|Posted on November 1, 2014 at 9:45 AM|
Written by Ben Shelley
In order to discuss the costs and benefits of war, it is necessary to first define them. In this article an economic benefit or cost is something that has financial magnitude, or has a direct or indirect effect on a country’s economy. War’s impact on an economy has always been hard to quantify, it has become a more subjective topic especially in the field of economics. It is, for example, impossible to mathematically measure the importance of a new medicine against the lowered confidence in an economy during a time of war. In this article, looking back at history and seeing the effect that wars have had on different economies is going to be the key way of evaluating costs and benefits.
Both urgency and necessity come with war and together they breed inventions. Technologies, weapons or medicines are paths pursued by governments, with greater incentive during a time of war as they race to become the most advanced nation on the battlefield. With this comes an inevitable increase in capital expenditure to make factories more efficient and to produce more in a shorter amount of time as there is an increase in labour productivity. The new technologies created by a surge such as this, are often enjoyed after the war as well. For example, the American Civil War saw the birth of the modern triage system, which had a huge impact on the modern ambulance system; something which serves to be a vital element of modern life. Factories in Great Britain in the 1940s doubled their output of spitfires due to increased public expenditure on capital goods, showing a huge boost in efficiency. Even in the field of science, more breakthroughs are made: the Manhattan project is an excellent example of this as we saw America create the atomic bomb. Although the Hiroshima incident was devastating, it was a demonstration of the power that can be created as a result of the demands of war. The technology used in this bomb has been the father to nuclear power stations all over the globe since.
As already discussed, war can bring with it an increase in both the quantity and quality of an economy’s capital. It can also improve the other factors of production such as land and labour. This is because if a country were to invade another country then in theory the country would have (by the end of the war) increased its workforce and land. During an occupation most factors of production should be in reasonable condition and in the long run, new additions from the newly conquered country will increase output and provide much wealth. In addition to factors of production, valuable natural resources could be acquired, seven hundred years ago this might have been cotton or spice but today this is more likely to be oil or a precious rock. All these items not only have a high face value but will have long lasting values as they fuel and power economies, trade relations and boost employment and output.
In today’s world, war is fought and sanctioned by governments and thus with a war comes an increase in public expenditure that, combined with the multiplier effect increases aggregate demand. Naturally, this boosts employment and results in an increase in goods and services; satisfying more needs and wants. One could argue that the Great Depression was defeated in Germany by the extremely aggressive preparations made for war. The Nazis turned the economy around using the war effort, as millions of unemployed workers went back to work in factories and on roads. Again, in Britain, during the First World War there was a large increase in labour demand meaning that more women had to go to work- this had positive effects on women’s rights, which certainly helped the UK economy progress throughout the 20th century with increased labour participation.
A defensive war also has important economic benefits. Sometimes the key reason to wage a war is to defend one’s country and thus protect one’s economy. Fending off potentially damaging threats to trade routes or critical buildings prevents a negative impact on a country’s economy, thus hindering its chances of success within war. This has occurred in numerous blockades such as the British blockade of France within the French-Indian War in 1758 which secured their victory. As explained earlier, progression in weapons research and an increase in a country’s arsenal can give a country a far more diplomatic influence on the global stage in times of peace. For example, the USA or China, is positioned so that the likelihood of war is decreased purely by their intimidation factors. The titans of diplomacy are also the titans of war and the connection between the two is distinct. Stronger influence over other countries is certainly no bad thing when concerning one’s economy.
In both the modern and ancient world, invaders that were superior on the battlefield were also superior in terms of everyday life. Looking back at Roman expansion circa. 200 B.C., the invasion of much of Western Europe lead to significant improvements for the barbaric lands of Gaul and Germania. With an advanced civilisation such as the Romans came better sanitation and infrastructure. It is quite peculiar that in losing a war, some economies prospered well from a more advanced ruler.
The underlying problem with most of the benefits that have been highlighted so far, is that they all assume the country is victorious in war. A country that loses a war may receive none of the benefits mentioned earlier in this article, in fact countries that lose a war may not have an economy left. The destruction some conflict can leave upon a country is sometimes immense: World War II left both Japan and Germany as piles of rubble and ash, both geographically and financially. For a country to actually experience almost all the benefits of war to their economy it must first win. Even if a country was to win a war it may do so at great cost. Russia, a country seen as one of the victors of World War II had its own economy obliterated during the war. It seems in order to benefit economically from war, the location of the conflict needs to be far away from a homeland in order for it to be seen as a success, otherwise that country may find that their reparations cost more than the advantages of the victory. Overall - win or lose - war can easily bring destruction to all factors of production. The magnitude of the damage to both the land and capital belonging to France in World War I is shown by the huge reparation payments slung onto Germany, detrimentally bringing them down the European table of wealthiest countries.
The finances of war are a burden costing both the government and the people. With increased government expenditure both taxes and borrowing increase. During World War II, in the USA, federal debt as a share of GDP doubled to over 120 percent. Taxes were also raised in an effort to finance the war effort, showing it is indeed difficult to maintain a free market economy during war – one only has to look at Great Britain during World War II to see the extent of the state planned economy for example ration packs and the extremely high taxes. The government also carries the burden of carrying the responsibility of coordinating monetary and fiscal policy together. The USA during the Vietnam War suffered high inflation, averaging only 1.75 percent in 1965 and then rising continuously until 1980 where it peaked at 13.5 percent. If interest rates are not strict enough prices can easily spiral out of control due to the huge increase in aggregate demand.
All government expenditure has an opportunity cost, for example what is spent on defence could be spent on healthcare or education. Obviously, in today’s world defence spending is necessary, however it seems some countries (especially in Africa) put producing guns ahead of feeding their people. Defence spending is unlikely to have effects on the supply side of an economy and leaves governments billions of dollars out of pocket without improving a country’s long term prospects.
The situation that evolved in Crimea displayed the sensitivity of business confidence. The crisis sparked a certain degree of uncertainty in both Western and Eastern Europe. Money left non-Russian banks quickly and German investment plans stalled as their projects to the East looked potentially threatened. War can make a country pay for foreign exposure in any area. At the start of World War II Britain was dependent on shipping for both food and fuel – this came under threat as German U-boats sank scores of British ships putting huge pressure on the internal infrastructure of the country.
It seems that overall, the conditions of a country’s economy and the circumstances of a war dictate the outcome of a cost and benefit analysis. The War of Independence shows the huge economic potential war can release; the war itself gave birth to the current biggest economic power-house in the world: the USA. War builds resilience and diversity within countries, values that cannot be taught through times of peace. Personally, I would argue that the economic benefits outweigh the costs, however, the considerations of social costs should always ethically be the deciding factor of whether to engage in war or not, as the loss of human life is a far greater cost than a country’s bid for wealth.