The evolution of government borrowing was very slow. The extensive use of loans by governments became possible only after the ruler had become differentiated from the state and after the fact of the continuity of the state had been separated from the persons of the rulers. Other factors were also required: the development of a regular revenue source to provide funds for repayment of loans, a monetary system, and an organized money market. The earliest loans of medieval times were either forced loans or personal borrowing by the sovereign. Government borrowing in its modern form first occurred in medieval Genoa and Venice when the city governments borrowed on a commercial basis from the newly developed banks.

Throughout much of French history public borrowing has been of major dimensions. Ministers of finance in the 17th and 18th centuries found the problem of managing the debt almost insuperable. During the Revolution that began in 1789, about two-thirds of the accumulated debt was repudiated, and the remainder was refunded in new securities in 1800 at a total of 926,000,000 francs. The sum increased by only 340,000,000 francs during the Napoleonic period because Napoleon’s military expenditures were financed mainly by foreign levies. A large increase occurred during the Second Empire, when the debt rose from 5,516,000,000 francs in 1852 to 12,310,000,000 francs in 1870. The Franco-German War, which ended in defeat for France, and the consequent imposition of an indemnity of 5,000,000,000 francs by the victorious Germans raised the French public debt to more than 21,000,000,000 francs in 1873. Most of the increase was financed by four bond issues. After 1878 the debt increased further as a result of public works expenditures and France’s colonial expansion until it stood at 34,204,000,000 francs at the outbreak of World War I. The war and its effects multiplied the debt, although at the same time inflation reduced the value of the franc by half. The inflationary trend continued throughout the interwar years, and by 1960 the franc had lost more than 99 percent of its 1914 value. The increase of the public debt in this period to 8,404,000,000,000 francs has to be seen, therefore, in the context of the continuing inflation. The issuance in 1960 of a new franc equaling 100 old francs automatically reduced the nominal value of the public debt to 1 percent of its previous figure. Following the introduction of the new franc, the national debt continued to rise.

Government borrowing in the United Kingdom dates to the end of the 17th century. In 1692 legislation pledged the receipts from beer and liquor taxes as security for a loan of £1,000,000. The trend of the debt was upward throughout the next 150 years largely because of wars; by 1802 it had reached £523,000,000 and by 1840, £827,000,000. The second half of the 19th century saw gradual reduction of the debt to £610,000,000 in 1900, while the amount of debt still remaining became less significant because of the growth of the economy in the same period. World War I brought a tremendous increase, the 1920 figure being £7,828,000,000. The 1920s showed little reduction, and the figure rose slightly during the Depression years. World War II brought the level to £21,366,000,000 in 1945, and the figure rose in the postwar period—partly as a result of nationalization of industry. During the 1980s it surpassed £140,000,000,000.