This section is from the "The Science Of Wealth" book, by Amasa Walker.
The finance of war is greatly perplexed to the popular mind by one fallacy, which is, that a vastly greater amount of money is needed in time of war than of peace. Bewildered by this notion, than which none can be more absurd, the public are easily induced to sanction a whole class of measures that would be generally recognized as injurious in ordinary times, but are imagined to have some virtue to bring out a greater amount of money to meet the supposed emergencies of war. The truth of it is, if we suppose no extra importation of foreign material for consumption (and nineteen-twentieths of the expenditures of all wars are for domestic labor and material), there is no larger production, no more commodities to be exchanged, no more services to be rewarded, and consequently no more occasion for the use of money.
But government now becomes the great operator, employs perhaps ten times its usual number of agents, expends ten times its usual resources. It then has need of more money: but as it only takes the place of former employers, of former consumers, so it only needs to take their place in the receipt of money; and that may be effected by prompt, equal, and thorough taxation, — taxation, too, conducted by the established methods, and in accordance with such principles as we have laid down. A state of war, therefore, instead of being, as it is usually made, a reason for departing from the ordinary rules of public economy, is an additional reason for adhering closely to them in every particular.
War is a business as much as agriculture. The same resources are necessary: there must be materials, provision, tools, labor. This is all that is needed in either; nor is there the least difference in the two, considered as modes of production: their principles and methods are the same. It is only when considered as modes of consumption that they have separate relations to the science of wealth. "Raising money" has been generally accepted as the great business of a nation in war; but it is no more so than in ordinary times. What is wanted is labor, tools, provision, and materials: that is what is to be "raised." And at least an equal amount, though of different kinds and for different purposes, is "raised" every year or day of peace. Government, however, is now the great employer; and, as it is to furnish these, it must get them from the community which has them, and has been operating them. This, as we said, requires taxation, but needs no financial jugglery; as is supposed; and involves no departure from ordinary principles.
Indeed, war might be carried on without money; has been, to a great extent. The public force might always, as it often has, fill its armies by conscription; its granaries, by a tax in kind; its arsenals, by compulsory labor. The greatest armies the world has ever seen were raised, supported, and disbanded without a money chest. In the advance of civilization, it has been found more expedient, as it is more just, that government should purchase all it consumes in war, obtaining the means in money by taxation. But, as war does not increase the number of laborers or augment their power in production, it remains true that there can be no greater occasion for the employment of money, whose only office is to exchange the products of labor.
But it may appear, that, if foreign labor (as mercenary soldiers) or foreign material (the products of foreign labor) is introduced, there will be a greater demand for money to make the exchanges of services and values. Of the first, it may be said, that the employment of mercenaries is, in fact, too small to be of any account in the great calculations of warlike expenditures. The latter is of importance, but really forms a small fraction of the actual outlays of war, probably not equal to the reduced wages of domestic labor in arms, as against the same labor in peace; it being true of almost all armies, that their pay is below the average of industrial occupations. But, if we allow all the actual importation of foreign material to be so much added to the necessity for money, the effect will be simply what has been already indicated in the philosophy of currency. Money will be exported up to a certain point to pay for imports: this will lower home prices, diminishing the domestic expenditures of government, and encouraging the export of produce, which will continually tend to restore the balance. Beyond the point at which money cannot be sent off, without domestic distress, government must resort to credit by loans. Such loans, however, cannot increase the money in the country; for, even if they first assume that form abroad, they are turned into material before imported.
This discussion, it should be borne in mind, has only regarded the amount of money required in war.* We have had nothing directly to say as to the amount of capital employed. Of this we express no opinion; while we maintain that it is unquestionably true, that no greater volume of money is needed to effect all the exchanges incident to a state of war.
* For an able discussion of the subject in all its bearings, see "A Critical Examination of our Financial Policy," by Simon Newcomb. D. Apple-ton & Co., New York. 1865.