Brief History of Debt

The phenomenon of debt dates back to at least the earliest civilizations. As early as 3000 bc , loans were used to facilitate economic activity in ancient Mesopotamia (which now lies in Iraq, Syria, and Turkey). While creditors charged interest in these early times, this practice was widely condemned by religious figures as diverse as Buddha, Jesus, and Mohammed. Interest collecting and money lending were considered immoral by many prominent spiritual leaders, philosophers, and members of the general public from ancient times through the Middle Ages (which lasted from about 500 to about 1500).

Furthermore, prior to the twentieth century most societies dealt very harshly with debtors. In ancient Greece, Rome, and Israel, among other early civilizations, debtors who could not pay what they owed were sold into slavery, though Israeli custom required the freeing of such slaves every 50 years. The feudal system of the Middle Ages (in which aristocrats, or those belonging to a small privileged class with inherited land and wealth, ruled over all the people who lived on their land) generally treated debtors more leniently. This was true only because all men were required to serve their rulers in the military and could not be spared for the purposes of punishment. As the Middle Ages came to an end and capitalist economies (in which individuals could own property and conduct business with some amount of freedom from feudal or government control) began to develop, harsh treatment again became the norm for debtors. Until the nineteenth century people who could not pay their debts were generally sent to prison.

Even though debtors' prisons were phased out in Europe and the United States in the mid-nineteenth century, most people continued to frown on the practice of going into debt except to purchase the most necessary items. Debt was considered irresponsible and even immoral, an attempt to acquire things one could not afford to buy by honest means. Only essential investments, such as a farmer's purchase of seeds or a company's construction of new factories, were seen as legitimate reasons for borrowing money.

Throughout history governments have borrowed money in order to conduct wars. Only in the aftermath of the Great Depression (the severe financial crisis that afflicted the world economy in the 1930s), however, did government debt during peacetime became routine. National governments found that they could stimulate their ailing economies by spending money (often on public projects and on aid to the unemployed, the poor, and the elderly), and this was seen as beneficial even if the money had to be borrowed. Since that time public opinion of government debt has fluctuated, but governments have continued to borrow money for peacetime needs and with the intent of managing the economy, as well as for the waging of war.