War in Economic Theories over Time

What are the relationships between war and economic activity? When do either public or private economic requirements cause war? Are warlike conflicts rational from an economic point of view? What is the best strategy to wage them? What are the economic consequences of war? How much do wars really cost? Who really gains from them? Can war or forceful rearmament contribute to resolving economic crises?

This chapter stresses how the prevalent activities in every epoch have conditioned the thought of economists on the theme of war. European national states arose and fixed their frontiers in the 1500s and 1600s through a series of wars. At that time, the interest of the state was that of the monarch. The first economists, the French and English mercantile schools, posed as the main economic problem the power and enrichment of the state, and since the technology in that period made it difficult to produce new wealth rapidly, it was considered much simpler to seize the wealth of other countries. Consequently, as far as the mercantile school was concerned, winning wars was an indispensable way to reach economic goals. War also fostered basic economic activities, such as international trade, which was often aggressive and linked to colonial conquest. If this was the prevalent opinion, starting at the end of the 1600s some economists began to consider the negative effects of aggression in trade and to propose a view of international trade as a pacifying and civilizing activity in which the interest of the buyer and the seller balanced. Later on, at the end of the 1700s, with the start of the process of industrialization that allowed for a noteworthy increase in productivity and production, the English and French free traders held that it was not the power of the state, but the well-being of its citizens, that should be the goal of economic activity. Well-being would be achieved through competition in production in a situation of free trade and international peace. Warfare, as it was then seen, was destined to disappear with progress in economic development. So peace was actively sought later on in the late 1800s and early 1900s when some free trade economists came to sustain that this was the main aim of the economy and engaged, sometimes personally, in pacifist activities (Bastiat, Passy). The thought of economic sociologists during the same period when dealing with the relations between war and economic activity was also important.

This chapter concerns the thought of economists on war, as an event linked to the political and economic conditions of the time. Friedrich List in the early part of the 1800s looked at the economic situation of the German states and the need for them to unite politically and develop economically, to be achieved, if required, though conflict too. List criticized Smith’s economics and the free traders in general who wanted to substitute “national and popular sovereignty” by the “presumed universal laws” of free trade. All in all, the same argument was employed by the German historical school and professorial socialism. Sombart held that the development of capitalism was linked to war as the latter greatly increased demand, the essential condition for growth. Furthermore, during crises single nation’s economic interests prevail over international ones and a common interest does not really exist, as free traders maintained. Schumpeter, who believed in the pacifist vocation of industrial society, on the other hand considered war to be atavism, a throwback to preindustrial society where an unproductive nobility gained wealth though violence and war loot.

This chapter deals with the reflections made in the period of the return to colonialism from the end of the 1800s to the First World War. With the outbreak of the Second Anglo-Boer War at the beginning of the 1900s, the heterodox free trade economist Hobson denounced the monopolistic and imperialist tendencies of certain British entrepreneurial groups who succeeded in imposing their interests on politicians, using national resources for their own private profit, pushing for colonial conquest and war at a cost to the taxpayer and society in general. Marxists took up the considerations of Hobson on imperialism and those of Marx on war and, with different interpretations, saw that capitalism, in its monopolistic and imperialist version, caused the continuance of armed conflict. The text examines the interpretations of Hilferding, Rosa Luxemburg, Kautsky, Bukharin and Lenin.

The cost analysis of conflicts has been made at various moments in time, but with greater intensity after the First World War. Then some economists and many economic historians tried to estimate the materials costs of fighting and destruction. They defined the special characteristics of a state-run economy as had been tried out during the war and sought to evaluate its application in times of peace. The accounting could involve the real costs of the conflicts (as Einaudi, Stiglitz and many others did), which are nevertheless difficult to quantify, or the opportunity costs, that is the costs of the war measured in terms of the utility that could have been obtained if the money spent on armaments had been used in works of peace (S. Melman, B. M. Russett). Starting with Smith and going on to Keynes, Einaudi, Pigou and many others, at various times the question was asked as to what was the best way to pay for the war: taxation, indebtedness, printing banknotes. Some economists even checked who, in the end, bore the costs of wars in reality.

Neoclassical economists at the end of the 1800s chose the path of theoretical analysis and analysed the behaviour of economic agents in an ordered peaceful situation, setting aside phenomena that disturb the aim of general equilibrium, including, obviously, among others, war. They considered that defence of the state was a problem of a political nature, independently of all the economic implications that war, caused for whatever motive, always brings. The second post-war period saw economists with mathematical training, even if they were interested neither in the causes leading to the war, nor in its consequences, applying Game theory to the study of military strategy and economics too, thereby introducing war to areas to be studied by neoclassical economics. They considered it a rational activity (R. Aumann: “if it were not so, how could it be studied?”) within theoretical, logical, mathematical bounds, suitable for the study of any war from the Punic Wars to the World Wars. They calculated strategic gambits and suggested deterrents as the basic factor in avoiding new devastating conflicts. The School of Public Choice maintains that the choice of war can be rational and thinks that it would be more economical to entrust its conduct to private bodies.

Many twentieth-century economists stressed the merits of war and the armaments industry in resolving situations of economic stagnation by favouring public investment and employment, the so-called military Keynesianism. Some economic historians, above all Trebilcock, but some economists too, have given full weight to the technological spin-off of armaments, that is, the positive fallout from the technological innovation made in the armaments sector on peaceful industries and have evaluated the overall economic benefits coming from the demand for armaments. Some Anglo-American economists have referred to the United States, which never suffered from the effects of war on the homeland, in order to consider it right to speak of spin-offs in “economic prosperity” deriving from both the First and the Second World Wars. In fact, the neutral countries and those who saw the war fought in other countries considered the war as a significant factor in economic growth. Some economists, and many pacifists too, have, on the contrary denounced the corruption and interwoven interests that inevitably arise in all countries when arms producers, the military hierarchy and politicians are concerned. The United States was a case in point during the Cold War when common expressions such as “military industrial complex”, “state capitalism” and “Pentagon capitalism” gained currency as terms to describe the economy and politics in the country which laid claim to vast public resources that could have been used for welfare programmes instead. Mention is also made of the Soviet point of view during the Cold War.

The end of bipolarity has not led to the “Pax Americana”, globalization has not led to the development of a peaceful free market, but instead the past few years have seen the outbreak of new wars, not just between states (that in some cases have lost their monopoly in the use of violence), often of an asymmetric type as regards both the aims followed and the conduct of the fighting. This unexpected sharpening of violence has led to the proposal of various interpretations: many political commentators, geographers and sociologists, and a few economists have grasped the return to geopolitical ideas concerning the cause of war, and some sociologists and economists have returned to the realism of H. Morgenthau and R. Aron (of the 1950s), updated to neorealism or structural realism (K. Waltz). These currents of thought blame the causes of contemporary wars on political factors which, for geopolitics, are to be found in territorial questions, while for neorealism the causes are to be sought in the state of chaos that reigns in international relations between states that became more acute after the fall of the Berlin Wall and the end to bipolarity. The School of Public Choice not only holds that modern war can be economically rational, but contests the character of public good in defence and believes that in this sector too, a market, albeit imperfect, is preferable to the action of the state.

The thought of economists concerning war has concentrated over time on different aspects and has greatly changed, while the subject matter to comment on has changed radically, seeing that the ways to wage war, the parties on the battlefield, the nature of clashes, the objectives announced from time to time to wish to continue with the use of violence have changed too.