Introduction War fascinates scholars, intrigues the
general public, changes lives and shapes history. Yet, as important as it may
be to study Lee's tactics at Fredericksburg, or Eisenhower's plans for the D-Day
invasion, it can be forgotten that war is also an economic enterprise. "War
is a matter not so much of arms as of expenditure, through which arms can be
made of service," remarked the ancient Greek war historian Thucydides.
"Money," according to the first-century Roman historian Tacitus, "is
the sinew of war." More directly, Louis XIV of France believed that "the
last guinea will always win." The crux of their statements is simple; throughout
history, wars have been fought for money, and money has enabled wars to be fought.
This book offers an introduction to war economics. Though a single topic covered
in one of this book's chapters could, by itself, fill an entire book or course,
offering such detail is not the intention of this text. Instead, this text has
two objectives. First, to enable all those interested in economics, political
science, and related social sciences and humanities (both scholars and members
of the general public) to understand how economics relates to warfare and national
defense. Second, this text seeks to offer instructors of economics a tool by
which they can offer exciting real-life applications of core economics concepts.
TEACHING POINTS Geared to a wide audience of scholars and
students, this book can serve as a stand-alone text or as an outstanding supplement
to a variety of economics and political science courses, particularly principles
and intermediate economics and international political economy. To bolster the
text's pedagogic value, several educational features are provided. First, rather
than simply summarizing the main points of a chapter, the final section of the
chapter is called the "Key Points" section. This Key Points section
specifies which major topics in the chapter are of a microeconomic focus, and
which are of a macroeconomic focus. Next, the chapter offers a listing of the
key terms found in the chapter. The glossary at the end of the text defines
each of these terms. Finally, the section ends with a grouping of material-based
and critical-thinking questions. The questions can serve as the basis for exam,
homework, or bonus questions.
To assist instructors and students in matching
key economic principles with the lessons of this book, please refer to Table
I. It presents a listing of core macro and microeconomic concepts, the sections
of the book in which those are addressed, and the defense economic issue used
to instruct the concept. Table I
Core Economic Concepts and Corresponding Defense Concepts Core Macroeconomic Concept | Book Section | Economic Impact of Disarmament | Disposable Income | 3.4 | Economic Impact of Disarmament | Inflation (causes, impact, quantity theory of money, equation
of exchange) | 1.3 | Impact of War on Economy | Production Function (National Security Function) | 3.5 | Economic impact of Arms Races | Crowding Out | 3.3 and 3.4 | Economic Impact of Disarmament | Phillips Curve | 2.3 | Financing of Vietnam War | Bond Market | 2.2 | Financing of World War II | Operation of the Federal Reserve | 2.2, 2.3, and 7.6 | Financing of World War II; Financing of Vietnam War; response
to September 11, 2001 terrorist attacks | Unemployment | 1.3 | Impact of War on Economy | Gross Domestic Product | 1.3 | Impact of War on Economy | Macroeconomic Identity [C+I+G+(X-M)] | 1.2 and 3.3 | Impact of War on Economy, Crowding Out by Government Expenditures | Marginal Propensity to Consume | 3.4 | Economic Impact of Disarmament | Marginal Propensity to Save | 3.4 | Economic Impact of Disarmament | Core Microeconomic Concept | Book Section | Defense Concept | Comparative Advantage | 4.3 and 8.5 | Conscription vs. All-Volunteer Force; Supplying Countries
with Nuclear Technology | Dead Weight Loss | 5.3 and 5.4 | Domestic Arms Market; Global Arms Market | Economies of Scale | 5.4 | Global Arms Market | Efficiency Wages | 4.6 | Private Military Contractors | Gains From Trade | 8.5 | Bartering to Supply Countries with Nuclear Technology | Game Theory | 3.5, 7.4, and 8.6 | Arms Races, Resorting to Terrorism; Failure of Treaties | Impact of Quotas and Transfer Payments (subsidy) on Supply
and Demand | 5.4 | Global Arms Market | Indifference Curves | 3.5 and 7.4 | Economic impact of Arms Races; Suicide Bombing | Labor Demand and Labor Supply Curves | 4.3 | Conscription vs. All-Volunteer Force | Marginal Cost and Marginal Benefit Analysis | 4.3 and 6.6 | Military Labor Market; Peacekeeping | Marginal Productivity of Labor | 4.3 | Conscription vs. All-Volunteer Force | Monopoly and Monopsony | 5.2 and 5.3 | Domestic Arms Market | Opportunity Cost | 3.3, 4.3, 6.3 and 8.5 | Economic Impact of Disarmament, Conscription vs. All-Volunteer
Force; Poverty and Civil War; Supplying Countries with Nuclear Technology | Principal-Agent Model | 5.3 | Domestic Arms Market | Production Possibilities Frontier | 3.3 and 3.5 | Economic Impact of Disarmament; Economic impact of Arms
Races | Public Goods (free-riding, common resources) | 4.6, 6.6, and 8.6 | Private Military Contractors; Peacekeeping; Treaties | Supply and Demand Curves | 5.3 and 8.5 | Domestic Arms Market; Determinates of Nuclear Black Market
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Each chapter contains "Historical Perspective"
boxes. Though the book is full of historical examples, these boxes use history
to offer unique information that can be used in or outside the context of the
chapter's text. These perspectives are especially helpful for instructors of economic
or military history.
For ease of understanding, this text makes
extensive use of graphs, figures, and tables. Graphical economic analysis is particularly
important to students, because it is through graphs that many undergraduates become
familiar with economics.
The book's bibliography contains a section
dedicated to those sources that can be accessed, for free, via the web, along
with web addresses.
TEXT ORGANIZATION This book is divided into three units.
Unit I explores the economics of war economies. Unit I seeks to lead students
through a determination of whether or not war benefits the economy; and, if
not, why not. Chapter 1 presents the economic theory underpinning the Iron Law
of War - the idea that fighting wars can provide a boost to an economy (if the
war is not fought on that country's soil). This theory will lead to the creation
of a four-point scheme for evaluating the economic impact of war. Chapter 2
applies this scheme to a variety of major American wars from the 20th century
and today. The evidence that these case studies present indicate that the Iron
Law of War, though valid in the past, does not hold today. These case studies
also bring out the two reasons why wars no longer induce the same strong, positive
economic response of early 20th century wars: the existence of a permanent military
industry and the nature of modern warfare.
Unit II explores the fact that because the
United States is continually maintaining a military establishment, the onset
of a war no longer induces massive mobilization and drastic increases in government
expenditures. Prior to World War I, the U.S. government only incurred military
expenditures at times of war. Today, military spending is the single largest
discretionary (i.e., adjustable) expenditure of the U.S. government during times
of war and peace. Today governments maintain high levels of military expenditures
even during times of peace. As such, modern war does not offer a large and sustained
boost in government expenditures and mobilization of resources. Chapter 3 details
the level of military expenditures in the United States and around the world,
the economic implications of military spending, and the reasons why countries
will maintain such high levels of military expenditure. Chapters 4 and 5 look
in-depth at what exactly is purchased with these expenditures, in both personnel
and equipment. Chapter 4 surveys the economics of recruiting and training military
personnel, while Chapter 5 looks into weapon systems procurement.
Unit III focuses on another reason why wars
now lack the ability to boost an economy's performance - the unique and limited
nature of modern warfare. At the close of the Cold War, political scientist
John Mueller wrote, "From a rational perspective then, war among developed
states seems to have become unthinkable - rejected because it's unwise [given
the presence of nuclear weapons], a thoroughly bad and repulsive idea."
Though Mueller's thesis focuses primarily on the existence of nuclear weapons,
he and others recognize that increasing economic interdependence through trade
and financial flaws have also contributed to war's irrationality: "Why
would we [the U.S.] go to war with China? We would have to close all the Wal-Marts."
However, nuclear weapons and economic interdependence did not bring about the
cessation of war.
As instances of international war have declined,
many developing countries have more frequently succumbed to civil war. In turn,
if these countries' central governments can no longer provide public goods and
services, enforce the rule of law, and/or hold ultimate sovereignty, these countries
can prove fertile grounds for housing terrorist organizations that have a global
reach. The industrialized world has responded in two ways, by stabilizing failed
states through peacekeeping operations, and by neutralizing terrorist organizations
through cutting off their funding. Even still, a greater potential threat remains
- the proliferation of weapons of mass destruction. Though the probability of
a chemical, biological, and nuclear attack is smaller than a terrorist strike,
the great destructive power of these methods makes imperative that developed
countries seek to prevent such weapons from falling into the hands of terrorists,
or states with a low threshold for deploying such weapons.
Chapter 6 considers the economic causes
and consequences of civil conflict in the less developed world and the use of
peacekeeping operations as a response to such conflicts. Chapter 7 uses economics
to analyze terrorism's existence, impact, and prevention. Chapter 8 concludes
the unit by outlining the economic costs and motivations faced by countries
that wish to develop and proliferate weapons of mass destruction, particularly
nuclear weapons.
ACKNOWLEDGEMENTS Many individuals offered help and encouragement
during the writing of this text. First, I must thank my wife, Julie. It was
through her ideas and encouragement that I came to write this book. Second,
I would like to thank my editor at McGraw-Hill, Lucille Sutton, my McGraw-Hill
Marketing Manager, Martin Quinn, and my personal editor, Jan Hall. Third, there
were numerous scholars who read and offered suggestions on portions of this
text. They are:
William Bowman, United States Naval Academy
Molly Cooper, Ohio State University
Geoffrey Forden, Massachusetts Institute of Technology
David Hineline, Miami University
Anke Hoeffler, Oxford University
Vasilios Koesteas, Cleveland State University
Alexander Montgomery, Harvard University
John Mueller, Ohio State University
Gene Mumy, Ohio State University
Lt. Col. Daniel Olexio, Defense Geospatial-Intelligence School
Cindy Williams, Massachusetts Institute of Technology
Ronald Wintrobe, University of Western Ontario
Finally, I must thank the men and women who have, are, and will serve in the
United States Armed Forces. It is to them that this book is dedicated. Paul Poast
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