One of the great myths of economics is the idea that war is good for the economy. Robert Higgs has shown pretty convincingly that this isn’t the case in a series of papers that culminated in his book Depression, War, and Cold War.
As I’m preparing for my Classical & Marxian Political Economy class this morning, I’m inspired by Book 2, Chapter 3 of Adam Smith’s The Wealth of Nations. Here in particular is what Smith has to say about what was given up in order to fight wars:
More houses would have been built, more lands would have been improved, and those which had been improved before would have been better cultivated, more manufactures would have been established, and those which had been established before would have been more extended; and to what height the real wealth and revenue of the country might, by this time, have been raised, it is not perhaps very easy even to imagine.
A couple of years ago (and drawing largely from Robert Higgs), I wrote about how World War II didn’t end the Great Depression. Here’s Higgs on the importance of private investment. And on the subject of war, here’s an excellent interview in which David Henderson explains that free markets don’t cause war.
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A 1996 study showed the cost of nuclear weapons to be $5.5 trillion (about $7.7 trillion in 2011 dollars) from 1942 to 1996. How much of that figure was financed through debt? What is the opportunity cost of building all those missile bases and silos, many of which are now obsolete and abandoned? (One missile base in Kansas cost the equivalent of $175 million in 2011 dollars and was purchased in 1980 to convert to a home for $40,000.) What a drain on the economy.
Henry Hazlitt in Chapter 3 of his “Economics in one lesson” also examined the fallacy of positive effect of war as a variation of “broken shopwindow” case. Indeed, wealth can not be increased by destruction of other wealth.
The biggest fallacy of modern US history is that WWII ended the Depression. The true ending of WWII when the Dow Jones finally crawled back to its Oct 1929 high was in November of 1953. That is a full 24 years later. So 3/4 of a generation was lost in economic depravity and war. I wonder what will happen to the current generation?
Just try playing Civilization, the PC game. War is very taxing on the economy, as resources are controlled and used for war, with the opportunity costs being loss of emphasis on private investment and a broadening base of wealth through increased productive capabilities. :p
I don’t think that many people still hold this belief. Do people actually still think that war is good for the economy? Even after Vietnam and our current variety of sinkholes? I usually encounter people who believe that WWII was good for the economy (high school told them so), but somehow the current wars are not as beneficial. How they account for the disparity of why one war was good for us and the others are a black hole of waste – they never say.
One might conclude that economists never read balance sheets. The books ALWAYS balance. In any given war 100 people drop down the food chain and two people rise. That is the purpose of the the war.
The person who already possesses 100 times or 1000 times more than he can consume in a life time . . . why does he work to climb higher on the food chain? It is human nature. He wants to increase the length of the food chain. It is an ego trip to control the lives of millions of people.
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