Windfalls of War
Peace has adverse economic consequences.
The narrative is that India is financing the war between Ukraine and Russia. Did Ukraine impose any tariff? Who is USA to impose tariffs? An Imperial power? The Ukraine tariffs are not really about helping Ukraine; they are about demonstrating that challenging American preferences has economic consequences. ** Empire can hit back.**
America condemns India for buying Russian energy during the Ukraine conflict, but America itself is trading with Russia for billions of dollars for a few essential supplies. The war is between Ukraine and Russia. How does the USA come into it? What about the EU and China who buy energy from Russia? In terms of trade deficits with the USA, India would be the tenth country to have a trade deficit with the USA. What about the tariff on nine other countries? Do they pay more than India?
The hypocrisy of the USA is not new. It goes back 100 years in the past when the USA traded with Allied forces as well as Nazi Germany during the European Wars, while playing neutral. Nothing brings windfall profits faster than a war. This is how the USA and its businesses profit from the wars.
(1914-1918)
Originally this war was called the “Great War” or “The World’s War” at the time it was happening (1914–1918). People simply called it “great” because it was unprecedented in scale, with millions of soldiers mobilized, entire economies involved, and new forms of mechanized warfare.
The term “World War” came to be used later by historians and journalists in the 1920s, after the war ended, to distinguish it from smaller conflicts and to acknowledge that it involved multiple continents and global empires. By the 1930s, especially after the rise of tensions leading to the next global conflict, the phrase “First World War” (WWI) became standard, formally distinguishing it from the Second World War (WWII, 1939–1945).
People called it a bankers' war because bankers made it possible. Not generals or politicians. Bankers with spreadsheets, loan documents and money. Wars do not happen if there is no money to spend.
J.P. Morgan & Co. underwrote $1.5 billion in war loans to London over the course of the war. That money bought weapons, ammunition, and food. Without it, Britain and France would have collapsed in 1915. The bankers chose sides long before America entered the war. They chose the side that could pay them back.
Start of War
Europe in 1914 was a powder keg with too many fuses. Everyone had alliances. Everyone had armies. Everyone thought war would be quick and glorious.
Then Archduke Franz Ferdinand of Austria, heir presumptive to the Austro-Hungarian throne, and his wife, Sophie, Duchess of Hohenberg, were assassinated on 28 June 1914 by Bosnian Serb student Gavrilo Princip. They were shot at close range while being driven through Sarajevo. Within weeks, the continent was ablaze. Austria-Hungary declared war on Serbia. Russia backed Serbia. Germany backed Austria-Hungary. France backed Russia. Britain joined when Germany invaded Belgium.
What started as a local argument became a global catastrophe. But for American bankers, it looked like an opportunity.
Austria-Hungary Federation
The Austro-Hungarian Empire was one of history's strangest political experiments. A grand old dynasty patching together a loose federation out of dozens of restless nations, languages, and religions. From its official birth in 1867 until its final collapse in 1918, it functioned less like a coherent state. More like a garage-built contraption. A jugaad vehicle with shiny paint in the front, rattling wheels in the back. Passengers are constantly fighting over the steering wheel.
The empire called itself the Dual Monarchy of Austria-Hungary. It was created by the Ausgleich or “Compromise” of 1867. This gave Hungary near-total independence in domestic affairs. But it kept a single crown, joint foreign policy, and combined army.
On one side stood the Austrians. German-speaking elites centred in Vienna, with bureaucratic traditions and imperial pomp. On the other side were the Hungarians, the Magyars. They controlled Budapest and jealously guarded their autonomy.
But underneath this neat legal arrangement lay a bewildering ethnic mosaic. By 1910, nearly 50 million people lived in the empire. Germans and Hungarians were only about 43 percent combined. Yet they dominated politics. The rest were a kaleidoscope of Czechs, Slovaks, Poles, Ruthenians, Romanians, Croats, Serbs, Slovenes, Italians, and Jews. Each had its own language, schools, traditions. Each had nationalist leaders demanding recognition.
The government privileged German and Hungarian as official languages. This sidelined everyone else. Imagine a vehicle where the driver and co-driver shouted commands in two languages. Meanwhile, the passengers argued in eight more languages. None willing to give way. That was Austria-Hungary.
The Money Trail
J.P. Morgan & Co. became the financial lifeline keeping Britain and France alive. Following the war's outbreak, it made the first loan of $12 million to Russia. In 1915, a loan of $500 million was made to France and Britain following negotiations by the Anglo-French Financial Commission. The numbers were staggering. The loan was for $500 million at that point by far the largest single loan in financial history. This was just the beginning.
Morgan did not just lend money. The bank became the exclusive purchasing agent for Britain and France in America. During World War I, J.P. Morgan & Co. arranges the largest foreign loan in Wall Street history. A $500 million bond issue was to support the English and French governments, It acted as purchasing agent for massive orders.
Every shell fired by British artillery passed through Morgan's books. Every rifle carried by French soldiers generated Morgan's commission. Every pound of wheat feeding Allied troops meant profit for Wall Street. By 1917, Morgan had organized loans totalling over $2.3 billion to the Allies. Meanwhile, loans to Germany were virtually zero. Britain's naval blockade made sure of that. And any writer highlighting these aspects will be called a polemic.
American neutrality became a convenient fiction. The money had already chosen sides.
Entry of America
When America finally entered the war in April 1917, private loans became government policy. The Treasury Department organized Liberty Loan drives to fund both American forces and Allied governments.
There were four Liberty Loan campaigns and one Victory Loan campaign between 1917 and 1919 resulting in about $21.5 billion raised from a little over 66 million people. On April 24, 1917, President Wilson signed the First Liberty Loan Act. It authorized the Treasury to borrow up to $5 billion and to purchase up to $3 billion of Entente and Allied debts.
The federal government took over what Morgan had started. America was now officially financing the war effort. But the pattern was set. Financial control meant political control.
Combined with private bank loans, America had over $13 billion tied to Allied victory by 1919. That represented roughly one-third of America's entire GDP. The USA could not afford to let Britain and France lose.
American Double Game
President Woodrow Wilson played a skilful double game. He claimed neutrality while his bankers armed one side. He preached peace while his factories churned out weapons. In 1916, Wilson campaigned for re-election with a simple slogan. “He kept us out of war.” The slogan worked because most Americans were happy selling weapons while avoiding casualties.
But neutrality was already dead. Germany saw American “neutrality” for what it really was. Disguised support for Germany's enemies. From Berlin's perspective, America was already at war. It just had not admitted it yet. Wilson maintained the fiction as long as possible. Neutrality was profitable. Why end a good thing?
The breaking point came in early 1917. Germany resumed unrestricted submarine warfare. German U-boats would sink ships bound for Britain regardless of flags. This threatened American lives and American profits simultaneously.
Then came the Zimmermann Telegram. Germany secretly proposed that Mexico attack the United States. In exchange, Mexico would get back Texas, Arizona, and New Mexico after Germany won the war.
President Wilson had his excuse. On April 2, 1917, he went to Congress with soaring rhetoric. “The world must be made safe for democracy,” he declared. America would enter the war to defend freedom and justice. The real reasons were more practical. Protecting American trade. Preserving Allied loans. Ensuring that Britain and France could pay their debts.
Jugaad Vehicle Breaks Down
Austria-Hungary's war effort was a disaster from the start. The army was large on paper but plagued by ethnic divisions. Officers barked orders in German or Hungarian. Many rank-and-file soldiers could not understand them. Morale in units often matched ethnic loyalty. Czech regiments surrendered readily to Russians. Croats hesitated to fight Serbs. Romanians dreamed of uniting with their kin across the Carpathians.
The empire's military disasters exposed its political fiction. What looked like a great power was actually a collection of unwilling subjects. The war revealed that the jugaad vehicle was held together by habit and inertia, not loyalty.
By 1917, even the imperial driver had changed. Emperor Franz Joseph died in 1916. His grandnephew Karl I replaced him but lacked both charisma and authority. The steering wheel shook violently as passengers began climbing out. Like a garage-built contraption, it was disintegrating under strain.
Supply lines collapsed. Famine hit the home front. The army's fragile ethnic unity disintegrated completely. The once-proud Habsburg army became a patchwork of half-functioning regiments. They were more loyal to ethnicity than the emperor.
End of Empires
By late 1918, the Austro-Hungarian Empire was literally falling apart. Czechs and Slovaks declared independence, forming Czechoslovakia. Serbs, Croats, and Slovenes joined to create Yugoslavia. Romanians seized Transylvania. Poles reclaimed Galicia. Italians grabbed South Tyrol and Trieste.
On November 11, 1918, when the armistice was signed, the empire no longer existed. What had begun the war as a great power of fifty million became two small, landlocked states. Austria and Hungary, stripped of prestige, resources, and empire.
But Germany faced an even harsher fate. The Treaty of Versailles imposed crushing war reparations. Germany had to pay 132 billion gold marks to the victorious powers. This represented roughly three times Germany's entire annual economic output. The treaty also carved up German territory. Alsace-Lorraine went to France. The Polish Corridor separated East Prussia from the rest of Germany. The Saar Basin went under League of Nations control. The Rhineland was demilitarized and occupied by Allied forces.
These punishments created the conditions for future conflict. A humiliated Germany with a crippled economy would eventually turn to radical solutions. The seeds of the next war were planted in the peace settlement of 1919.
Austria became a small German-speaking republic forbidden from uniting with Germany. Hungary lost two-thirds of its territory and became a landlocked rump state. Both nations nursed grievances that would later be exploited by extremist movements.
West always look at India, salivating for its disintegration like Austro-Hungarian multi-lingual, multi-ethnic federation. They conveniently ignore the basic cultural similarities and of all languages of India through the underlying link through Sanskrit language and Hindu culture.
Real Winners
While empires collapsed and millions died, the bankers counted their profits.As stated above, J.P. Morgan & Co. had financed the winning side from the beginning. Their loans were repaid with interest.
America emerged as the world's dominant financial power. European nations owed billions to American banks and the American government. The war had transferred wealth from the Old World to the New World on an unprecedented scale. More will follow in the next few decades.
Wall Street replaced London as the centre of global finance. The Federal Reserve System, established in 1913 and operational by 1914, provided the institutional framework for American monetary dominance. The Federal Reserve was the vehicle which effectively made the American taxpayer, without their knowledge, lend the Allies twenty-five billion dollars. Many loans went unpaid, and average citizens bore the costs through inflation and eventual debt, while bankers profited from interest payments and handling fees.
The war established a pattern that would repeat throughout the 20th century. Financial control preceded political control. Whoever controlled the money supply controlled the outcome of conflicts.
Most importantly, the war taught American elites a crucial lesson. The Military conquest was expensive and messy. Financial control was cleaner and more profitable. You could achieve the same results with loan documents instead of battleships.
New Business Model
The First World War proved that conflict could be extraordinarily profitable for those who financed both preparation and reconstruction. The bankers discovered they had stumbled onto the perfect business model.
War created massive demand for credit. Governments needed money for weapons, supplies, and soldiers. They were willing to pay high interest rates and offer valuable collateral. Default risk was low because losing nations could be forced to pay through territorial concessions or resource extraction rights.
The war destroyed existing economic relationships and created opportunities for new ones. Old empires collapsed, creating markets for new financial products. Currencies fluctuated wildly, creating arbitrage opportunities. Reconstruction efforts required decades of additional lending.
The bankers had found their new business. Not just lending money, but financing conflict itself. They would lend to governments preparing for war. Then lend to governments fighting wars. Finally, lend to governments recovering from wars. Each stage generated profits. The cycle could be repeated indefinitely. All it required was maintaining sufficient international tension to justify military spending and financial “security” measures.
The pattern was set. Future conflicts would follow the same template. Financial interests would identify profitable outcomes. Media campaigns would generate public support. Political leaders would provide moral justification. Military force would implement the desired result.
But the real decisions would be made in boardrooms, not battlefields. The bankers had learned to profit from chaos. They intended to create more of it. Who are the bankers of the Ukraine War?
Current “bankers” of the Ukraine war:
The financing structure of the Ukraine war involves different mechanisms than WWI, but there are definitely financial intermediaries profiting:
U.S. Defense Contractors: Companies like Lockheed Martin, Raytheon, Northrop Grumman get paid for weapons sent to Ukraine, often replacing U.S. stockpiles at current (higher) prices
**Investment Banks & Asset Managers: ** BlackRock was appointed to advise on Ukraine's reconstruction. JPMorgan and other banks handle Ukrainian government bonds and financing. Western financial institutions are positioning for postwar reconstruction contracts.
International Financial Institutions: IMF is providing loans (with conditions). The World Bank is also funding and European institutions is extending credit.
These loans will need to be repaid by Ukrainian taxpayers
Energy & Commodity Traders: Profiting from price volatility in oil, gas, wheat, fertilizer
Private Lenders: Hedge funds and private equity buying distressed Ukrainian debt at discounts.
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