That a quantifiable link between war-making and central bank inflation exists is taken by many economists as a given. Ludwig Von Mises, the Austrian School economist
(The Theory of Money and Credit), said of WWI in 1919, "One can say without exaggeration that inflation is an indispensable means of militarism. Without it, repercussions of war on welfare become obvious much more quickly and penetratingly; war weariness would set in much earlier." The chart above is primarily about stock price moves (blue line), but the grey shaded rectangles show that during periods of war inflation increases: 110% for WWI, 74% during WWII; 207% during Vietnam; steady inflation increase (pink line) during the so-called War on Terror. Professor Fischer says during the Korean War, despite increases in taxation, wholesale prices increased by 12% in the US in 1950.
The United States was been at war except for inter-war hiatuses of about twenty-five years in total since the end of World War II, a period of six decades. The periods of relative peace are punctuated by various military excursions of varying intensity. To fight wars governments must have money to pay soldiers and purchase equipment and supplies, not the least of which for modern armies, is oil. Governments can raise funds in three ways: taxation, borrowing, or creating fiat money via the central bank. Taxation is politically unpopular and too much of it can lead to revolt. Borrowing is less obvious but gets expensive as interest rates go up in competition with the private sector for a limited supply of money. Creating it, as only the government can do, is relatively painless since the burdens placed on a population are insidious as their money declines in value. Congressman Ron Paul explains, "Congress and the Federal Reserve has a cozy, unspoken arrangement that makes war easier to finance...The Federal Reserve, however, is happy to accommodate deficit spending by creating new money through the Treasury Department. In exchange, Congress leaves the Fed alone to operate free of pesky oversight and free of political scrutiny."
Ancien regimes debased coin since paper money was not then used as a medium of exchange. But nowadays the process of devaluing currency is achieved through the operations of a central bank. A government is able to sell its securities--bonds--despite existing indebtedness because buyers know the central bank will buy back the bonds. Of course the government is obligated to pay interest on the bonds even if they are in the hands of the Federal Reserve, but those interest payments go into the Treasury minus relatively trivial operating expenses. So much for interest expense. Principal payments can easily be pushed into the future by issuing new series of bonds to pay off the old indebtedness with new. It is an almost magical process, but for the effect on ordinary citizens who can only make money if they engage in productive enterprise. The Vietnam War that lasted almost a decade was largely fought because the Kennedy-Johnson-Nixon administrations were able to pay for it and Great Society programs through deficit spending. The stag-flation of the '70s [chart, top] was the economic cost of that war, besides the number of dead and crippled soldiers, and an alienated youth generation.
The chart above shows that the federal government's debt is relatively highest during war years, as the peaks during and after the Civil War, WWI, WWII and Korea, Vietnam, and the latest, longest war in the Middle East. Of special interest is the bump in the mid-eighties caused by Reagan's Cold War armament build-up intended to crash the Soviet economic system, a form of warfare.
This decade's neo-imperial wars are no exception to the rule that inflation enables warmongering. Comparing the amount of public debt purchased by the Federal Reserve and each year's current war expenditures gives one an idea of the central bank's role. Despite a $200 billion deficit, $9 trillion in pubic debt, and falling tax receipts, the Charlatan committed the United States to wars, without very much debate in Congresss, that have cost so far more than $525 trillion or $4,681 per household. The cost could exceed $20,000 per household by the time the last combat boot is removed from foreign soil. The current Second Great Contraction is an economic cost of the most recent wars enabled by a central bank. Will this obvious malaise be
debated by the presidential candidates? You bet your life
not.
