The Age of Empire

Countries have always borrowed money to go to war.

Over the course of millenia, though the lenders have varied. Some have lent willingly, others less so.

If the king decided to go to war, or returned impoverished after a crusade, his subjects knew it was time to hide the grain. That is the story of Robin Hood.

War financing came from taxes, or loans from nations―sometimes subsidies from friendly countries, waging war by proxy for their own political ends. All the great powers have done that, fomenting conflict between small nations or funding ‘independence’ movements.

The repayment of the debt didn’t always occur. By definition it can’t, because war is not a positive sum game. When the debt was repaid, the source of the funds was always the same: the loser. In the process of paying the victor, the loser always defaults on his backers. The possessions of the loser become the spoils of war.

When the banking system developed, through the great banking houses of the United States and Europe, it became the job of banks to finance wars, through mechanisms that included direct loans, as well as the purchase of government bonds. The UK national debt went from £650 million in 1914, to £7,400 million (7.4 billion pounds) in 1919. Most of that was financed by American banks.

In Ken Follett’s most recent opus, called Fall of Giants, one of the characters, who happens to be Jewish, discusses this with a young lady who he is anxious to impress. he tells her that the daily cost of running Britain has increased from half a million quid in pre-war days to ten times that. That tallies with the numbers above, which show debt rising by an order of magnitude in the 1914-18 period.

I had a quick look at Ken Follett’s website, and saw that this book threatens to be the first of a trilogy, much like his Middle Ages tomes, Pillars of Earth and World Without End.  I found the latter book to be such a grind I called it Book Without End.

But there is an interesting link, modestly called Masterclass, in which the author explains his approach to writing. In essence, Follett makes it obvious that good writing is extremely hard work. His M.O. is to begin with an outline, that develops into a 25-40 page book summary, which is circulated, reviewed, and rewritten, usually twice. This is accompanied by much of the research for the story.

Work continues in the preparation of the first draft, which is itself reviewed. Follett then accepts or rejects his critics’ suggestions, and retypes the whole book again, rather than just making the edits on a digital file. His argument it that it helps identify the context and significance of all the words. He’s right, but it’s sweaty work!

In the prologue of  The India Road, there is an observation on Gama’s voyage, to dispel the notion that you can just embark and succeed.

Any successful journey has two parts: planning and execution. For each month Vasco da Gama spent at sea, twelve months of preparation had taken place. When the royal pilot Pero de Alenquer blew his whistle on the flagship on that hot July morning in 1497, leading the fleet into the vast waters of the North Atlantic, he knew that the great adventure had begun twenty-five years before, in the mind of the Perfect Prince, then a young man of seventeen. 

In Fall of Giants, Follett observes, through the mouth of Bernie, the Jewish boy (the setting is 1916, midway through the war), that World War I cannot end without the defeat of Germany. Amicable settlement is not an option―because without a victory, the U.K. debt cannot be repaid.

United Kingdom national debt as a percentage of GDP. The two major wars of the twentieth century are easily identified.

My curiosity about German reparation after the First World War led me to the treaty of Versailles. When I studied history, penned by English authors, in English schoolbooks, I learnt that the treaty of Versailles was signed to make peace among warring parties. It had other phrases that stayed in my mind: signing of the armistice, league of nations, war to end all wars.

I don’t recall the part about foreign debt, though I learnt that several bits and pieces of the Austro-Hungarian empire got carved up among the victors. So I did a little research. When you type Treaty of  in Google, the search engine suggests in sequence: Treaty of Paris, Treaty of Versailles, Treaty of Tordesillas. The Treaty of Paris was signed in 1783, and ended the American Revolutionary War. But I was most surprised to see Tordesillas there at number three. How suspiciously prominent! Maybe they do that specially for Iberia.

There is a saying in Portugal, quando a esmola é muita, até o pobre desconfia. The poor man bewares when alms are too generous. So I checked on Google through a U.K. computer, and the same search yields: Versailles, Rome, Lisbon. I guess the treaty of Paris is not too popular in England. The deeper message is that Google helps form (or inform) public opinion based on local preferences. I hope it’s nothing deeper than that.

Wikipedia states that, apart from the territorial concessions, the total reparation to Britain by Germany in the so-called ‘War Guilt’ clauses was a sum of 6,600 million pounds (£6.6 billion). In millions, 7400-650 = 6750 million. That’s a satisfying match.

Death toll numbers are always widely variable, but 700,000 British soldiers seems a rough consensus, which puts each life at ten thousand pounds. The UK pound is worth thirty times less now, so the 2011 equivalent is about three hundred thousand pounds.

John Maynard Keynes believed at the time that the reparation was excessive and would not be completed until 1988. He was right, Germany’s inability to pay the debt, the crisis of the mark that followed the war, and the rise of Hitler and a new wave of German nationalism were the practical consequences. And the Second World War. Stop me here if any of this sounds familiar.

In an unprecedented feat for an economist, Keynes was spot on. Even factoring in World War II, the Marshall Plan, The Berlin Wall, the European Community, and German reunification, which made it possible for the current German prime minister (though born in Hamburg) to be an Osti, the great man was right. For an economist. He missed by twenty years.

Germany completed its First World War reparation payments on October 3rd 2010,  twenty years after reunification, and ninety-two years after the war. The last installment paid was 59.5 million pounds sterling.

French soldiers leaving the trenches before the battle of Verdun, 1916

The sovereign debtstorm is raging, whipped up by unseen winds. The sandblast is taking everything in its path. As usually happens, the weak animals of the pack, the old and infirm, get picked off first; after that, we’re headed for the kernel, where the big pickings lie.

Almost three thousand years ago, the European age of empire began in Greece, then spread to Spain, to Portugal. With the Romans, Italy followed, and then headed north to Gaul and to the banks of the Rhine. So goes the sovereign debt advance. The most recent German bond auction only sold two-thirds of the placement. The politicians said they were not at all worried, which means they’re telling pork pies and wearing brown underpants.

Before Yalta, Stalin famously asked: how many divisions does the pope have? We now contemplate the first non-military European defeat. I guess we know where the reparations come from.

The India Road QR links for smartphones: point your camera and click.


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