What are the advantages, disadvantages of a foreign country financing a war?

I think the title says it all. Weren’t previous wars financed by war bonds sold within the country?

The revolutionary war was financed by Spain, France (supplying a very large number of muskets), and the Netherlands.

The war of 1812 was a bit of a financial mess, but was mostly financed by U.S. banks (with a lot of conflict involved as New England bankers were opposed to the war). Small groups of wealthy people provided most of the funding.

The Civil War was financed (in the North at least) mostly by bonds, which was a radical new way of doing things brought about mostly by financial desperation. This was the first time that a major war was funded primarily through bonds sold to common folk, along the lines of what the OP is asking. Bonds sold in the revolutionary war and the war of 1812 were sold in small numbers to small groups of wealthy citizens or foreign powers.

War bonds were sold in large numbers in World War I and World War II. Although they were marketed to individuals and quite a few were sold to individuals, a lot of them were bought by banks and investors. Most of the sales were in country, as per the OP.

The Korean war was funded by increased taxes.

The Vietnam war was funded by taxes (not as heavily as the Korean war), bonds, and other, sometimes creative, methods of borrowing. Bonds were part of it, but they were far from the whole picture.

The Gulf wars were primarily funded through taxes (which weren’t increased much) and by cutting government spending elsewhere.

Normally a war financed by a third party is called a “Proxy War.” http://en.wikipedia.org/wiki/Proxy_war

The big advantage is that it is not your citizens doing the dying. You can also exercise a little bit of deniability if your proxies are doing something that the citizenry would find objectionable. The major disadvantage is that you ultimately have little or no control over the proxy, especially once the war is over.


The coalition(s) of nations that fought Napoleon were funded in large part by Great Britain. In fact, British subsidies were one of the inducements offered to Austria to get her into the fight. Napoleon funded his side by financially squeezing the areas he had already conquered and through the selling off of Louisiana to the U.S.

Recent research has challenged this view. See especially One Nation Under Debt by Robert E. Wright. Wright demonstrates that as far back as the 1790’s government bonds were dispersed quite widely even among those of relatively modest means.

In the case of the War of 1812, it’s true that the huge, sudden tranch of borrowing was underwritten by a handful of wealthy individuals, especially Stephen Girard, and that without their participation the government either would have been unable to wage war or would have had to print money. But it’s equally true that Girard and the others did not hold most of the bonds for long, and many were (relatively) quickly resold to the general public.

Also [first Gulf War] by grants from Saudi Arabia and the Kuwaiti royal family in exile. For a time Kuwait was wire transfering $250 million per week directly into the U.S. Treasury.

In Vietnam, we convinced South Korea to send 500 of their soldiers to participate. The cost? All expenses for their dead (body recovery, sending the body home, burial, pensions, etc.) were paid by Uncle Sam. Would that we could get the same deal in the MidEast.

Interesting topic. Modern wars are far more costly than in the past-because soldiers don’t get killed-they survive, and the medical costs, pensions, etc. continue on for decades. The current crop of US wars (Iraq, Afghanistan) will be especially costly-we have hundreds of thousands of disabled veterans coming home-most of these kids are screwed up for life.
Of course, the politicians who start wars don’t think of this-they are unaffected by the disasters they create.

The biggest proxy war we ever funded was the arming of the Afgani insurgents against the Russians during the Cold War. The idea was to bleed Russia dry - it cost a lot less to smuggle a Stinger Missile into Russia than it did to replace the helicopter that the missile shot down.

The very excellent Charlie Wilson’s War (the book, not the movie) is a great look at the hows and whys of funding the Afghan ‘freedom fighters’ against the Russians.

I definitely recommend reading it, especially because this sounds kind of like a homework question!

No homework question. My thoughts were: Since China is the ATM for the Iraq war, the American people living today will never feel the economic pain of this very costly war. But, generations to come will feel the economic pain.
I was under the impression that the Iraq war was America’s first war not financed directly on the back’s of the American tax payer. As this thread points out it was not the first. But probably the most costliest.

This premise is wrong. China owns about 6% of the debt. So does Japan, although for some reason people never mention this. The government owes itself a far higher percentage than these combined.

No foreign country is financing any American war. That’s a paranoid talking point that has little basis in reality.

Another excellent book about the history of US finance, including finance for the various wars, is Empire of Wealth: The Epic History of American Economic Powerby John Steele Gordon.

One thing that I remember is the book claims that resolving the financial problems during the War of 1812 and clarifying how an ongoing war could be financed was a major factor in getting Great Britain to the negotiating table.

The current Iraq/Afghanistan/everything else conflict isn’t the costliest. Not even close.

In terms of raw dollars (adjusted for inflation) the current war does beat Vietnam and Korea,but it falls very far short of World War II.

In terms of percentage of the GDP (probably a better measure of the overall cost of the war related to how much of a burden it will be on present and future tax payers) the current war actually rates quite low.

Current war: 1.2%
First gulf war: 0.7%
Vietnam: 2.3%
Korea: 4.2%
World War II: 35.8%
World War I: 13.6%
Spanish-American War: 1.1%
Civil War: 11.3%
Mexican War: 1.4%
War of 1812: 2.2%

So despite the politics and scary numbers being thrown around on the internet, the overall cost of the current war is smaller than everything except the Spanish-American war and the first gulf war in terms of %GDP. The overall effect of the war on our economy is far less than you’ve been led to believe.

(numbers from here: http://www.fas.org/sgp/crs/natsec/RS22926.pdf warning-pdf)

Why did Gulf War I (a few months, no nation-building) cost more than half of the current 10 year, multi-theater thing? Were the munitions really expensive back then? Fuel was certainly cheaper.

I’ll nitpick, because phrases like “far higher percentage” mislead:

China owns closer to 7% of the debt, or 10% when self-held debt is excluded. A whopping 48% of “Federal debt held by the public” is held by foreign investors. BTW, China’s 7% (or 10%) is almost entirely held by its government while Japan’s, IIRC, is split roughly evenly between government and private investors.

I do agree with your larger point however. Dollars are fungible and (although, unlike the GOP apparently, it’s rooting against U.S. monetary failure) China doesn’t much care whether its funds are used for tax cuts, wars, or … hookers and blow.