A war economy or wartime economy is the set of contingencies undertaken by a modern state to mobilise its economy for war production.
Refer to War Effort.
Philippe Le Billon describes a war economy as a “system of producing, mobilising and allocating resources to sustain the violence.” Some measures taken include the increasing of Taylor rates as well as the introduction of resource allocation programmes. Approaches to the reconfiguration of the economy differ from country to country.
Many states increase the degree of planning in their economies during wars; in many cases this extends to rationing, and in some cases to conscription for civil defences, such as the Women’s Land Army and Bevin Boys in the United Kingdom during World War II.
During total war situations, certain buildings and positions are often seen as important targets by combatants. The Union blockade, Union General William Tecumseh Sherman’s March to the Sea during the American Civil War, and the strategic bombing of enemy cities and factories during World War II are all examples of total war.
Concerning the side of aggregate demand, the concept of a war economy has been linked to the concept of “military Keynesianism”, in which the government’s military budget stabilises business cycles and fluctuations and/or is used to fight recessions.
On the supply side, it has been observed 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. This was the case, for example, with the United States in World War I and World War II. Some economists (such as Seymour 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 or currency crises, particularly by expanding services and employment in the military, and by simultaneously depopulating segments of the population to free up resources and restore the economic and social order. A temporary war economy can also be seen as a means to avoid the need for more permanent militarisation. During World War II, United States President Franklin D. Roosevelt stated that if the Axis powers won, then “we would have to convert ourselves permanently into a militaristic power on the basis of war economy.”
The United States has a very complex history with wartime economies. Many notable instances came during the twentieth century in which America’s main conflicts consisted of the World Wars, the Korean War, and the Vietnam War.
World War I
In mobilizing for World War I, the United States expanded its governmental powers by creating institutions such as the War Industries Board (WIB) to help with military production. Others, such as the Fuel Administration, introduced daylight saving time in an effort to save coal and oil while the Food Administration encouraged higher grain production and “mobilized a spirit of self-sacrifice rather than mandatory rationing.” Propaganda also played a large part in garnering support for topics ranging from tax initiatives to food conservation. Speaking on Four Minute Men, volunteers who rallied the public through short speeches, investigative journalist George Creel stated that the idea was extremely popular and the programme saw thousands of volunteers throughout the states.
World War II
In the case of the Second World War, the US government took similar measures in increasing its control over the economy. The Japanese attack on Pearl Harbour provided the spark needed to begin conversion to a wartime economy. With this attack, Washington felt that a greater bureaucracy was needed to help with mobilisation. The government raised taxes which paid for half of the war’s costs and borrowed money in the form of war bonds to cover the rest of the bill. “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.” The creation of a handful of agencies helped funnel resources towards the war effort. One prominent agency was the War 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.”
The United States mass-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. Because of this 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 the Middle East and Latin America since the 1960s. Having been in a continuous state of war since the 11 September Attacks and having a military budget over double of its two largest military rivals.
World War I
Germany has experienced economic devastation following both World Wars. While this was not a result of faulty economic planning, it is important to understand the ways that Germany approached reconstruction. In World War I, the German agricultural sector was hit hard by the demands of the war effort. Not only were many of the workers conscripted, but much of the food itself was allocated for the troops leading to a shortage. “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.”
World War II
Heading into the Second World War, the Nazis introduced new policies that not only caused the unemployment rate to drop, it created a competent war machine in clear violation of the Treaty of Versailles. The Third Reich implemented a draft and built factories to supply its quickly expanding military. Both of these actions created jobs for many Germans who had been struggling from the economic collapse following World War I. However, it is worth noting that while unemployment rates plummeted, “by 1939, government debt stood at over 40 billion Reichsmarks (equivalent to 164 billion 2017 euros).” After World War II, Germany was discovered to have exploited the economies of the countries it invaded. The most important among these, according to historians Boldorf and Scherner, was France and “her highly developed economy… [being] one of the biggest in Europe.” This is further supported when they later reveal how the French economy provided for 11% of Germany’s national income (during the occupation) which covered five months of Germany’s total income for the war. Using extortion and forced labour, the Nazis siphoned off much of France’s economic output. For example, during the early months of the Nazi occupation, the French puppet government was forced to pay a “quartering” fee of twenty million Reichmarks per day. Supposedly, the fee was payment for the Nazi occupation forces. In reality, the money was used to fuel the Nazi war economy. Germany employed numerous methods to support its war effort. However, due to the Nazis’ surrender to the Allies, it is hard to tell what their economic policies would have yielded in the long term.
Armenia is another example that followed war economy principles, especially during the 2020 Nagorno-Karabakh war. Armenia is a small country in a blockade in the Caucasus region but still increased its military budget after 2018 reaching $640 million. In 2019 it was 18.8 % of the total Armenian budget. Except mobilising financial resources, Armenia also declared mobilisation and concentrated human capital (volunteers, doctors, soldiers).