War Finance: Strategic Funding for Modern Combat Operations

By Fouad Sabry

What is War Finance

There is a subfield of defense economics known as war finance. It is the economic base of a military that determines its might, and without this financial support, soldiers will not be paid, weapons and equipment will not be made, and food will not be purchased. In light of this, achieving victory in a war requires not only achieving success on the battlefield but also achieving economic dominance and maintaining economic stability within a state. The term "war finance" refers to a wide range of financial programs, including fiscal and monetary efforts, that are implemented in order to support the expensive expenditures that are associated with a war.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: War finance

Chapter 2: Tax

Chapter 3: Government bond

Chapter 4: Fiscal policy

Chapter 5: Fiscal multiplier

Chapter 6: Deficit spending

Chapter 7: Public finance

Chapter 8: Government budget balance

Chapter 9: Debt of developing countries

Chapter 10: Government debt

(II) Answering the public top questions about war finance.

Who this book is for

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of War Finance.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Jun 23, 2024

Book preview

Chapter 1: War finance

There is a subfield of defense economics known as war finance. It is the economic base of a military that determines its might, and without this financial support, soldiers will not be paid, weapons and equipment will not be made, and food will not be purchased. In light of this, achieving victory in a war requires not only achieving success on the battlefield but also achieving economic dominance and maintaining economic stability within a state. The term war finance refers to a wide range of financial programs, including fiscal and monetary efforts, that are implemented in order to support the expensive expenditures that are associated with a war. In a general sense, these kinds of metrics can be divided into three primary types:

the imposition of taxes - taxation

borrowing is the act of elevating debts.

The production of new money supply, often known as inflation

As a result, these measures may include the imposition of particular taxes, the expansion and broadening of the scope of the taxes that are already in place, the solicitation of loans from the general public, both voluntarily and voluntarily, the arrangement of loans from foreign sovereign states or financial institutions, and the production of money by the government or the central banking authority.

Wars and conflicts have always required the gathering of resources throughout the history of human civilization, from ancient times to the contemporary period. Since then, war finance has remained, in some form or another, a significant component of any military economy plan. This has been the case from the beginning of human civilization until the present day. Take, for instance, the Roman Empire, which placed a significant emphasis on economics. The violent conflicts that took place between the Roman empire and Carthage proved to be extremely expensive, to the point where Rome even ran out of money entirely at one point throughout the duration of the conflict. It is important to note that the Roman economy during this time period was a pre-industrial economy. This meant that the bulk of workers, which might reach up to 80 percent, were engaged in agricultural activities. Nearly all of the taxes that the government was going to collect were going to be spent on military operations, which ended up being approximately 80 percent of the total budget in the year 150. It was determined that the continuation of military operations would place a significant financial burden on the economy, and as a result, various strategies were developed in order to assist in alleviating this load. The method of debasing the coins was one of the techniques that were utilized. Numerous nations who employed currencies made from precious metals would debase the coins using this method, which was done in many of those nations. This, however, did not continue for very long because inflation began to continue to rise. There were a number of governments that were in charge of attempting to reduce the high cost of inflation through new reforms; however, some of their initiatives merely got gradually worse as the bureaucracy that the government had to maintain increased, and the enormous amounts that were spent on welfare payments to the swelling population became even worse. This entails the taking of goods by force as part of a military or political triumph, and it was utilized as a key source of cash for the state that emerged victorious. The Belgian manufacturers were forced to create goods for the German effort during the first World War, when the Germans conquered the Belgians. Alternatively, the factories were forced to disassemble their machinery and take it back to Germany, along with hundreds and thousands of Belgian slave industrial workers.

There are several methods to finance war, but one of the more politically difficult ones is through taxation. Due to the fact that people are aware that higher taxes diminish their individual capabilities to spend and consume, raising taxes is typically unpopular among the domestic population. Because of this, increasing taxes on a population that is already reluctant to pay taxes in order to finance a war could potentially result in widespread opposition to the war. In addition, taxes are a form of appropriation that takes away a portion of the work and capital of the population. During World War I, the United States of America and Great Britain were able to finance approximately one quarter of their war costs through increased revenue. On the other hand, Austria did not contribute any taxation towards the expenditures that were made during the war. [3]: The government of the United Kingdom believed that they were an exception to this general norm, and they considered their wealth and continued financial stability to be one of their most powerful assets in the warfighting arena. Because of this, the income tax was raised from 5.8% in 1913 to somewhat more than 30% in 1918, which was a five-year rise. The threshold was lowered in order to make it possible for millions more people to be subject to paying income tax.

An further method for the government to finance the war is for the government to raise the amount of debt it carries. At the beginning of the Great War, the majority of nations believed that the war would be over in a short amount of time. This was especially true in the minds of the most powerful allied nations, which were the United States of America, Great Britain, and France. They believed that there was no need to raise taxes because doing so would have been politically challenging. It turned out, however, that it came at an extraordinary financial expense, and as a result, it was felt that it would be best to pay for it by borrowing money, and this would allow the costs of the conflict to be transferred to future generations. It is possible for the government to issue bonds, which are then purchased by creditors, who are typically the central banks. The sacrifices are different as a consequence of this, and the government will have to pay it back in the future with some interest. There are numerous examples of what is known as war bond throughout the history of conflict. Although the economic repercussions of this manner of financing are less immediate for the general people, they are nonetheless of similar significance. The interest that is paid might be interpreted as a fundamental transfer of wealth. The ability of a nation to repay its debt is another factor that can have an impact on the economy of that nation. This is because a buildup of debt that is too significant can occur. The confidence of the people in the economy of the country may be affected as a result.

It is also possible for the government to employ monetary instruments in order to finance war. For example, the government might print more money in order to pay for the military complex, troops, and armaments. The creation of inflation, on the other hand, has the effect of lowering people's purchasing power and can therefore be interpreted as a sort of taxation. The expenses of the conflict, on the other hand, are distributed in an arbitrary manner, particularly as they pertain to individuals with fixed incomes. Such inflation may even, at some point in time, bring about a reduction in the level of production in a country. In 1914, practically every nation gave up on the gold standard and began printing additional banknotes in order to inflate their respective currencies. This occurred during the Great War, when governments made the decision to turn on their printing presses. For example, the money supply in Britain was multiplied by about 1151%, whereas in Germany it was multiplied by 1141%. The war loans, which were beneficial for the western countries, absorbed a significant portion of the additional money supply, while at the same time rationing some of the controlled prices.

When a conflict results in increased expenditures by the government, the populace that is financing the war is either paying directly (and immediately) or indirectly (and sometimes delayed). As a result, the funding for war can be broken down into two distinct categories: Financing can be both direct and indirect. Taxes, to which the people is directly responsible for bearing the burden, are included in the first category, while borrowing money or growing the money supply are included in the second category. It has been demonstrated through empirical research that there is a correlation between the tax policy of a leader and the future punitive electoral effects. This is due to the fact that tax policies reflect a permanent transfer of buying power from the taxpayer to the government.

Borrowing money is a more easy approach to finance conflicts from a political standpoint because it can reduce the likelihood of electoral consequences occurring. The imposition of higher tax rates has an immediate impact on the people, whereas borrowing incurs consequences that are not immediately felt by the community. Borrowing money has the advantage of transferring the financial burden to a future government, which means that it does not hinder the current leader's chances of being re-elected. This is one of the advantages of borrowing money. Subsequently, borrowing money is a well-known method that the state might use to fulfill its responsibilities, which include the implementation of expanding fiscal policies. Due to the fact that borrowing only has an indirect impact on people and is a measure that is generally acceptable, it makes war a more diffuse target for opponents. This is because it will be just one of the several sources of debt that the government has. Borrowing money is, without a doubt, a factor that contributes to the accumulation of debt, which in turn produces controversial disputes. On the other hand, it is something that can be seen, notably in the case of the United States, that the possibility of a shutdown of the government is a politically unfavorable conclusion, even considering the opposition. Due to the fact that there are no