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The Price of Liberty traces the financing of America's wars from the Revolution, through the two world wars, the Cold War, the present conflicts in Afghanistan and Iraq and the war on terrorism.

The story of how the U.S. has paid for its wars, as described in the book, is only partially about money. As important as finance is in enabling the nation to mobilize a large military force and produce what President Franklin D. Roosevelt called a "crushing superiority" in weaponry, the political skills of leaders in the White House, Treasury and Congress are just as essential.

From the Revolution onward, the politics of financing a war have been closely tied to the politics of the war itself. As American troops were doing battle with enemies abroad, American politicians were often doing battle with one another at home over how to raise extraordinary sums through taxes and borrowing. Methods of paying for a war have been the subject of contentious debates, featuring vigorous competition among egos, political parties, social classes, regional interests and economic philosophies.

One reason I wrote this book was to determine if -- after reflecting on the way past wars have been financed -- the current conflict in Iraq is being paid for in a responsible way and whether the country is prepared for the sustained costs of the war on terrorism. At the beginning of every major war the U.S. has fought, with the exception of Vietnam, there was an effort to re-evaluate taxing and spending priorities and to shift resources from less vital pursuits to winning the war. Parochial economic interests generally gave way to the national interest.

Moreover, bond drives and taxes were designed to enable the millions of Americans not serving in the armed forces to play a meaningful part in the war effort. Woodrow Wilson's Treasury Secretary William McAdoo called it "capitalizing patriotism." Large numbers of Americans, not just the nation's armed forces, were asked to share the sacrifice by bearing a heavier tax burden and by participating in patriotic war bond rallies.

From the Revolution through the Eisenhower administration, the nation's leaders also sought to pay down war debt during peacetime to avoid imposing heavy obligations on future generations. George Washington warned against "ungenerously throwing upon posterity the burden which we ourselves ought to bear." They also recognized that a high debt could compromise the government's ability to borrow in the future and limit its financial flexibility to confront coming security threats.

America's first Treasury secretary, Alexander Hamilton, insisted that "the creation of debt should always be accompanied with the means of its extinguishment."

In his view, this was not simply good fiscal policy, it was also vital to the nation's security, because it affected the government's creditworthiness and thus its ability to marshal funds in the case of a future conflict. He was preoccupied with ensuring that potential lenders, especially foreigners, retain confidence in the soundness of American finances because they might be called to lend to the government -- as during the Revolution -- in the event of another war.

For this reason he insisted on scrupulously repaying all Revolutionary debt. Debt owed to foreigners received highest priority. Ironically, the U.S. now is even more dependent on foreign capital for wartime financing than during Hamilton's time, when French and Dutch funding proved critical to the success of the Revolution.

In contrast to the past, during the current conflict in Iraq the government has not revised its fiscal strategy to foot the war's mounting bills. Instead it has relied on additional borrowing and emergency supplemental appropriations. It has so far been able to avoid a major revision in fiscal policy, because this war represents a relatively small portion of GDP compared with past conflicts.

In addition, U.S. leaders have not wanted to call on Americans to make economic sacrifices. As a consequence, most citizens have not made a financial commitment to the war effort. To the contrary, they have enjoyed tax cuts and increases in popular domestic programs. There have been no calls on the vast majority of Americans to accept any financial inconveniences at a time when the men and women of our armed forces and their families are making enormous sacrifices.

The government also lacks a long-term strategy to meet military and security needs during what is likely to be a multidecade war on terrorism. The vast majority of Americans have not been asked to play a meaningful financial part in that war either. It is often said that 9/11 "changed everything," but when it comes to fiscal policy, it changed little.

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We are living in a post-9/11 world with a pre-9/11 fiscal policy.

Current war costs are manageable, but mobilizing resources in the future -- when large sums will be needed for the military, intelligence and homeland security, for replacing weapons worn out during the Iraq War, for purchasing new weapons systems and for meeting the long-term medical needs of thousands of veterans -- will be far more difficult in large measure because of increased competition for resources from growing entitlement programs.

The fiscal challenge U.S. leaders confront today is similar to that faced by presidents Truman and Eisenhower at the beginning of the Cold War. At that time, there was a widely held fear that allowing military spending to get out of hand would ultimately bankrupt the U.S. and render it less able to confront the Soviet threat.

Many in the military and Congress believed that Moscow's aim was not to start a war with the U.S. but to force this country into such enormous military spending in anticipation of such a war that massive inflation and large deficits would enfeeble the nation's economy and reduce the willingness of Americans to continue to support enough spending to thwart Communist expansion. Truman and Eisenhower aimed to enable the country to marshal the resources to sustain the nation's security without accumulating a level of debt so large that it would constrain the nation's ability to mobilize sufficient resources for future defense.

Today, defense spending accounts for a far smaller portion of GDP than it did in the early Cold War. But like all other aspects of the budget, it is dwarfed by the costs of Social Security, Medicare and Medicaid. Over time, these programs will produce dangerously high budget deficits that weaken the economy. Coupled with anticipated increases in interest payments on a rising federal debt, they risk crowding out defense funding and, along with increased dependence on foreign capital, making the economy more vulnerable to disruption in the event of a future catastrophic terrorist attack.

But there is time to avert such outcomes. Improved resource prioritization in all national programs, broad entitlement reform and better fiscal discipline would enable the country to make needed corrections. And as in the past, Americans need to be told candidly the cost of wars in which the nation is engaged and encouraged as well as enabled to support in tangible ways the measures the nation must take to prevail.

"Wars cost money," FDR said in early 1942. "That means taxes and bonds and bonds and taxes. It means cutting luxuries and other non-essentials ... an 'all-out' war by individual effort and family effort in a united country."

It might be too late to create such a spirit of sacrifice and unity in the Iraq War, but in the war on terrorism such steps will be critical to marshal the resources and public support needed for a robust and sustained national effort.

These represent only a few of the arguments that emerge in

The Price of Liberty

. I hope you find the book of interest. has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from

Robert D. Hormats is the vice chairman of Goldman Sachs (International) and a managing director of Goldman Sachs. He served in the State Department and on the National Security Council during four presidential administrations. His articles appear frequently in The Wall Street Journal, Financial Times, The New York Times and Foreign Affairs.