The pilgrims and their debt black hole

Did you know the Pilgrims started their life in America deeply in debt?

I've been talking a lot about the Debt Black Hole facing the U.S. (and global) economy. Greg Weldon coined the term because debt skews an economy in the same way that the gravitational pull of a black hole in space influences and impacts everything around it. When someone is buried in debt, it changes their economic calculus immensely, and it skews their decision-making.

The Pilgrims learned this the hard way.

Among all of the other problems they faced, the new American settlers had to worry about how they would pay back their investors. 

As it turns out, they never really did. 

The Mayflower passengers went heavily into debt to finance their journey to the New World. They borrowed money from a group of "merchant adventurers." The merchants formed a stock company with the colonists. The company held the money, livestock, and land. The plan was for all of the assets to be divided among the investors after seven years. 

Things didn't get off to a good start. In the first place, the Pilgrims struggled to even grow enough food to sustain the community. 

Most Americans don’t know that the Plymouth colony was originally an experiment in socialist utopianism, and were it not for a complete 180 a couple of years in, we probably wouldn’t have enjoyed the bountiful feasts most of us will indulge in today. There would have been no Thanksgiving because there would have been nobody left to give thanks.

When the Pilgrims arrived in Massachusetts on November 11, 1620, they placed all their food and provisions in a “common store.” These folks were ahead of their time. Even without Marx’s scribblings to learn from, they set things up on the socialist principle of “From each according to his ability, to each according to his need.”

Instead of a utopia, they ended up with corpses. 

Things didn't change until William Bradford abandoned the communal socialist model and allowed each family to farm its own parcel of land for their own needs. Suddenly, the colony had an abundance of food. 

As you can imagine, there weren't any resources to begin paying off those debts. In fact, the Pilgrims had to borrow even more money to sustain the colony. According to the Pilgrim Museum, eight colonists, with four London associates, undertook to repay an agreed portion. These "undertakers" shared the debt with 45 Plymouth householders.

William Bradford wrote about it in his journal. 

"Therefore they resolved, for sundrie reasons, to take in all amongst them, that were either heads of families, or single yonge men, that were of abillity, and free, (and able to governe them selvs with meete descretion, and their affairs, so as to be helpful in ye comone-welth,) into this partnership or purchass. First, yey considered that they had need of men & strength both for defence and carrying on of bussinesses. 2ly, most of them had borne ther parts in former miseries & wants with them, and therfore (in some sort) but equall to partake in a better condition, if ye Lord be pleased to give it. But cheefly they saw not how peace would be preserved without so doing, but danger & great disturbance might grow to their great hurte & prejudice other wise. Yet they resolved to keep such a mean in distribution of lands, and other courses, as should not hinder their growth in others coming to them.
"So they caled ye company togeather, and conferred with them, and came to this conclusion, that ye trade should be managed as before, to help to pay the debts; and all such persons as were above named should be reputed and inrouled for purchasers; single free men to have a single share, and every father of a familie to be alowed to purchass so many shares as he had persons in his family; that is to say, one for him selfe, and one for his wife, and for every child that he had living with him, one. As for servants, they had none, but what either their maisters should give them out of theirs, or their deservings should obtaine from ye company afterwards. Thus all were to be cast into single shares according to the order abovesaid; and so every one was to pay his part according to his proportion towards ye purchass, & all other debts, what ye profite of ye trade would not reach too; viz. a single man for a single share, a maister of a famalie for so many as he had. This gave all good contente."

The investors never got their money back, much less enjoyed a return on their investment. The colonists repaid around 1,800 pounds of the approximately 7,000 pounds that were invested. 

There are a couple of lessons here. First, loaning money is risky. Second, borrowing money is also a risk because it will impact your decision-making until the debt is repaid. 

Debt has its place. But when you borrow yourself into a Debt Black Hole, you're just asking for trouble! 

America -- take note!