Mobile capital as the ultimate form of war finance

A basic tenet of war finance is that ‘citizens have to pay for the war either from their current or future income’. Indeed, whether they are financed by forced labour, direct or indirect taxation, domestic or foreign debt, or even outright monetary inflation, wars traditionally imply some, more or less explicit and perceptible, form of resource extraction. Sooner or later the costs of the war are borne by the population through a loss of income, wealth or purchasing power. Now, this homely notion of war finance has been overthrown by the peculiar financial regime that has supported the rise of US global hegemony over the past decades. Since the end of World War II, the military and consensus mobilization that has allowed the United States to impose their primacy has been financed by a form of debt that does not entail any cost, since it is not intended to be repaid, but indefinitely floated on international financial markets. Thanks to the liberalization of capital movements worldwide, the United States have managed to finance persistent balance of payments deficits. Hence our thesis: mobile capital represents the ultimate form of war finance. The argument is two-fold: As we shall try to show, on one hand, free capital markets emerge as a response to the financial requirements of the cold war; on the other hand, they contribute to the perpetuation of a condition of constant belligerence. We lay the logical and historical foundations of our argument by claiming that the financial condition for peace rests upon the establishment of an international regime that favours the payment of debts (section 1). Despite its original intentions, the Bretton Woods system violated this principle, allowing systematic current account imbalances to be financed, on the basis of non-economic motives, through military expenditure and international aid (2). The cornerstone of the system, namely the convertibility of the dollar into gold, was put under strain by the twin deficits accumulated by the United States in order to finance the Cold War, and more specifically the conflict in Vietnam: Suspension of convertibility sanctioned the state of war with the establishment of a cours forcé on a global scale.