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[[File:King William III 1-1-e1509187620207.jpg|thumb|Figure 1. William of Orange was given the idea to create the idea of public debt through the creation of the Bank of England. ]]
Debt has a long history, particularly for individuals and businesses. Public debt, on the other hand, is more complex, as it seems to not have existed until Medieval or even early Modern European states emerged. How public debt developed and its impacted helped shape modern financial institutions that have transformed economic ideas in the last few centuries.
====Early History of Public Debt==== In ancient societies, such as Rome, Mesopotamia, and Egypt, governments were generally creditors and not in debt. They would finance to institutions or individuals at given lending rates. At times of war or major state projects, funds would be raised through taxes and directly used. If there was an immediate crisis where the state required financial support, then the state would generally turn to its wealthy families for support. Wealthy families had incentive to simply give their money to the state if it meant the survival of the state, as the wealthiest families were often the ones that ruled or had the most to lose. The state could even simply confiscate wealth in order to finance its enterprises. The general pattern in antiquity, particularly in the Old World, is that the state would allow creditors to loan individuals and debt.
In the contentious European wars of the late Medieval period and early Modern period, kings began to finance their wars using debt. Initially, kings could raise taxes and then directly finance their wars. However, it became increasingly hard for kings to keep order by raising taxes in times of war, particularly as wars became frequent. It was simply easier to borrow. Kings also believed they were put in place by God so they often had little to fear from creditors. This made it a problem as creditors soon began to refuse to lend to kings since they realized they may not be paid back. This created financial crises for monarchs, particularly when wars became long, and began to affect different monarchies throughout Europe.<ref>For more on how wars in Europe changed finances for states, see: Glete, Jan. 2002. <i>War and the State in Early Modern Europe: Spain, the Dutch Republic, and Sweden as Fiscal-Military States, 1500-1660</i>. Warfare and History. London ; New York: Routledge.</ref>
====Developments in the Early Modern Period====[[File:Bank of North America.jpg|thumb|Figure 2. The Bank of North America was the first institution in the United States to finance public debt. ]]
In the 17th century, England and France increasingly spared for influence in Europe and the emerging sea trade across the North Atlantic. Initially, both countries would finance their wars through taxes or creditors, but this became harder over the course of the 17th century. During the reign of William the Orange in England in 1680s-1690s, William was engaged in the Nine Years War that saw all of the European powers fighting. William could not easily raise taxes or get loans from creditors, so the idea developed that England would have its own government bank, creating what became the Bank of England (Figure 1). The Tonnage Act 1694 was created to enable the Bank of England, which was the idea of Charles Montagu, 1st Earl of Halifax, who saw the Bank of England as a company that could benefit by being the sole bank that could issue monetary notes and provide banking privileges to the wealthy and nobility.<ref>For more on the Tonnage Act and its effect, see: Kynaston, David. 2017. <i>Till Time’s Last Sand: A History of the Bank of England, 1694-2013</i>. London ; New York: Bloomsbury Publishing, an imprint of Bloomsbury Publishing Plc.
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Funds were raised from private investors and the Bank of England bought government stock and issued securities, equivalent to bonds, while giving lending notes to the government. The securities acted as contracts and would give individuals return on those investments, while the funds given by the individual could be used to finance debt. Businesses and individuals also were allowed to deposit money. This created a pool of funding for the government that it was able to use without directly going to Parliament to raise taxes or use other creditors. Now, William III could finance his wars. Initially, the Bank of England was not a government institution but a private company created through a charter. However, as the government saw it useful to its efforts, it began to depend on the Bank more and increasingly incorporate it as part of its policies. In 1708, the government let the Bank have sole rights to create currency notes. Notes did not have fixed values, as they do today, but could be changed by agreement. Within a year, the government also made it a monopoly, as other large banks were not allowed and other banks could not issue notes. By 1720, the '£' sign was created and by 1745 notes had fixed values of £20 to £1000. In the Seven Years war, another major conflict with France, led to the creation of small notes, £10, as this allowed more borrowing for smaller denominations. Over the course of the rest of the 18th century, the Bank had a greater role in the economy not only for the government but also in financing more enterprise throughout the country, including increasing trade. The system proved a success for England and other countries in Europe began to copy the system by the end of the century. In 1782, the Bank of Spain was created and in 1800 the Bank of France was established. The Bank of North America was the first public bank in the United States, but it soon was replaced by the Bank of the United States (Figure 2). All of these institutions tried to copy the system in England and attempted to create a system of public debt financing.<ref>For more on how the Bank of England evolved and how that influenced public financing and debt, see: Slater, Martin. 2018. <i>The National Debt: A Short History</i>. London: Hurst & Company. </ref>
However, World War II, and its destruction of many advanced economies, created many problems for countries. Many countries found themselves bankrupt after the devastation of the war. The International Monetary Fund (IMF) as well as the World Bank were developed to help in such cases. Both institutions began to finance states and their enterprises; these institutions were seen as being comparable to the New Deal of the 1930s, where they would help stimulate financial growth in countries affected by devastation. With the linkage of politics with these international financial institutions, debt soon became a major political issue used in the Cold War. Generally, it became easier for major and developed countries to secure loans as they were more likely to pay off debts at regular intervals. Only in very recent times did this change, with Greece in 2015 becoming the first developed country to default on loans after the Banking Crisis of 2008-2009. The generally high debt ratings for developed countries has allowed them to more recently borrow at rates of 80% or more of their GDP, which some see as a potential future crisis as public debt now has been increasing.<ref>For more on the IMF and World Bank in an age of increasing public debt, see: Esteves, Rui Pedro, ElGanainy, Asmaa A, Mitchener, Kris James, and Eichengreen, Barry. 2019. <i>Public Debt Through the Ages</i>. INTERNATIONAL MONETARY FUND.</ref>
====Summary====
Government debt, or public debt, was a new concept that did not originate until the late 17th century. Governments before simply spent what they had and they only had limited options to raise funds for wars or other enterprises. This changed with the founding of the Bank of England that other countries later emulated. In the 20th century, international institutions began to fund public debt, with the founding of the World Bank and IMF near and after the end of World War II.
====References====<references/> [[Category:Wikis]] [[Category:Economic History]] [[Category:United States History]] [[Category:European History]]