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Foster Publishing, Coin & Stamp  >  "From Royal Debt to National Debt"

From Royal Debt to National Debt

posted by silverbull on Apr 23rd, 2007 at 5:32 pm

An entry from Fiat Paper Money:

Unlimited National Debt?

A new phenomenon was occurring throughout Europe. Royal debt was being transformed into national debt. What had been the personal debt of the monarch was becoming the burden of the nation, payable by the people. And many central banks were created to administer this debt thought paper money.

Austria provides one of the best examples of this new way of thinking. The First Bank of Austria was founded in 1703, the the express purpose of funding the public debt by issuing paper money in exchange for deposits. With too few deposits, and too many notes, the bank and its currency failed.

In 1759, Count Sinzendorff, a prominent Austrian official and renowned financier, went a step further and suggested that government debt be brought to all the people, not just depositors. He issued Austria’s first paper notes for general circulation, as a loan instrument with interest coupons attached. 14 The new money was well received. Impressed by the expansion of commerce when more credit was made available, the government authorized a second issue of paper bills in 1769, and a third in 1771. Yet this prosperity did not last long. As excessive new issues were printed, they provoked a panic in 1797. The next decade was no better. Austria became embroiled in wars, spent heavily, and ended up with a currency that had lost over 90% of its value. 15

In most of Europe, war financing, formerly dependent on taxes and treasury funds, was revolutionized by the seemingly limitless resource of national debt. No longer were kings and princesses scrambling to find money to pay the army. They needed only to apply to the central bank. This convenience led to a sharp growth of national debts in the 18th century.


14 These would be considered bonds today.
15 Contant, A History of Modern Banks of Issue, 221-224.

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