The Repudiation of Reconstruction State Debt

The repudiation question inaugurated a half-century long legal fight over whether a state government could simply erase its own debt, with no recourse to the unhappy bondholders. During Reconstruction, the Supreme Court sided with bondholders who challenged repudiation on Contract Clause grounds. After the collapse of Reconstruction, courts stood by as Democrats shredded state contractual obligations, allowing states to unilaterally invalidate contacts, shocking contemporary legal writers, especially in light of the U.S. Constitution’s Contract Clause. For repudiation’s critics, the Court’s new posture demeaned “the moral sense of the nation… fraught with the gravest consequences of injustice and wrong, [and] departs from well settled and fundamental principles.” Commentators insisted it was “the duty of every lawyer and of every citizen to subject such decision to the closest examination and strictest criticism.” They went as far as to connect repudiation to “the very essence of destructive theories maintained by the socialists and communists of France and Germany, theories which unfortunately have too many supporters and advocates in our own land.” A continuing puzzle in postbellum history is why a supposedly conservative, pro-industrialization Court steeped in rhetoric of fidelity to contract and sympathetic to development allowed states to vitiate their contracts, despite clear precedents that had blocked such actions on Contract Clause and other constitutional grounds in the past.