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War
전쟁(戰爭)
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The Theory and Conduct of War
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2 THE INSTITUTION OF WAR
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There is no such thing as an inexpensive
war. First, there is the human cost in loss of life and in the physical and
psychological maiming of healthy people. While the personal cost of such loss is
immeasurable, the economic cost to society can
be estimated. This measure was first proposed by a French economist, Jean-Baptiste
Say, in 1803. He asserted the principle that war costs more than its
direct expenses, for it also costs what its casualties (military and civilian)
would have earned throughout their lifetimes if they had never participated in
war. (see also war finance) |
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Second, war has economic costs arising
from the destruction of buildings, productive farmlands and forests, public
services such as waterworks, electricity-generating and distribution systems,
roads, bridges, harbours, and airfields, and all manner of personal and
corporate property such as homes, possessions, factories, machinery, vehicles,
and aircraft. War, therefore, destroys physical capital that has been created by
previous economic activity. |
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Reconstruction after war is a particular
economic burden because the finance, imported capital goods, and labour used in
reconstruction merely restore the losses a country has sustained, rather than
adding to the stock of capital available to its economy. Thus, even if it
manages to restore all its physical losses, it uses scarce resources that would
otherwise have been available for extending and improving economic activity. As
most wars since 1945 have occurred in the Third World, some of the world's
poorest countries have suffered the most from the economic losses of war. |
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War also costs a great deal in goods and
services to create the weapons of war and to supply the people engaged in the
war effort. The diversion of these goods and services--which range from the
metals and chemicals transformed into weapons to the food, clothing, and shelter
for the armed forces--reduces current civilian consumption, which lowers the
population's living standards. Metal used to make a tank cannot be used to build
bridges, fuel used to transport military supplies cannot be used on school
buses, cement used to construct ammunition dumps cannot be used in house
construction. This constitutes the opportunity cost of war--that is, the extent
to which the economy foregoes the opportunity to commit these resources to
alternative peaceful uses. |
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The opportunity cost of war is also felt
in the future. In addition to allocating resources to consumption (the
satisfaction of current needs), an economy allocates resources to investment
(the new factories and machinery that produce tomorrow's goods and services).
Resources diverted to war cannot be used to create new productive capacity for
future consumption, and this reduces the living standards of the population
below what they otherwise would have been in the future. |
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In summary, the total costs of war
include the cost of the foregone use of the economic resources used up in the
conflict. These include the cost of the foregone lifetime earnings of those
killed in the war, the cost of lifetime medical care for those permanently
incapacitated by the war, the cost of replacing the physical capital destroyed
or damaged by the war, the cost of supplying the armed forces with the weapons
of war, the cost of sustaining the armed forces and those in support functions
(including their pay and pensions), and the losses to the economy caused by the
diversion of resources from peaceful investment in future economic capacity. |
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As war is expensive, countries aim to
avoid its costs and remain independent within sovereign borders. In the absence
of a universally binding and verifiable agreement to abolish war, the best
option is to deter those countries prone, by their history or by the policies of
their governments, to resolve disputes by resorting to war. Deterrence
has two aspects. First, by allocating resources for a minimum level of military
capability, a nation ensures that it can resist an attack by a potential
aggressor and severely damage the aggressor's economy and territory. In this way
the costs to the aggressor of initiating a war will far exceed any likely gains.
Second, by making credible its willingness to use military force, should it
prove necessary to do so, the nation aims to leave potential aggressors in no
doubt of the consequences they will suffer if they are tempted to launch an
attack. |
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Deterrence, while expensive, is
incomparably less expensive than war. The study of its expense constitutes the
subject matter of defense economics. |
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Adam Smith,
the founder of economics as a discipline in the social sciences, was the first
economist to theorize about the economics of war. In his major work, An
Inquiry into the Nature and Causes of the Wealth of Nations (1776),
Smith considered a perennial problem of defense management, namely, the
increasing expense of war-fighting equipment. He noted that changing technology
raised the costs of war--for example, that the musket was a more expensive item
to acquire than its predecessor, the javelin. (In the same way, a modern jet
fighter is much more expensive than its propeller-driven predecessor.) (see also
military
technology) |
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The rising cost of weapon technology
does not mean that defense costs (d) necessarily rise as a proportion of gross
domestic product (GDP; the sum of all expenditures made in one year). The
d/GDP ratio is a measure of the military burden, and evidence suggests that this
burden has not risen through time (in high-income economies it has been falling
for most of the post-World War II decades). Although the unit costs of specific
weapons rise as technology adds to their capabilities, high-cost solutions to
one form of a military threat (for example, the use of expensive tanks to defend
against a massed tank attack) usually become vulnerable to low-cost alternatives
(such as the relatively cheap antitank missile and precision-guided munitions),
which either alter the nature of the threat or make redundant the high-cost
solution. |
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In a developed economy, the annual costs
of defense procurement and logistics typically take up more than half of the
defense budget, the rest being spent on personnel. In the underdeveloped
economies, the balance is reversed: most of the annual costs (70-90 percent) are
spent on personnel, with the remainder spent on procurement and logistics. This
difference reflects the gap in available war-fighting technology between the
developed and the underdeveloped worlds. The bulk of the world's defense
spending is accounted for by the high-income economies (the United States,
Europe, and the Soviet Union), primarily because of the cost of high-technology
weapon systems. Yet most wars are fought in low-income countries between
relatively poorly equipped armed forces. Moreover, the inability of low-income
countries to maintain sophisticated weapons to the operational standards of
their manufacturers fully explains the many logistical problems the armed forces
of poor countries have faced in their wars. Importing sophisticated weapon
systems does not guarantee a sophisticated defense capability if the support
system (fuel, spares, ammunition, repairs, and overhaul procedures) is either
less than satisfactory or less than adequately funded. Defense capability is
inseparably linked to the cost of maintenance. |
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Defense is a public good; that is, once
deterrence is achieved, all citizens benefit from the avoidance of war and no
citizen can be excluded from enjoying the benefits. People who could not be
excluded from a public benefit would, if given the choice, rationally choose not
to contribute toward its cost. In other words, they could "free ride"
on the contributions of others. For this reason, defense in all countries is
paid for by taxation, a burden that is borne by all citizens, and in all
countries the military force considered necessary for deterrence is under the
direct and exclusive control of the government. |
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International comparisons of how
governments arrange their defense spending are fraught with conceptual
discrepancies. The defense burden of a country is measured by the d/GDP ratio,
which indicates how much of the nation's resources are being allocated to
defense each year, but different estimates of both d and GDP are possible, each
giving a different d/GDP ratio. Capitalist
economies, which use the GDP, measure economic activity differently from
communist economies, which use a net material product (NMP) system. The NMP
excludes many expenditures, including state administration and defense, normally
included under GDP. This complicates comparisons between these systems. |
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Defense expenditures themselves are
subject to controversy. The North Atlantic Treaty
Organization (NATO) has agreed on a measure of defense activity to which
it adheres when making comparisons of its members' defense burdens, but other
countries follow different conventions. Some, largely low-income countries,
exclude internal security expenditures, which can be relatively high, thus
lowering their official d/GDP ratio. Others, such as the Soviet Union, exclude
defense-related research and development, frontier guards, and paramilitary
reserves, thereby reducing the nominal defense expenditure by up to 30 percent. |
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Even if agreement could be reached on
what constitutes defense expenditure, this would still leave countries with a
measure denominated in their domestic currencies. For meaningful comparisons of
the absolute amounts spent on defense, every country's defense expenditures
would have to be reduced to a common currency. But the act of converting each
currency into, for example, U.S. dollars could lead to distortions, because
official exchange rates reflect official policies and not existing realities.
Thus, two countries with similar amounts in dollars spent on defense, and
therefore in balance in their defense capabilities, could face a growing
imbalance in their dollar-based defense expenditures purely because one of their
currencies has changed its exchange rate with the U.S. dollar. |
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Comparisons of the absolute amounts each
country spends on defense are prone to error and must always be used with
caution. Nevertheless, because each country measures its defense spending and
its GDP in its own currency, the d/GDP ratio is an acceptable measure of a
country's defense burden. Ratios can be compared across countries and in
different time periods. The d/GDP ratio rises rapidly during a major war--in
Britain in 1944 the d/GDP ratio reached 60 percent--and it falls in periods of
prolonged peace. A country raising its d/GDP ratio signals that it is concerned
with security, in turn causing concern among countries likely to be affected. |
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Security expenditures for both external
defense and internal law and order account for major shares of government
expenditures. In many low-income countries, these expenditures often
exceed 20-30 percent of the state budget and more than 10 percent of the
country's GDP. The higher-income countries, while spending higher absolute
amounts on defense, tend to spend smaller proportions of state expenditure
(under 15 percent) and smaller proportions of GDP (under 5 percent). Given the
perilous security situation in the lower-income regions of the world, these
discrepancies are understandable (if also regrettable in view of their other
pressing needs). (see also government
budget) |
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By looking at the actual defense burden
of an individual country and comparing it with the norm for similar economies,
analysts can infer localized circumstances that may be influencing the
government's perceptions of security. For instance, a poor country with a very
low d/GDP, or a rich country with a very high d/GDP, is behaving differently
from the norm for similar economies. An economist would seek explanations for
this in the perception of a threat indicated by the public statements of the
government concerned. In the absence of such statements, or where public
statements are contrary to the behaviour of the government (for example, if it
is raising its d/GDP but publicly proclaiming its peaceful intentions and
denying that it is threatened by, or is threatening, any other country), the
economist would rely on the d/GDP as an indicator of true intentions. It is
likely that the intelligence services of neighbouring countries would draw
similar conclusions from the economic data. |
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Within the higher-income countries there
are notable differences in the amounts spent on defense. The United States and
Britain have spent relatively high proportions (5 to 10 percent) of their GDP on
defense since 1955, compared with Japan, which
has spent less than 1 percent of GDP over the same period. Germany and France
also have tended to spend a smaller proportion of their GDPs than Britain on
defense (though the absolute amounts have been similar, since they have larger
GDPs than Britain). |
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The Japanese case is interesting because
of the differences in economic achievement between Japan and the big defense
spenders. Many economists believe that there is a connection between the amount
of GDP spent on defense and a country's economic growth, investment, and living
standards. Japan's limit of d/GDP to under 1 percent was a result of its defeat
in World War II. There is no doubt that it benefited enormously from limited
defense spending (particularly while it could free ride under the military
protection of the United States), since resources not allocated to defense went
into economic investment, to the direct benefit of civilian employment and
output. However, at the same time Japan also spent much less (about half as
much) of its GDP on general government expenditure (g) than the United States
and western Europe. Whether it was the low d/GDP (1 percent) or the low g/GDP (9
percent) that allowed the resources for Japanese economic successes to be
mobilized is arguable. A low g/GDP ratio implies a lower level of taxation than
a high g/GDP. This releases a higher flow of savings into the economy, enabling
higher investment ratios to be maintained. High rates of investment, which are
associated with higher growth rates of GDP, characterized the Japanese post-war
economy and are a more likely explanation for the Japanese economic success than
its low d/GDP. |
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The Soviet
Union has long spent a high proportion of its national resources on
defense. Estimates vary, but the consensus among Western economists is that
Soviet d/GDP for much of the postwar period was around 14 percent. (The official
Soviet d/GDP was 6 percent.) If defense spending competes with economic growth
in the capitalist economies, contributing to inflation, low investment, and
lower living standards, then it must have a devastating impact on poorer
economies such as the Soviet Union. The need to compete with the United States
at all technological levels across the weapons spectrum has been met at the cost
of heavy distortions in the rest of the Soviet economy. This has compelled the
Soviet Union to review its priorities and to consider whether its security is
best assured by continually raising the military ante with the West or by living
at some lower level of military tension with a reduced offensive military
capability. |
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"How much defense is enough
defense?" is the great unanswerable question of defense economics. Those
charged with preparing a defense capability tend to be more cautious about the
level of capability than those who eventually have to pay for it. In fact, the
very success of deterrence--a high probability of nonattack throughout a long
period of peace--tends to reduce the amount of defense spending that the
electorate considers necessary to achieve deterrence. Judging the appropriate
level of military preparedness is not a science; it is a mixture of intelligent
response to credible threats and of judicious, cautious preparation "just
in case" this or that should arise. The managers of the armed forces tend
to increase the contingencies they wish to prepare for, while skeptical
taxpayers tend to question whether certain preparations are absolutely
essential. In democracies this tension forms the permanent agenda of the defense
debate. |
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Defense expenditures are made on an
annual basis, the government allocating so much of its total budget to personnel
costs, so much to the procurement of weapon systems, and so much to general
support. The pay and allowances of defense personnel are consumed within the
year; that is, they spend their wages, allowances, and pensions on consumer
goods and, in so doing, add to total demand in the economy. Procurement, on the
other hand, is somewhat different. A tank lasts much longer than the single year
in which it is purchased. Because it is supposed to last as long as it takes to
become obsolescent, the tank becomes part of the country's permanent defense
capability. That defense capability is, in economic terms, a stock, while the
annual expenditure is called a flow. |
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Even if, for some reason, a defense
budget is reduced in a single year, a country's defense capability need not be
reduced. The government can still draw on the stock paid for by previous defense
budgets, which is manifested in its tanks, aircraft, ships, communications
systems, trained personnel, and expertise in military affairs. Clearly, if the
defense budget continues to be reduced every year, there will come a point at
which the country's defense capability will decline through attrition as items
of equipment become obsolete or beyond repair. |
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The analogy is with a bath that is
filling with water while the plughole is open. As water pours into the bath,
water also drains from the plughole. It is the difference between the rates at
which water flows in and out that determines whether the bath fills or empties.
If the flows in and out are equal, the water level will remain constant.
Likewise with defense capability: if the additions (flow in) to the stock of
weapons matches the attrition (flow out) of the stock from all causes, then the
country's defense capability will remain constant. |
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Budgeting a nation's defense capability
is complicated, however, because defense capability is not determined
unilaterally; it depends on the capability of the potential aggressor. The gap
in military capability between any two countries is known as the threat, and
estimates of the threat constitute the major input into defense planning. |
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If a potential aggressor develops an
advanced weapon system that effectively counters a weapon stocked by the
defender, it will eventually threaten to overwhelm the latter's defenses.
Likewise, a growth in the stock of weapons deployed by a potential aggressor can
eventually have a similar effect in threatening to overwhelm the defender's
smaller stocks. If the defending country does not invest in overcoming each new
threat to its capability--by technology, new types of weapons, increasing the
stock of current weapons, or all three options simultaneously--it will risk a
reduction in the probability of nonattack--that is, its deterrence capability
will be compromised. |
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Estimates of the threat of a Soviet
invasion across the German border determined the nature of NATO's response for
more than 40 years. While NATO planners considered their own forces to be
technologically superior to the Soviet forces, they were nevertheless mindful
that the Soviet Union had a decisive quantitative superiority in conventional
forces (more tanks, armoured vehicles, artillery, combat aircraft, and troops).
The threat of a land-based invasion by Soviet forces, which the planners
considered to be virtually unstoppable, led directly to the decision to deploy
nuclear weapons as the ultimate deterrent against an invasion of western Europe. |
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Nobody could survive a major nuclear war
in Europe. The damage to the Soviet Union from an American nuclear strike would
be matched only by the damage to the United States from a Soviet nuclear strike.
Because each country has maintained sufficient nuclear forces to respond in kind
to a first strike by the other, a nuclear exchange would be suicidal for both.
Whatever the rhetoric, therefore, both countries have a strong interest in
preventing war of any kind from breaking out on the continent of Europe.
Literally, they are hostage to each other's behaviour, making Europe an unsafe
place to start a war. This doctrine, known as "mutual
assured destruction," was given the appropriate acronym MAD. |
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The consequences of MAD led NATO to
adopt a policy known as "flexible response."
Rather than an all-or-nothing nuclear exchange, this envisaged a staged
escalation of NATO's response to a Soviet invasion, based on containing the
initial thrust of the Soviet forces and warning them of the consequences of
further encroachment on NATO's territory. To underline the credibility of the
threat of nuclear retaliation, NATO commanders were issued battlefield nuclear
weapons, which NATO governments might or might not release for immediate use,
with or without warning. Uncertainty about NATO's policy of probable first use
of nuclear weapons was regarded as sufficient to make Europe an unsafe place for
the Soviet Union to risk the consequences of a conventional war. As long as the
risk of the horrendous consequences of a nuclear war exceeded the prospects of
potential gain from launching an attack, the probability of nonattack on western
Europe by the Soviet Union remained at an acceptable level. |
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The possession of nuclear weapons by
some NATO countries (the United States, Britain, and France) did not obviate the
need for expenditure on conventional armed forces. To abandon conventional
forces would risk having to use nuclear weapons as soon as the first Soviet
forces crossed the German border or some naval incident occurred in any part of
the world. This escalation from a small incident to the end of the world in one
short step was unacceptable; hence, NATO countries invested resources in
conventional capabilities in addition to nuclear weapons. These conventional
forces aim to blunt a Soviet attack and give time for political processes to
influence the Soviet government's decisions. |
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Matching conventional forces to Soviet
conventional capabilities had to take note of two facts: First, the Soviet Union
had overwhelming superiority in conventional forces. Military doctrine holds
that concentrating superior force at a single point can overwhelm the defense,
and the Soviet Union had the capability to achieve such a strategic advantage at
a time and place of its choosing. Second, while NATO had advantages in military
technology, there was a constant effort by the Soviet Union to close the
technological gap. Also, there is some point at which a quantitative advantage
acquires a qualitative dimension, and this advantage cannot be neutralized
solely by relying on a technological gap between the weapon systems themselves. |
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Thus the paradox of NATO defense
spending. The alliance was constantly trying to widen the technological gap to
compensate for its disadvantage in numbers, while at the same time it was
required to maintain large quantities of its existing systems to redress the
ever-widening gap in numbers that the Soviet Union was believed to be creating
across the German border. Whether to develop ever-new weapon systems to combat a
closing of the technological gap by the Soviet Union as well as the sheer
numbers of Soviet systems, or to concentrate on supplying the armed forces with
duplicate copies of existing designs, has long been NATO's quandary. |
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Since the 1960s there have been several
attempts to impose some rationality upon defense planning. The complexity of
weapons development has few parallels in civilian development. Working close to
technological frontiers (sometimes having to think beyond them) under management
systems imbued with a public-sector rather than a commercial ethos, under
government budgetary constraints and shifting political priorities, and subject
to ever-changing estimates of the threat the system is designed to counter, has
produced an expensive and time-consuming procurement system. Lead times of 18 to
25 years from initial concept to in-service production are not unknown in
defense procurement. (see also military technology) |
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The need for more rational choices in
weapon programs and in the deployment of scarce resources increased as the
defense budgets grew in absolute size (though falling as a proportion of a
growing GDP). The cost of errors in choice increases as the cost of a single
weapon platform escalates, so that, with a new weapon system costing $10-40
billion, it is crucial not to find that it is not needed by the time it is in
service, that the technology cannot be made to work, or that it has been made
obsolete by new developments. |
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The Polaris submarine-launched ballistic
missile program, begun by the United States in 1956, was the first highly
complex system that required new management techniques to be brought to
successful completion. One technique--called program
evaluation and review technique (PERT)--found civilian applications after
it was invented by the U.S. Navy to build Polaris on time and under budget.
Similarly, earlier techniques such as cost-benefit analysis (invented to cope
with submarine hunting problems during World War II) and input-output analysis
(a technique developed by the U.S. Air Force for identifying the critical parts
of an economy to develop or damage) rapidly spread into civilian use and into
most academic management programs. (see also Polaris
missile) |
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The first attempts to bring rational
choice to the management of a defense budget coincided with the U.S. involvement
in Vietnam. Terms such as systems analysis, as well as planning,
programming, and budgeting systems (PPBS) and functional costing, became
common in defense management. Much of the intellectual capital invested in these
techniques came from economists, whose discipline in costing options and
marginal analysis provided them (if not always the defense managers they
advised) a set of tools appropriate to the task. |
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When decisions are made solely by the lobbying
of special interests--such as the navy, air force, and army--the result is
likely to be a constant compromise under which programs remain in the budget
because of political considerations. Defense analysts attempt to force the
military lobbyists to set specific objectives for their programs and to accept
criteria by which the military value of the programs can be judged. Like many
management fashions, PPBS and its associated techniques did not survive in their
earliest forms, but they did establish the belief that analyzing, evaluating,
and choosing rationally was superior to lobbying by bureaucrats and, sometimes,
by corrupting commercial interests. |
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This can be illustrated by the technique
of functional costing. Ordinarily, most budgets are a listing of expenditures
under various main headings--personnel, equipment, and supplies--and the total
is approved through the political process. This type of budget is called an
accountability budget because it accounts for defense expenditure, but it cannot
inform the defense planner (or the taxpayer) how efficiently the defense
department has spent the budget. Under functional costing, the objectives of a
proposed military program are shown along with the costs of all the resources
needed to fulfill each objective, irrespective of which armed service
contributes to the activity. |
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For example, under functional costing
there is no navy budget that costs everything spent by the navy. There is
instead a maritime defense budget, a deep-sea navy budget, a coastal defense
budget, and so on. These budgets may include costed contributions from units of
the navy, air force, and army, plus an assessment of the costs of support
functions used to carry out the activities. If, for instance, it is proposed to
add a longer-range aircraft to the maritime defense role, this can be costed,
and, depending upon the importance of extending maritime defense compared to
other objectives, an informed decision can be made on whether to allocate the
incremental funds to the upgraded aircraft or to some other project supporting
some other military activity. Deciding between marginal increases or decreases
in expenditures across different functions, all of them linked to specified
objectives, is an improvement over buying aircraft simply because it is the turn
of the air force to get a big project approved by the government. |
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Modern armed forces use either a
voluntary recruitment scheme or a form of conscription to supply the people
needed to staff the military. Each scheme has economic consequences. |
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Conscription
involves a period of compulsory military service for all eligible males, usually
triggered by their date of birth. (In some countries, such as Israel, females
are also required to undergo military service, though usually in a support
rather than a combat role.) Conscription provides a pool of recruits at a low
cost per head. The conscripts receive extremely low wages, well below what they
would earn as civilians. This difference in earnings is a direct monetary loss
to them and a loss to society, which loses the output they would produce if they
remained civilians. Conscription offers a net saving only to the defense budget,
although what is saved in personnel costs is largely spent in increased training
costs. Conscript armies require much larger training programs than volunteer
armies because the service life of a conscript (two or three years) is shorter
than a volunteer's term of engagement (three to 15 years). Each new age group of
conscripts has to be trained, diverting full-time soldiers from other duties as
well as adding to overall costs. |
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Volunteer armies cost more per head
because their wages must be comparable in some degree to civilian wages. While a
national emergency can induce people to volunteer, a peacetime recruit is
influenced by the alternative incomes that can be earned as a civilian. Some
people volunteer whatever the wages, and some volunteer because they are
unemployed as civilians, but most evidence indicates that volunteer rates will
fall if military wages fall too far below civilian wages. This is particularly
true for volunteer officers, who take with them critical skills when they leave
the armed forces for well-paid jobs as civilians. |
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While volunteer armies cost more per
head, they can cost less in total because they do not have to be as large as
conscript armies. Although conscription is common across the three branches of
the armed services, the proportion of regular volunteers to conscripts is
smaller in the army and larger by far in the navy and air force. Ships and
aircraft require more-skilled and better-educated personnel than infantry
divisions, and the navy and air force in most countries tend to use conscripts
only in less-skilled roles, reserving the command roles (pilots, captains,
engineers, navigators) for volunteers. This pattern can be seen in many
Latin-American military forces. In Israel, where conscription covers practically
the entire population, the problem of retaining skilled recruits is met by
extending the periods of military service through the civilian lifetimes of the
recruits. |
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All personnel policies are vulnerable to
demography. The proportion of a nation's population that is made up of young
people eligible by fitness and intelligence for military service sets a limit on
how many can be conscripted or induced to volunteer. Conscript armies, which are
cost-effective when there is a large pool of young people from which to choose,
are particularly threatened by demographic changes that reduce the pool of
potential recruits. As the birth rate appears to fall in higher-income economies
over time, the prospect for mass conscript armies looks bleak. Switching to an
all-volunteer force is a short-term alternative, although the decline in the
recruitable age group will force up military wages as the armed forces compete
with civilian employers for the same age group. Substituting technology for
labour is another short-term solution. But it too has limitations, not the least
of them the problem of recruiting from a shrinking age group a sufficiently
educated and skilled labour pool to operate sophisticated military equipment. |
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War is too serious, and too expensive,
to be left to the whim of chance, yet throughout history many governments have
been willing to engage in war if it suited their interests as they perceived
them, and many have also been dragged into wars when cooler calculations might
have encouraged them to remain at peace. It was out of the need to raise the
finance to conduct wars that the earliest systems for collecting public
finance developed. |
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The practice of taxing the population to
pay for war has a long history. In early nomadic societies, wars could be fought
with little expense other than time and casualties. Nomadic
horsemen engaged in war as an extension of their normal activities as herdsmen.
If successful, the warriors plundered the defeated, who were either killed,
sold, or scattered. With more-settled agricultural societies, wars could be
fought between planting and harvest, the armies living off of the land or the
pay of the king. In the feudal system each man had an obligation to fight if
required by the lord of the manor, to whom the vassal owed his livelihood.
Weapons were often the personal possessions of the warriors and were fashioned
by themselves, their forebears, or craftsmen. As weapons improved in quality and
ingenuity, special efforts to produce them had to be made--for which their
producers were paid out of public funds, as were the soldiers to whom they were
distributed. These expenses necessitated the collection of special funds, and
thus the government turned to levies on the population to provide the resources.
(see also feudalism) |
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Where taxation alone was not sufficient
to pay for a war, the king could resort to selling relief from feudal
obligations (usually to prosperous cities), and to borrowing from rich
individuals (who risked confiscation if they refused and not being paid back if
they agreed). Most political crises in European history up to the 19th century
arose from disputes over public finance, usually to pay for wars. The English
Civil Wars of 1642-51 were a typical example of a bitter dispute between king
and parliament over which had the powers of taxation. |
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By the time of the French Revolution in
1789, warfare had ceased to be a localized affair with a few thousand soldiers
engaged in a single decisive battle. Warfare had become a massive undertaking,
often lasting months and years and involving armies of hundreds of thousands.
The expense of war reached levels unheard of previously. The Royal Navy, for
instance, employed 200,000 men in the 1790s alone. Out of the need to find new
sources of revenue for the long war between Britain and France from 1793 to
1815, the British government introduced a temporary income tax to be levied on
all persons earning above a high minimum income. The advantages of the system
soon became evident, and income taxes were widely adopted as permanent sources
of government revenue. |
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The British government also discovered
another source of revenue, the national debt.
Whereas previous borrowings by monarchs were a great risk to the lender, under
the national debt scheme the government agreed to guarantee regular payment of
interest to all persons who lent to it, either in perpetuity or for a fixed
term. Holders of government bonds were also
permitted to sell them, passing the right to the guaranteed income to the buyer.
Again, the system was so successful that it was soon copied by other
governments, not all of them as scrupulous in their repayments as they promised.
War bonds featured strongly in the two world wars, and it was regarded as
patriotic to use personal savings to purchase them--though most of the borrowing
came from institutions. (see also public debt) |
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The new sources of war finance enabled
the increased expense of war to be met--and, in the opinion of some economists,
made it more likely that a government would embark on a war for less than good
reason. If war had to be financed out of the current consumption of the
population, natural limits would be set on war being undertaken lightly, but
borrowing removed these limits. Though the population would be saddled with
interest payments for decades to come, this cost was small and of long duration
compared to the immediate cut in living standards that would have to be made to
pay for a war in full. |
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A major modern war can divert from 40 to
60 percent of a country's GDP, and one object of war finance is to release
within the economy the resources needed for the war effort without causing inflation.
If the government merely prints money to pay for the resources it requires, it
will bid up prices in competition with civilians. The alternative is to reduce
civilian consumption by imposing taxes at levels sufficient to force consumers
to forego bidding for goods and services. The income from taxes can then be
applied by the government to bid for the resources released by its program. |
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Taxation acts both to raise necessary
finance and simultaneously to reduce aggregate demand, which releases the
resources needed for the war effort. The war effort represents a substantial
expansion of production, for which producers receive wages and profits. When
these same producers attempt to spend their incomes, they face a diminished
quantity of civilian goods available for purchase. They must either face rapidly
rising prices (caused by excess money chasing insufficient goods), or they must
restrain--or be restrained--from spending. A war economy therefore imposes
higher taxes on wages and profits to reduce demand. War bonds and taxes provide
finance for the war effort and reduce demand for civilian goods and services. To
conduct a major war without such an austerity program risks inflation. |
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If inflation is a risk during a war, recession
is another risk at the end of it. The massive expansion in production to provide
resources for the war effort, if suddenly contracted by the cancellation of all
defense contracts, throws large numbers of people out of work. The unemployed
reduce their consumer spending, causing further cuts in aggregate demand, which
throws yet more people out of work. |
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World War I was followed by recession.
Because much of the war damage along the Western Front was confined to the vast,
static battlefields across France, where the destruction was mainly human and
the cost was mainly in war materials, there was no need for a massive
reconstruction program. Also, the damage on the Eastern Front was swept behind
the newly formed Soviet state, which for ideological reasons eschewed capitalist
reconstruction. After the war factories closed down, removing a flow of wages
and profits into the economy, the demobilization of troops put surplus labour
into an economy that was already in recession. |
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Recession was averted at the end of
World War II by reconstruction of the cities and economies of western Europe and
Japan. Reconstruction rapidly transformed the war economies into mass consumer
economies supported by the pent-up demand that had been frustrated by the lack
of civilian goods and by high taxes during the war. In Europe's case there was a
transfer of capital from the United States through the Marshall Plan. As the war
economies were dismantled, economic growth surged, and those countries that did
best economically were those that dismantled their highly regulated,
government-controlled war economies quickest (West Germany, for example). Those
countries that were least successful in dismantling their regulated economies
were the slowest to recover. Among these were Britain, which increased state
intervention from 1946 to 1951, and the Soviet-controlled economies of eastern
Europe, which went even further down the road of government-managed economies. |
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(G.Ke.) |
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