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Joshua Kim
Bennett, Martin
Humanities 2, World History
17 February 2016

Debt, the Economic Source

Debt and loaning, two of the biggest factors of economy, something people do not want
have or do. Borrowing and returning money is the flow of money throughout the market.
Without it the money would stay with the rich and the poor will stay poor. The aristocrats would
control the land and the poor would barely survive. Although one would think debt and loaning
would be a detriment to the overall economy and causing unbalanced power for the rich, it
created something new. For the first time in history debt was prevalent during the Industrial
Revolution, and it was necessary for the rapid growth of European Industrial Revolution.
Without debt there would have been no foundation for the economic source for the industrial
revolution other than itself. The more debt the society was in initially the more industrialized it
became and revolutionized society.
Debt was dominant in the Industrial revolution, people from the government and the
growing population of entrepreneur were in debt. The Glorious Revolution of 1688 turned
Britain into a credible borrower; subsequently, borrowing increased massively (North and
Weingast 809). From 1692 to 1815, Britains debt rose from 5% to over 200% of GDP
(Sussman and Yafeh 926; Barro 225). Most of this debt was due to the over sea wars that were
being fought by the British. British was at for 76 years - 62% at the time(Ventura and Voth 2).
All of this wasnt harmful, the mass production for war and manufacturing transformed their
economy ...by a factor of eight, allowing it to sustain a population that was four times larger and

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twice as rich(Ventura and Voth 2). This effect can be seen with the United States and their Great
Depression and World War 2. Their economic slump ended with an economic revival with World
War 2. They mass produced munitions, clothing, and vehicles for the war, which employed most
of the population, as well bringing stability to their economy. Ideally, entrepreneurs would
borrow massively from nobles; this would lead to faster growth and a more rapid structural
transformation(Ventura and Voth 3). However this was not possible due to prejudices between
the classes. Sovereign bonds were more popular with the nobles, therefore when sovereign debt
became an issue, there was less invested into agriculture and traditional industries. This caused
lower wages for labor class, causing more and more to venture into industrialization, and raising
the market for entrepreneurs.
The shift of economy and increasing debt vastly changed the social life and structure.
...sovereign debt accelerated structural change(Ventura and Voth 3). As stated above the a lot
of the debt was sourced from War. Most of the money was spent on labor workers and materials.
The government is giving job opportunities in industry, while nobles are lowering the wages of
agricultural and typical industry workers. With a higher demand of labor within modern
industries, more and more people moved away from typical industries to industrial industries.
The lowered wages of agricultural and typical industries caused peasant revolts among the
people living under the nobles. Britains nobility in 1700 held the vast majority of wealth and
political power; by 1900, its relative position had declined markedly(Ventura and Voth 4). This
is due to the high return of sovereign bonds. The nobility did not invest directly in new
technologies(Ventura and Voth 4). However, if they did invest into the new industries it can be
determined that their grasp on the new industry wouldnt create any social change. This can be
seen in Japans economic sudden growth. The merchants were considered the lowest in the social

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classes while Samurais were on the top. Due to the sudden industrialization of Japan, the
merchant class gained a lot of wealth, while the Daimyos and Samurai had class and little wealth.
The top classes had to borrow, be in debt, to the merchants for economic reason. This gave the
merchants more power while the top classes lost power against the merchants. This social change
only occurred due to the imbalanced classes and growth of industrialization.
Although all of these social and economic changes dramatically changed the future, one
cannot ignore the environmental damages caused by the industrial revolution and the sacrifice of
other occupations. The new fuel sources caused sudden carbon dioxide increase, in turn caused
global warming, and new railroads needed space to be built upon, therefore caused deforestation
and relocation of animals. People focus on the good and new occupations and growth of
economy, but in hindsight other people were harmed by it. Most artisans lost their job to
industrial machines and Japanese women suffered for a while for textile industry.

Works Cited
Barro, R. J. Government Spending, Interest Rates, Prices, and Budget Deficits in the United
Kingdom, 1701-1918. Journal of Monetary Economics (1987), 20(2), 221 247. 12
Web. February 2016.

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North, D. C., and B. R. Weingast. Constitutions and commitment: the evolution of institutions
governing public choice in seventeenth-century England. The journal of economic
history (1989) , 49(04), 803832. 12. Web. February 2016.
Sussman, N., and Y. Yafeh. Constitutions and Commitment: Evidence on the Relation Between
Institutions and the Cost of Capital. CEPR Discussion Papers 4404, C.E.P.R. Discussion
Papers (2004). Web. 12 February 2016.
Ventura, J., and Voth, H. Debt into Growth: How Sovereign Debt Accelerated the First
Industrial Revolution. Centre de Recerca en Economia Internacional (2015): 1-5. Web.
12 February 2016.