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I saw in an article mentioning that there is a link between national debt and starting wars I don't recall where I've seen it mentioned to look for further references on the matter.

Are there known historical studies or academic papers that examined historical data to find a causation link between national debt/trade deficits and starting wars?

Mention: When I say national debt I refer to both external debt and internal debt (both to internal debtors and through fiat currency).

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Not sure about causation, but the idea makes financial sense. First off, you can wage war on the creditor. If you win, you force them to wipe out the debt. If you lose, you're no worse off than before. Second, it's a way to distract the populace from the fact that your economy is in deep doodoo. Third, you increase GDP and help economy sometimes (see USA's economy due to WWII). Fourth, you may gain financial assistance from enemies of your enemies. –  DVK Jan 27 '13 at 15:03
War has definitely been used to take peoples minds off of governmental problems, including debt. Take a look at Henry V's part of the 100 Year war and the Falklands war. –  Russell Jan 28 '13 at 4:37
This is a good time to point out that correlation != causation. Getting involved in a long war is a good way to rack up debt. –  T.E.D. Jan 28 '13 at 16:03
@EduardFlorinescu - Also, people starting the war may care a lot more about short term internal stability than longer term extra debt problems. –  DVK Jan 28 '13 at 17:03
@MarkC.Wallace Thanks for mentioning, I will not interpret it as criticism, I assume the risk of a question being closed every-time I post a question. –  Eduard Florinescu Jan 28 '13 at 19:28

5 Answers 5

up vote 3 down vote accepted

I am skeptical as well. One could argue that debt (internal and external) is inversely correllated with state strength, and that war is a way of reinforcing state strength. One might argue that this is part of the grounds for the war of 1812 (the segment of the population that backed the war was motivated in part by their loathing for British creditors).

Ultimately there are books written about why nations go to war, and I believe the only consensus is that there is no single reason why nations go to war. The set of reasons varies by country and by decade. (Any answer for the period of the Congress of Vienna is probably not applicable to the post WWII period, nor can answers from the current era be compared with answers from the bipolar cold war regime.

I also expect that it would be tough to prove, since I sincerely doubt that the agressor would admit "We're going to war because we're deadbeats!".

However you could probably assemble a dataset of wars and graph the trade deficit between the initiating parties. (I think that allies would cloud the issue); the graph would be an interesting resolution to the question.

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It is sometimes argued, albeit farcically in the manner of "For the want of a horseshoe nail", that WWII was started over Germany's inability to deliver telegraph poles it owed to France and Belgium.

For the want of a telegraph pole, the Ruhr was occupied. For the want of a free Ruhr, a shaky economy was sent into a death spiral. For the want of a prosperous economy, the Weimar Republic was destabilized politically. For the want of a stable government, the Nazis were able to take over and start re-arming. For the want of a regime that wasn't evil, the world erupted into war. All for the want of a telegraph pole.

But this is less of a national debt issue than the Allies screwing themselves by burdening Germany with outrageous reparations demands, and then following through on collecting them by force. It convinced Germany of the need to re-arm, and gave the German people a smoldering hatred of the Allied Powers that allowed Hitler's broader war schemes to blossom.

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Interesting theory but wasn't the Ruhr invasion in 1923? Presumably what really drove the Weimar Republic over the edge was the Great Depression - without it the Ruhr invasion would have remained a nasty old story. As it was, the Nazis did make a big deal out of it eventually and found a receptive audience in Depression-era Germany. –  Felix Goldberg Jan 30 '13 at 13:42
the Ruhr invasion inflamed the old hatred of the Germans against the French, and caused political power in the Weimar Republic to shift to those parties opposed to the whole Weimar idea, mostly the Nazis and communists. The next elections saw the NSDAP gain significant power, enough to start wiping out the communists, and leading eventually to them becoming strong enough in 1932 to force the emperor to hand Hitler the chancellorship. It's farfetched, and far from the only reason, but yes, the Ruhr invasion was one of the trigger events that allowed the Nazi rise. –  jwenting Jan 31 '13 at 7:41

Debt between sovereign states (or separate currency unions) is a peculiar creature.

We can take for example a late 1970s year in which Japan was pouring econo-cars into the US market, US car companies were in deep trouble, and it seemed like every VCR, TV, and eggbeater had a Japanese name on it. Due to the habit of Japanese not to buy foreign goods if they could avoid it, we had a trade imbalance, and this was 'funded' by 'borrowing money' from Japan. What this meant in particular is that the Japanese central bank would purchase US Treasury Bills, flooding the US and eventually global economy with Yen.

If we look carefully at what that means, it means that the US printed paper IOUs furiously while the Japanese poured their efforts into making 'real things': cars, TVs, etc., and shipping these to us to consume.

Japan currently holds about $1 trillion in US debt (China, at this moment, has about $1.3 trillion). If Japan sells this debt to Saudi Arabia, it would be most likely in exchange for oil - something 'real'. If Japan were to demand 'repayment', the only way that could be done is for Japan to purchase real goods from the US - aircraft, wheat, beef, oranges, CPU chips, lumber, or whatever. At that point, dollar denominated debt would be repatriated in exchange for dollar denominated products.

Needless to say, anything bought from America is not produced in Japan. Presumably anything the Japanese could produce would never be bought from the US. Therefore, Japan would be creating jobs in the US if they demanded 'repayment'. Probability this will happen: zero.

In short, if the US sells debt to foreign countries that 'protect' their domestic industries from foreign competition, they will tend to accumulate foreign debt which they will never redeem, unless they get in the kind of trouble where they need massive imports.

Another peculiarity of all this is that the Japanese have been big savers. Therefore, the combined debt of the Japanese government and the American government are 'assets' to Japanese households. These 'assets' tend to be kept under the mattress, figuratively speaking. In short, money is earned, much of it is stashed away and never spent.

One interpretation of what money is is that it stimulates production and consumption. Therefore, as the US spends money like water the restaurants are full of waiters pocketing tips that are using it to buy gasoline which the station uses to buy gas which the oil company uses to run refineries, etc., etc. If the wage earner chooses in instead to park it in a safe, it doesn't stimulate commerce. If it sits in the safe until the 20-something retires at age 55, that currency does not act as money over a period of, say 30 years. That is 30 years of potential vendors not working and not earning those yen or dollars.

Therefore, as the US 'prints' money and puts it in circulation, foreign debtors remove it by 'saving' it in their respective central banks. This is also a problem within the US: wealthy people also 'hoard' cash, so to speak, rather than keeping it circulating in the economy to stimulate further activity.

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+1 Not really answering the question, but a nice exposition nevertheless :) –  Felix Goldberg Jul 18 '13 at 8:39
Indirectly, it answers the question about whether nations go to war over debt. At least in this combination of circumstances, it seems like a pretty remote probability. –  Meredith Poor Jul 18 '13 at 9:12

One proximate cause of World War II was the Versailles treaty, and the huge reparations debt it imposed on Germany. One of Hitler's main platform planks was to revitalize the German economy by "tearing up" that Treaty.

Under the Dawes Plan of 1928, Germany would have been paying off Versailles debt for 60 years, all the way to 1988, if it had not been wiped out by World War II.

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But the Dawes Plan, as far as I understand, was not such a bad thing for Germany - it provided for the payment in reasonable installments. Had not the Great Depression crashed the German economy in 1929, the Dawes Plan could have been a workable solution. –  Felix Goldberg Jul 18 '13 at 8:37

I am rather skeptical of the theory that leaders go to war to get people's mind off debt, but it's certainly a discussionable matter. However, I do have an example for you of a debtor invading his creditor to write off the debt : here. Spoiler: it backfired rather spectacularly.

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