Why Banks Love War

January 7, 2018

War is the most expensive enterprise in history and the most profitable to fund.

War benefits nobody, not even the victor,” goes the saying, and everybody agrees. So why is it that humanity has fought so many bloody wars, especially in the last century?

The chief commander of the air force in national socialist Germany, Hermann Göring, had a compelling answer. “The people don’t want war. … Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece?” he said at the Nuremberg trials, in a conversation with journalist Gustave Gilbert in 1946. “But, after all, it is the leaders of the country who determine the policy, and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a parliament or a communist dictatorship.”

So the leaders of countries that wage wars of aggression, or make it seem like preemptive strikes are necessary for self-defense, must see some benefits of war for themselves, whether it be more power or fame, or getting the local economy out of a depression. However, it is not the national socialist dictator of Germany, the communist dictator of the Soviet Union, or the president of the United States who benefits most—in fact, many times, they also don’t benefit at all.

There is one party that always benefits, no matter which side wins. It is the party that finances the war from far away and collects interest on the blood of innocents.

War Finance in History

Since the beginning of time, the only sector from which the political leaders of a country could borrow enough money to spend on the most wasteful enterprise in human history was the banking sector. Then and now, financing war only through taxation was impossible because of its devastating effects on the economy and the resulting popular backlash.

Before the advent of modern banking and credit, kings needed to borrow gold coin from goldsmiths and the nobility to equip their armies. And although medieval wars were often long and brutal, they were limited in scope because of the constraints on financing as well as the limited technology and the smaller size of the population.

This changed with the creation of the privately owned Bank of England in 1694, which allowed the British government to finance its war efforts through bond sales. The central bank was in existence just seven years before the new century kicked off with the War of the Spanish Succession in 1701.

The banks owning the Bank of England—and hundreds of financial institutions after it—found that there was a limit to lending to productive enterprise, which economizes on human and physical capital. Because war destroys both, its demand on lending, and therefore its potential to profit the banks, is limitless.

The House of Rothschild

It was around 100 years later, however, that war finance through private banks was brought to perfection by the Rothschild family. The banking dynasty’s patriarch, Mayer Amschel Rothschild, founded the first bank in Frankfurt, Germany, in the 1760s, with his sons later expanding the operations to Paris, London, Vienna, and Naples.

Through their banking network, the family made their first fortune during the Napoleonic Wars by speculating with money from German Prince William of Hesse-Kassel. The Rothschilds were supposed to invest it in British government bonds, but instead used it for trading in war materials. They later returned the money with the interest that would have been earned by putting it in British government bonds, taking the surplus profits and thus violating their fiduciary duty.

However, the family also helped, and profited, by smuggling gold through France to Spain to fund the duke of Wellington’s expeditions against Napoleon, and provided loans to the British government directly.

Some historians then claim the Rothschilds were involved in the first big episode of banks financing both sides in a war, when, according to Robert McNair Wilson, the author of “Promise to Pay,” the banks in London gave Napoleon 5 million pounds to give it a second go at Waterloo. Even though the odds of Napoleon winning were low, historically the defeated nation would have to make good on the debts it owed to international financiers, as happened again with Germany after World War I and World War II.  The financiers always win.

Whether the Rothschilds crashed the British government bond market—after they got news in advance of Wellington’s victory at Waterloo in 1815—in order to then buy up the paper on the cheap, or whether they just bought it up because of the victory, is again disputed.

Most historians agree, however, that the Rothschild family, because of its war dealings, became the wealthiest dynasty in the 19th century, and many estimates still rank it in the top tier of the wealthiest families today. And although other names are more popular in international finance in the 21st century, is it merely a coincidence that the Rothschild-owned The Economist newspaper always favors war over peaceful solutions, whether it be in Afghanistan, Iraq, Libya, or Syria?

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