, and the status of debtors as perceived by writers in the nineteenth century context. On the side of economic thought, the paper attempts an overview of how debt and bankruptcy are dealt with by some 19th century economists. It takes into account the emergence of the balance sheet constraint in the marginalist revolution, and the way debt is dealt with in the new approach. The marginalist revolution expunges the issue of insolvency and bankruptcy from the core of microeconomics, while it remains of relevance for monetary economics and business cycle theory all along the 19th century. This theoretical divide in the approach to conscious economic agency is still unsolved today. On the side of literature, the subject is explored in some literary texts in the 19th century, after a brief reference to the literary criticism on the issue. The paper explores the narratives of getting into debt in terms of dynamic agency, considering on one side the effort to build for the future and escape the constraints on life prospects, on the other side the difficulty to balance resources and desires that may lead to disaster. The paper explores the ethical values and the social environment associated to debt and bankruptcy in literary texts, considering the social actors who mediate the access to debt and control its repayment. Debt as a literary metaphor is addressed with attention to the link between insolvent debtors going bankrupt and suicide. To address the challenges proposed by literary texts, the paper explores the social stigma associated to insolvency and it discusses individual and collective agency in the dynamics of getting into debt, with the associated risk of its ending into insolvency or final bankruptcy. It deals with the limits of Olympian rationality as regards failed expectations of fair repayment, or misfortune as regards individual agents being forced to bankruptcy by macroeconomic events. On the other side of the coin, the paper explores the dynamics of getting into debt as a social process of agency to build for the future breaking the present liquidity constraints.

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Keywords: Debt Bankruptcy Literature Economics

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