Edward J. Balleisen, Navigating Failure: Bankruptcy and Commercial Society in Antebellum America. Chapel Hill: University of North Carolina Press, 2001. xv + 322 pp. $49.95 (cloth), ISBN: 0-8078-2600-6; $18.95 (paper), ISBN: 0-8078-4916-2.

Reviewed for EH.NET by Bradley A. Hansen, Department of Economics, Mary Washington College.

The stories of successful entrepreneurs play a prominent role in American economic history. Edward Balleisen reminds us that throughout history many more businesses have failed than have succeeded, and that to understand American economic history we need to understand how people have dealt with commercial failure. Using a wide range of sources he attempts to reconstruct the experience of commercial failure in antebellum America. Although the intended audience appears to be primarily historians -- Balleisen is assistant professor of history at Duke University -- economists should also read Navigating Failure. Underlying the entire study is a concern with how institutions affect entrepreneurship. Laws and norms related to credit always involve a balancing act. If they are too lenient there is insufficient incentive to repay and credit will be in short supply. If they are too harsh entrepreneurs will be less likely to take risks. For those who would prefer to take a more quantitative approach, Balleisen's work also points the way toward an underutilized source for economic and business history.

Though people now take bankruptcy for granted, for most of the nineteenth century there was no bankruptcy law in the United States. When Congress passed a bankruptcy law following the Panics of 1837 and 1839, insolvent businessmen flocked to the courts to seek a discharge. In the two years that the law was in effect over 40,000 people petitioned for bankruptcy. Balleisen begins his study of commercial failure with a largely unexamined source: the records of bankruptcy proceedings in the Southern District of New York under the 1841 Bankruptcy Act.

Balleisen readily admits that his sample of cases is not random. He is less interested in rigorous statistical analysis than in constructing a "collective biography." His selection of cases is determined by the availability of records that enable him to track the individual's path to bankruptcy and then to follow events after bankruptcy. Among the sources he utilizes are credit reports, newspaper articles, court records, and local histories. Balleisen sifted through such records for over 500 bankrupts. He combines this collective biography with extensive reading of the popular literature. In the story that emerges he emphasizes three themes: the changing meanings of failure and economic independence, the importance of familial ties, and the impact of widespread economic calamity.

He finds that many of these men (only nine of the bankrupts in his sample were women) were brought to bankruptcy by the usual problems of new businesses: lack of experience, inadequate capital, and failure to keep adequate accounts. A few were brought to ruin by outright speculation, drinking, or living beyond their means. Some, on the other hand, were relatively capable business people brought down by the financial panics and depression of the late 1830s.

After bankruptcy, most sought to return to the ranks of business owners. Balleisen's conclusions regarding who was able to successfully return to the ranks of the self-employed supports the work of Naomi Lamoreaux and others on the importance of connections, particularly family connections, for merchants and manufacturers. The ability to utilize family ties to reestablish credit was often crucial to a successful comeback. There were some substitutes for familial connections, such as valuable knowledge or skills. For example, R. Hoe and Co., manufacturers of high quality circular saws and printing presses, shut down for only one week and received new lines of credit as they were going through bankruptcy. Some people were actually able to use their experience of commercial failure to their advantage in such fields as credit reporting.

Balleisen also uses the popular literature of the time to relate changes in the nature of commercial failure to changing attitudes toward economic independence and economic failure. At the beginning of the nineteenth century, sermons, short stories and novels extolled the kind of economic independence that comes from owning one's own business. At the same time they tended to portray the failure to pay one's debts as a moral failure. One cartoon from the 1850s shows an insolvent businessman taking his morning walk while hiding behind his wife's skirts. Balleisen argues that the financial calamities of the nineteenth century gradually altered people's attitudes toward commercial failure. People began to perceive that even men who had acted prudently might become unable to pay their debts through no fault of their own. Although self-employment remained the ideal, some people began to see a certain kind of economic independence in salaried employment for a stable company, a freedom from the constant risk of ruin faced by entrepreneurs.

One aspect of the story that might be a little confusing for those who have not spent a great deal of time considering commercial failure is the use of the terms failure and bankruptcy. In chapters three and four, Balleisen provides an excellent description of bankruptcy law and how it differed from state debtor-creditor laws, but he also chooses to be consistent with colloquial usage and use the terms failure, bankruptcy and insolvency interchangeably to refer to someone who cannot pay their debts. In legal discussions, however, bankruptcy refers specifically to federal law dealing with insolvency. Bankruptcy provides a pro rata distribution of a debtor's assets and a discharge for the bankrupt. State laws typically distributed an insolvent debtor's assets on a first-come- first-served basis and did not provide a discharge. The term commercial failure, as Dun and Bradstreet use it, refers to businesses that have been discontinued and failed to pay all their debts. It does not count the many businesses that close with a loss to their owners but not their creditors.

Making a distinction between bankruptcy, commercial failure and discontinuance is more than just a matter of semantics; it emphasizes the extent of economic failure. Of the businesses that are discontinued, only a small portion fail to pay their debts. Of the businesses that fail to pay their debts only a small portion end up in bankruptcy. Bankruptcy cases are just the tip of the iceberg of economic failure. It would be interesting to see how a collective biography of bankrupts compares to a collective biography of those who became insolvent but did not declare bankruptcy, or a collective biography of those who closed up shop but managed to pay their debts. It would, of course, also be interesting to see how Balleisen's collective biography would compare with one of bankrupts under the 1867 bankruptcy law or the 1898 bankruptcy law. Edward Balleisen has made a considerable contribution to our understanding of commercial failure, but he would probably be among the first to admit that much of the story remains to be told.

Bradley A. Hansen is assistant professor of economics at Mary Washington College. His publications include "The People's Welfare and the Origins of Corporate Reorganization: The Wabash Receivership Reconsidered," Business History Review (Autumn 2000); and "Commercial Associations and the Creation of a National Economy: The Demand For A Federal Bankruptcy Law," Business History Review (Spring 1998).