Wars and Financial Markets

If any of you are the fans of Niall Ferguson, you might have read quite a bit about how the financial system actually evolved with wars and conflicts. Financial system, you like it or not, has been a mean to raise money to fund wars. In the early days in Italy where states are fighting against each other, the Venetians invented this thing called “bond”, which allowed them to raise more money by selling this instrument which pays interest. Instead of taxing their citizens, they essentially borrowed from its citizens. The citizens seemed to be happy because they got interest payments by buying the bonds, and the government was happy because they can get more money to fight wars.

In Netherlands where there was the first joint stock company (The Dutch East India Company) and the first stock exchange, the Dutch was able to raise so much money to build ships and stuff, making the East Indian Company dominate the trade route to India. When the Dutch William of Orange invaded the Britain in the “Glorious Revolution”, it was said that the Englishmen were able to learn all these stuff from the Dutch, eventually giving the British a supremacy in financial system over other powers in Europe, according to Niall Ferguson. The British East India Company eventually dominated the Indian trade route, and the company eventually ruled India after fighting against the rivals European powers (this is really a private sector government then) until the Queen Victoria stepped in and overthrown the company rule of India.

When the Britain fought in the Napoleonic War, the British hired Nathan Rothschild to raise money from the bond market to fight against Napoleon Bonaparte. As Niall Ferguson would put it, it was a perfect demonstration of the supremacy of British financial system over the French one, which is essentially between borrowing and taxing. Of course, the financial system of the Great Britain could help them won the wars they won, the weaknesses of it made it lose. After the Second World War, the UK has essentially mortgaged its country to the United States. So during the Suez crisis, the UK was forced to pull out after the US threatened not to lend money to the Britain. So borrowing is fine, but if you borrow too much, you will have some trouble.

So behind the scene of wars, money always play a part. And in many cases in history, the outcome of wars might have been determined even before the war has been fought. How? It’s the economy, stupid.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.