Effect on the Economy Essay

Francis Mr. Joseph English 12 26 November 2012 War: Effect on Economy War has influenced economic history profoundly across time and space. Winners of wars have shaped economic institutions and trade patterns. Wars have influenced technological developments. Above all, recurring war has drained wealth, disrupted markets, and depressed economical growth. Wars are expensive (in money and other resources), destructive (of capital and human capital), and disruptive (of trade, resource availability, labor management). Large wars make up severe shocks to the economies of participating countries. Despite some positive aspects of short-term stimulation and long-term destruction and rebuilding, war generally impedes economic development and undermines wealth. Several specific economic effects of war recur across historical eras and locales. Next inflation, the most consistent short-term economic effect of war is to push up prices, and consequently to reduce living standards. This war-induced inflation was described in ancient China by the strategist Sun Tzu: â€Å"Where the army is, prices are high; when prices raise the wealth of the people is exhausted† (Tzu Sun, c. 00 BCE) His advice was to keep wars short and have the money in hand before assembling an army. Paying for wars is a central problem for states (see War Finance). This was especially true in early modern Europe (fifteenth to eighteenth centuries), when war relied heavily on mercenary forces. The king of Spain was advised that waging war required three things – money, money, and more money. Spain and Portugal imported silver and gold from America to pay for armies, but in such large quantities that the value of these metals eventually eroded. One way governments pay for war is to raise taxes (which in turn reduces civilian spending and investment). U. S. revolutionary Thomas Paine warned in 1787 that â€Å"war †¦ has but one thing certain, and that is to increase taxes. † Another way to pay for war is to borrow money, which increases government debt, but war-related debts can drive states into bankruptcy as they did to Spain in 1557 and 1596. A third way to fund war is to print more currency, which fuels inflation. Inflation thus often acts as an indirect ax on a national economy to finance war. Industrial warfare, and especially the two World Wars, created inflationary pressures across large economies. Increasingly, governments mobilized entire societies for war – conscripting labor, bidding up prices in markets for natural resources and industrial goods, and diverting capital and technology from civilian to military applications. World War I caused ruinous inflation as participants broke from the gold standard and issued currency freely. Inflation also accompanied the U. S. Civil War, World War II, and the Vietnam War, among others. War-induced inflation, although strongest in war zones, extends to distant belligerents, such as the United States in the World Wars, and, in major wars, even to neutral countries, owing to trade disruption and scarcities. Present-day wars continue to fuel inflation and drive currencies towards worthlessness. In Angola’s civil war (1975-2002), for example, the government currency became so useless that an alternative â€Å"hard† currency – bottles of beer – came to replace it in many daily transactions. In addition to draining money and resources from participants’ economies, most wars create zones of intense destruction of capital such as farms, factories, and cities. These effects severely depress economic output. The famine and plague that accompanied the Thirty Years’ War (1618-48) killed as much as one-third of Germany’s population, as mercenaries plundered civilians and civilians became mercenaries to try to survive. World War I reduced French production by nearly half, starved hundreds of thousands of Germans to death, and led to more than a decade of lower Soviet output. One estimate put World War I’s total cost at $400 billion – five times the value of everything in France and Belgium at the time. Battle casualties, war-induced epidemics, and other demographic disruptions have far-reaching effects. World War I contributed to the 1918 influenza epidemic that killed millions. Military forces in East Africa may have sparked the outbreak of what became a global AIDS epidemic. Quincy Wright estimates that â€Å"at least 10 percent of deaths in modern civilization can be attributed directly or indirectly to war† (Wright, 1942). The U. S. â€Å"baby boom† after World War II continues decades later to shape economic policy debates ranging from school budgets to social security. Wars also temporarily shake up gender relations (among other demographic variables), as when men leave home and women take war jobs to replenish the labor force, as in the Soviet Union, Britain, and the United States during World War II. Countries that can fight wars beyond their borders avoid the most costly destruction (though not the other costs of war). For example, the Dutch towards the end of the Thirty Years’ War, the British during the Napoleonic Wars, the Japanese in World War I, and the Americans in both World Wars enjoyed this relative insulation from war’s destruction, which meanwhile weakened their economic rivals. Also, just as wars’ costs and outcomes affect economic conditions and evolution, so too do economic conditions and evolution affect war. Causality runs in both directions. For example, Dutch economic strengths in the early 17th century allowed fast and cheap production of ships, including warships. The resulting naval military advantage in turn supported Dutch long-distance trade. The wealth derived from that trade, in turn, let the Netherlands pay and train a professional standing army, which successfully sheltered the Netherlands from the ruinous Thirty Years’ War. This protection in turn let the Dutch expand their share of world trade at the expense of war-scarred rivals. Thus the evolutions of warfare and of world economic history are intertwined. War is the proximal cause of the recurring inflationary spikes that demarcate 50-year â€Å"Kondratieff waves† in the world economy. Those waves themselves continue to be controversial. However, they may have some predictive value to the extent they clarify the historical relationships between war and military spending on the one hand, and inflation and economic growth on the other. The 1990s mainly followed a predicted long-wave phase of sustained low inflation, renewed growth, and reduced great-power military conflict. If this pattern were to continue, the coming decade would see continued strong growth but new upward pressures on military spending and conflict, eventually leading to a new bout of inflation in the great-power economies. Since scholars do not agree on the mechanism or even the existence of long economic waves, however, such projections are of more academic than practical interest. The relationship between military spending and economic growth has also generated controversy. Despite its pump-priming potential in specific circumstances, as during the 1930s, military spending generally acts to slow economic growth, since it diverts capital and labor from more productive investment (such as in roads, schools, or basic research). During the Cold War, high ilitary spending contributed (among other causes) to the economic stagnation of the Soviet Union and the collapse of North Korea, whereas low military spending relative to GDP contributed to Japan’s growth and innovation. During the 1990s, as real military spending worldwide fell by about one-third, the United States and others reaped a â€Å"peace dividend† in sustained expansion. However, effects of military spending are long-term, and sh arp reductions do not bring quick relief, as Russia’s experience since 1991 demonstrates. The global North-South divide – a stark feature of the world economy – is exacerbated by war. The dozens of wars currently in progress worldwide form an arc from the Andes through Africa to the Middle East and Caucasus, to South and Southeast Asia. In some of the world’s poorest countries, such as Sudan and Afghanistan, endemic warfare impedes economic development and produces grinding poverty, which in turn intensifies conflicts and fuels warfare. To conclude, you have read about the good and bad things of war effects on the economy. War has drained wealth, disrupted markets, and depressed economical growth. But, the winners of these wars often were rewarded from these wars. War is bad overall; I feel that war should be the last option for any country. Works Cited Washigntonsblog. â€Å"Proof that war is bad for the economy. † 24 Feb. 2012. < http://www. washingtonsblog. com/2012/02/debunking-the-myth-that-war-is-good-for-the-economy-once-and-for-all. html>. Symonds, Peter. â€Å"US wages over war†. 7 Oct. 2012. < http://www. globalresearch. ca/us-wages-economic-war-on-iran/5307485. > < http://www. joshuagoldstein. com/jgeconhi. htm. > <upsky2. triod. com/science/economics/waraffectseconomy. html. > <Www, joshuagoldstein. com/igeconhi. htm. >