Appeasing Bankers: Financial Caution on the Road to War (review)

Appeasing Bankers refers to bankers’ acute anti-war bias as well as to politicians’ predilection to bend to bankers’ dovish desires. “Because of the [negative] macroeconomic consequences of war,” Kirshner argues, “financial communities within countries will be among the most cautious elements when it comes to waging war or supporting foreign policies that risk war” (9). That hypothesis, he claims, “approaches a lawlike statement” because it holds over large swaths of time and place and is not contradicted by the only type of evidence that could falsify it, “instances where finance was leading the charge for war or was at least near the head of the pack” (211, n.12).

The book’s methodology, however, precludes finding any such falsifying instances. Appeasing Bankers situates itself solidly in the government/political science/international relations literature and never budges. Rather than formally testing his hypothesis in the way that a good cliometrician would, by statistically analyzing time series and/or panel data, Kirshner argues that war is too complex to predict because of the intricate interdependence of causal variables. War is a difficult subject to be sure, but the adroit use of statistics can certainly help to illuminate the contours of its causes.

The dearth of hard analysis aside, Kirshner examines a disappoint-ingly small and narrow number of cases. The first case concerns the Spanish-American War, the second interwar Japan, the third interwar France, the fourth the early Cold War and the Korean conflict, and the final case the Falklands War. Kirshner also briefly discusses other episodes, including—most importantly but unsatisfyingly—the coming of World War I. He explains that he chose cases in which he had no previous knowledge of the financial sector’s stand. Nevertheless, even if the five case studies were impeccable, the hypothesis would still be disputable for the twentieth century and would be a far cry from establishing the lawlike status claimed for it. From Adam Smith to Niall Ferguson, for example, scholars have convincingly shown that British financiers benefited immensely from the numerous wars of the eighteenth century.

The case studies proper are problematical because Kirshner fails to account for the diversity of views and interests within the financial sector. “Finance wants macroeconomic stability,” he asserts (1). In fact, some financiers—public officials, the “in” group, bond bulls, defense stock shorts, dealers reliant on bid-ask spreads, the highly leveraged, and banks with negative interest-rate gaps and high war-related credit risks—generally seek peaceful stability. However, other financiers—private ones with no ties to government, the “out” group, bond bears, defense stock longs, commissioned brokers, those rolling in cash, and banks with positive interest-rate gaps and low war-related credit risks—are more likely to crave war-related instability. For example, as William Silber explains in When Washington Shut Down Wall Street (Princeton, 2007), the outbreak of World War I hurt some financial interests, including the New York Stock Exchange, while aiding others, including foreign-exchange brokers and broker-dealers involved in the curb exchange that filled the vacuum left by the closure of the nyse. Furthermore, anti-war financiers would be expected to be more vociferous than their pro-war colleagues, who would be fearful of giving away their trading positions and balance-sheet conditions by clamoring for conflict. Had Kirshner read more widely in financial history and archival sources, he undoubtedly would have told a more nuanced story.

Appeasing Bankers is a clearly written book proffering an interesting and potentially important hypothesis. A monolithic conception of the financial sector and a dubious methodology, however, will likely limit its audience.