Borrowed Power: War Finance and the Resort to Arms

University Of California-San Diego, La Jolla CA

Investigators

Abstract

When Louis XII contemplated the invasion of Milan in 1499, the exile Trivulzio pointed that out for success in war, "three things are necessary: money; more money; and still more money." If that statement was true then, it is even more the case in modern times with the extraordinarily, expensive upkeep of a capable military. The method of war finance affects when and how wars are fought, and on what terms they are settled. Yet most theories of international conflict are oddly divorced from this. The most widespread explanations assume that the distribution of power - the very thing that is affected by finance - is fixed or that its dynamics are outside the control of the actors. Even recent theorites that do allow actors to alter the distribution of power do not examine how their efforts are funded. This project is one of the first to examine how the form of finance can affect the initiation, duration, and outcome of war. As shown in preliminary work, features specific to sovereign debt cobine to change the dynamics of bargaining over peace terms in a way that wars, once begun, can last longer and be harder to settle. War finance is not an innocuous aspect of war, but should be regarded as an important cause of both settlement and protracted conflict. This project aims to generalize a game-theoretic model that can be used to study interactions between resource-poor actors with access to foreign financial markets, the effects of financial and political systems that determine the costs of government debt, and the methods of attracting lendors, both domestic and foreign. Hypotheses derived from this model will then be used to to test hypotheses concerning the factors mentioned above. Besides generating the model and its implications, a data set will be created concerning debt financing for countries from 1815 to the present. This dataset will be used to test the model and will also be made available to other scholars who might be studying similar topics. The reuslts of this research will aslo be made available to policy makers who are interested in issues of national security. The study of war finance, especially of how governments raise revenue to fund their military expenses and how this affects their military efforts, is likely to be of interest to political scientists in general, but also to economists and sociologists who have been interested in how war shapes the political economy of a state but rarely raised the questions addressed in this project. The projects is also the next step in the development of modern theories of war which have endogenized the distribution of power. The impact of the project is potentially transformative because the project suggests the causation mechanism can not be studied in isolation from financial structures.