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Demystifying Alexander Nahum Sack and the doctrine of odious debt

Eric Tousaint’s study of the odious debt doctrine

by Eric Toussaint

Part 6 - Sack and the continuity of States’ obligations concerning debt despite a change of regime

Sack devotes a significant part of his book to the transfer of debt in the case of a change of regime, after a revolution, a coup d’Etat or a civil war. He manifests his approval of what happened in France between 1789 and the time when he was developing his doctrine. He is pleased that, despite all the regime changes, each successive government assumed responsibility for the public debt.

This is what he wrote: “Once the ancien régime had been overthrown during the French Revolution of 1789, the new government did not renege on the former financial obligations of the State. A decree dated 17 June 1789, the day that the Third Estate transformed the Estates-General into a National Assembly or Parliament, placed “the State’s creditors under the protection of the honour and loyalty of the French nation”; in its session of 13 July 1789, the Constituent Assembly formulated its point of view regarding the State debt as follows: “This Assembly, acting for the nation, declares that (…) the public debt having been placed under the protection of French honour and loyalty, and the nation not declining to pay the interest owed, no power has the right to pronounce the infamous word, bankruptcy, no power has the right to break the public faith in any possible form or denomination.

The Constitution of 3-4 September 1791 (Title V, Art. 2) contains the following article: “Under no pretext may the funds necessary for the payment of the national debt and the civil list be refused or suspended”.

The Constitution of 24 June 1793, Art. 122 “is guarantor to all Frenchmen of … the public debt”. The financial obligations of the ancien régime were inscribed in the Grand Livre de la dette publique, (the Great Book of the Public Debt) in accordance with the decrees of 15, 16, 17, 24 August and 13 September 1793, as former contracts with creditors had to be annulled (§34). An account was opened for the nation in the Great Book (§ 1, Art. 5). There were also political considerations that were brought to bear: “Let the debt contracted by tyranny be indistinguishable from that contracted since the Revolution,” wrote Cambon in his report of 15 August 1793 on the Great Book of the Public Debt. He went on, “You will observe how the capitalist who wanted a king because the king was his debtor, and he was afraid to lose the money he was owed, will desire the Republic, who will have become his new debtor if his former debtor is not reinstated, for he will fear losing his capital should it fail.”(p. 48-49).

In France, there was no shortage of regime changes: The Monarchy fell in 1789, the First Republic ended in 1804, the First Empire in 1814, the Monarchy fell again in 1848, the Second Republic ended in 1852, the Second Empire in 1870, and so on – not to mention changes of dynasty. In 1830, the House of Orléans succeeded the Bourbons who had regained the throne in 1815. Despite this political instability and repeated eruptions of revolution, Sack claims that the rule of transference of public debt from one regime to the next never failed (p. 49-50).

Sack cites numerous examples of debt transfers which took place in spite of significant regime changes or even conquest or independence. In the 18th century, the United States of America honoured its debts towards Great Britain, even as it declared independence which had been won by warfare (p. 48). When Belgium seceded from Holland in 1830, it took on part of the debt of the United Kingdom of the Netherlands of which it had been part, and paid indemnities (p. 80 and 83-84). Most of Spain’s former colonies agreed to pay off the debts that had been incurred under Spanish rule (p. 52). In 1825, Brazil paid an indemnity to Portugal in order to obtain its independence (p. 82).

However, this continuity in the transfer of debt from one regime to the next has not been universal, far from it. Several new regimes have repudiated the debt contracted by the governments who preceded them, including Russia in 1918, Mexico, on five occasions (between 1861 and 1922) and Costa Rica (in 1919-1922). In addition, there are the three debt repudiations that took place in the United States during the 19th century, and the repudiation of the debt Spain was claiming from Cuba. These examples are highly interesting.

Source and references:


[1] [2] [3] [4] [5] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20]

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