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Historically, cash—or credit—conquers all. Savvy military leaders have long known that money is the root of all victories. And when the funds run out, the war is over.

There is an old saying in military circles: “Amateurs talk tactics; professionals talk logistics.” Still, it was only a generation ago that military historians took note of those considerations long viewed as minor aspects of war, such as keeping soldiers fed.

Today, no self-respecting historian would write a history of a war or campaign without addressing the matter of supply. There remains, however, one crucial element of waging war that historians continue to overlook—just how to pay one’s soldiers.

Historians’ dismissal of the importance of war financing itself has a long history. Thucydides, in his masterful firsthand account of the 5th century BC Peloponnesian War, mentions the Athenian silver mines at Laurium only once, while relating how Alcibiades urged the Spartans to fortify Decelea and thus sever Athens’ access to the mines, its primary source of wealth. Despite this counsel, Thucydides claims the war’s turning point was Athens’ failed Syracuse expedition, and for millennia most historians have agreed with him. Overlooked was the fact that Athens made good most of the losses from that campaign in a remarkably short period and continued the war for another decade. What finally wrecked Athenian power were successive economic hammer blows: isolation from the revenues of the Delian League, the federation of Greek city-states led by Athens; the Persian-financed blockade of Athens’ Black Sea food sources; and, most important, the loss of silver revenues from Laurium once the Spartans ultimately built the suggested fortress.

Likewise, few historians mention the discovery of major silver deposits in Macedonia as a factor in Philip II’s rise to dominance over Greece. After his conquest of Greece, Philip began minting and hoarding far more coins than required for his own needs or those of his country’s economy. Upon Philip’s death, Alexander used his father’s vast hoard to purchase the loyalty of the Macedonian army. By paying his soldiers two to six times the going wages of skilled masons, he was able to build and train a highly professional combined-arms force.

Once Alexander invaded Persia, the cost of paying and maintaining this force rose to 20 talents (about 1,000 pounds of silver) a day, far beyond Alexander’s means, even after doubling the output of his mines. Fortunately for him, each conquered Persian city yielded huge amounts of bullion; Susa alone surrendered some 50,000 talents. Had the Persian king, Darius III, spent this money on defense rather than hoarding it, Alexander’s invasion would likely have been summarily crushed. After Alexander’s death, his rival successors used the vast treasure to finance their wars, funding armies on a scale rarely seen in the ancient world.

Military historians still marvel at the brilliant maneuvers and stratagems employed in the 3rd century BC Second Punic War by Carthaginian commander Hannibal against his Roman nemesis, Scipio. However, few mention how the silver mines Hannibal controlled in Spain enabled him to field his army for almost two decades without financial support from Carthage. The importance of Spanish silver to Hannibal also explains Scipio’s strategy of attacking Spain even while Hannibal’s army remained on Italian soil. In one stroke, Scipio cut off the Carthaginian from his source of revenue, while acquiring the mines for himself and Rome.

Securing an endless stream of bullion was a lesson the Romans had learned in the First Punic War, after the loss of two battle fleets emptied Rome’s treasury. It was only the generosity of her leading citizens—who presented the senate with all of their gold and silver—that enabled Rome to construct a third fleet and bring the war to a successful conclusion. These “generous” Romans were promised full repayment, in the first recorded instance of a state using debt to finance a war.

Two centuries later, Caesar, in his war against Pompey, invaded Spain for much the same reason as had Scipio: The Roman leader was in dire financial straits, having exhausted the 15,000 gold and 30,000 silver bars he had seized from the Roman treasury. Caesar coveted the bullion Spain produced—the base of Pompey’s power—as maintaining a legion cost 1.5 million silver denarii a year, and if Caesar forgot that fact for even a moment, his army would vanish. So, despite the fact that Pompey was in the Eastern Roman Empire, Caesar took his army west to fight his rival’s seven legions in Spain, famously announcing, “I go to meet an army without a leader, and I shall return to meet a leader without an army.”

By striking at Spain, Caesar deprived Pompey of silver while gathering riches to himself. While Pompey was able to extort sufficient money to raise an army, it was a near-run affair, and his confiscation of gold and silver from many of Asia Minor’s temples did much to undermine his local support.

For the several hundred years the Roman Empire existed, finance remained inextricably linked to Rome’s military power. So much so, that the word soldier is derived from the name of the gold coin introduced by the Emperor Diocletian —the solidus. The argument has been made, with considerable justification, that the Western Roman Empire foundered when its financial system broke down and Rome could no longer gather the wherewithal to pay its legions—an ominous lesson for future rulers.

As Western Europe emerged from the Dark Ages, a new barbarian scourge descended on the continent—the Vikings. Historians rightly credit Alfred the Great with saving his Kingdom of Wessex from their onslaught and with forming England’s first standing army, together with a fortified system of burghs and even a small fleet.

But it is little noted that Alfred’s achievements rested on the output of eight silver mints he built within the protection of those burghs. The Viking onslaught eventually proved too much for the fractured states left in the wake of Rome’s collapse. Within a century of Alfred’s death in 899, England was paying off the invaders with a yearly tribute known as the Danegeld. Usually viewed as a drain on England’s limited resources, the Danegeld actually helped lift the country out of the Dark Ages. The need to organize a systematic method of collecting the Danegeld gave rise to a centralized administrative system that drew England together and became the basis of its military institutions. Although William the Conqueror later imposed a feudal system on top of this English administrative system, he and his Norman successors were careful not to disturb the Anglo-Saxon organizations that had proved second to none in the mobilization of funds throughout the Middle Ages. These funds allowed England to exert far more influence than it otherwise could have.

Still, the demands of almost constant war often overwhelmed England’s finances, and the silver content of its coins became so debased that the kingdom often verged on financial collapse. In one instance, rather than adopt a program of fiscal restraint, Henry I blamed his problems on dishonest minters. To encourage the country’s 180 mintmasters to produce coins with more intrinsic value, he summoned them to Winchester Castle on Christmas Day 1124 and ordered that half of them be relieved of their right hands.

England’s financial system became the world’s most efficient, and its kings were able to hold their own in a series of wars against much larger France by collecting 4.6 grams of silver per head per year from their citizenry, compared to French revenues of about 2.4 grams per head. Still, no medieval king ever approached the efficiency with which the ancients collected funds to support their empires—Rome, for example, collected 21 grams per head at the height of its power.

The inability of European rulers to expand their economies and develop crucial administrative systems almost entirely explains the European way of war in the Middle Ages. Lacking large financial resources, rulers never possessed the capacity to wage war on the scale of the ancients. Moreover, without the money to maintain large standing armies, kings had little hope of unifying their feudal subjects into a cohesive state.

The greatest Western military adventure of the Middle Ages, the Crusades, clearly demonstrates how a paucity of funds directly affected military operations. The First Crusade, launched by Pope Urban II in 1095, drained a significant portion of Western Europe’s wealth. Despite this crushing expenditure, the Crusade was only brought to a successful conclusion in 1099 through the generosity of the Byzantine Empire and the seizure of Arab and Christian wealth along the Crusaders’ path of conquest. Once established, the Kingdom of Jerusalem operated on a shoestring budget and was constantly seeking donations from the West.

Indeed, lack of money was the key factor in Saladin’s devastating defeat of the Crusaders at the 1187 Battle of the Horns of Hattin. England’s Henry II, under pressure from Pope Gregory VIII to assist the Crusaders, shipped 20,000 pounds of silver to the Middle East, which was kept in various strongholds belonging to the Templar and Hospitaller orders. Unfortunately for the Crusaders, Henry considered the silver part of his own reserves and forbade anyone to spend any of the trove. Thus, at its moment of ultimate crisis, the kingdom found itself strapped for the cash needed to buy allies and mercenaries, yet was denied use of the vast sums Henry II had on deposit only a few miles from the king of Jerusalem’s doorstep. Although Henry relented after the battle was lost and Jerusalem had fallen, it was too late.

The Knights Templar, in addition to watching over Henry’s silver, offered other financial services to Crusaders and pilgrims. Foremost among these was the transfer of funds. Rather than risk losing their life savings in the perilous journey to the Holy Land, pilgrims could deposit funds at a Templar stronghold in Europe and receive a demand note in exchange. Upon presentation at a Templar castle in the Holy Land, the note was exchanged for the commensurate funds, minus a service charge. Given such services, many economic historians credit the Templars as the driving force in the emergence of modern banking in Europe. Whatever the merits of this argument, many of the financial devices employed by the Templars were adopted by a new breed of merchant-banker, first in Italy and later throughout Western Europe. These new financial methods spurred a huge upswing in economic activity—and made it possible to fight wars on a previously unimagined scale.

Such innovations provided kings in the late Middle Ages a new source of cash, freeing them from having to raise or extort funds at home. By going into debt—mostly to Italian bankers—they could draw on what must have appeared unlimited foreign wealth to finance their wars. The convenience of the system, however, had the side effect of making bankers a military objective in their own right. In 1291, for instance, France’s Philip IV sent troops to seize the assets of the Riccardi banking family of Lucca and halt its military financing of England’s Edward I. As the bankers were then of no further use to Edward, he in turn seized their English assets to pay for his wars in France and Scotland.

To finance the opening phases of the Hundred Years’ War (1337–1453), Edward III took borrowing to new heights. At one point, he was so strapped for cash that he pawned the crown jewels to Flemish merchants, who realized a 500 percent profit when Edward finally repaid them. Although Edward won glorious victories over the French in battle, his debts became unmanageable. When he ultimately defaulted, he took down Italy’s two largest banking concerns, the Bardi and Peruzzi houses, causing a depression that hung over Europe for over a generation. This and other lesser defaults so wrecked English credit that the primary cause of England’s defeat in the Hundred Years’ War was not battlefield losses, but its inability to hire sufficient mercenaries to stand up to a France that was resurgent—and that boasted better credit.

Toward the close of the medieval era, discoveries of large silver deposits in the Holy Roman Empire and later in the New World heralded a new epoch in warfare and ushered in the modern era. For the next couple of centuries, a tidal wave of bullion ensured that wars would be continuous, long, bloody and expensive.

To pay for these wars, kings turned to a new breed of “merchant princes” whose financial acumen made them indispensable to ambitious rulers. Though almost forgotten by military historians, among the most prominent of these families was the Fuggers. Through their control of the Holy Roman Empire’s mines and other concessions, the German mercantile dynasty first bought Charles V the emperor’s crown and then financed his wars for a generation. The Fuggers also played a major role in arranging finance for such other rulers as Spain’s Philip II. But even vast wealth was no insurance against the vagaries of war and royal displeasure. The Fuggers were ruined when Spain could no longer afford its wars and defaulted on its loans, something it was to do with regularity for decades to come, despite having the riches of its New World colonies upon which to draw. In fact, Spain’s inability to match its ambitions to its vast but not inexhaustible riches hastened its fall from the ranks of Europe’s great powers.

Even at the height of its power, Spain’s precarious finances were its Achilles’ heel. While most historians credit Sir Francis Drake’s 1587 raid on the Spanish fleet at Cádiz with delaying the armada’s sailing for a year, the truth is more prosaic: While Drake’s raid was undoubtedly destructive, the true cause of the delay was Philip II’s inability to borrow the funds required to repair the damage. His Genoese bankers, who had replaced the Fuggers in royal financial circles, buckled under considerable pressure from English merchants mobilized by the devious Sir Francis Walsingham, spymaster to England’s Queen Elizabeth I. The merchants’ demand that the bankers not lend to Philip II meant his Great Armada failed to sail as planned, and England secured a year’s respite to prepare for the coming trial.

During this period, Spain also waged an 80-year war with the tiny Netherlands, a conflict as much about credit ratings as about military power. The Dutch were eventually victorious because on a per-capita basis they could sustain a debt level multiples above what Spain could afford. Dutch financiers had learned over the generations that lending money to a king often led to prison or death once the ruler decided that employing such alternatives were easier than repaying loans. As a republic, however, the Netherlands boasted institutions that would endure long after any of their members perished. As many members of these governing institutions were merchants and bankers, they had a vested interest in making sure the government repaid its debts. Although lenders long remained reluctant to advance funds to a single ruler, they showed fewer qualms about lending to an institution— e.g., what the English called a “parliament.”

While the Dutch made huge strides in harnessing capital for military purposes, it was left to the British to bring war financing into the modern age. Faced with the enormous costs of the 17th century wars against France’s Louis XIV, which outstripped even the resources made available by the adoption of Dutch finance methods, the British created the Bank of England. As the institution’s original charter made plain, it came into being to help Britain finance its wars by the creation of a “perpetual loan.” From this point forward, no British government would be faced with default or the burden of raising taxes to pay off a loan. Instead, funds would only have to be raised to pay the incremental cost of the loan’s interest.

This and other financial innovations— including the first income tax—were the beginnings of a financial revolution that remade the world. As the Netherlands found in the conflict with Spain, and as England was to discover in its long series of wars with France, size does not matter nearly as much as sound finances. By the early 1800s, Britain could count on its superior financial and taxation systems not only to fund its own military, but also to carry a great deal of its allies’ monetary burdens in the wars against Napoléon.

This financial revolution, when harnessed to the industrial revolution, made it possible to create a true nation in arms, far beyond the dreams of the French revolutionaries and their levée en masse. British industry could now produce armaments in unprecedented quantities, paid for by the Bank of England’s bonds, or consols. In fact, two centuries later, the British government is still paying interest on consols issued to fund the Napoleonic wars. Britain had discovered it was far better for economic growth to maintain a high level of liquidity by keeping as much specie in circulation as possible, rather than hoarding cash and gold reserves for potential wars. By creating reliable programs for emergency debt finance, peacetime Britain could invest its income back into growing the economy, while simultaneously ensuring a ready source of cash in the event of war.

Nevertheless, in the lead-up to World War I, many European leaders viewed with alarm German war reserves stored inside Berlin’s Spandau Citadel. Rather than spend or invest a large segment of the reparations France paid after the Franco-Prussian War, Germany had stored away $70 million in gold to defray the costs of a future war. When in 1914 someone reminded British Prime Minister David Lloyd George of this apparently massive gold reserve, he responded, “A mighty sum, but England will raise the last million.” It was a remarkable testament to his faith in Britain’s capacity to finance a prolonged conflict, and proof his government realized that the ability to raise massive sums of cash was the determining economic factor in war.

In any event, no one in 1914 could have envisioned the colossal sums that 20th century wars would consume. The much-feared Spandau gold reserves proved insufficient to cover even a week of Germany’s war expenses. And while methods of finance had improved considerably in the century and a half since Napoléon’s defeat, they still buckled under the stress. Without the timely intervention of the United States and its vast financial resources, the Allied financial system—and the entire war effort—would have collapsed.

While the Allied financial system adjusted to the demands of global war, industry also rapidly evolved to meet new challenges. Despite initial shortages of materiel, once industry hit full stride, it easily met war demands, particularly after the United States added its massive production capacity to the Allied pool. The minutes of British cabinet meetings of the period often reflect a concern about raising more cash, but nary a word is said about problems with production capacity. While finance had closed the gap on production, it had not yet caught up. As long as the money held out, sufficient munitions were available for purchase.

World War II reversed that equation. For the first time in history, the warring powers ran out of production capacity before they ran out of money. As U.S. Secretary of War Henry L. Stimson said after the defeat of the Axis: “The one thing upon which the whole country was agreed was that the services must have enough money. At no time in the whole period of the war emergency did [I] ever have to worry about funds; the appropriations of Congress were always prompt and generous. The pinch came in getting money turned into weapons.”

There is something profound here that both economic and military historians overlooked. World War II overturned the economic bases of major-state war that had held true since the Battle of Marathon 2,500 years earlier. For more than two millennia, money had been the determining economic influence on war. As long as a ruler had the equivalent of cash on hand, or had someone who would lend it to him, he could continue to prosecute any war of his choosing. There were always sufficient armories to produce war materiel and enough men whose service was for sale. By the middle of the 20th century, the financial revolution begun by the British upon formation of the Bank of England had reached its apogee. In World War II, the ability of the major warring parties to raise money far outstripped their ability to produce the instruments of war. In fact, most countries only hit financial difficulties when they had to pay for production from other counties, a burden the United States spared Britain and Russia through its Lend-Lease program.

A 20th century British statesman famously said, “The Allies floated to victory on a sea of oil.” In actuality, they floated to victory on a sea of dollars.


For further reading, James Lacey recommends: History of Money: From Ancient Times to the Present Day, by Glyn Davies, and A Free Nation Deep in Debt: The Financial Roots of Democracy, by James Macdonald.

Originally published in the March 2010 issue of Military History. To subscribe, click here