The Cash Nexus: Money and Politics in Modern History, 1700-2000

by Niall Ferguson

  The answer lies in the nature of the wars fought since 1945 – which have invariably been against far less well-equipped opposition. These death rates do not, however, signify a decline in the destructiveness of modern weaponry. As we have already seen, there was no shortage of wars in the rest of the world in the second half of the twentieth century. Indeed, according to one estimate, the total war-induced death toll for 1945–99 lies somewhere between 15 and 20 million. The world has not become that much more peaceful. It is just that the overwhelming majority of the victims of war have been Asians and Africans.

  Moreover, the wars that have been fought since 1945 have given barely a glimpse of the colossal increase in destructiveness achieved in the past half-century. A simple calculation suffices to give an illustration of the potential for military catastrophe that still existed shortly after the end of the Cold War. In January 1992 the deployed strategic nuclear forces of the two superpowers had a combined ‘yield’ of at least 5,229 megatons; and this was after a 22 per cent reduction in the total number of super-power warheads since the peak in 1987, and excludes non-strategic nuclear warheads. Given that the 12–15-kiloton bomb dropped on Hiroshima in 1945 killed around 100,000 people instantly and a further 100,000 subsequently through radiation sickness, the superpowers in 1992 had the notional capacity to destroy (with their strategic forces alone) 387,302 Hiroshimas or 77.5 billion people. To put it another way, given that the Hiroshima bomb destroyed around 4.7 square miles, the superpowers had the capability to lay waste to 1.8 million square miles, an area rather larger than the state of India. It is scant consolation to reflect that this amounts to just 3 per cent of the planet’s land surface, since the contamination after such a conflagration would spread much further. Since the population of the world in 1992 was approximately 5 billion, nuclear weapons gave the superpowers the notional ability to destroy the entire human race fifteen times over.49 Any assessment of the changing cost of defence needs to take account of this astonishing increase in the destructiveness of weaponry.

  Also relevant to such an assessment is the way techniques of mass production have tended to lower the unit cost of almost any new piece of hardware. Because of the relative lack of competition in the arms market – with governments the biggest buyers and a small number of huge producers enjoying more or less privileged positions in their home markets – the defence industry has acquired a reputation for excessive pricing. This reputation was certainly merited in the United States and Britain in the 1980s, when public attention was drawn to such puzzling phenomena as ‘cost-plus contracts’ and gold-plated taps in admirals’ baths. But over the long run, and considering all levels of armament, the theory that the price of arms tends to rise above the price of consumer goods looks unsustainable. The Second World War in particular showed how techniques of mass production could dramatically reduce the unit-cost of guns, tanks, planes and even naval vessels. High prices for new aircraft and submarines in the late Cold War period merely reflected the very low quantities being ordered; where there has continued to be a significant demand for defence industry wares, prices do not seem to have been subject to above-average inflation.

  Moreover, the Soviet practice of systematically under-pricing defence goods has left an enduring legacy of cheap weaponry, the main beneficiaries of which have been and remain the guerrilla armies of sub-Saharan Africa, the terrorist groups of Western Europe and the drug gangs of the Americas. At the time of writing, a used AK-47 assault rifle could be purchased in the United States for $700; a new one for $1,395: almost exactly as much as the cost of the portable computer on which this book was written. For around $160 billion – just over half the current US defence budget – every American male between the ages of 15 and 65 could be issued with a new Kalashnikov (or, for that matter, two secondhand ones). And of course the prices for such weapons are substantially lower in the developing world. In the same way, the real cost of a nuclear warhead – and certainly the real cost of a kiloton of nuclear yield – is almost certainly lower today than at any time since the Manhattan Project achieved its goal at a cost of 2 billion 1945 dollars. Converted into prices of 1993, that figure rises tenfold: enough to buy 400 Trident II missiles.50 The fact that France could almost double its nuclear arsenal from 222 warheads in 1985 to 436 in 1991 while increasing its defence budget by less than 7 per cent in real terms speaks for itself.51 In terms of ‘bangs per buck’ – destructive capability in relation to expenditure – military technology has never been cheaper.

  THE ABOLITION OF DISTANCE

  A final factor to be taken into account when assessing military burdens is the geographical extent of a state’s military commitments relative to the mobility of its military forces, including their supplies. In his classic study of military logistics, Martin van Creveld has shown that there was no real breakthrough in the way armies were supplied between the seventeenth century and the early twentieth. From the Battle of Mons in 1692 to the Battle of Mons in 1914, ‘armies could only be fed as long as they kept moving’: they had to live off the country by buying – or more commonly stealing – local produce. In this respect, railways had a much smaller impact on nineteenth-century warfare than was believed by many contemporaries, not least the Prussian General Staff. However, after 1914 ‘the products of the machine … finally superseded those of the field as the main items consumed by armies, with the result that warfare … shackled by immense networks of tangled umbilical cords, froze and turned into a process of slaughter on a [vast] scale’.52 The reductio ad absurdum of this kind of static industrial warfare was the Battle of Passchendaele, during which 120,000 British gunners fired off 4.3 million shells or 107,000 tons of explosives in a preliminary bombardment that lasted for nineteen days. The subsequent infantry offensives gained forty-five square miles at a cost per square mile (according to J. F. C. Fuller’s macabre calculation) of 8,222 casualties.53

  Despite the motorization of armies in the Second World War, the growing burden of ammunition and equipment prevented even the best armies from exploiting the maximum speed of their means of transportation. As Rommel came to realize in North Africa in 1942:

  The first essential condition for an army to be able to stand the strain of battle is an adequate stock of weapons, petrol and ammunition. In fact, the battle is fought and decided by the quartermasters before the shooting begins. The bravest men can do nothing without guns, the guns nothing without plenty of ammunition; and neither guns nor ammunition are of much use in mobile warfare unless there are vehicles with sufficient petrol to haul them around.54

  It was unforeseen ‘frictional’ problems of supply that ultimately halted the German push into the Soviet Union in 1941–2 and, despite far better weather conditions and infrastructure, they also hindered the Anglo-American advance towards Germany in August and early September 1944. By that stage in the war, an active US army division was consuming around 650 tons of supplies a day. In all, there were twenty-two American divisions in France, requiring 14,300 tons a day. Yet a single army truck could carry just five tons. As supply lines were stretched from 200 to 400 miles, deliveries to the advancing armies slumped from 19,000 tons a day to 7,000 tons.55 The resulting slow-down prevented the Americans from fully exploiting their massive superiority in terms of manpower, firepower and air power.

  The last phase of the war revealed the importance (consistently underrated by both the Germans and the Japanese) of assigning ample numbers of men to the task of supply rather than combat. The ratio of combatants to non-combatants in the German army was two to one; but the equivalent American ratio in the European theatre was one to two. In the Pacific, the Japanese ratio was one to one; the Americans had eighteen noncombatants for every man at the front.56 (The high British and American military participation ratios in the closing years of the war seen in Figure 2 included large numbers of men and women who were in uniform but far from the action.)

  Nevertheless, advances in sea and air transport have done much to mitigate the apparently
perennial problems of overland supply. Far from ‘striking a fatal blow at the naval supremacy of the Empire’, as some feared, the introduction of steam power allowed Britain to exercise power effectively at unprecedented distances.57 Between 1815 and 1865 the Empire expanded at an average annual rate of 100,000 square miles; between 1860 and 1909 it increased in size from 9.5 to 12.7 million square miles, a fifth of the world’s land surface. Exerting even minimal control over such a vast imperium with a relatively small army thinly spread over just twenty major garrisons would have been impossible without the rapid increase in the number, speed, range and firepower of British naval vessels. Between 1857 and 1893 the journey time from England to Cape Town was cut from forty-two to nineteen days, while the gross tonnage of steamships roughly doubled.58 Almost as important in accelerating information flows to and from the ‘periphery’ was the spread of the telegraph. In the space of ten years after a telegraph link had been established between London and Lagos, the number of cables sent there from the Foreign Office quintupled.59 As the historian J. R. Seeley wonderingly exclaimed: ‘Distance has been almost abolished by steam and electricity.’60

  By analogy, the extent of American power in the second half of the twentieth century was in large part dependent on the even greater capability of the US navy and air force, not to mention her intercontinental missiles. True, the United States maintained a rather larger standing army relative to its population during the Cold War than did Victorian Britain in her heyday; and the British army never suffered a colonial humiliation as protracted as Vietnam (though the Boer War briefly threatened to become one). But in the 1990s the US army was increasingly used in the manner of its Victorian counterpart – sparingly, against much weaker foes – with Operation ‘Desert Storm’ as a latter-day Omdurman.61 It is ships and planes that do the lion’s share of American overseas enforcement. One of the most potent symbols of the American war against Serbia in 1999 was the report that ‘Stealth’ bomber pilots were able to fly from their bases in Knob Noster, Missouri, rain down destruction on Belgrade, and return home in time for pizza and the ball game.62 At $2.2 billion each, these planes look hugely expensive: but in relation to American gross national product, they are substantially less expensive than the Dreadnought (at £2.5 million) was in its day, and perform a very similar function.63 When one reflects on how difficult it was for Spain to sustain its control over South America in the age of the wooden galleon, it seems at least arguable that here, once again, technology has lowered rather than raised the costs of war.

  COSTING WAR

  It is now possible to set the changing financial burden of war into some kind of meaningful long-term perspective. It is, of course, far from easy to distinguish between military and civilian expenditures in most state budgets. Should we include in the total for military spending expenditures on strategically useful infrastructure such as roads or railways? What about veterans’ pensions or payments to the widows and orphans of men killed in action? Such questions arise whether one is considering Augustan Rome or Nazi Germany, and there is no consensus as to the correct definition.

  What is nevertheless clear is that the share of military expenditure in state finances has varied enormously from place to place and time to time. It can be inferred from Xenophon, for example, that rather more than a third of the expenditure of the Athenian state in the time of Pericles went on military ends, a proportion which certainly rose during the Peloponnesian War.64 A comparable estimate for the Roman Empire around the year AD 14 would lie between 45 and 58 per cent.65 The early Abbasid caliphate spent around a third of total government receipts on the army.66

  Calculations for the early modern period show a remarkable range of fiscal militarism in Europe. The share of military expenditure in total spending ranged from as little as 2 per cent in fifteenth-century Burgundy to as much as 93 per cent in late-seventeenth-century Austria.67 Averaging the available figures for the European monarchies, military spending fell from 40 per cent of the total in the fifteenth century to just 27 per cent in the sixteenth, but then rose to 46 per cent in the seventeenth century and 54 per cent in the eighteenth. The percentages spent by city-states tended to be lower than Hamburg’s in the seventeenth century (which was around 50 per cent), but that was because Hamburg had opted for self-defence, whereas other cities paid for security in the form of tributes to imperial protectors. A comparative analysis of the expenditures of a sample of early modern states (in terms of tonnes of silver) confirms, unsurprisingly, that the peaks of total state spending almost always coincided with wars.68 In the case of Elizabethan England, for example, military expenditures rose from just 20 per cent of total expenditures between 1560 and 1585 to 79 per cent (1585–1600) as a result of the conflict with Spain after 1585.69 Around 90 per cent of the budget of the Dutch Republic in the seventeenth century went to pay for the Eighty Years War with Spain, the Anglo-Dutch Wars and the Nine Years War. Austria’s wars with the Ottoman Empire pushed the proportion up to 98 per cent for the Habsburg Empire in the same period, though this had fallen back to 43 per cent by 1716.70

  For the great powers, this pattern of frequent war and fiscal militarism continued into the early nineteenth century. In the British case, military expenditure fluctuated between 55 and 90 per cent of total central government expenditure between 1685 and 1813.71 For Prussia the proportion varied between 74 and 90 per cent in the period 1760–1800. After dipping in the period before and after the Revolution, the French proportion rose to a peak of 75 per cent in 1810. Even the central government of the United States was spending close to half its total budget on military ends in 1810.72 As we shall see, the ability to raise such large sums of money at short notice and at minimum economic cost was the key to combining military success and internal stability.

  In the course of the nineteenth century, however, military spending declined in its relative importance. End-of-decade figures for the period 1820 to 1910 show that military expenditure averaged roughly 54 per cent of central government spending in the United States, 49 per cent in Prussia/Germany, 34 per cent in Britain, 33 per cent in France and 29 per cent in Austria.73 This was of course mainly because, as we have seen, nineteenth-century wars tended to be shorter and cheaper than those of the previous century. However, the falling percentages for Austria and Germany between 1880 and 1910 – from 82 per cent to just 52 per cent in the German case – should not be mistaken for defence cuts. In both cases, the declines were mainly due to rising state expenditures on non-military functions (about which more later).74 And a closer look at the British figures, including colonial expenditures officially classified as ‘civil’, suggests a long-term rise in the share of military and imperial spending as a proportion of the budget from the nadir of 19 per cent in 1836. Despite the Gladstonian mantra of ‘retrenchment’, the proportion never fell below 30 per cent after the Crimean War and showed a sustained upward trend from 1883 onwards. Between the Boer War and the First World War, the figure was consistently above 40 per cent.75

  In the twentieth century the military role of government waxed then waned. Indeed, the extent of economic mobilization in the two world wars was so great that the distinction between military and non-military expenditure became increasingly artificial: that, indeed, was the essence of ‘total war’. The available figures for the First World War suggest a return to levels of fiscal militarism not seen since early modern times. At its wartime peak in 1917 military expenditure represented 96 per cent of the Russian central government budget. For Britain the figure was 90 per cent, for Germany 86 per cent, for Italy 83 per cent and for France 71 per cent. Even the United States saw an unprecedented rise in military spending, which peaked in 1919 at 62 per cent of central government spending.76 Yet in the inter-war period, defence budgets were slashed both absolutely and relatively. From 1923 until 1934 the British defence budget was consistently less than a fifth of central government spending, falling to a nadir of 15 per cent in 1932. In Germany the military proportion of the Reich budget
sank to less than a tenth in the years 1928 to 1931. Even fascist Italy devoted less than a fifth of the central budget to the military until Mussolini’s adventure in Abyssinia. Ironically, it was the French who maintained the highest level of military expenditure in Europe between 1920 and 1935 (30 per cent per year on average).77 Unfortunately, not enough of that money was going into new planes and tanks:78 a big army with elaborate forts but without adequate air power and armour could not withstand the German Blitzkrieg in 1940.

  The blurring of the distinction between military and civilian expenditures makes it almost impossible to quantify what were certainly very large increases in the period before and during the Second World War. According to the somewhat archaic conventions of British budgets, the defence ‘quota’ rose rapidly from its low of 15 per cent of total expenditure in 1932 to 44 per cent in 1938; at its peak in 1944 it exceeded 84 per cent.79 The Third Reich inherited a military budget of less than 10 per cent of Reich expenditure; but ever since the 1930s there has been uncertainty about how much was subsequently spent by the Nazis on rearmament. Estimates of the total amount spent on the military between 1933 and 1938 range from 34.5 billion reichsmarks – the figure proposed by the former Reichsbank president Hjalmar Schacht – to the East German historian Kuczynski’s estimate of more than twice that sum. To intimidate his enemies at the outbreak of war, Hitler himself claimed that 90 billion had been spent. However, the most plausible estimates – excluding, for example, investments in industry which might have enhanced the Reich’s military capability at some future date – are based on the testimony of the former Finance Minister Count Schwerin von Krosigk and put the pre-war total somewhere between 48 and 49 billion.80 As a percentage of the Reich budget, that meant an increase from less than a tenth to more than half. Wartime figures are also problematic, but it seems likely that the proportion rose to three-quarters between 1940 and 1944.81 In Japan, military spending started at a higher level (31 per cent in 1931–2) and reached 70 per cent as early as 1937–8.82