The Price of Liberty Paying for America's Wars

Robert D. Hormats

Holt Paperbacks



Trade Paperback

368 Pages



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More than two centuries ago, America’s first secretary of the treasury, Alexander Hamilton, identified the Revolutionary War debt as a threat to the nation's creditworthiness and its very existence. In response, he established financial principles for securing the country—principles that endure to this day. In this provocative history, Robert D. Hormats, one of America's leading experts on international finance, shows how leaders from Madison and Lincoln to FDR and Reagan have followed Hamilton’s ideals, from the greenback and a progressive income tax to the Victory Bond and Victory Garden campaigns and cost-sharing with allies.
Drawing on these historical lessons, Hormats argues that the rampant borrowing to pay for the war in Iraq and the short-sighted tax cuts in the face of a long-term war on terrorism run counter to American tradition and place our country’s security in peril. To meet the threats facing us, Hormats contends, we must significantly realign our economic policies—on taxes, Social Security, Medicare, and oil dependency—to safeguard our liberty and our future.


Praise for The Price of Liberty

"Bob Hormats has taken on the impossible: making lively history of the fiscal side of America’s wars. Taxes and spending, economics and politics, all mixed up together in times of national crisis, from the Revolution and Alexander Hamilton to Iraq and both George Bushes. There are lessons to be learned and too often forgotten, even for the financing of the new 'War on Terror.'"—Paul Volcker, former chairman of the Federal Reserve
“Hormat’s comprehensive and valuable new book, The Price of Liberty, examines wars from the founding of the republic to the present day.”—Aaron L. Friedberg, Foreign Affairs
“In The Price of Liberty, Hormats makes a clear and convincing case that until recently leaders from both parties in the White House, Treasury Department and Congress possessed the skill and political will to raise the enormous sums necessary to win wars—and they pay down the debt as rapidly as possible . . . A lucid financial history of America’s wars, hot and cold, The Price of Liberty examines the costs and benefits (including the impact on inflation) of income and corporate taxes, progressive and regressive levies, and short- and long-term bonds.”—Glen C. Altschuler, The Baltimore Sun
"The Price of Liberty is both a superb history and an urgent call for appropriate fiscal policy in the current campaign against terrorism. Hormats shows that, time and again, how wars were paid for determined how wars were fought—and won or lost. An important and timely book."—David M. Kennedy, author of Freedom from Fear

“In The Price of Liberty, Robert D. Hormats describes how the United States has financed its security over time, with a peculiar emphasis upon financing armed conflict. Hormats is a vice chairman of Goldman Sachs International, a veteran of distinguished government appointments in his area of expertise and a worthy authority on this subject.”—Brg. Gen. John S. Brown, Army

"Robert Hormats mounts a compelling argument that America faces large-scale economic catastrophe due to lack of a long-term, fiscally sound strategy for meeting military and security needs as well as domestic obligations. The Price of Liberty is a fascinating book and its message is hard to ignore.—Henry Kissinger
“Hormats links economics with history and politics in a must-read for anyone who would understand the fundamentals of America's national security. Lucid and engrossing, The Price of Liberty provides a new and vital perspective for students of national security.”—General Wesley K. Clark, former Supreme Allied Commander Europe
"A vigorous account, by a Goldman Sachs VP and presidential adviser, of the high cost of combat. From the nation's beginnings, leaders have worried about the burdens the citizenry would have to take up in order to pay for their military, with George Washington warning that debts 'which unavoidable wars may have occasioned' should not be charged to future generations but paid for as soon as possible through taxes, however hated taxes might be. A sense of fairness governed presidents until recently; during the War of 1812, for instance, Madison approved a $3 million direct tax on slaves to be paid for by their owners, while during the Civil War the federal government imposed a tax—called a duty to skirt constitutional issues—of three percent on all incomes over $800. 'It was a victory for the populists and advocates for working poor and farmers,' Hormats observes, since the average income was only $150. The government raised further funds by printing rather than minting money, risking inflation but solving the short-term problem and retiring the Civil War debt within a few years. During World War II, the mix included a tax on corporate profits and the elimination of special privileges for the rich. All that changed, though, with the Cold War, since an army had to be maintained at constant readiness; the Defense Department was kept on a diet at first, with Eisenhower wisely remarking, 'the current problem in defense spending is to figure how far you should go without destroying from within what you are trying to defend from without.' That lesson, Hormats concludes, is lost on the present administration, which threatens through its uncontrolled spending and giveaways to the wealthy to leave future presidents 'without the resources, the military capacity, the intelligence capabilities, or the homeland security apparatus required to thwart or cope with a dangerous new security threat.' A careful study in economic history that deserves wide airing."—Kirkus Reviews
"War marches with debt, for war typically costs more money than immediate revenue streams provide. Hormats' inquiry into this truism renders America's fiscal history both interesting to non-experts and pertinent to paying for the country's two current wars. Continuing the federal government's fiscal incontinence begun by LBJ's refusal to address the cost of the Vietnam War, Afghanistan and Iraq are being financed by deficit spending, hope of economic growth, and sale of debt to foreigners. According to Hormats, such bipartisan profligacy departs from precedents since Alexander Hamilton restructured the debt of the Revolutionary War, which he did with a combination of taxes, emissions of IOUs, and intense political conflict with Congress. Successive wartime treasury secretaries (Albert Gallatin in the War of 1812, Salmon Chase in the Civil War, William McAdoo in World War I) all studied the techniques of their predecessors, and Hormats' assessment of their effectiveness is an exceptionally clear discourse in applied history—the author's audition to be a future treasury secretary, perhaps? Prominent in Wall Street and media, Hormats is a current-events necessity."—Gilbert Taylor, Booklist
"Exploring the idea that the need to pay for wars often drives financial innovation, Goldman, Sachs & Co. managing director Hormats traces the fiscal decisions made in American wars from the revolution to today's war on terror. Customs duties often fall off with hostilities, he observes, leading to increased reliance on excise and other consumption taxes. These cut civilian demand, freeing up resources for war, but may be unduly burdensome on the poor, who also do most of the dying. Taxes on businesses and the rich are more popular, he notes, but don't reduce consumption and may discourage energetic investment in war industries. Printing money is easy, but stimulates demand and inflation. Borrowing requires faith in the ability of the government to prosecute the war and its willingness to honor the debt afterwards. If broad-based, debt can cement support for the war, but if not, it can create a class of creditors with excessive political power. Hormats shows that, despite their differences, each treasury secretary seems to pick up where his predecessor left off, refining the old ideas and adding new wrinkles. Moving from history to current events, the author strongly criticizes the Bush administration for failing to adhere to the principles that have paid for 230 years of American liberty."—Publishers Weekly

Reviews from Goodreads



Read an Excerpt

American history offers many political and economic lessons. But looking back over this nation’s more than two hundred years, one central, constant theme emerges: sound national finances have proved to be indispensable to the country’s military strength. Without the former, it is difficult over an extended period of time to sustain the latter. Generations of leaders have come to recognize that if the country chronically lives beyond its means or misallocates its financial resources, it risks eroding its economic base and jeopardizes its ability to fund its national security
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  • Robert D. Hormats

  • Robert D. Hormats is the vice chairman of Goldman Sachs (International) and a managing director of Goldman, Sachs & Co. He has served in numerous presidential administrations and is a former member of the board of directors of the Council on Foreign Relations. His articles appear frequently in The Wall Street Journal, Financial Times, The New York Times, and Foreign Affairs. He lives in New York City.