Awar economy orwartime economy is the set of preparations undertaken by a modern state to mobilize its economy forwar production.Philippe Le Billon describes a war economy as a "system of producing, mobilizing and allocating resources to sustain the violence." Some measures taken include the increasing ofinterest rates as well as the introduction ofresource allocation programs. Approaches to the reconfiguration of the economy differ from country to country.[1]
Many states increase the degree ofplanning in their economies during wars. That in many cases extends torationing and in some cases toconscription forcivil defense, such as theWomen's Land Army andBevin Boys in theUnited Kingdom duringWorld War II. Duringtotal war situations, certain buildings and positions are often seen as important targets bycombatants. TheUnion blockade,Union GeneralWilliam Tecumseh Sherman'sMarch to the Sea during theAmerican Civil War, and thestrategic bombing of enemy cities and factories during World War II are all examples of total war.[2]
Concerning the side ofaggregate demand, the concept of a war economy has been linked to the concept of "military Keynesianism", in which the government'smilitary budget stabilizesbusiness cycles and fluctuations and/or is used to fightrecessions. On thesupply side, it has been observed[by whom?] that wars sometimes have the effect of accelerating technological progress to such an extent that an economy is greatly strengthened after the war, especially if it has avoided the war-related destruction. That was the case, for example, with theUnited States duringWorld War I and World War II. Some economists such asSeymour Melman argue, however, that the wasteful nature of much of military spending eventually can hurt technological progress.
War is often used as a last-ditch effort to prevent deteriorating economic conditions orcurrency crises, particularly by expanding services andemployment in the military and by simultaneouslydepopulating segments of the population to free up resources andrestore the economic and social order. A temporary war economy can also be seen as a means to avoid the need for more permanent militarization. During World War II, U.S. PresidentFranklin D. Roosevelt stated that if theAxis powers won, "we would have toconvert ourselves permanently into amilitaristic power on the basis of war economy."[3]
TheUnited States has a very complex history with wartime economies. Many notable instances came during the 20th century during which the country's main conflicts wereWorld War I,World War II, theKorean War, and theVietnam War.
In mobilizing for World War I, the United States expanded its governmental powers by creating institutions such as theWar Industries Board (WIB) to help with military production.[4] Others, such as theFuel Administration, introduceddaylight saving time in an effort to save coal and oil while theFood Administration encouraged higher grain production and "mobilized a spirit of self-sacrifice rather than mandatory rationing."[4]
Propaganda also played a large part in garnering support for topics ranging from tax initiatives to food conservation. Speaking onFour Minute Men, volunteers who rallied the public through short speeches,investigative journalistGeorge Creel stated that the idea was extremely popular and the program saw thousands of volunteers throughout the states.[5]
In the case of World War II, the U.S. government took similar measures in increasing its control over the economy. TheFall of France and theDunkirk evacuation across theEnglish Channel before theBattle of Britain provided the sparks that were needed to begin the country's conversion to a wartime economy and the July 1940 passing of theTwo-Ocean Navy Act. The 1941Attack on Pearl Harbor prolonged and expanded those measures.
Washington felt that a greater bureaucracy was needed to help with mobilization.[6] The government raised taxes which paid for half of the costs of the war and borrowed money in the form of war bonds to cover the rest of the bill.[4] "Commercial institutions like banks also bought billions of dollars of bonds and other treasury paper, holding more than $24 billion at the war's end."[6] The creation of a handful of agencies helped funnel resources towards the war effort. One prominent agency was theWar Production Board (WPB), which "awarded defense contracts, allocated scarce resources – such as rubber, copper, and oil – for military uses, and persuaded businesses to convert to military production."[4]
The United Statesmass-produced many vehicles, such as ships (i.e.Liberty ships), aircraft (i.e.North American P-51 Mustang), jeeps (i.e.Willys MB), and tanks (i.e.M4 Sherman).
Two thirds of the American economy had been integrated into the war effort by the end of 1943.[4] Because of the massive cooperation between government and private entities, it could be argued that the economic measures enacted prior to and during the Second World War helped lead the Allies to victory.
The United States has been involved in numerous military endeavours within theMiddle East andLatin America since the 1960s and has been in a continuous state of war since theSeptember 11 attacks.[7] The country has an annual military budget that is larger than those ofIndia,China,Russia, theUnited Kingdom,Germany,Saudi Arabia, andFrance combined.
Germany experienced economic devastation during bothWorld Wars. That was not a result of faulty economic planning, but it is important to understand the ways that Germany approached reconstruction. During World War I, the German agricultural sector was hit hard by the demands of the war effort. Many of the workers conscripted, and much of the food itself was allocated for the troops, which led to a shortage.[8] "German authorities were not able to solve the food scarcity [problem], but implemented a food rationing system and several price ceilings to prevent speculation and profiteering. Unfortunately, these measures did not have the desired success."[8]
Heading into World War II, theNazis introduced new policies that not only caused the unemployment rate to drop but also created a competent war machine in clear violation of theTreaty of Versailles. TheThird Reich implemented a draft and built factories to supply its quickly expanding military. Both actions created jobs for many Germans who had been struggling from the economic collapse after World War I.[9] However, while unemployment rates plummeted, "by 1939, government debt stood at over 40 billionReichsmarks (equivalent to 178 billion 2021 euros)."[9] During the war, Germany heavily exploited the economies of thecountries that it conquered.
The most important one, according to the historians Boldorf and Scherner, was France and "her highly developed economy... [being] one of the biggest in Europe."[10] That is further supported when the authors later reveal how theFrench economy provided for 11 percent of Germany's national income during the occupation, which covered five months of Germany's total income during the war. Using extortion and forced labor, the Nazis siphoned off much of France's economic output. For example, during the early months of the German occupation,Vichy France was forced to pay a "quartering" fee of twenty million Reichsmarks per day. Supposedly, the fee was payment for the Nazi occupation forces. In reality, the money was used to fuel the war economy.[10] Germany employed numerous methods to support its war effort. However, the German surrender to the Allies makes it difficult to tell what the Nazis' economic policies would have yielded in the long term.
Armenia is another example that followed war economy principles, especially during the 2020Second Nagorno-Karabakh War. The small country, which is in theCaucasus, was blockaded but still increased its military budget after 2018, when it reached $640 million. In 2019, its military cost 18.8% of the country's total budget.[11] Besides mobilizing financial resources, Armenia also declared mobilization and concentrated human capital (volunteers, doctors, and soldiers).[12]
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