Changes

[[File:King William III 1-1-e1509187620207.jpg|thumb|left|Figure 1. William of Orange was given the idea to create the idea of public debt through the creation of the Bank of England. ]]

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.  The state would periodically issue decrees to forgive debts, particularly in periods where debt levels became high and could threaten the overall economy. This also proved popular for rulers, particularly if forgiving debts did not hurt the rulers but mainly affected debt collectors. Even if debt forgiveness affected the state's finances, this forgiveness of debts could be seen as less painful than allowing too many people to default.<ref>For more on early debt in antiquity, see: Hudson, Michael. 2018. ...<i>And Forgive Them Their Debts: Lending, Foreclosure , and Redemption from Bronze Age Finance to the Jubilee Year</i>. ISLET.</ref>

[[File:Bank of North America.jpg|thumb|left|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 the 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).

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.

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 enterprises 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.

However, at times, the Bank struggled and was bailed out by wealthy private individuals, particularly the Rothschild family. The weakening of the Bank allowed others to push for the liberalization of banking, leading to the 1825-1826 Bank Charter Act that helped the spread of large banking. Other countries were not as lucky as the United Kingdom when it came to financing debt. The new newly independent countries of Latin American in the 1820s were able to get loans from the bond market in London, as the United Kingdom became the central country for government finance. Some of the countries defaulted; however, the Bank of England did have the power to forgive debts and, similar to early government institutions in antiquity, would simply allow indebted countries to walk free.  Other times the terms were rewritten in regards to servicing the debts. The next set of global crises occurred during the two World Wars and the Great Depression. The Great Depression, in fact, led to the last time a state within the United States, Arkansas, to default on its debt obligations. Countries from the 1920-1930s increasingly found it hard to pay their debts, leading to debt payments to be rescheduled and new payment agreements to be created. By this time, credit ratings began to emerge. John Knowles Fitch in 1913 had created the concept of credit ratings, which became the AAA through the D rating system. This rating system could be applied to countries as well as companies and was soon used to gauge country's ability to borrow.

Other times the terms were rewritten in regards to servicing the debts. The next set of global crises occurred during the two World Wars and the Great Depression. The Great Depression, in fact, led to the last time a state within the United States, Arkansas, to default on its debt obligations. Countries from the 1920-1930s increasingly found it hard to pay their debts, leading to debt payments to be rescheduled and new payment agreements to be created. By this time, credit ratings began to emerge. John Knowles Fitch in 1913 had created the concept of credit ratings, which became the AAA through D rating system. This rating system could be applied to countries as well as companies and was soon used to gauge countries ability to borrow. Initial rates for lending thus became affected by a country's rating. This system and tightening processes for issuing government debt led to few developed countries defaulting in by the late 20th century.<ref>For more on how 19th -century finances changed as public institutions developed, see: Eichengreen, Barry, Robert Alan Feldman, Jeffrey B. Liebman, Jürgen von Hagen, and Charles Wyplosz, eds. 2011. <i>Public Debts: Nuts, Bolts and Worries</i>. Geneva Reports on the World Economy 13. Geneva: ICMB, Internat. Center for Monetary and Banking Studies.</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 the devastation. With the linkage of politics with these international financial institutions, debt soon became a major political issue used in the Cold War.