War, Budget Deficit and Taxation

As the world economy appears to collapse around our ears perhaps it would be well to think about some of the historic events that have lead us here.

I am blaming war. In the Middle Ages the high cost of warfare created the need for the first time to tax a realms subjects on a regular basis, and the need for immediate cash lead governments such as Edward III’s to borrow on the basis of future tax receipts, the first government bonds in effect. And from there one can see how the need to finance such large projects (governments and armies) lead to the development of more sophisticated banking systems, such as those managed by the medicis for instance.

In the Middle Ages for the first time governments borrowed more than they could pay back, based on the security of a steady source of future income, the new regular taxes based on trade and possessions.

The UK has been in fairly serious national debt since the 17th century, and all of this down to war, Napoleonic, First and Second World Wars.

More recently it has been estimated that the Iraq and Afghanistan wars of recent years have cost the UK approximately £18 billion.

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