U.S. Navy Vought F4U-2 Corsairs of Night Fighting Squadron 101 (VF(N)-101), Detachment B on the aircraft carrier USS Intrepid (CV-11), February 1944. © U.S. Navy National Museum of Naval Aviation (public domain)

War finance

Analyses of how states finance wars tend to use the triad framework either explicitly or implicitly. For instance, the First World War is seen as mainly financed by taxation and treasury borrowing in the US and the UK and by central bank money creation in Germany. The Second World War is even more an extreme case in which taxation, treasury borrowing, and central bank money creation were pushed to the limit in all belligerent states.

Our case study on war finance focuses on the relatively overlooked OBFA financing schemes proliferating in the course of WWI via the German Darlehenskassen, the US War Financing Corporation, and a recently discovered British OBFA scheme to support War Loan issuance.

We also look at the financing strategies for WWII, which relied to an even greater extent on the use of OBFAs. In the US, the Reconstruction Finance Corporation played a central role. In Germany, an OBFA financing scheme was organised around bills issued by Metallurgische Forschungswerke (Mefo) to finance large-scale infrastructure projects from 1934 to 1938. An important element in the allied war efforts was John Maynard Keynes’s piece ‘How to Pay for the War’, in which he suggested to introduce an OBFA-based system of “compulsory savings” and “deferred pay” to get household balance sheets to fund the wartime efforts and de facto lend to the government.