As Trump’s “Secretary of War” Pete Hegseth demands a fifty-percent increase to the war budget—topping an eye watering $1.5 trillion—it may be instructive to remember that war spending has always and everywhere been the primary enemy of sound money. Some advocates of the warfare state like to lay the blame on social spending, but it has historically been wars that end up ruining currencies and blowing the top off the public fisc. While social spending can indeed be crippling, and certainly empowers the ruling class, it is the fiscal demands of war that cause enormous surges in public spending to levels that would have never been politically unjustifiable for mere pension programs. Rather, it is during wars that government budgets will triple or quadruple, or, —in the case of Britain during the Great War—increase by a factor of twelve. Moreover, it’s important to note that in cases like these, tax revenues rarely keep up. During the war in Britain, for example:
Part of the military spending was paid for with cuts to other spending; civil spending fell from 10% of GDP to 5%. Still, even together with tax increases, this could not match the growth in war-related spending. While tax revenues quadrupled during the war years, expenses increased by a factor of twelve. So, only 25% of spending was met by taxes in the five fiscal years starting April 1, 1914.
More “moderate” increases were also enormous. In France total government spending, fueled by war spending, increased from 10.5 billion francs in 1914 to 46.9 billion francs in 1918. The German state’s spending rose 17 fold during the war, rising from 3 billion marks in 1914 to 52 billion marks in 1918.
In France, as in Britain, the United States, Germany, and the other belligerents of the war, massive war debts made up for enormous gaps between tax revenue and total government spending. The European governments generally chose to monetize much of this debt, rather than raise taxes enough to cover war costs. France, the UK, and Germany, “relied much more heavily on debt and inflation than on taxation to fund government spending.” Consequently, monetary inflation was significant:
German debt … became monetized and the volume of new currency exploded. German currency in circulation rose 599 percent over the course of the war … Great Britain and France saw an increase of money in circulation of 91 and 386 percent respectively.
These enormous surges in deficits and spending over such a short period are rarely, if ever, seen in connection to social spending. Rather, runaway government spending, to the point of increasing total spending by five or ten fold, is justified on the back of a complex of nationalism, fear, and propaganda claiming that “winning” the war—what constitutes victory is defined by the elites, of course— is worth any expense.
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