Front Page Titles (by Subject) Empire and Inflation - Literature of Liberty, January/March 1978, vol. 1, No. 1
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Empire and Inflation - Leonard P. Liggio, Literature of Liberty, January/March 1978, vol. 1, No. 1 
Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.
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Empire and Inflation
“The Role of War in Modern Inflation.” Journal of Economic History (USA), 37 (1977): 13–19.
Clear causal connections link wars and consequent inflations from the seventeenth through the twentieth centuries.
Although wars occurred more frequently in the seventeenth and eighteenth centuries than in the nineteenth and twentieth, earlier conflicts generated lees price inflation because of the comparative dearth of real resources consumed in earlier wars.
Inflationary finance supplied significant resources for both the American Revolution and the French Revolution. During the Revolution, Americans so detested and resisted direct taxation to support the war that Congress failed during some years to extract tax revenues from many colonies. In lieu of taxes, the only way Congress could finance the Revolution was through paper money inflation. As a result, the country suffered one of the worst inflations in modern times.
Stemming from war financing, France suffered its only hyperinflation during the French Revolution. The French financed their Revolution. The French financed their Revolution by issuing fiat money in the form of assignats. The inevitable hyperinflation that followed led the authorities to another fruitless experiment in agricultural price controls. Farmers then withheld their produce and near starvation set in. Finally, the government removed price controls and from 1790 to 1796 the assignat dropped to less than 1/1000 of its original par value. Napolean, on the other hand, relied mainly on direct taxation rather than money creation to finance his wars.
Likewise, the famous British price inflation of this period was slight compared to modern examples; prices rose only 15-20% more than they would have if tied to gold from 1797 (Bank Restriction Act) to 1815 (Waterloo).
During the nineteenth century in America, the War of 1812 and the Civil War both led to painful price inflations (for both wars, around 120% price rise spread over several years). But World War I produced price rises in the belligerent countries that made previous price inflations (whether generated by war or specie discoveries) pale in comparison. American prices over several years again rose 120%; whereas German prices from 1919 to 1923 skyrocketed in terms of the worthless mark.
World War II sent commodity prices soaring. A large portion of recent U.S. inflation, along with much of Western Europe's, was caused by American military involvement in Vietnam. Political leaders in both major American parties were unwilling to pay the costs of that war through current taxes.
Thus during the past two centuries, wars and revolutions (in which citizens show reluctance to pay “costs” directly) serve as the principal causes of hyperinflation in industrial countries. From a purely economic point of view, some see current taxation as the best way to finance wars. Bookkeeping and administrative costs would amount to less. Government and private sectors would be spared the headache of accounting, in both nominal and real terms, for prices and costs. Also ruinous war debts would not mount, and we would see the “costs” of wars more clearly.
This last consideration also explains why political leaders do not adopt current taxation. Educated people would quickly perceive that the cost of the war outweighed any possible benefits and would demand peace. Inflation as a hidden tax is far easier for politicians to levy, rather than resorting to straightforward direct taxes.