The setting of the story is the Boston area in 1727. At this point in America’s colonial history, an earlier craze for financial speculation and investment had subsided into a minor economic depression. Under the administration of Massachusetts Governor Belcher, Irving notes, there had been “a rage for speculating,” and hopeful investors established banks, new cities, townships, and various other “get rich quick” schemes. Within a few years, however, the bubble had popped and financial hardship began to set in. As Irving writes:
In a word, the great speculating fever which breaks out every now and then in the country had raged to an alarming degree, and everybody was dreaming of making sudden fortunes from nothing. As usual, the fever had subsided, the dream had gone off, and the imaginary fortunes with it; the patients were left in doleful plight, and the whole country resounded with the consequent cry of "hard times.”
The historical context that Irving provides helps to set the stage for the story’s tale of financial desperation and exploitation. Tom and his wife are among the many who have fallen on “hard times,” and they are willing to do almost anything for money, with the notable exception of participating in the slave trade, an institution too morally repugnant even for them. Irving underscores the morally dubious nature of much of the money circulating around New England at this time, not just through slavery, but also the violent dispossession of Native Americans through which such characters as Deacon Peabody have been enriched.
There are also two specific locations that are significant in the story. The first is a dark and forbidding swamp, the site of a former Native American fort destroyed in conflict with the Boston settlers. It is in this fittingly ominous location that Tom meets Old Scratch. The second important location in the story is Tom's House, a lifeless and unhappy place that befits Tom's unsympathetic nature.
