War Finance. How nations funded their wars in the ancient times, modern-era and how nations will fund their wars in the future ?

Pre-modern Banking War Financing

In the pre-modern banking system, when a nation had to prepare for war, they also had to prepare a budget and accumulate their resources ahead of major military campaigns. Behind every successful military campaign is a well thought out financial forecast and planning. War financial planning is as unpredictable or even more than funding for modern high risk high reward startup venture.

Nowaday, the cost of going to war is much more expensive and profitability is limited. However, in ancient times, wars are highly lucrative and profitable endeavours. The Mongol Empire and the Roman Empire are two examples of innovative war financing for sustaining expansionary war efforts. In ancient times, there are three main sources of military financing: private contribution from citizens, plunder and taxation.

The Roman Empire existed from 27BC to 1453 AD and is one the most well organized, disciplined army in the ancient time. Early period, the Republican Roman Army men were every able male private citizens. The right to vote as a Roman citizen is the sign of a person's success. Citizenship was not by birth but by financial or military success.

To become a Roman soldier in the Roman Empire, you actually have to come from a wealthy background to be able to fund their own military equipment. The poor served mainly as slaves and some slaves were in charge of caring supplies for Roman soldiers during their campaigns.

With the popularity of the Roman Latin alphabet among all Roman citizens, all the war tool design and manufacturing process could be experimented on to different directions and usage performances in real war were recorded in writing.

Roman soldiers could then contribute money to a common defense budget to mass manufacture their helmets, swords and shields. Final mass manufacturing design could be voted on by the frontline soldiers on the field before the Roman Smiths started pouring iron into mold.

Later during the expansionary period, Roman Army plunder was actually the main source of revenue for the state and plunder revenue helped to fuel a continuous expansionary circle of the Roman Empire to its height. After every successful campaign, the Roman soldiers can bring back their plunder profit from captured territorials including gold, silver, coins, goods as well as slaves.

The Roman army was much more disciplined and well equipped than all other surrounding city states. Wars were very profitable early on, a main source of riches for Rome. In modern term, the Roman enjoyed War Surplus early on.

However, wars did get more expensive and became a major state expenditure at the introduction of cavalry units as well as larger army size to handle more challenging opponents. They started to experience War deficits during the later period of the empire.

Taxations are also another important sources of financing for Roman empires to fund their military campaign. Early period of the Roman Empire, orphans, widows and single women have to pay taxes for the upkeep of the Equus Publicus - the Roman military horse. After massive territorials and continuous successful military campaigns, taxes as well as tributes from capture city states and provinces were so lucaratives that the citizens of Rome no longer have to pay taxes.

The Mongol Empire existed from 1206 to 1368 also financed their wars through private contributions, plunders and taxations like the Roman. The Mongol war finance included a sweat and blood equity system called the Khubi. Very similar to sweat equity of early modern tech startup founders. Members of the Golden Family - Altan Urag, as well as each noble families and each warriors were entitled to a Khubi share of all the benefits and good seized in wars from capture territorials.

The Mongol also levied taxes and tributes from captured territorials to fund their military expansion. Mongol Khans used native local tax collectors to gather tax revenue. Moscow, the modern capital city of Russia rose to prominence because of their status as tax collectors for the Mongols. This Mongol expansion period was the only rare occasion in recent human history that Blood type A of Europe and Blood type B of Asia formed large numbers of genetic unions.

Not just the Mongol composite bowl but the Mongol financial system also gave the empire a major advantage in the battlefield. Mongol financial planners introduced paper money to reduce luggage weights for their mounted archors and made conquered cities' merchants more dependent on the Mongol local rulers and their tax collectors. The Mongol confisticated all gold and silver from subdued citizens and forced the merchants to accept the Jiao Chao as a form of payment or will be punished by dead.

War Financing in 19th and 20th centuries

Wars were still highly profitable endeavours in 19 and 20 centuries. Plunders and private contribution became a less important sources in modern era. Bond market are much more appealing to the general public than raising taxes in Europe. With the introduction of modern banking, European nations funded their military built up via the bond market besides the traditional means of taxation.

War loans or war bonds were the main financing sources for major European powers during WWI and WWII. Buying War bonds is considered as patriotic contribution expected from every citizen in European countries. There are two main types of War bonds: short-term bonds and long-term bonds. Short-term bonds are easier to raise and used mainly on short-term expenditure. However, short-term bond can spur large credit expansion and cause unwanted inflation. Long-term war bonds are normally used for military equipment built up, as well as increasing in industrial input mineral and energy reserves before the wars. Long-term war bonds are normally bought by international financiers from United States.

Nations during World War I used three methods to finance the wars: Increase taxation, Short term and long term borrowing from the Bond market, monetary base expansion through money printing. Britain and US paid 25% of its war expenditure from taxes while Germany and Italy paid 6-15% of its war financial need from taxes. Austria, Russia and France did not finance their wars via taxes.

Increasing taxes is generally a better way to fund sustainable long-term war than bond market and monetary policies since it reduces the upward pressure on price by removing liquidity from the extra military spending and inflation. Germany was fast growing and wealthy countries but lack a federal fiscal infrastructure to levy taxes for wars like in Britain.

Like many wars, it is very difficult to predict the outcome but many would agree that by looking at the financial pictures of every nation ahead of World War I, Britain and its allies did have a clear advantage over Germany and the Central power. London and Wall Street were the two biggest and modern Bond markets early 20 century so this did give US and Britain a much larger and sustainable war chest than Germany and its Central power.

Germany was later on blacklisted from the New York and London bond market and forced to utilize more neutral borrowing sources like Neitherland and Switzerland. Germany planners were preparing for fast-paced quick war during WWI so they relied mainly on short-term loans and this is one of the causes of hyper-inflation in Germany later on after World War one. Hyperinflation indirectly led to the raise of Nazi party in German parliament.

Expanding the money supply is another way nations used to fund war effort and being used extensively by European nations during WWI to pay for their military expenses. Nations did this by having their central banks to print extra cash to buy treasury bonds. Central banks can also sell the gold reserves, alter the reserve requirement or straight up print more cash and use it to pay vendors and military salary.

Britain entered World War I at a much better financial footing than Germany. Half of Germany foreign investments and assets were in enemy territorials while French only has 10-12% and Britain only 1.3%. Britain was planning for a multi-front strategy of attrition to gradually destroy Germany’s military and economic strength while Germany was planning for a fast-paced quick victory.

During and after World War one, the United States was the apex creditor of the global credit pyramid with Italy and Russia at the receiving ends. After World War one, Italy walked away with 3 billions in debt while Russia owed 3.6 Billions. France has Debt to GDP ratio of 70% before the Word War I (Modern US is 106%, China 50.5%, Russia 13.5%) but they end up to be a borrower after everything balance out. The Russia default of debt from France was also a major reason behind France bad financial outcome after World War one.

Another unique way to fund military built up is via stock equity. The stock market was invented in Netherland to fund the expeditionary commercial ships as well as VOC Dutch East Indian company Private Navy. Neitherland was a small country with limited natural resources, farm land and population. However with this financial innovation, Neitherland was able to build the largest navy in the world and at some point out-gun the Royal British Navy.

Future Way to Fund Wars

So is human going to come up with a new way to fund wars. Blockchain is a recent financial technology that could potentially create a new effective channel to rapidly mobilize financial resources for war effort with limited risk of blockade and blacklisting like the traditional bond market.

A blockchain is a decentralized digital network of redundancy databases, many copies of a continuously updated scripture. Each node database has the exact copy of all financial transactions within the network. The write operation into the database is called hashing or mining in cryptocurrency.

In every hashing operation, every node attempts to solve an increasingly hard algorithmic problem. This is a very energy intensive operation so the value anchor point for every cryptocurrency is the price of energy unit. The first node that is able to finish algorithmic problem, the hashing & mining operation, get to write to the universal scripture / database and every other node make a copy of this universal scripture / database. In cryptocurrencies network like Bitcoin, Ethereum, the first node that finished the hashing also choose to add a coin to their balance.

World War III - An Investment Decision

War like most modern spending decision is ROI Return on Investment calculation. Planners have to carefully calculate risks and rewards as well as financial projection leading to the war and after victory is achieved. So what are rewards nations could achieve if they emerged as victor after World War III. United States probably want war to eliminate competitions before they get too strong. This could be in the form of cold economic wars to erose economic strength or hot war in a form of real military conflicts.

China, if ever be able take the number one spot and secure its energy supply route, will have to reduce the US dominance in the ocean.

Russia probably want war if they can gain favourable financing terms. Russian defense spending already peaked and they do not have the financial resources to keep up with the future modernization. Their existing Cold War era weapon would go to waste in 10 years if not being used before 2030.

If China gives Russia the Machuria area for better access to the Pacific in exchange for military alliance, they might do it. Same with US, if Russia can get back Alaska for better access to the future North-West passage, they might end up in US alliance.

Germany and Japan with its gold reserve and economic strength but limited military capability might want serve as financiers and technology exporters/advisers to their choosing sides.

War has become much more expensive and destructive with the modern technology. After the invention of nuclear weapons, we do not see any more major power conflicts. The closest we ever come to WW III is the cold war between the Soviet Union and the United States

So World War III will most likely be a decisive naval battle in the Indian Ocean similar to Vietnam's total destruction of the Mongolian Navy, Greek’s total victory in the Battle of Salamis against Persian forces or Battle of Midway between Japan and the United States.

A decisive naval battle will avoid three major risks: nuclear war escalation, destruction of economic infrastructure and large human casualty. Using nuke at the deep ocean is acceptable with limited environmental damage. Naval war has very limited effects on civilian economic infrastructures.

Besides the naval personnel losses, both winning and losing side will have very limited to none civilian human life losses. Further escalation from limited naval war to all-out war could be prevented via nuclear deterrence. Winners of World War III will gain control of major ocean shipping routes, be able to levy taxes and tolls to all travelling ships through their controlled routes to gain back initial investments.

World War III can also never become a major powers’ conflict but instead staying at proxy wars with the reappearance of well armed pirates or Chinese state-sponsored ocean piracy. World War III could also be a repeat of the 1980s Cold War with the American strategy of irregular warfares using state-sponsored criminal gangs inside Vietnam, China and Russia major population centers and border regions.

World War III Started

It seems like WW3 was launched by United States or Russian or British sleeper agents at the moment William Bar became US Attorney General Feb 14, 2019. Because of nuclear deterrence, they are using bioweapons to spread viral disease, chemical weapons to poison food and water and information weapons to cause friendly fires during WW3.

British French remote controlled hookers and gang members started to spread viral diseases in South East Asia and China.

Russian started COVID 19 to keep everyone indoors and soften small countries' military. 50.000 Vietnamese were sent as COVID19 carriers to the United States and China in a succide mission March 2020 under Russian directives.

Russia invaded Ukraine, nuked Machuria, detonated multiple nuclear devices underground in Turkey and undersea in the Sea of Japan with help from Syrian and North Korean agents.

China invaded Vietnam after the Vietnamese incursion into Southern China. China reached Thailand but stopped by the US Military stationing there. China lost all its navy in the Indian ocean and a large part of its army in Siberian Russia.

American agents pouring radioactive sands into Red River and Hanoi Water factories. South East Asia became slave trade marketplace for modifed XOs like Africa during the colonial period.