Magazine article New Internationalist

Debts to History

Magazine article New Internationalist

Debts to History

Article excerpt

Without borrowing money Northern governments would not have been able to fight wars -- let alone win them, fiddle the balance sheet of history and impose a crippling form of debt slavery on the South. The NI charts the irresistible rise of 'public' debt in capitalist societies -- and the repudiations, defaults and write-offs that regularly came with it.


Merchants in European city-states like Venice, Genoa and Florence helped fund the Crusades, which aimed to take Jerusalem and the Holy Land from islamic rule in the name of Christianity. Made rich by regional trade, these merchants eventually wielded enormous political power over governments -- including the Papacy. Longer European voyages of discovery and conquest relied on support from monarchs and merchants, both of whom expected a good return on their investment. So colonial expansion was driven by adventurers who were daring and curious about the world but also owed a lot of money.

The theft of gold and silver from the indigenous cultures of Latin America confirmed how profitable such expeditions might be, and enthusiasm for them redoubled. Colonial administrations were set up in the new lands to transfer wealth back to Europe. But there was a troubling problem, particularly in the Americas. Native peoples were decimated by European diseases and often refused to work for the colonizers -- thus threatening the whole enterprise. Eventually, the shipping of enslaved Africans to new sugar plantations in Brazil and the Caribbean and to cotton plantations in the southern US became the most profitable trade of all -- and thus the main source of capital for future borrowing.


Meanwhile, newly independent governments in the Americas began to borrow too. In 1790 the US Federal Government assumed $75 million of debts incurred by states during the War of Independence. But their prior debts to British banks remained unpaid -- in 1842 11 US states eventually defaulted on them. In 1861, when Mexico defaulted on its debts, Britain, France and Spain promptly invaded.

Federal debts incurred during the US Civil War rose to $2.6 billion by 1865. The Canadian Government started off with a debt of $75 million (Canadian) passed on from the provinces at the time of Confederation in 1867. The Government continued to borrow -- but largely to finance railroads.


Lending to nation-states in Europe was good business. Governments could ensure repayment by taxing their citizens and they could not legally go bankrupt. So states borrowed heavily -- most often to fight wars among themselves.

In 1692 legislation in England pledged the receipts from beer and liquor taxes as security for a loan to the Government of [Symbol Not Transcribed]1 million. 'Public' debt increased steadily and by 1840 had reached [Symbol Not Transcribed]827 million, almost all of it used to fight wars.

Government debt and burdensome taxes were a major source of discontent in France. The revolution of 1789 repudiated two-thirds of the debts then owed by the French Crown. Napoleon financed his military exploits largely from foreign levies, but public debt rose again thereafter. By 1870 it had reached 12 billion francs as a consequence of the Franco-Prussian war -- the victorious Prussians demanded 5 billion francs in reparations from France. The Japanese Government borrowed 250 million yen for war with China in 1894 and 1.5 billion yen in foreign bonds for war with Russia in 1905.


The two 'world' European wars (1914-18 and 1939-45) sharply increased public debt. The French Government owed 34.2 billion francs in 1914 and the total rose steadily when war began. British national debt increased from [Symbol Not Transcribed]610 million in 1900 to [Symbol Not Transcribed]7.8 billion in 1920 and [Symbol Not Transcribed]21.3 billion in 1945 -- making Britain one of the world's largest debtors.

Germany's defeat in 1918 led to financial chaos. …

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