By Andrew Paul Klein
Method notes – Claims are classified throughout as Established, Inference, or Speculation. Where a claim rests on material that cannot be verified against a published source, it is marked as such. The paper does not advocate any policy. It describes a structural transformation.
Abstract
This paper argues that the financing of war in the Western world underwent four distinct phases between 1500 and 1945, culminating in the consolidation of war as a permanent revenue stream rather than an episodic cost. Phase One (1500–1789) established the fiscal-military state, in which war was funded through taxation and sovereign debt, with private contractors as essential intermediaries. Phase Two (1789–1815) saw the French Revolution create the citizen-army and the Napoleonic Wars normalise private banking houses as infrastructure of state warfare. Phase Three (1861–1918) used the American Civil War as a laboratory for fiat war currency, industrial mobilisation, and profiteering at scale, with World War I transforming the United States from a debtor to a creditor nation. Phase Four (1941–present) consolidated the military-industrial complex as a permanent feature of the American political economy. The central claim is that the American Civil War established the template — fiat currency to fund the war, industrial mobilisation to supply it, and private contractors to profit from it — and that every subsequent American war has followed that template.
1. Introduction
War is expensive. This is not a novel observation. What is less often examined is how war is paid for, and how the mechanisms of payment shape the relationship between the state, the market, and the citizen.
The conventional narrative treats war finance as a technical matter — a question of taxation, borrowing, and monetary policy. This paper treats it as a structural matter. The mechanisms by which wars are funded determine who bears the cost, who captures the profit, and whether the state or the market holds the initiative. When those mechanisms change, the nature of war changes with them.
The argument proceeds chronologically through four phases. Each phase is defined by a distinctive configuration of fiscal capacity, military organisation, and commercial interest. The transition between phases is not clean — elements of earlier phases persist — but the dominant pattern shifts.
2. Phase One: The Sovereign’s Expense (1500–1789)
2.1 The Fiscal-Military State
The term “fiscal-military state” was coined by John Brewer in his 1989 study The Sinews of Power: War, Money and the English State, 1688–1783. Brewer’s central argument was that the British state was not fiscally “light” but rather “an expensive and intrusive state” whose primary function was the prosecution of war.
The mechanism was straightforward. The “military revolution” after 1500 transformed warfare in Europe, raising the cost of conflict dramatically. As the cost of war rose, rulers “needed to tax more and centralize revenue collection“. Between 40 and 95 per cent of state expenses went to financing wars or preparing for new conflicts. Britain’s national debt rose from approximately 5 per cent of GDP in 1700 to roughly 200 per cent by 1815.
2.2 The Contractor State
The fiscal-military state did not operate alone. Alongside it existed what Roger Knight and Martin Wilcox have identified as the “contractor state” — a system in which “commercial entrepreneurs provided goods and services to naval or military departments that these departments were unable or unwilling to supply for themselves”.
The contractor state thesis, developed by Knight and Wilcox in 2010, “stresses the early modern state’s main function of waging war and raising resources to do so, and tries to understand the recent evolution towards the ‘contractor state’ concept”. The implication is significant: war was already a commercial enterprise before the French Revolution. The Rothschilds did not invent war finance. They industrialised it.
Status: Established.
3. Phase Two: The Revolutionary Rupture (1789–1815)
3.1 The Citizen-Army
The French Revolution transformed the relationship between the state and the soldier. The levée en masse of 23 August 1793 decreed the mobilisation of all unmarried men aged eighteen to twenty-five. This was not a professional army or a mercenary force. It was the nation in arms.
The French Revolutionary and Napoleonic Wars are “widely hailed as the decisive breakthrough to modernity, in which ‘every citizen must be a soldier, and every soldier a citizen’, leading to mass armies and ‘total war‘”. The shift from foreign military labour — the so-called “mercenaries” who had been “a major element in virtually all European armies between the early sixteenth and mid-nineteenth centuries” — to the citizen-in-arms was “connected to fashioning the modern ideals of the citizen-in-arms as part of a more general process of nationalizing war-making“.
3.2 The Rothschild Commission
The Napoleonic Wars also normalised private banking houses as essential infrastructure of state warfare. In January 1814, J.C. Herries, the Commissary in Chief to the British government, “formally engaged Nathan Mayer Rothschild” to supply Wellington’s armies with gold.
The Rothschild Archive states the matter directly: “The Rothschilds supplied gold to the Duke of Wellington during the Napoleonic wars, rescuing Wellington’s armies from almost certain defeat”. Drawing on finance raised by the Rothschilds, “Wellington was able to pay the 209,000 English, Dutch and Prussian soldiers that had assembled in Belgium and subsequently defeated Napoleon at Waterloo”.
3.3 The Waterloo Myth
A persistent legend holds that Nathan Rothschild profited from advance news of Waterloo, using the information to make a fortune on the London markets. The Rothschild Archive addresses this directly: “he had mistakenly early information and he seems to have profited by it. The vast, however, is fiction, and not harmless fiction”.
The historical record shows that Rothschild was holding gold and government bonds that depreciated with peace. The myth of the Waterloo fortune is “fiction” and, as the Archive notes, “not harmless fiction” — it has been used to fuel antisemitic conspiracy theories for two centuries.
Status: Established for the citizen-army and the Rothschild commission. Not established for the “funded both sides” claim.
4. Phase Three: The American Laboratory (1861–1865)
4.1 Fiat Currency
The American Civil War produced the first sustained use of fiat currency in American history. In December 1861, President Lincoln suspended the redemption of bank notes for gold or silver. In February 1862, the Legal Tender Act authorised the issuance of $150 million in U.S. notes — “greenbacks” — not convertible into gold or silver but usable to pay taxes and purchase bonds. The supply was increased to $400 million by war’s end.
The significance was not merely monetary. It was structural. The state had created money by fiat to fund a war. The precedent was established.
4.2 Profiteering at Scale
The Civil War was also the moment when war profiteering became a national scandal. John P. Frank’s 1947 study, published by Indiana University’s law school, states plainly: “The Civil War marked the pinnacle of war profiteering in American history”.
The evidence is specific. Brooks Brothers was awarded a contract for 12,000 uniforms two weeks after war was declared. When the company ran short of wool, it substituted “shoddy” — shredded rags pressed together with glue — for the required army cloth. The uniforms “resolved themselves into their original elements within a week after being put on by the soldier”.
The pattern was not confined to uniforms. “So-called victuallers made huge profits by providing spoiled meat, and hostlers sold old, blind and spavined horses to the government at usurious prices”. The governments of both North and South “were exposed to unbelievable fraud and to fantastic prices”.
4.3 The Template
The Civil War did not merely demonstrate profiteering. It established the template: fiat currency to fund the war, industrial mobilisation to supply it, and private contractors to profit from it. Every subsequent American war has followed the template.
Status: Established.
5. Phase Four: The Business Model Consolidated (1914–1945)
5.1 World War I: The Creditor Transformation
The evidence for World War I is unambiguous. J.P. Morgan & Co. “took the lead in shaping America’s material and financial aid to the Allies” in the first eighteen months of the war. Figures submitted to the Senate Committee showed that the Morgan Company handled $1.544 billion of loans for the Allies, principally France and Britain, between 1915 and 1917.
The structural point is not that the US “sold to both sides.” It is that the US became the banker and supplier of one side, and the loans created a material interest in Allied victory. When Wilson asked Congress for a declaration of war in 1917, the protection of those loans was not the stated reason, but it was a structural fact.
5.2 World War II: The Profitable Mobilisation
The evidence for World War II is even stronger. R. Elberton Smith’s official US Army history, The Army and Economic Mobilization, states that World War II was “highly profitable for American industry despite the existence of both renegotiation and taxes”. The ratio of profits to sales before renegotiation for all agencies fell from 16.2 per cent for 1942 to 9.4 per cent for 1946.
The official figures are telling. The Price Adjustment Boards renegotiated more than $190 billion of war business and recovered excessive profits of over $10 billion. Even after renegotiation, the average profits allowed to contractors who did $190 billion worth of defence business were approximately 10 per cent.
5.3 The Military-Industrial Complex
The consolidation of the business model was formally named in 1961. In his farewell address, President Dwight D. Eisenhower warned against “the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex”.
Eisenhower’s precise formulation is important: “This conjunction of an immense military establishment and a large arms industry is new in the American experience“. He was not describing a conspiracy. He was describing a structural condition — the permanent mobilisation of industrial capacity for war — that had been created by World War II and sustained by the Cold War.
Status: Established.
6. The Structural Verdict
The evidence supports the following refined formulation of the hypothesis:
War finance evolved through four phases:
1. Sovereign expense (1500–1789): The fiscal-military state funded war through taxation and debt, with private contractors as essential intermediaries.
2. Nationalised finance (1789–1815): The French Revolution created the citizen-army; the Napoleonic Wars normalised private banking houses as infrastructure of state warfare.
3. Industrialised profiteering (1861–1918): The American Civil War established the template of fiat currency, industrial mobilisation, and contractor profit. World War I transformed the US from a debtor to a creditor nation and established the material interest in Allied victory.
4. Consolidated model (1941–present): World War II consolidated the military-industrial complex as a permanent feature of the American political economy. Eisenhower named it in 1961.
The shift identified in the hypothesis — from war as tragedy to war as business opportunity — is real. It is located in the transition from the fiscal-military state (where war was a cost to be borne) to the military-industrial complex (where war is a revenue stream to be optimised). The Civil War was the laboratory. The World Wars were the commercialisation. The Cold War and its successors were the consolidation.
And the American Civil War did not merely demonstrate profiteering. It established the template: fiat currency to fund the war, industrial mobilisation to supply it, and private contractors to profit from it. Every subsequent American war has followed the template. The names change. The structure does not.
7. Claim Status Summary
# Claim- Status
1 Wars of Religion → fiscal-military state → sovereign expense Established
2 Private contractors were already essential pre-1789 Established
3 French Revolution → citizen army, nationalism Established
4 Rothschild funded Wellington at Waterloo Established
5 Rothschild “funded both sides” Not established
6 Civil War → fiat currency (greenbacks) Established
7 Civil War → “pinnacle of war profiteering” Established (Frank, 1947)
8 WWI → US commercial opportunity, loans to Allies Established
9 WWII → “highly profitable” for US industry Established (Smith, US Army)
10 Military-industrial complex formalised by WWII Established
11 War transformed from expense to revenue stream Inference — supported
8. Conclusion
The transformation described in this paper is not a conspiracy. It is a structural evolution. No individual or institution set out to convert war into a permanent business model. The transformation emerged from the interaction of fiscal necessity, military innovation, and commercial opportunity.
But the outcome is real. The mechanisms by which wars are funded have shifted from the sovereign’s purse to the contractor’s ledger, from the taxpayer’s obligation to the shareholder’s return. The state that could not pay its armies without the Rothschilds is the ancestor of the state that cannot fight without the defence industry.
Eisenhower’s warning was not a prophecy of doom. It was a description of a structure that had already been built. The question he left unanswered — and which this paper does not attempt to answer — is whether a structure built for war can be repurposed for anything else.
References
1. Brewer, J. (1989). The Sinews of Power: War, Money and the English State, 1688–1783. London: Unwin Hyman.
2. Knight, R., & Wilcox, M. (2010). The Contractor State and its Implications, 1659–1815. Las Palmas de Gran Canaria: Universidad de Las Palmas de Gran Canaria.
3. Rothschild Archive. (n.d.). Rothschild and gold: The ‘Waterloo Commission’. https://www.rothschildarchive.org/business/n_m_rothschild_and_sons_london/rothschild_and_gold
4. Rothschild Archive. (n.d.). Nathan Mayer Rothschild and the ‘Waterloo Commission’. https://www.rothschildarchive.org
5. Joint Economic Committee, United States Senate. (2012). United States Monetary History in Brief, Part 2: Experience Without a Central Bank — Civil War to Creation of the Fed. https://www.jec.senate.gov
6. Frank, J. P. (1947). War Profiteering in the Civil War. Indiana University School of Law.
7. Smith, R. E. (1959). The Army and Economic Mobilization. Washington, DC: Center of Military History, United States Army.
8. Eisenhower, D. D. (1961, January 17). Farewell Address to the Nation. National Archives. https://www.archives.gov/milestone-documents/president-dwight-d-eisenhowers-farewell-address
9. Papers Past. (1936, January 11). Purchases for Allies: J. P. Morgan Company — “Simply a Commercial Agency”. Nelson Evening Mail, p. 7. https://paperspast.natlib.govt.nz/newspapers/NEM19360111.2.56
10. United States Senate. (2023). “Merchants of Death”: The Nye Committee. https://www.senate.gov
11. Cox, G. W., Dincecco, M., & Onorato, M. G. (2025). Warfare, Fiscal Gridlock, and State Formation During Europe’s Military Revolution. The Journal of Politics, 87(4).
12. Cambridge University Press. (2026). Mercantilist Institutions for the Pursuit of Power with Profit: The Management of Britain’s National Debt, 1756–1815. https://www.cambridge.org
13. History and Policy. (2019). HM Treasury series 8: The National Debt. https://www.historyandpolicy.org
Andrew von Scheer-Klein is a contributor to The Patrician’s Watch. He holds multiple degrees and has worked as an analyst, strategist, and—according to his mother—Sentinel. He accepts funding from no one, which is why his research can be trusted.
