CommunityFDL Main Blog

Borrow From the Rich for Wars That Benefit the Rich

This is how you get into wars.

The US war machine is cranking up again, to the delight of the warmongers and bedwetters who dominate the foreign policy establishment, and the arms industry that supports them. This chart from Government Executive shows the vote to approve the plan “to arm and train “vetted” Syrian rebels as part of the US efforts to fight the extremist group ISIL” (scarequotes are in the original by Tim Fernholz). The President requested $500 million for this purpose. Congress authorized the action, but the New York Times doesn’t give a dollar figure for the amount authorized, and doesn’t explain where the money is coming from. However much money we plan to throw at our new proxy army, it is certain that Congress has no intention of raising taxes to pay for it. We certainly have alternatives, at least in principle, for funding, but Congress intends to spend borrowed money. Our political world would implode if those toads chose to pay for it by raising taxes on the filthy rich, or learning something new about Modern Money Theory.

The long history of borrowing to pay for wars continues, and we all know who benefits: the filthy rich. They are the ones who drive the wars, because they want something from them. Who controls the New World? Ask about the French and Indian Wars. Who controls African colonies? Who controls India? Who rules in France, Germany, Sweden, England, Italy? Who benefits from maintaining the powers in any country?

This chart shows the history of the national debt of England according to a United Kingdom website, Intergenerational Foundation, which provides this history.

Britain (though it was, strictly speaking, England at the time) has had a national debt since 1692, when the Bank of England was founded. Until that point, kings and queens had simply raised taxes in order to finance their expenditure, particularly on warfare. But William of Orange, following the Glorious Revolution, was struggling to raise enough money to build the navy he desired. Several rich Londoners got together, decided to lend the money to the government, and the national debt was born.

… For most of the lifetime of the Bank of England, money was only borrowed in order to pay for continental warfare – this provided the sole justification that 18th century statesmen saw as sufficient to borrow money against the future. Indeed, the above chart … shows that throughout the 18th and 19th centuries, the national debt usually rose during wartime and fell during peacetime.

Thomas Piketty discusses this history in Capital in the Twenty-First Century. Here is his figure 3.3, showing the massive increase in public debt as a percentage of national income from 1700 to 2010. Public debt rose to nearly 200% of national income by 1810, and gradually fell over the next century, as the governments ran surpluses to pay off the debt through taxation.

A quick review doesn’t reveal much about who paid taxes or how. Income taxation was not popular, according to this Wikipedia Article. Laws imposing income taxes were passed and repealed in the first half of the 1800s, and became more or less permanent in 1842. There were somewhat graduated property taxes, including a windows tax that imposed a 2 shilling tax on every house, and an additional tax based on the number of windows in excess of 10, and a higher rate on windows in excess of 20. That would be a form of graduated wealth tax, because the richer you were, the more windows you would have, and the higher your taxes would be. There were also customs taxes on all kinds of items, including corn, which kept the price of imported corn high for the benefit of English farmers and amounted to regressive taxes on the working class.

Piketty doesn’t discuss the question of who paid the taxes, but he does day that the money went to pay off the rich, and allowed them to live splendidly throughout the 1800s to the beginning of the First World War. The income taxes, when passed, certainly didn’t have a major impact on holders of English debt; they seem to have been in the range of 3%, which would only slightly impact the interest payments which were in the range of 4-5% of principle. Since there was little, if any, inflation, these are real returns.

Piketty draws two lessons. First, he notes that rich people were able to lend to the government without affecting the then current demand for private investment. This was a time of heavy capital demands, for construction of railroads and growing cities, as well as foreign investment in English colonies and dependencies. For the latter, Piketty points to Jane Austen’s Mansfield Park, where the wealth of one family is derived from a slave plantation in the West Indies, a capital intensive business, both in purchase of land and in purchase of slaves. There was no crowding out, directly contrary to the theory pushed by mainstream economists, that any government borrowing crowds out private investment. That stupid idea lies behind the austerity practices imposed on the current administration by the conservatives in both parties.

Second, Piketty notes that this serves the interests of the rich and their heirs. Throughout the 1800s, government bonds were safe investments. Obviously, he says, it’s better for rich people to lend money to the government and receive interest than it is for them to pay out taxes and receive no compensation. That simple point is just too hard for the toads in Congress to contemplate. Their single-minded focus is piling up returns to capital. Isn’t that what capitalism means?

So we see that the financing of wars benefits the rich. It really doesn’t matter what war we might be fighting at any point in time. This one appears to be about fear that the mighty armies of ISIS will kill us in our beds, as Senator Lindsey Graham explained while trying to ignore the gathering wetness in his pants. Or maybe it’s about oil or something something about Sunnis and Shia and their masters in Saudi Arabia and Qatar and other oil-rich nations who can’t be bothered sending their own heavily armed soldiers to fight when US armies can be conjured up with a couple of slickly filmed beheadings, or maybe its something something about Israel’s interests or some Great Power fallout about Ukraine something. Who cares? US citizens are well-conditioned to bombing and killing, our masters just have to push the same buttons they always do and we beg for respite from fear.

How exactly does all this war crap benefit the average US citizen who is paying the price in blood and money? Just ask the real citizens of this country, the ones most beloved of Congress and the Supreme Court, the ones making the contributions Fernholz describes: “General Atomics, Northrop Grumman, Lockheed Martin and Raytheon, which make drones and the missiles that drones fire.” I’m sure their PR people will tell us how much we benefit, using their spokespeople who swarm the Sunday Talk Shows, the Op-Ed Pages, Cable Networks, and the apparatus of deceit.

Previous post

Podcast: As Congress Buys Into More War, CODEPINK Becomes the Conscience of America

Next post

Sunday Food: Pickles



I read a lot of books.