Money: the root of all evil, or the stuff that makes the world go round?

Modern history shows that a nation’s success largely depends on the way it manages its money. In times of war, finance has been just as crucial to victory as firepower. But where do money and politics meet? Starting in 1700 and ending at the present day, Niall Ferguson offers a bold and dazzling analysis of the evolution of today’s economic and political landscape. Far from being driven by the profit motive alone, our recent history, as Ferguson makes brilliantly clear, has also been made by potent and often conflicting human impulses – sex, violence and the desire for power.

In the beginning was war. From the very earliest days of recorded history until the very recent past, war has been the motor of financial change.1 'War is the father of all things,' as Herodotus said; and among those things during the Peloponnesian War was an increase in Athenian expenditure, and consequently a need for higher taxes and other sources of revenue. It was war which, with a powerful symbolism, caused the golden statue of Athena to be melted down and coined.²It is a truth - almost - universally acknowledged. Nervos belli, pecuniam infinitam: 'The sinews of war [are] unlimited by money,' declared Cicero in his Fifth Philippic, a view echoed by Rabelais in Gargantua: 'The strength of a war waged without monetary reserves is as fleeting as a breath.' 'What Your Majesty needs', Marshal Tribulzio told Louis XII before his invasion of Italy in 1499, 'is money, more money, money all the time.'³The early sixteenth-century writer Robert de Balsac agreed: 'Most important of all, success in war depends on having enough money to provide whatever the enterprise needs.'⁴'Your majesty is the greatest prince in Christendom,' the Emperor Charles V was told by his sister Mary, 'but you cannot undertake a war in the name of all Christendom until you have the means to carry it through to certain victory.'5 Writing a century later, Cardinal Richelieu echoed her words: 'Gold and money are among the chief and most necessary sources of the state's power . . . a poor prince would not be able to undertake glorious action.'⁶It goes without saying that money at the immediate disposal of the state treasury is usually more limited than the costs of war; and the history of finance is largely the history of attempts to close that gap. Only in the recent past has this relationship between war and finance grown weak. After many centuries during which the cost of warfare was the biggest influence on state budgets, that role was usurped in the second half of the twentieth century by the cost of welfare. No doubt this is a great change for the better: though idleness is no virtue, it is morally preferable to pay men for doing nothing than to pay them for killing one another. But the remarkable extent and novelty of this change are not well understood. It is no exaggeration to speak today of the demilitarization of the West - and, indeed, of large areas of the rest of the world.

A common error is to suppose that, over the long run, there has been a linear or exponential upward trend in the cost of war.⁷In absolute terms, of course, the price of military hardware and the level of defence budgets have risen more or less inexorably since the beginning of written records. In relative terms, however, the patterns are more complicated. We need to relate military expenditure to the scale and frequency of war; to the size of armies in relation to total populations; to the destructiveness of military technology ('bangs per buck'); and above all to total economic output. Allowing for changes in population, technology, prices and output, the costs of war have in fact fluctuated quite widely throughout history. These fluctuations have been the driving force of financial innovation.

It is no part of this chapter to explain why wars happen, though the question will be returned to later. Let us for the moment simply acknowledge that they do, and often. How often is a matter for debate.

There have been several attempts to quantify the frequency of military conflict, each based on a somewhat different definition of war and covering periods of varying lengths. P. A. Sorokin counted 97 wars in the period 1819-1925,⁸compared with Quincy Wright's total of 112 between 1800 and 1945.⁹Wright confined himself to what he called 'wars of modern civilization . . . involving members of the family of nations . . . which were recognized as states of war in the legal sense or which involved over 50,000 troops'; whereas L. F. Richardson, counting all the 'deadly quarrels' he could find, arrived at the much higher figure of 289 for the period 1819-1848.¹⁰Luard's survey of all 'organized large-scale fighting sustained over a significant period and involving at least one sovereign state' arrives at an even higher total of 410 for the period 1815-1984.¹¹However, the 'Correlates of War' project based at the University of Michigan adopts a narrower definition which excludes most minor colonial wars, as well as wars involving countries with populations of less than 500,000, and wars in which total battle-deaths were less than a thousand per annum. For the period 1816 to1992, their database lists 210 interstate wars and 151 civil wars.¹²The lowest figure of all for the modern period is Levy's - 31 - but his survey considers only wars which involved one or more of the great powers.¹³

It is possible to take an even longer view, though for extra-European conflicts the evidence becomes more patchy the further back one goes, and even the most ambitious attempts avoid the ancient and medieval periods. On the basis of his relatively broad definition of what constitutes a war, Luard arrives at a total of over a thousand for the period 1400 to 1984.¹⁴Levy, by contrast, counts just 119 great power wars in the period 1495 to 1975. Even on the basis of the latter's narrower definition, the perennial nature of war is striking:

The Great Powers have been involved in interstate wars for nearly 75 per cent of the 481 years [from 1495 to 1975] . . . On average a new war begins every four years and a Great Power war [i.e. a war involving more than one great power] every seven or eight years. . . . In the typical [median] year . . . slightly over one war involving the Great Powers . . . is under way . . .¹⁵

No twenty-five year period since 1495 has been entirely without war.

It is possible to bring this audit of war up to the present. The Stockholm International Peace Research Institute (SIPRI) estimates that there were 103 'armed conflicts' between 1989 and 1997, of which six were inter-state conflicts.¹⁶In 1999 there were some 27 major armed conflicts in progress, though only two were between sovereign states (between India and Pakistan and between Eritrea and Ethiopia).¹⁷ Adopting Levy's criteria for wars involving at least one great power, there have been six since Vietnam (the last war considered in his survey): the Sino-Russian War (1969), the Sino-Vietnamese War (1979), the Soviet-Afghan War (1979-89), the Falklands War (1982), the Gulf War (1990-91) and the Kosovo War (1999).¹⁸

Has war grown more or less frequent over time? Some would say less so.¹⁹Counting only wars involving one or more great powers, there was at least one war underway in ninety-five of the years of the sixteenth century and in ninety-four of the years in the seventeenth; but that the figure falls to seventy-eight for the eighteenth and forty for the nineteenth, and rises to barely more than fifty for the twentieth. Put differently, the 'average yearly amount of war' was highest in the sixteenth century and lowest in the nineteenth and twentieth centuries.²⁰ However, using a broader definition of war, Luard lists 281 wars for the period 1400-1559, falling to 162 (1559-1648) and 145 (1648-1789), but then rising to 270 (1789-1917) before returning to 163 between 1917 and 1984. Adding together all the wars covered by the Correlates of War database - including wars which did not involve a major power, as well as civil wars - provides further evidence of modern bellicosity. It is striking that there has not been a single year since 1816 without at least one war going on in the world. Only in Europe has war grown less frequent since 1945. The percentage of wars which took place in Europe falls steadily from more than 80 per cent in Luard's first sub-period (1400-1559) to just 9 per cent in his last (1917-1984).²¹

Which of the great powers has been the most belligerent? On the basis of a slightly modified and extended version of Levy's dataset, the answer would appear to be France, which has participated in some 50 of 125 major wars since 1495. Austria is not far behind (47), followed by another former Habsburg realm, Spain (44) and, in fourth place, England (43).²² According to Luard's larger list of wars, however, the most warlike states in the years 1400 to 1559 were the Habsburg and Ottoman Empires. Between 1559 and 1648, Spain and Sweden led the field, waging war in 83 of those years. France was certainly the leading warmonger from 1648 until 1789 (80 out of 141 years) and again, with respect to European wars, from 1789 until 1917 (32 out of 128 years). However, Britain was more often involved in wars outside Europe between 1815 and 1914 (71 out of 99 years). There were 72 separate British military campaigns in the course of Queen Vicrotia's reign - more than one for every year of the so-called pax britannica.²³

Simply counting raw numbers of wars can only tell us so much, of course. For example, eighteenth-century wars lasted longer²⁴ and involved more powers than wars in previous or subsequent centuries: in that sense, the average war was, perhaps surprisingly, a bigger affair in the Age of Enlightenment than the average war before or since. Even in terms of 'severity' (total battle deaths), the average eighteenth-century war ranks above the average twentieth-century war, to say nothing of the wars of all other centuries. Only in terms of 'concentration' (battle deaths per nation-year) was the average twentieth-century war bigger. This reflects the fact that the great-power wars of the twentieth century were more compressed than those of the period before 1815; whereas the periods of peace between the great powers were significantly longer. While the average length of war declined from eight years in the eighteenth century to four and a half in the twentieth, the number of battles in each year of war has risen steeply.²⁵

Almost as remarkable in this long term perspective was the comparative peacefulness of the century between 1816 and 1913. Although there were around a hundred colonial wars in the period - the majority fought by Britain, France or Russia - the scale of these wars tended to be small because of the technological superiority of the imperial powers. Also on a relatively small scale were the numerous wars of national independence.²⁶ At the same time, the great powers kept war between themselves to an historical minimum.²⁷Apart from the Crimean War, the great power clashes of the period 1854-71 seldom lasted longer than a few weeks. The late twentieth century saw a return to this pattern: the war against Iraq in the Gulf lasted eighty-five days; the war against Serbia over Kosovo a mere seventy-eight. If there has been a discernible trend over the past two or three centuries, then, it has been increasing concentration or intensity of war.

The dramatic difference between the world wars and the rest of modern history is immediately apparent when we turn to the extent of military mobilization: that is to say, the proportion of the population employed in the armed forces. In absolute terms, armies reached historically unprecedented sizes in the twentieth century: probably the largest military force in history was that of the Soviet Union in 1945, which numbered around 12.5 million. By comparison, the armies which fought the Hundred Years War seldom exceeded twelve thousand in size. Even today, after some fifteen years of troop reductions, the American services still employ 1.4 million people.

But such figures tell us little about the relative degrees of mobilization involved. In the eighteenth century the highest recorded percentage of the British population under arms was 2.8 per cent in 1780, when Britain was at war not only with her American colonists, but also with France, Spain and Holland. But in more peaceful years the figure fell below 1 per cent. For France, the proportion of men in the armed forces tended to decline in the eighteenth century, from 1.8 per cent in 1710 to 0.8 per cent in 1790. Austria consistently kept between 1 and 2 per cent of her population under arms throughout the century; but this was a much lower proportion than that of Prussia, which in 1760 had as many as 4.1 per cent of her people in the army. For all countries, the Napoleonic 'revolution in war' meant an increase in the proportion of the population which had to be mobilized. In 1810 Britain had more than 5 per cent of her people under arms, Prussia 3.9 per cent, France 3.7 per cent and Austria 2.4 per cent.²⁸

By comparison, the nineteenth century saw relatively low rates of military participation. With the exceptions of Russia during the Crimean War, the United States during the Civil War and France and Prussia during the war of 1870-1, none of the major powers mobilized more than 2 per cent of the population between 1816 and 1913. Apart from the years 1855-6, 1858-63 and 1900-1902, the figure in Britain remained less than 1 per cent until 1912, reaching a low point of 0.5 per cent in 1835. On average, Austria and Piedmont/Italy also had armed forces of less than 1 per cent of the population between 1816 and 1913; and for Prussia, Russia and France, the average proportions were all below 1.3 per cent. Just 0.2 per cent of the population of the United States was in the armed forces during the nineteenth century as a whole. Even in 1913, despite contemporary and historical perceptions of an arms race, only Britain, France and Germany had more than 1 per cent of their populations under arms.

The First World War saw the highest rates of military participation in all history. At their peaks of wartime mobilization, France and Germany had more than 13 per cent of their populations in the services, Britain more than 9 per cent, Italy more than 8 per cent, Austria-Hungary just over 7 and Russia only slightly less. But immediately after the war, as if in reaction, all the major powers substantially reduced their military participation ratios. On average, only France mobilized more than 1 per cent of her population. In Britain, the figure touched a nadir of 0.7 per cent in the mid-1930s; while in the Soviet Union in 1932 it was less than a third of 1 per cent. The United States also reverted to its nineteenth-century level of military unreadiness. Even Nazi Germany took time to raise the share of the population in the army, navy and air force after the enforced reduction which had been a part of the Versailles Treaty of 1919. Not until 1938 did the German armed services exceed 1 per cent of the population. Italy's Abyssinian adventure pushed its armed forces up to above 3 per cent in 1935, but by the eve of the Second World War the figure had sunk back to just over 1 per cent.

Surprisingly, no country mobilized as large a percentage of the population into armed forces between 1939 and 1945 as France managed in 1940 (just short of 12 per cent). The peak figure for Germany was 8.3 per cent in 1941, rather less than Britain managed in 1945 (10.4 per cent). It is also noteworthy that the Soviet proportion in that year (7.4 per cent) was less than the American (8.6 per cent). In the First World War, Germany had almost certainly committed too many men to the army at the expense of the industrial workforce. The Second World War apparently saw a more balanced allocation of labour.

By comparison with the previous two post-war eras after 1815 and 1918, the years after 1945 did not witness such a rapid and sustained demobilization. In the Soviet case, the armed forces jumped back up from 1.5 per cent of the population in 1946 to 3.1 per cent in 1952; while American military participation rose from 0.9 per cent in 1948 to a post-war high of 2.2 per cent in 1952. Britain too experienced a slight rise associated with the Korean War. The French figure rose to a peak of 2.2 per cent in 1960 as a result of conflicts associated with decolonization.

Nevertheless, during the Cold War period as a whole there was a steady fall in military participation ratios in many major countries. The average rate of mobilization in Germany, Italy and Austria was lower in the period 1947-85 than it had been between 1816 and 1913. Even for Russia, the figure was below 2 per cent. Moreover, the break-up of the Warsaw Pact and the collapse of the Soviet Union has allowed military participation to fall back to inter-war levels and in some cases even lower. In 1997 just 0.37 per cent of the British population were serving in the armed forces: the lowest figure since 1816. The present French proportion (0.65 per cent) is the lowest since 1821.

Rates of military mobilization, then, have been subject to sharp fluctuations above a relatively stable (and perhaps over the very long run even declining) base line. The major wars of the modern period, and particularly the world wars, have necessitated large but not sustained increases in military participation. Indeed, it is precisely because of its discontinuous, non-cyclical character that warfare has exerted such a decisive influence over the development of financial and political institutions.

Sudden increases in the proportion of men under arms are not the principal source of pressure on military budgets, however. Changes in military technology matter more. From the fourteenth-century gunpowder revolution onwards, artillery has periodically increased its range, accuracy and destructive power. The development of the cast-iron cannon, with its iron ball, 'corns' of powder and wheel base, necessitated a parallel development in fortifications like the trace italienne.²⁹ Indeed, it was partly the rising cost of fortifications which put the finances of continental powers under strain in the sixteenth century.³⁰ Likewise, the standardization and improvement of handguns in the early eighteenth century enhanced the firepower and raised the cost of equipping the individual infantry man.³¹ The eighteenth century saw further improvements in the manufacture of artillery, notably the bored barrel introduced to France by the Swiss engineer Jean Maritz, which set the standard until the advent of the breech-loading gun in the 1850s.³² The parallel development in Britain was in maritime technology: copper-sheathed bottoms for ships, short-barrelled, large-calibre carronades and steering wheels for ships.³³

Moreover, the pace of technological advance quickened in the course of the nineteenth century: at sea, the application of steam power, Henri Paxihans' large-calibre shell-firing gun and iron cladding, followed by the torpedo, the submarine, Nordenfeldt's and Vavasseur's naval guns, the tube-boiler and the turbine; on land, the new rifles of Minié, Dreyse and Colt and the improved breech-loading artillery pieces of Krupp, Armstrong and Whitworth - to say nothing of brass cartridges (1867), steel artillery (1883), the Maxim Gun (1884), magazine rifles (1888) and the Schneider-Creusot quick-firing field gun (1893).³⁴ The cauldron of the First World War brought forth new instruments of destruction, barely imagined before 1914: among them the tank, the aerial bomber and the fighter plane, as well as the hand grenade, the trench mortar and poison gas. Despite all talk of war-weariness, the process did not halt in the 1920s and 1930s: one need only compare the aircraft and tanks of 1938 with those of 1918 to see that. But the pace of change accelerated dramatically during the Second World War as the major combatants sought to out-innovate as well as out-produce one another, increasing the speed, range, accuracy and armour-plating of nearly all the machines of mid-century warfare. The British Spitfire - to give one example - was modified 1,000 times between 1938 and 1945, adding 100 mph to its top speed.³⁵ At the same time, advances in radio technology ushered in a revolution in battlefield communications (wireless communication, radar detection), while a host of new inventions arrived in time for use in the final phase of the conflict: jet engines, amphibious vehicles, guided missiles, rockets and, of course, atomic bombs.³⁶ This technological race continued in the Cold War, as A-bombs gave way to hydrogen and neutron bombs and the arms race became simultaneously a space race between rockets and satellites (with astronauts and cosmonauts thrown in to sustain public interest).³⁷

In absolute terms, expenditure on military hardware has therefore risen inexorably in the long run. By 1982 a critic of the arms race could lament: 'Bombers cost two hundred times as much as they did in World War II. Fighters cost one hundred times or more than they did in World War II. Aircraft carriers are twenty times as expensive and battle tanks are fifteen times as expensive as in World War II.'³⁸ Writing four years later, Paul Kennedy enlarged on this point:

Edwardian statesmen, appalled that a pre-1914 battleship cost £2.5 million, would be staggered that it now costs the British Admiralty £120 million and more for a replacement frigate! . . . The new [American] B-1 bomber . . . will cost over $200 billion for a mere one hundred planes . . . Cynics [forecast] that the entire Pentagon budget may be swallowed up by one aircraft by the year 2020.³⁹

According to Kennedy, weapon prices in the 1980s were 'rising 6 to 10 per cent faster than inflation, and . . . every new weapon system is three to five times costlier than that which it is intended to replace'.⁴⁰ Despite a 'near trebling of the American defence budget since the late 1970s', there had occurred by the late 1980s 'a mere 5 per cent increase in the numerical size of the armed forces on active duty'.⁴¹ To Kennedy, warnings were not misplaced of an impending 'militarisation of the world economy'.⁴²Even allowing for inflation and relating expenditure to the size of armed forces, military expenditure has tended to rise. In 1850 Britain spent just under £2,700 per man on her armed forces (in 1998 prices); by 1900 the figure had risen to £12,900; and by 1950 £22,000. In 1998 the figure was close to £105,500. The United States spent $30,000 per serviceman in 1900 (again in 1998 prices); $71,900 in 1950; and $192, 500 in 1998 (see Figure 3).⁴³ Nearly all the increase has been due to increased quantity and quality of military hardware (as opposed to improvements in soldiers' pay and living conditions). It is not too much to say that the increase in the military capital/labour ratio in the course of the twentieth century has been exponential.

Yes in assessing the growing sophistication of military technology there are a number of things we should not lose sigh of: in particular, its increasing destructiveness. For in the purchase of a new weapon, it is not only the price which matters; it is also its capacity, compared with the weapon it is intended to replace, to mete out murder.

The death toll of the War of the Spanish Succession (1701-13) was 1.2 million. A century later, the Napoleonic Wars killed 1.9 million men. And a century after that, the First World War cost more than 9 million servicemen their lives. Perhaps as many as 8 million people died in the maelstrom of the Russian Civil War of 1918-21 (though most of these were the victims of the famine and pestilence unleashed by the conflict). But even this figure pales into insignificance alongside the total mortality caused by the Second World War. For military personnel, the total body count was roughly twice the figure for the First World War. But this figure excludes civilian casualties. According to the best available estimates, total civilian deaths in the Second World War amounted to 37.8 million, bringing the total death toll to nearly 57 million people.⁴⁴ In other words, the majority of deaths in the Second World War were due to deliberate targeting - by all sides - of civilians on land and sea and from the air. Including all the minor colonial wars like the Boer War and all the civil wars like the one which raged in India after independence, the total figure for war deaths between 1900 and 1950 approaches 80 million.

The increase in the destructiveness of war becomes even more striking when the relative brevity of the world wars is taken into account. Though it lasted five times as long, the Thirty Years War caused only a ninth of the battlefield mortality inflicted during the Second World War, and an even smaller fraction of the civilian mortality. The First World War caused five times as many deaths in four and a quarter years as the entire Napoleonic Wars in the space of twelve. Another way of expressing this is to calculate the approximate annual death rate during the various wars. This rose from above 69,000 in the Thirty Years War to some 104,000 in the War of the Spanish Succession, 124,000 in the Seven Years War, 155,000 in the Napoleonic Wars and for the world wars, respectively, 2.2 and 3.2 million - or 9.5 million if civilian deaths in the Second World War are included. In short, between the seventeenth and the twentieth century, the capacity of war to kill rose by a factor of roughly 800. From the time of Napoleon to the time of Hitler - born a mere 120 years apart - the increase was more than 300-fold (see Appendix, table A).

Even allowing for the accelerating growth in the world's population, then, the world wars were the most destructive in history. Somewhere in the region of 2.4 per cent of the world's entire population was killed in the Second World War and 0.5 per cent in the First, compared with roughly 0.4 per cent in the Thirty Years War and 0.2 per cent in the Napoleonic Wars and the War of the Spanish Succession. The total death toll in the First World War amounted to something like one per cent of the pre-war population of all fourteen combatant countries, 4 per cent of all males between 15 and 49 and 13 per cent of all those mobilized. For Turkey, the equivalent figures were 4 per cent of the population, 15 per cent of males between 15 and 49 and almost 27 per cent of all those mobilized. Even worse affected was Serbia, which lost 6 per cent of the population, nearly a quarter of all men of fighting age and over a third of all those mobilized.⁴⁵ In the Second World War, roughly 3 per cent of the entire pre-war population of all combatant countries died as a result of the war. For Germany, Austria and Hungary, the figure was around 8 per cent, for Yugoslavia and the Soviet Union 11 per cent and for Poland - of all countries the worst affected by the war - nearly 19 per cent: almost a fifth of the entire pre-war population. The armies of some countries were almost wholly annihilated. Military deaths as a proportion of all troops mobilized were in the region of 85 per cent for both Poland and Romania. Forty-five per cent of the troops mobilized in Yugoslavia were killed. For the Soviet Union and Germany, locked for four years in the most bloody conflict of all time, the equivalent figures were, respectively, 25 and 29 per cent. Around a quarter of Japanese and Chinese troops were killed in the war in Asia and the Pacific.

To be sure, casualties as a proportion of troops engaged were sometimes very high in previous wars. though the statistics are far from reliable for medieval battles, it is nevertheless plausible that the proportions (including wounded and prisoners) were between a quarter and a third of combatants at the battles of Hastings (1066), Crécy (1346), Agincourt (1415), Breitenfeld (1631), Lützen (1632), Naseby (1645), Austerlitz (1805), Waterloo (1815) and Gettysburg (1863). At Blenheim (1704) the figure may have been as high as 43 per cent.⁴⁶ These figures bear comparison with some First and Second World War battles: for instance, El Alamein (c. 14 per cent), though not Stalingrad, where, in the space of six and a half months, the Red Army alone suffered 1.1 million casualties and the Wehrmacht as many, if not more.⁴⁷Yet these proportions need to be seen in the context of substantial increases in the numbers of troops committed to battle. Perhaps 14,000 men fought at Hastings; perhaps 39,000 at Crécy. But 68,000 fought at Breitenfeld and 108,000 at Blenheim, while more than double the number who fought at Breitenfeld were deployed at Austerlitz. The Battle of Waterloo saw 218,000 men in the field; but even it was dwarfed by El Alamein (300,000) and Stalingrad, where millions fought. Just as military technology had magnified the destructive power of the individual, innovations in drill, discipline, communications and logistics had allowed armies to get ever larger, battles longer.

Why then have the casualties suffered by Western forces in wars since 1945 tended to fall? The number of US servicemen who died in the Vietnam War was 'only' 57,939; the number killed in Korea 37,904. And the death toll has continued to decline. In the Gulf War there were 148 American combat deaths, excluding victims of accidents and 'friendly fire': a tiny proportion of a total force numbering 665,000. In the 1999 war against Serbia the figure was precisely zero. Compare those figures with the body counts in the two world wars: 114,000 American servicemen in the First World War and 292,100 in the Second. The drop in military casualties is even more marked in the case of Britain. 720,000 Britons lost their lives in the First World War; over 270,000 in the Second; yet in the Korean War just 537 British soldiers were killed. All told, 719 British soldiers have been killed in Northern Ireland since 'the Troubles' began in 1969, along with 302 members of the Royal Ulster Constabulary.48 Just 24 UK servicemen were killed in the Gulf War, not including 9 killed accidentally by their own side.

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 which 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 superpower warheads. Given that the 12-16 kiloton bomb dropped ion Hiroshima in 1945 killed around 100,000 people instantly and a further 100m000 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, 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 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 once 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 second-hand ones). And of course the prices of 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.

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 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 east 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 with 120,000 British gunners fired off 4.3 million shells or 107,000 tons of explosives in a preliminary bombardment which 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 which 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 in 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 non-combatants 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.'⁶⁰By 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 from 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.

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 expenditure 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 Pelopponesian 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 fro 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 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 figure fro 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 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 whet 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 point 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 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

Because of the Cold War, the sharp reductions in military budgets which followed the defeat of the Axis powers were short-lived. Having fallen to just 21 per cent of the central government budget in 1949, British defence spending rose to a post-war peak of 38 per cent in 1954, which was also the peak year for France. The 'shrinking pains' of decolonization faded thereafter: the British defence budget was already in relative decline by the time of Suez, while the French fell rapidly after Dien Bien Phu. By 1968 defence accounted for just a fifth of spending in both countries.⁸³ Nor was the downward trend of British defence spending more than slowed by the Thatcher government. As a share of expenditure it rose only slightly from 10 per cent in 1975 to 11.8 per cent in 1986; but in 1990 it was back down to 10.7 per cent.⁸⁴ In 1997-8 it accounted for less than 7 per cent of the general government spending 'control total'. This is a figure lower than at any time in British history since the Wars of the Roses.

None of the above figures, however, tells us the relative economic importance of military expenditure. Indeed, given the profound changes in the nature of total state expenditure, not only at the central but also at the local level, it may be that they tell us hardly anything meaningful at all. For example, in order to make German and British figures comparable after 1870, the spending of the German states of Länder need to be added to the federal government's expenditure total; or alternatively, the defence budget should be calculated as a proportion of total public sector spending, including all tiers of government. Table 1 gives a rather better indication of the remarkable decline of military expenditure in relation to public spending by all levels of government in the past hundred years. In Britain, France and Germany alike, the share of defence spending in the total public sector budget has declined from around a quarter to barely a fifth.

More important than calculations of that sort, are those which express the 'military burden' of expenditure as a proportion of total economic output. To give a classical example: Goldsmith estimates total Athenian public expenditure at around 20 per cent of national product - necessarily a very approximate calculation - compared with an equivalent figure for Augustan Rome of no more than 5 per cent. In relative economic terms, therefore, the Greek military burden was probably higher than the Roman: perhaps around 7 per cent of national product, compared with a Roman figure of just 2 or 3 per cent. This kind of calculation - the cost of military expenditure in relation to gross national or domestic product - is not without its technical difficulties even in the present day, when estimates of national product are relatively reliable, though still far from perfect. Nevertheless, there is no better way of estimating relative military spending which allows comparisons between countries and over time.

The proportion of military spending in relation to national product naturally fluctuates quite substantially according to whether or not a state is at war; and this is the crucial point. In the case of Medici Florence in the 1420s, for example, the ratio of military spending to 'national' product varied between 3 per cent in peacetime and 20 per cent during wars.⁸⁵ As a proportion of national income, British defence spending in the eighteenth century varied between 4 and 18 per cent depending on whether or not the country was at war, reaching a peak between 1778 and 1782.⁸⁶ This was a significantly larger proportion than the French state spent in the same period. According to one calculation, total British war expenditure between 1776 and 1782 was nearly two and a half times the equivalent French figure in absolute terms. However, this differential does not take into account the relative size of the rival states' economies. In fact, the cost in relation to a year's GNP was even higher for Britain than the absolute numbers suggest: 75 per cent compared with just 15 per cent for France.⁸⁷ In relative terms, war was far more burdensome for Britain than for France; or, to put it differently, Britain was able to mobilize a larger share of national product at times of military crisis.

As Figure 4 shows, such levels were rarely attained in the nineteenth century. Between 1850 and 1814, the highest proportion of GDP consumed by the British armed services was just 11 per cent in the first year of the Crimean War; even during the Boer War the figure did not rise above 6 per cent. None of the other European powers ever spent more than 5 per cent of national output on defence, with the exception of Italy in 1866 (though if GDP figures were available for Prussia before German unification, the military quota would almost certainly exceed 5 per cent in the period 1866-71). Average defence expenditure as a percentage of net national product between 1870 and 1913 amounted to just 3.1 per cent for Britain and Austria, 3.2 per cent for Germany, 3.3 per cent for Italy and 4 per cent for France.

Considering how much has been written on the subject of the pre-First World War arms race - not to mention the scramble for overseas empires - these numbers are surprisingly low. It is especially striking that Germany, the state most notorious for its 'militarism' in the period, was by this measure somewhat less militaristic than her two neighbours and rivals, France and Russia.⁸⁸ However, the idea of 'militarism run mad' as a general European phenomenon seems more intelligible when these figures are compared with those for the United States. On average, Americans spent less than one per cent of net national income on the military between 1870 and 1913. Nor was this significantly altered by the First World War. Only in the last year of the Great War did defence spending rise above 5 per cent of GNP and, after peaking at 13 per cent in 1919, it rapidly fell back down below 1 per cent for most of the 1920s. Again, the contrast with the European powers is very marked. At their respective peaks in the First World War, both Britain and Germany spent more than 50 per cent of GDP on the military; Italy was not far behind with 35 per cent.

The inter-war period saw a vain attempt by Britain to return to the pre-war pattern of expenditure; no other power attempted to do so. From the mid-1920s onwards both Italy and France increased military expenditure ahead of the growth rate: the French defence burden exceeded 5 per cent of GDP in 1930, the Italian in 1935. Germany, of course, had its military budget slashed almost to American levels by the Versailles Treaty; but after Hitler came to power an immense shift of resources took place, increasing the military quota from less than 2 per cent in 1933 to 23 per cent in 1939.

To the European powers, the relative cost of the Second World War was in fact not much greater than had been the First. The most striking difference, however, was that from 1943 onwards the United States for the first time began to divert resources to warfare on a scale comparable with the European states. Nor, since this 'rise to globalism', has it been possible for Americans to revert to their earlier level of military parsimony. On the contrary: since the time of the Korean War the United States has consistently spent a higher proportion of GDP on defence than her principal allies. Needless to say, this reflected the high level of military expenditure necessitated by the Cold War.

The greatest difficulties arise in the case of Russia and the Soviet Union: hence the many gaps in the series in Figure 4. This is because of the patchiness of Tsarist data and, more seriously, the idiosyncrasies of Soviet accounting conventions - notably the concept of 'net material product', which effectively excluded services from the national accounts - as well as the policy of under-pricing armaments mentioned above. Before the First World War, Tsarist Russia was certainly the most economically militaristic of the great powers, spending more than 5 per cent of net national product on defence between 1885 and 1913 - though this average was undoubtedly inflated by the relatively high cost of the 1904-5 war with Japan. Between 1915 and 1917, the military burden also probably rose slightly higher than those of the other combatants. The picture, however, becomes obscure in the Soviet period. If defence expenditure appears to have been relatively low in the period of the New Economic Policy and Stalin's collectivization, it rose quite rapidly after 1935: ahead of Britain's, though behind Germany's. At the height of the Second World War the relative military burden exceeded 60 per cent, still slightly less than the same figure for Germany. It is much harder to be sure of how much of Soviet output went on defence after 1945, however. Official Soviet figures were certainly too low. In 1975 the Central Intelligence Agency doubled its estimate of Soviet military spending from 6-8 per cent of GNP to 11-13 per cent on the basis of new price data.89 Ten years later the International Institute for Strategic Studies put the figure at 16 per cent.90 The equivalent figure for the United States at this time was 6 per cent. Even at the height of the Korean War American defence spending as a proportion of output was below the Soviet level of the 1980s.

Finally, Figure 4 shows how sharply defence expenditure has fallen in relative terms since the end of the Cold War. The latest estimates form the Stockholm International Peace Research Institute (for 1999) suggest expenditure to GDP ratios of around 4 per cent for Russia, 3.2 per cent for the United States, 2.8 per cent for France, 2.6 per cent for Britain, 2 per cent for Italy and just 1.5 per cent for Germany.⁹¹ These are figures reminiscent of the 1920s, if not the nineteenth century. The United States, Russia, Germany and Britain have not spent so little on defence since the 1920s, though in the German case this was under duress. French and Italian defence spending has not been so low in relative terms since the early 1870s.

The demilitarization of the West in the late twentieth century seems remarkable when compared with the era of the world wars. The average Western man now has every chance of avoiding war altogether. Indeed, the most violent experience he is ever likely to have is a Saturday night brawl or a mugging. If he has an appetite for war, he must rest content with electronically generated visions: occasional television bulletins from far-off places or, more often, cinematic re-enactments of past wars or fictional future wars. In the first half of the twentieth century, men saw action: their grandsons and great-grandsons see acting. In 1999 many thousands of American actors feigned death in harrowing but hugely popular war films like Saving Private Ryan. Only a handful of American soldiers died as a result of real military operations, and all were the victims of accidents rather than enemy action.

Yet it would be wrong to attribute demilitarization to that revulsion against war which characterized both elite and 'pop' culture during and after the Vietnam War. Demilitarization has been the norm in times of peace, as Figures 2 and 4 make clear. In addition, there has been a long-run tendency in Britain and the United States to reduce military participation by substituting capital for labour.

Historically, the two most appealing things about war have been the pleasure of comradeship and the excitement of combat. But with the advance of military technology in the twentieth century, both experiences became more elusive. The nadir of conventional warfare was reached on the Eastern Front in the Second World War. With the death toll averaging nearly one in three, there could be no enduring bonds and no thrill. As one German officer put it:

Man becomes an animal. One must destroy in order to live. There is nothing heroic on this battlefield . . . The battle returns here to its most primeval, animal-like form; whoever does not see well, fires too slowly, fails to hear the crawling on the ground in front of him as the enemy approaches, he will be sent under . . . The battle here is no assault with 'hurrah cries' over a field of flowers.⁹²

In this war, female medics used their teeth to amputate smashed limbs.⁹³ Starving prisoners of war were reduced to cannibalism. This was not just total war but totalitarian war, in which the value of human life sank close to zero on the battlefield, and to precisely zero in the slave labour camps which were an integral part of the war effort on both sides.⁹⁴

The alternative route, taken by the United States and Britain precisely in order to economize on lives, was to industrialize war - shifting resources into artillery, tanks, warships and, above all, aircraft. In many ways, the turning point was 1940, when Britain evacuated her army from Dunkirk and then relied on a force of just 1,400 fighter pilots to deter a German invasion and keep Britain in the war.⁹⁵ But it was the bomber rather than the fighter that became the key to subsequent British (and American) strategy. In effect, investment in bombers reduced casualties among Allied servicemen and greatly increased casualties among Axis civilians, a process which culminated at Hiroshima. Once dominance of the skies had been established, ground forces could be used at a far lower cost to life and limb.

The present 'Revolution in Military Affairs' made possible by improvements in electronic communications is therefore part of a prolonged and far from revolutionary process. What does not change over the long run is that money must be found - whether it is for the mass armies of the age of total war, or the 'smart weapons' that account for a rising share of modern military budgets. And often, as this chapter has made clear, the money needs to be found at very short notice. The sums involved have varied greatly in relation to economic growth, as well as in relation to the destructive efficiency of weaponry. But this basic need to finance war has been - until the relatively recent past - the prime mover in the process of state formation; the father, indeed, of what follows.

1 Bonney, 'Introduction', pp. 2 ff.
2 Goldsmith, Premodern Financial Systems, p. 33.
3 Quoted in Parker, 'Emergence of Modern Finance', p. 527.
4 Quoted in Luard, War in International Society, p. 240.
5 Ibid., p. 239.
6 Ibid., p. 248.
7 See e.g. 'One of the few constancies in history is that the scale of commitment on military spending has always risen': Mathias, First Industrial Nation, p. 44; In Paul Kennedy's words: 'The cost of a sixteenth century war could be measured in millions of pounds; by the late seventeenth century, it had risen to tens of millions of pounds; and at the close of the Napoleonic War the outgoings of the major combatants occasionally reached a hundred million pounds a year': Kennedy, Rise and Fall of the Great Powers, p. 99.
8 Sorokin, Social and Cultural Dynamics, vol. iii.
9 Wright, Study of War.
10 Richardson, Statistics of Deadly Quarrels.
11 Luard, War in International Society, appendix.
12 Correlates of War database, www.umich.edu/cowproj. The database provides figures for total population, urban population, iron and steel production, energy consumption, military personnel and military expenditures. Earlier versions of the Correlates of War data can be found in Singer and Small, Wages of War and Resort to Arms.
13 Levy, War. Levy's definition of which states were 'great powers' is rather subjective, but his analysis is nevertheless useful.
14 Luard, War in International Society. Adding all the wars listed in Luard's appendix gives a figure of 1,021, but his own sub-totals in the main text imply a different total for reasons which are unclear.
15 Levy, War, pp. 97-9
16 Walensteen and Sollenberg, 'Armed Conflict'.
17 Sollenberg, Wallensteen and Jato, 'Major Armed Conflicts'. Cf. Financial Times, 15 June 2000.
18 See Brogan, World Conflict, appendix 1.
19 See e.g. Hinsley, Power and the Pursuit of Peace, pp. 278 f.
20 Levy, War, p. 139. Cf. pp. 129-31.
21 Calculated from Luard, War in International Society, appendix.
22 The Ottoman Empire comes sixth (33), followed by Russia (28), Italy (meaning any Italian state: 22) and Germany (meaning any German state: 18).
23 Bond, Victorian Military Cmapaigns, pp. 309-11.
24 'Only one war of the post-Vienna period has lasted longer than seven years, whereas in the pre-Vienna period there were nearly twenty wars of this duration.': see Levy, War, pp. 116-29. Cf. Luard, War In International Society, p. 47.
25 'In the Seven Years' War . . . there were 17 belligerents and 111 battles . . . The numbers in the First World War were 38 and 615': Hinsley, Power and the Pursuit of Peace, pp. 278 f.
26 Luard, War in International Society, pp. 54 f. Luard identifies 30 'Wars of National Independence' (though only 28 appear in his appendix), of which 20 were suppressed. He also identifies eighteen cases of 'External Intervention in Civil War in Europe', though the intention behind such interventions varied. In seven cases, intervention was on the side of the rebels, compared with ten when it was in support of the government. In all, nine liberal revolutions were suppressed.
27 Ibid., pp. 52-61.
28 Figures from Kennedy, Rise and Fall of the Great Powers, p. 71, 128; McNeill, Pursuit of Power, p. 107; Mann, Sources of Social Power, vol. ii, p. 393, tables A1, A4.
29 McNeill, Pursuit of Power, pp. 79 ff.
30 Körner, 'Expenditure', p. 408.
31 McNeill, Pursuit of Power, pp. 120-43.
32 Ibid,. pp. 161. f.
33 Ibid., pp. 178 ff.
34 Ibid., pp. 228 ff., 273 n.
35 Ibid., p. 350.
36 Ibid., pp. 357 ff.
37 Ibid., pp. 367-72.
38 Kaldor, Baroque Arsenal, quoted in Kennedy, Rise and Fall of the Great Powers, p. 570.
39 Kennedy, Rise and Fall, pp. 570 f.
40 Ibid., p. 623.
41 Ibid., pp. 674 f.
42 Ibid., p. 572.
43 These figures are arrived at by deflating nominal defence spending by the consumer price index (CPI), and dividing that figure by the size of the armed forces. Of course, the CPI is not the ideal deflator for the defence budget, so the figures are necessarily very approximate. However, the long-run trend is clear enough.
44 Overy, Times Atlas of the Twentieth Century, pp. 102-5; Harrison, 'Economics of World War II: An Overview', pp. 3 f., 7 f., and 'Soviet Union', p. 291.
45 Calculated from figures in Winder, Great War, p. 75.br> 46 Calculated from figures in Timechart Company, Timechart of Military History, pp. 112-27; Perrett (ed.), Battle Book.
47 Erickson, 'Red Army Battlefield Performance', p. 245. Cf. Beevor, Stalingrad.
48 Daily Telegraph, 15 March 2000; 13 April 2000.
49 Fieldhouse, 'Nuclear Weapons Developments', pp. 74-119.
50 On the basis of the 1993 Federal Budget Request: IISS, Military Balance, 1992-1993, p. 17.
51 Ibid., p. 218.
52 Creveld, Supplying War, pp. 233 f.
53 Quoted in Nef, War and Human Progress, p. 366.
54 Creveld, Supplying War, p. 200.
55 Ibid. pp. 216-30 and n.23.
56 Overy, Why the Allies Won, po. 319.
57 McNeill, Pursuit of Power, pp. 225 ff.
58 Kubicek, 'British Exmansion, Empire and Technological Change', pp. 254, 258.
59 Ibid., p. 261.
60 Burroughs, 'Defence and Imperial Disunity', p. 336.
61 At Omdurman in 1898 Kitchener's army, equipped with 55 machine guns, killed 11,000 dervishes at a cost of 48 British troops lost. Contrary to popular belief - encouraged by Hilaire Belloc's famous lines ('Whatever happens, we have got / The Maxim Gun, and they have not') - the Sudanese die have machine guns, but only two: Kubicek, 'British Expansion, Empire and Technological Change', p. 265.
62 Wall Street Journal, 19 April 1999.
63 HMS Dreadnought cost the equivalent of 0.12 per cent of Britain's 1906 GDP; a B-2 cost 0.02 per cent of 1998 US GDP.
64 Goldsmith, Premodern Financial Systems, pp. 22, 31 f.
65 Ibid., pp. 48, 51.
66 Ibid., p. 79.
67 Körner, 'Expenditure', pp. 402 ff.
68 Ibid., pp. 416 f.
69 Goldsmith, Premodern Financial Systems, p. 193.
70 Hart, 'Seventeenth Century',, p. 282; Capra, 'Finances of the Austrian Monarchy', pp. 295-7.
71 O'Brien, Power with Profit, pp. 34 f.
72 Mann, Sources of Social Power, vol. ii, p. 373, except for Britain, O'Brien, Power with Profits, pp. 34 f. [SURELY THIS FOOTNOTE IS WRONG? OR CONFUSED WITH THE NEXT ONE??]
73 Mann, Sources of Social Power, vol. ii, p. 373.
74 Ibid.
75 Calculated from the figures in Mitchell and Deane, Abstract of British Historical Statistics, pp. 396-8.
76 Figures taken from Bankers Trust Company, French Public Finance; Apostol, Bernatzky and Michelson, Russian Public Finances.
77 Calculated from the figures in Flora et al., State, Economy and Society, vol. I, pp. 345-449
78 Kennedy, Rise and Fall of the Great Powers, p. 403.
79 Calculated from the figures in Mitchell and Jones, Second Abstract of British Historical Statistics, pp. 160 f.
80 For a review of the figures, see Abelshauser, 'Germay', table 4.4 and pp. 133-8. Cf. Overy, War and Economy, p. 203. Figures for the Reich budget can be found in James, German Slump, table XXXV.
81 Petzina, Abelshauser and Faust (eds.), Sozialgeschichtliches Arbeitsbuch, vol. iii, p. 149; Hansemeyer and Caesar, 'Driegswirtschaft und Inflation', p. 400.
82 Kennedy, Rise and Fall of the Great Powers, p. 388.
83 Defence accounted for a larger proportion of central government expenditure in Germany in the 1960s, but only because much non-military expenditure was carried out at the regional rather than the federal level. Cf. the figures in Flora et al., State, Economy and Society, vol. I, pp. 345-449.
84 Hogwood, Trends in British Public Policy, p. 45.
85 Goldsmith, Premodern Financial Systems, pp. 145, 164 ff.
86 O'Brien, Power with Profit, p. 35. It should be emphasized that estimates for national income or national product even for the later twentieth century must be treated with caution, as the margins for error remain large even in the best national statistics. Eighteenth- and nineteenth-century estimates used in this chapter and elsewhere are often little more than educated guesses. Here and elsewhere percentages which use historic national product data as the numerator carry a statistical 'health warning'.
87 Calculated from figures in Bonney, 'Struggle for Great Power Status', p. 345.
88 See Ferguson, Pity of War, pp. 105-18.
89 Kennedy, Rise and Fall of the Great Powers, p. 644.
90 IISS, Military Balance 1992-1993, p. 218.
91 Financial Times, 15 June 2000.
92 Omer Bartov, Hitler's Army, quoted in Calder (ed.), Wars, p. 340.
93 Pennington, 'Offensive Women', p. 253.
94 Beevor, Stalingrad.
95 Overy, Battle.

In an exclusive interview Niall Ferguson talks about the lessons of the past, the U.S. elections, greed, Harry Potter and the joys of reading.

Economics is generally conceived as a difficult, dry subject. In The Pity of War, you were writing about something that is very much tied up with human emotions and passions - nationalism and victory - was it a challenge to write about a subject that so many people feel distanced from?
Carlyle called it 'the dismal science', and he gave me the title 'The Cash Nexus' so he must have had the right idea, I think. Yes, economics has become a very dismal, and impenetrable, science - or pseudo-science. What I was trying to do was to talk about financial issues without being an economist, and making a virtue of the fact that I'm not. You're right - war is about passion. But greed is a passion, and for some people money is a passion, although most aren't pure capitalists. Most people don't want to think about taxation, interest rates and their pensions. There's a resistance to these things, and I think economics has made it worse by turning it into mathematics.

It seems to me that we can't leave out this dominant part of modern life and say that it's boring, because to me it is inseparable from understanding how the World Wars happened, why one side won, not the other - and equally, if you're interested in politics, you can write a million biographies of a million Prime Ministers and not understand a thing if you don't understand how party political finance works. That seems much more important to me than charismatic leadership. You don't think Bush won that election just because he's a charismatic leader? He won that election in part because he managed to raise a hell of a lot more money than Gore in that campaign. The Cash Nexus makes these dismal subjects undismal by showing that in fact they connect with the real world - that in fact war is why financial systems evolve, and the reason we pay the income tax that we do lies in history; it's not some theoretical phenomenon.

So is that how this book was born, as a logical progression from your two previous books, The World's Banker, which was about the Rothschilds, and The Pity of War?
Definitely. The effect of writing those two books - and of course The Pity of War was a lot about economics as well as about war - was that I suddenly realised that there was a general argument coming out of both of those books about the nature of power, and I wasn't really going to be happy with this section of my work if I didn't finish it off. The theoretical hunch was that power is something that can be nailed down, and that its root is in economics.

Is it gratifying when events in the news prove your theories, for example the fuel crisis and the Bush/Gore election result?
Yes, it is. I felt utter glee when Bush won the election, for no other reason than that it meant that what I had always felt about the relationship between economics and politics was right. Political commentators so often see economic prosperity as guaranteeing re-election, but if that was the case then Labour would have been elected in 1992, and the Conservatives in 1997, when of course the opposite happened. The Bush/Gore election was a close-run thing, but I had a strong hunch that Bush would win.

So if Bush won the election partly because he was able to raise more money, where does the power lie? In having cash put to one side for if and when you need it, or being able to spend it as and when you like?
One thing I wasn't taught properly in my financial education as a child, which focused always on saving money, is that the real importance - the key - is being able to borrow money, it's not actually about saving. In many ways, saving has been a completely disastrous strategy, because anyone who saved money from about 1914 was shattered by inflation. The real key to power is being able to borrow. Whether you're talking about great powers engaging in the big wars that shaped modern history, or whether you're talking about political parties. In effect, the political parties are borrowing money when they're getting donations.

Surely that's the best kind of borrowing, the type you don't have to pay back?
Yes, although of course they do have to pay it back, in favours. The problem with political finance is the same problem with wars - which is that they come along irregularly. It's impossible to suddenly jack up your revenue to the level you need, so the question is how can you rustle up the money? So debt is at the heart of the argument. There are some ways of borrowing money which are absolutely disastrous and unsustainable - which is why you get the failure of the French in the 18th century and their descent into Revolution. It was partly because the French didn't have a way of borrowing money that worked, and eventually the only way forward was complete political revolution.

But Bush was able to command the money, as indeed the Americans seem always to be able to do.
Yes. America now is in much the same position as the British Empire was, controlling a vast proportion of the world's wealth. But it seems to me that America's power is much less sustainable, because they aren't using their position to maintain a sustainable situation in the less powerful countries. After the Second World War they imposed a new political system on Germany and Japan, and that has been immensely successful in getting those countries back on their feet. But attitudes have changed, partly because of the experience with the Vietnam War, and partly because voters are extremely wary of any sense of American imperialism. Instead they are using the power of their wealth to allow their people almost unlimited consumerism, which is, I feel, a disastrous strategy. How much can people eat? It would be much better for the Americans to use their power to restore political order around the world. For example, with Iraq - potentially a hugely rich area, governed by a man who in effect is simply a troublesome local despot, and yet they're not really doing anything to improve the situation.

It's interesting that you talk about consumerism. There are many people now who would argue - and who are terrified by the prospect - that there are companies now whose wealth is so huge that they are perceived in many ways as being more powerful than small countries.
Yes, the backlash against globalisation is interesting. But what the protestors in Seattle and Prague don't realise is that in fact those companies cannot operate without the state. They would much rather be working in a country with a well-run political system, because it gives them a smooth playing field. So although those companies have influence because of their wealth, they find it very difficult to operate without strong and stable government. Nike and The Gap and so on will never replace the state in terms of power. Paul Kennedy, in his Decline and Fall of the Great Powers, said that power lies in the ability to produce pig-iron, when in fact the power is being able to buy pig-iron when you need it.

So the Cash Nexus is more than a history of the relationship between power and money, it's also communicating the importance of finance and understanding its role in all our lives?
Many people are reluctant to understand these things. Compared with sex, money is strangely boring to most people, and yet it's so important, and so much a part of people's lives that I have this kind of missionary zeal about it - I really want people to understand it because it's everywhere.

I've been reading the Harry Potter books to my children, for example, and Gringots - the goblin bank - is like a magical version of Rothschilds. Without his stash of gold there, Harry would be entirely dependent on the ghastly Dursleys. From the earliest ages, children are aware of money. They're introduced to consumption much earlier, whereas we were introduced to saving. I spend my whole life trying to save money, for no apparent reason except that it's what I was taught to do. I'm sure that was one of the origins of this book, childhood obsessions with money. If people come away from The Cash Nexus thinking: 'Now I understand why I pay the income tax that I do, now I understand that money is more than just a dull thing that I'm obliged to try and find time for in my life,' then I will have achieved my goal.

Who or what has been your greatest influence?
Everyone from Robert Burns to John Maynard Keynes, I have a very wide range of influences. Keynes for his thirst to understand and enliven economic questions, and Burns for his ability to remind us that in the end it's all about human passions.

What do you read when you can't get to sleep at night?
Anything and everything. It's a ritual with me that I can't get to sleep, however tired I am, unless I read first. Robert Louis Stevenson is a particular favourite. I read The Master of Ballantrae for the first time this summer, and loved it.

Which book that you've read in the last year has stayed with you the most?
The Master and Margarita. It's one of the greatest novels ever written, even Stevenson can't match it. I like books with a bit of the devil in them. If Penguin ever did an anthology of literature in which the devil plays a part, that would be a wonderful thing.