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Richard M. Salsman
Not until the Enlightenment and the financial revolution in the eighteenth century did sovereigns borrow publicly, regularly, and responsibly. Constitutionalism, the rule of law, ethical acceptance of lending, and more respect for sanctity of contract increased creditors’ willingness to lend. Three centuries of data show that public leverage – the ratio of public debt to GDP – was highest at the end of the Napoleonic Wars and World War II. Public leverage since 1980 has increased steadily for many sovereigns, but for most of them leverage is still far below prior peaks. The multi-decade rise in public leverage reflects burgeoning welfare states but also coincides with an anomalous decline in public borrowing costs, due mainly to repressive central bank policies.