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Debt has a long history, particularly for individuals and businesses. On the other hand, public debt is more complex, as it seems not to have existed until Medieval or even early Modern European states emerged. Public debt developed and shaped modern financial institutions that have transformed economic ideas in the last few centuries.
====Early History of Public Debt==Were ancient Empires such as Rome in debt? ==
In ancient societies, such as Rome, Mesopotamia, and Egypt, governments were generally creditors and not in debt. They would finance 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, the state would generally turn to its wealthy families.
This was a problem because creditors soon refused to lend to kings since they realized they might 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 the Fiscal-Military States, 1500-1660</i>. Warfare and History. London ; New York: Routledge.</ref>
====Developments in the Early Modern Period==Which countries first created public debt? ==
[[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 sparred 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 17th century. During the reign of William the Orange in England in the 1680s-1690s, he was engaged in the Nine Years War. This war resulted in a fight between all of the major European powers. William could not quickly raise taxes or get loans from creditors, so the idea developed that England would have its government bank, creating the Bank of England (Figure 1).
The Tonnage Act of 1694 was created to enable the Bank of England. The idea of a national bank was developed by Charles Montagu, 1st Earl of Halifax. He 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.
The Bank of North America was the first public bank in the United States, but it was soon replaced by the United States Bank (Figure 2). 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>
====What does Modern Characteristics of Public Debt==look like? ==
With the Bank of England's creation, the English government began to successfully pay its public debt even when it reached high levels. In the Napoleonic Wars of the first decade of the 19th century, debt reached 200% of GDP. In the early 19th century, governments began to make gold based on currency value, which initially helped currencies stabilize and gave some confidence in notes issued by governments. During the 19th century, the increasing wealth of the United Kingdom, and the government's success in paying its debt down, lowered debt in the United Kingdom.
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>
Government debt, or public debt, was a new concept that did not originate until the late 17th century. Before simply spending what they had, governments 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 World Bank and the IMF's founding near and after the end of World War II.
