E46 Recap: Money and War


Prestigeheads might be familiar with the many ways that war has historically shaped states, especially by centralizing power. But war was also crucial to shaping the history of currency. In this conversation with Stefan Eich, we discuss how war shaped money--and how money shaped war.

Danny Bessner: Let's dig in on that for a second, war. Because I had mentioned earlier the disconnect in our theoretical thinking right now between war and money. And this is what I love about your book. And I think why it's going to be a very important book going forward, because it does provide a base for this sort of analysis. But could you bring war into the discussion, and just, maybe even take a step back from Aristotle and just talk about the relationship between war and currency, because I think this is something that you see throughout history, people worrying about hyperinflation. People worrying about... right now, we're talking about Russian sanctions, and that's ultimately— at least partially— a question of money. So what is the connection that you see? What should listeners who might not be experts in this take away from the relationship between war and money over time?

Stefan Eich: It's a striking link and one that I actually didn't expect to come up as strongly as it did when I started writing the book, but something that it becomes inescapable when you actually dig in. Every single moment of monetary crisis I ended up looking at, had an element of war in it. And the war was generative in a number of different ways. To begin with, war puts pressure on state finances. Wars are extremely expensive and it forces the state to come up with alternative means of financing, forced the state to either develop its tax systems. So many innovations of tax policy are closely linked to these moments of war. Income taxes first come into being in the late 18th century in the context of Britain's war against Napoleonic France.

But you also see the state resorting to innovative, say desperate, say creative attempts to create revenue, to finance its wars. And so money becomes an obvious subject here. For many centuries running up to the modern period, it was in periods of war that European monarchs would essentially devalue their currency and essentially finance their wars through kind of inflation tax. And were thereby able to kind of find resources, but they didn't have the tax resources for finance.

Danny: So I'm very curious here about tendencies in war, because the story we tell in political, diplomatic history is that wars tend to centralize states and centralize power, and particularly in the executive. But on the other hand, as you just said, war also, in a sense, frees up money, where money is able to embrace its elasticity. And one of the inherent uses of money is that it can be elastic. So do you see any tendencies or any relationship between those things? I mean, I don't think it would be an X curve necessarily, but I was curious what you see about those tendencies towards centralization on one hand and towards elasticity on the other.

Stefan: I think what's standing in the background here are questions of the international flow of money that comes up so clearly. It's precisely in response partially to these attempts to finance wars through increased centralization or other tools of monetary financing that private sources of money develop techniques to escape those attempts. Either by developing new forms of financial instruments, commercial paper, promissory notes, and so on. Or there is a sense in which the idea of metal money becomes all the more appealing. Not because you believe actually in intrinsic value or any of that stuff, but because it's a kind of check against the sovereign simply saying, a pound is how much I declare a pound to be worth.

And so you see also an ideological struggle during these periods of war, in which money is re-conceived from both sides. On the part of the state and on the part of private money holders who are trying to resist these attempts. And so it's a genuinely open-ended ideological struggle and you see it ending differently in different moments, you can track how kind of infrastructural debates about state capacity and the ability of states to finance wars very quickly leads to kind of deep ideation and ideological debates over what is money, what should money be, what kind of monetary system should come out of a specific war?