The Second World War not only pulled American economic output closer to its potential capacity, but also transformed its composition. War-related industries were prioritized and the production and consumption of other goods was controlled by rationing. This is fairly well known. What is less well known are the ways credit was mobilized during the war,…
Lending money, even at a premium rate of interest, to a government facing existential crisis is hardly a safe proposition. Yet, it is often in these times of crisis, in these times of the greatest anxiety and disquiet that money is most desperately needed. During the American Civil War, the Union government’s Secretary of the…
In 1666, a fire burned down much of London, leaving tens of thousands homeless and destroying numerous public buildings. The property lost was worth millions of pounds. So, rebuilding was more than a feat in engineering. A financial challenge also needed to be overcome. In the end, the rebuilding of London after the Great Fire…
For over a century, perhaps the most significant security in the world was the British consol. One consol was just like any other; for most of their history, they paid 3% interest perpetually. Yet, fifty years before their creation, government borrowing in Britain made use of a broad array of different instruments. Nevertheless, history ultimately…
After France’s defeat in the 1871 Franco-Prussian War, the country was billed five billion francs for peace. This ‘indemnity’ was intended to cripple the country, but it failed. The French government was able to pay the demanded reparations faster than expected by refinancing the indemnity with perpetual bonds, or rentes. It succeeded in conducting the…
After being defeated at Waterloo, Napoleon Bonaparte was forced to give up control of France. The treaty that finally ended the long Napoleonic Wars nonetheless imposed on the defeated country responsibility for paying a large indemnity, the first of two in 19th century France. The public finances were in shambles; so, meeting such payments would…
Economic meltdowns may come with warnings but they are often obvious only in hindsight. In the late 1830s, the American economy was beset by two financial crises in close succession. The first of these could have motivated the overextended, governments included, to improve their financial position but, in the aftermath of the Panic of 1837,…
Governments are usually able to borrow on terms at least as favorable as any available to individuals or companies. So long as they are not too indebted, their ability to tax subjects is something creditors are quite often happy to lend against. In the 19th century, numerous countries began to issue longer-term debts in bond…
Advocates of free trade have often promised it would bring more productive industry, the curtailment of monopolies, and more choice for consumers. However, free trade required a rethink of fiscal systems since, at least prior to the 20th century, most national governments relied on customs duties for a substantial part of their revenues. Those who…
When sovereign debt markets globally became more integrated in the 19th century, weaker debtors found a new way to finance deficits, borrowing from abroad. No longer would expedients to budget shortfalls, prudent or not, need to be found domestically. The advances of the 19th century enabled new borrowers to issue bonds to yield-hungry investors in…
Developing countries and smaller developed country governments often issue bonds in other currencies than their own. This allows investors to separate out the credit risk from the currency, inflation, and interest-rate risk of a particular country. An investor in developing country ‘hard-currency’ bonds, for example, can buy such bonds to take a view of the…
Almost fifty years ago, America’s largest city was on the brink of bankruptcy, about to default on a massive debt repayment with only one-tenth of the cash on hand required to make good on it. The day of reckoning had come after years of high spending relative to depressed revenues. New York City was billions…
