What is the history behind today's bankruptcy laws?

By Andrew Beattie AAA
A:

Julius Caesar was emperor of Rome for a scant five months, but in that short time he changed the course of financial history. A lifelong debtor himself, Julius Caesar gave the world bankruptcy laws. The world's earliest bankruptcy laws were discovered on the obelisk containing Hammurabi's code, but Caesar's laws generally are considered the root of modern bankruptcy laws. (To learn more about Hammurabi's code, check out The History Behind Insurance.)

Caesar wanted to give debtors a second chance, with a clean slate, rather than the years of slavery faced by most debtors and their families. Unfortunately, he faced opposition from moneylenders who, unlike the senators he simply could replace, had the power to refuse him capital if he ruled against them. In a deft balancing act, Caesar gave moneylenders the power to confiscate the land of nobles in lieu of debt payments while at the same time ending the practice of selling plebeian delinquent debtors into slavery.

Satisfied with their new collection powers, moneylenders were convinced of the prudence of allowing more concessions to debtors. These measures included: wiping the slate clean following a bankruptcy; allowing a man to keep the tools of his trade and related land; and limiting the personal liability of a debtor's immediate and extended family.

After the collapse of the Roman Empire, these laws, though often ignored in practice, were passed on to Papal bankers. When the dark ages gave way to the era of enlightenment, Caesar's bankruptcy laws were reestablished as an important part of the credit system. The last resort of bankruptcy regulations encouraged people to use credit in entrepreneurial ventures, such as trading abroad or building factories. This entrepreneurial drive turned the age of enlightenment into the industrial revolution. Through the long course of history, Caesar's bankruptcy laws have been passed down with most of his basic principles intact.

This question was answered by Andrew Beattie.

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