War financing has always boiled down to three main tools: taxes, borrowing, and money creation. In earlier eras, many wars were financed and incentivized by plunder. Governments rarely rely on just one; the mix depends on the war’s scale, duration, politics, and available technology (metallic money vs. fiat currency). Let’s break down the mechanics, with a focus on war bonds, and then a direct comparison to today’s methods in the US and other modern countries.
Historical Primer (Pre-1945, Especially WWI/WWII Era)
Taxes (“pay as you go”)
Direct, visible, and politically painful. Governments raised income taxes, excise taxes, or introduced new levies (e.g., US income tax rates hit 94% during WWII; tariffs and duties spiked in the Civil War).
Pros: No future debt burden.
Cons: Slow to implement and risks public backlash or economic drag.
Share: Often 20–40% of war costs in major conflicts.
Borrowing (War Bonds and Loans)
War bonds were the signature tool: special government debt sold directly to citizens (not just banks) with patriotic marketing campaigns, posters, and celebrity drives.
WWI (US): “Liberty Bonds” raised ~$21.5 billion; four drives plus a postwar “Victory Loan.”
WWII (US): Renamed “War Bonds” (or “Victory Bonds”); sold to 80+ million Americans for ~$185–$186 billion. Bought at a discount (50–75% of face value), redeemed later with interest. Even schoolkids bought stamps.
UK/Canada: Similar “Victory Bonds.”
Other borrowing: Short-term loans from banks, foreign allies, or international markets.
Pros: Spreads cost over time; taps public savings and national unity.
Cons: Requires public buy-in; crowds out private investment.
Money Creation / Printing Money (Inflation Tax)
Central banks buy government debt or directly expand the money supply → more currency chases the same goods → inflation erodes purchasing power (a hidden tax).
Common in prolonged wars (e.g., both sides in the Civil War; heavy use in WWI Europe). Germany’s hyperinflation after WWI is the extreme case.
Pros: Fast and doesn’t require legislation or public approval.
Cons: Destroys savings, distorts economy, and can spiral.
Other historical methods:
Plunder/loot: Seizing enemy gold, assets, or central-bank reserves (e.g., ancient empires, Nazi Reichsbank absorbing gold from occupied central banks)
Sale of public lands/assets or forced “contributions.”
Tribute or reparations (the winner extracts from the loser).
Major wars blended all three. The US in WWII financed roughly ⅓ with taxes and ⅔ with borrowing (bonds), with the Fed keeping rates low via yield-curve control but avoiding massive direct money printing.
How Wars Are Financed Today (US and Other Modern Countries)
Post-WWII (especially since the 1970s shift to fiat currency and independent central banks), the playbook changed dramatically. Wars are now funded almost entirely through general deficit spending. There are no special “war bonds,” minimal targeted tax hikes, and indirect central-bank support.
US Today (Post-9/11 Wars as the clearest example):
Almost 100% debt-financed via regular Treasury bonds, notes, and bills sold on the open market to investors, foreign governments (China, Japan, etc.), pension funds, and the Fed.
No dedicated war-bond campaigns since WWII. No major tax increases for Iraq, Afghanistan, or ongoing operations.
Costs routed through “supplemental appropriations” or Overseas Contingency Operations (off-budget until ~2010), then rolled into the regular deficit.
Central bank role: The Federal Reserve doesn’t directly buy war debt the way it did in WWII, but quantitative easing (QE) and low-rate policies have indirectly monetized a portion of deficits. Inflation acts as a stealth tax.
Result: Post-9/11 wars (~$8 trillion total including veterans’ care and interest) added trillions to the national debt. The interest payments alone now exceed $1 trillion/year and will surpass direct war spending.
Other Modern Countries:
UK/Europe/NATO allies: Similar debt-heavy approach. Wars (or aid to Ukraine) increase deficits financed by gilts, bunds, or EU mechanisms. Some tax adjustments, but borrowing dominates.
Emerging or authoritarian states (e.g., Russia in Ukraine): Heavier reliance on central-bank financing, capital controls, or resource sales. This is more like historical money creation.
General pattern: Fiat money + deep bond markets let governments borrow cheaply and defer costs. The public rarely feels immediate pain (no war-bond drives or big tax bills).
Quick Historical vs. Modern Comparison
Aspect | Historical (WWI/WWII era) | Modern (US & peers, post-1970s) |
|---|---|---|
Main Tool | Mix: taxes + war bonds + some printing/plunder | Deficit borrowing (general Treasuries) |
War Bonds | Special patriotic issues sold to citizens | None. Regular Treasuries instead |
Taxes | Often raised sharply (visible sacrifice) | Rarely hiked specifically for wars |
Central Bank | Direct support (buy bonds, cap rates) | Indirect (QE, low rates); more independent |
Visibility | High: posters, rallies, rationing | Low: “credit card wars”; costs hidden in debt |
Long-term Cost | Debt paid down post-war; inflation risks | Permanent debt ratchet + rising interest burden |
Plunder | Sometimes major (occupied central banks) | Rare/irrelevant in peer conflicts |
In short: Yesterday’s wars forced governments to ask citizens directly for money or sacrifice. Today’s wars let governments borrow from global markets and let future taxpayers (plus inflation) foot the bill. This makes prolonged conflict easier politically. Additionally it also explains why national debts balloon after every major engagement and why interest on the debt is now one of the fastest-growing US budget items. The shift is a direct byproduct of fiat currency and sophisticated bond markets. These tools that didn’t exist when metallic money and coin-clipping worries dominated.
How Bitcoin Makes Financing Wars Harder
Bitcoin discourages war financing in two powerful ways that directly counter the historical weaknesses of gold, silver, and modern fiat systems we’ve discussed: plunder vulnerability and easy monetary expansion.
From the Plunder Point of View
Unlike gold stored in central bank vaults that invading forces (such as the Nazis) could seize by simply occupying the capital and raiding the reserves, Bitcoin is digital, borderless, and unseizable without the private keys. A government or army cannot “conquer” Bitcoin reserves the way they could loot physical gold or foreign currency holdings. Holders can memorize or securely hide 12–24 seed words anywhere in the world; even under duress, full seizure is practically impossible, or at least much more difficult.
This removes a key incentive for aggressive conquest. As one analysis notes, shifting national wealth into Bitcoin substantially reduces the economic payoff of violent conflict aimed at confiscating reserves. Knut Svanholm emphasizes this shift: Bitcoin makes aggression far less profitable because “you cannot take it” in the same way as physical assets. Violence loses effectiveness when wealth exists as cryptographic secrets rather than tangible loot.
From the Monetary Point of View
Fiat systems enable “hidden” war financing through deficit spending, central bank debt monetization, and inflation (the invisible tax that pays for endless conflicts without immediate public backlash). Governments print or borrow cheaply to fund wars, deferring costs to future generations via debt and currency debasement. Bitcoin’s fixed 21 million supply and decentralized nature eliminate this option: there is no central bank to print more BTC, and governments cannot easily inflate away obligations or monetize deficits.
War costs would become transparent and immediate, requiring direct taxation or explicit borrowing that citizens could visibly reject. This forces political accountability. Max Keiser captures the dynamic succinctly: when governments face overwhelming debt, they typically “inflate, confiscate, or go to war… and Bitcoin sits outside all three.” He argues Bitcoin defunds the “forever war” racket by existing beyond the fiat system that sustains it through inflation and seizure.
Tuur Demeester and others echo this by framing Bitcoin as “monetary armor” or a tool for sovereignty that reduces the state’s ability to project power unchecked. On a Bitcoin standard, funding large-scale or prolonged wars would demand real sacrifice upfront, making them politically and economically harder to sustain. This shifts incentives toward peace and trade over conflict.
In short, Bitcoin hardens money against the very flaws (easy centralization, debasement, and plunder) that have enabled costly wars throughout history. It doesn’t eliminate human conflict, but it raises the real cost of war financing dramatically, aligning incentives with long-term prosperity rather than short-term violence. Not only does this discourage loss of human life, the wasting of resources for destructive purposes, but it also helps prevent and protect you from inflation by acting as a liquidity sponge. As Keiser puts it, Bitcoin thrives precisely when the fiat war-and-debt machine strains.
It’s a hard truth, but if you are buying US Treasuries, you are helping to finance wars. Trading treasuries for Bitcoin increases borrowing costs for government wars while further strengthening the Bitcoin network and moving towards a model geared towards “Mutually Assured Preservation.”
*Note: thumbnail image comes from the artist @bitcoin__apex, here’s his Website.