When was the first national debt? The first systems that resembled modern national debt developed in the Italian city-states during the 12th century.
These days we are very used to countries being in debt. The USA, for example, as of 2026, the United States has a national debt of around $40 trillion. That is such a huge figure that it is difficult to comprehend. It is 126% of the US economic output. That works out at roughly $120,000 for every person in the country. It costs the US government $1.1 trillion a year just to pay the interest on the debt. Out of all of the countries in the world, there are only a handful that have no or almost no debt. Liechtenstein has a debt of about 0.5% of its GDP. It manages to do this by having a strong financial sector, not a lot of bureaucracy, a large number of international corporations, and being a very small country. Brunei has a debt to GDP of 1.5%. They are able to do this because of their enormous oil and natural gas revenues. Macau has 0% debt, funded by their casino and gambling industry. However, Macau is a Special Administrative Region of China, so not an independent country. Niue, a small self-governing island in the Pacific, has no public borrowing. Again, this is helped by having a very small population. So, with a modern country, it is extremely difficult to run a country without borrowing money. But when did this start?
Rulers of countries have borrowed money since there were rulers. All kings and queens needed to pay for wars, monuments, and other things. They borrowed money from merchants, nobles, temples, and even other rulers if they could. Unlike modern national debt, however, much of this borrowing was tied directly to the monarch rather than to a permanent state institution. The line between the king’s wealth and the state’s wealth was very blurry. When kings needed money and they couldn’t get it from taxes, they borrowed it, and the lender was basically lending it to the king. This could go very well for the lender, but it could also go horribly badly as well. If the king couldn’t pay, or wouldn’t pay, they would just default on the loan and this often bankrupted the creditor. Edward III borrowed an enormous amount of money from creditors in Italy and then he defaulted on the payments in the 1340s. It was very difficult to try and get money back from a king. Although, one consequence of defaulting on a loan for a monarch was that it would become increasingly more difficult to borrow money in the future. At least until that monarch died and new one replaced them.
The was the main reason why organized national debts began. If you leant to a king and the king died or refused to pay, you had lost your money. In the 12th century, Venice created a system where the debt was owned by the state rather than the individual. If the leader of the state died, the debt continued. This happened in 1171 to 72. Venice imposed a huge, forced loan on its wealthy citizens to finance a war. Perhaps they could feel revolt in the air, so they decided that the government owed the money it had borrowed to the citizens. This was called prestiti. In 1262, Venice consolidated its outstanding public debts into the Monte Vecchio, which paid holders 5% a year. This move created an institutional loan backed by the state, which made it much safer. And this safety and the paid interest created a trade in the debt. People could sell their debt to other people who would then collect the future payments.
The biggest change after that introduced the modern system of national debt. In 1694, England was fighting France and they desperately needed money. They made the decision to pay 8% annual interest on any money they borrowed. They needed ￡1.2 million and they managed to get all of it in only 11 days. Lenders loved the new system. If someone lent ￡10,000, they would get paid￡800 every year. Interestingly, this loan was only the books until 1994, 300 years later! And, more than that, it was safe. The government backed the loans with tax revenue. This changed the way governments borrowed money and it changed the way people lent money to the governments. It also changed the fortunes of England. Because the debt was safe and they were paying interest, people were eager to lend. Britain could now spend money it didn’t yet have. Britain’s ability to borrow enormous amounts of money at relatively low interest rates helped it finance wars and maintain military forces on a scale that would otherwise have been extremely difficult, contributing to the expansion of the British Empire. And this is what I learned today.
Sources
https://www.us-debt-clock.com/blog/countries-with-no-debt
Photo by https://kaboompics.com/: https://www.pexels.com/photo/hands-holding-us-dollar-bills-4968384/