Methods of Financing War

June 3, 1940

Report Outline
Huge Cost of Modern Arms and Warfare
Allied Measures for Financing the War
Arms and War Financing in Nazi Germany
American Financing of War and Defense

Huge Cost of Modern Arms and Warfare

The president's recent requests for huge sums to build up American defenses have acted as a sharp reminder of the tremendous cost of providing a great power with the armed forces and the war equipment necessary to give it adequate security in a period of world turmoil. The financial and economic burden of preparedness, even on the extensive scale now planned by the United States, is, however, relatively small compared to the crushing cost of waging modern warfare. Even before the first World War, some persons contended that war had become an economic impossibility, or that it need no longer be anticipated because of the virtual certainty that the victor would profit from it no more than the vanquished. Yet a war of unparalleled proportions began in 1914, and the very nations which suffered most grievously during the ensuing four years were somehow able, although still weighed down by a great burden of debt and taxes inherited from that conflict, to enter in 1939 upon a new and potentially more expensive, as well as more devastating, struggle.

While conclusion of the war must almost inevitably bring profound economic changes in the belligerent countries, if not in other countries, in the meantime ways and means are being found to finance, in accordance with more or less orthodox principles, the enormous expenditures required of the participating governments. That this is at all possible results mainly from the fact that war engenders a spirit of sacrifice which makes people willing to pay taxes and to lend money to an extent that would not be tolerated under normal conditions. Even in totalitarian Germany, where rearmament entailed sacrifices comparable to those imposed by the war itself, the people might not have endured the burden but for promotion of a war psychology by the National Socialist regime.

Importance of Economic Factors in War Financing

Financing of war today involves more than the levying of high taxes and the issuance of huge government loans. In formulating tax and borrowing programs, government officials must take into careful consideration their probable effect upon production and consumption and upon prices and wages. The effort must be made to devise a fiscal policy which not only will produce adequate funds for the task in hand, but which will do so without interfering with maximum utilization of the economic resources available for prosecution of the war. The experience of the last war, moreover, teaches the advisability of attempting to avoid undue inflation, in order to keep down war costs and the cost of living and also to ease the eventual transition from a war to a peace economy. Painstaking attention has been given to these and other related questions in the countries now at war. They are likely to command increasing attention in the United States as the problem of financing the great national-defense program upon which the nation has now embarked becomes more insistent, or as the need of financial, as well as military, preparedness for war becomes more evident.

ISSUE TRACKER for Related Reports
U.S. Preparation for World War II
Aug. 22, 1947  Industrial Mobilization
Sep. 23, 1941  War Organization of the Government
Aug. 02, 1941  Daylight Saving
Jul. 24, 1941  Conservation of Strategic Materials
Jun. 27, 1941  Atlantic Islands and American Defense
May 27, 1941  Production of War Materials
May 21, 1941  Rearmament and Work Relief
Mar. 15, 1941  War Aims
Feb. 20, 1941  War Orders and Decentralization
Feb. 05, 1941  Regulation of Priorities
Jun. 03, 1940  Methods of Financing War
Dec. 27, 1938  American Rearmament
Feb. 20, 1937  War Profits and Industrial Mobilization
Defense Budget
U.S. at War: World War II
War and Conflict
World War II