Then and Now
Wars require money, called war expenses.
The state pays for war
What part of the monetary system does war test first?
War expenses/Recoinage → Government bonds, central bank, public finance
War and Money in 3 Minutes
1See it
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In the past
In the past, they paid by reminting coins.
In the past
Reminting diluted the money already out there.
Today
Today, they borrow money by issuing government bonds.
Today
Government bonds are like an advance on future taxes.
Today
The central bank and national finances are also part of this system.
A useful perspective
Looking at money in wartime shows you the weak spots of the system in peacetime.
A word of caution
Don't try to predict a currency crisis just from the size of war spending.
2What would you do?
You're in charge of the money for a country at war. You're short on war funds. Which method do you use?
Pick one
Remake the coins, watering down what's inside.
This is the method countries used in the past. Reminting is a way to dilute the money already out there.
Issue government bonds and borrow from future taxes.
This is the method countries use today. Government bonds borrow from future taxes. It uses time differently than reminting does.
Either way, war is what first tests the limits of the money system.
3Read more
The modern period is covered in the general history (wars and crises, the age of the dollar).
Representative Historical Scenarios
- The Assembly of AthensOverview: the world Greece 483–480 BC
- A King's RansomOverview: the world War and money the Middle Ages
- Kipper und WipperOverview: the world Germany the 1620s
- The Banknotes of WeimarOverview: the world The machine and the revolution AD 1914–1923
- Bonds and WarOverview: the world The birth of finance the 19th century
Contemporary Financial Scenarios
The contemporary scenario for this theme is covered in the General History (Wars and Depressions: The Dollar Era).
How to compare past and present
Similarities
War is the first to test the limits of the monetary system.
Differences
Recoinage debases existing currency; government bonds borrow against future taxes. Their use of time is different.
Applications
Observing wartime currency reveals the weaknesses of the peacetime system.
Limitations
⚠ When using the scale of war expenses to predict a currency crisis.
To go beyond "they are similar," we also describe the differences, what can be applied today, and where past examples should not be applied to the present (limitations).
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