James Holmes

The Russo-Japanese War: Dollars and Cents

Could St. Petersburg have transformed Lloyd’s of London into an instrument of financial war against Tokyo?

James R. Holmes

For the second phase of last week’s Southern excursion, I made my way from North Carolina to the Washington Navy Yard to lecture to some 120 students from the Naval War College’s Fleet Seminar Program, of which I am a humble graduate. With virtually zero time for sightseeing in Washington, I at least left a few minutes to stroll through the Navy Yard, historically a foundry for naval guns and other heavy machinery. In fact, a battleship gun and several dummy rounds of ammunition adorn a small park near the Naval History and Heritage Center. Such sights gladden the heart of any battleship sailor. At 67 feet long for a gun barrel and 1,900 or 2,700 pounds per projectile, they make us feel…musclebound. You wouldn’t like usoldtimers when we’re angry….

But enough of the mirth and merriment. My department has vaulted itself into the winter term of our Strategy & War Course. From now through graduation next June, I plan to devote one post each week to the historical case we’re studying, helping you get some sense of what the strategy curriculum is all about. The topic for last week’s lecture was the Russo-Japanese War of 1904-5. Whenever I prepare to teach that case, I am continually struck by how closely finance intertwines with military operations in wartime. At the outset of the war, for instance, Harper’s Weekly published a cartoon depicting the challenge confronting Tokyo. Because Japan appeared to be the weaker belligerent, Japanese leaders found it harder than their Russian antagonists to take out loans in financial centers like New York or London. In effect they had to fight uphill, scaling a mountain of cash.

As General Patton famously noted, people love a winner and despise a loser. That was especially true for bankers anxious to see some return on their investments. Lenders forced Japan to pay 6 percent interest, whereas Russia skated by at 5 percent. This compounded the economic problem before Tokyo, given the already lopsided disparity between the size of the combatants’ economies. With an economy about one-tenth the size of Russia’s, Japan could ill afford to pay higher rates. Japanese forces had to keep a steady stream of battlefield victories coming—making themselves look like the better bet for skittish bankers—in order to keep the loans coming. They managed it, and ruined Russian credit in the bargain. But it was a close-run thing.

Out at sea, each belligerent could drive up the costs to its enemy by threatening merchantmen carrying vital stores. Think about the impact of piracy on insurance rates in the Gulf of Aden in recent years. Naval historians Sir Julian Corbett and Alfred Thayer Mahan reproved the commanders of the Russian Navy cruiser squadron at Vladivostok for their neglect of commerce raiding. Russian mariners could have driven up insurance rates for shippers to unbearable heights simply by posing a menace. In a sense, then, St. Petersburg could have transformed Lloyd’s of London into an instrument of financial war against Tokyo, draining Japanese government coffers. Determined effort on the high seas would have exacted fearful costs while distracting Japanese attention from the land campaign unfolding in Korea, at Port Arthur, and in Manchuria.

Statesmen and soldiers, it seems, ignore finance at their peril.