Democratization and Globalization

Abstract The market in public debt was globalized and democratized in the nineteenth century, when a growing base of retail investors adventured their savings in bonds issued by sovereigns. Spending priorities meanwhile shifted from financing wars to supplying public goods and services. As cities expanded, demands arose for transportation, clean water, sewers, and electricity. In response, governments issued bonds to finance public infrastructure. This transition again illustrates the role of public debt in state building—in lending legitimacy to the state by enabling it to meet the needs of its constituents. But where savings were low and financial markets were underdeveloped, governments could not finance such projects at home. Such governments, including those of Southern Europe and recently independent Latin American republics, borrowed abroad. External debt emerged as an asset class.