inflation, crisis, deflation, governmentMy question is a bit hard because of it’s complexity and the lots of reasons why a war can start and who starts it.
But I’m curious about the possible “general” eventualities while a country is under heavy conflicts with other country / countries.
I listed some key questions which might help answering this question:
And there might be a lots of questions regarding to dept, national solidarity, national reforms etc. I just don’t really know how to formulate them.
Maybe the question sounds a bit off topic, but I’m looking for the relations between a war and the economies which make it.
The problem of the impact of war on an economy is not a new one. Sun Tzu from The Art of War:
A nation can be impoverished by the army when it has to supply the army at great distances. When provisions are transported at great distances, the citizens will be impoverished. Those in proximity to the army will sell goods at high prices. When goods are expensive, the citizens' wealth will be exhausted. When their wealth is exhausted, the peasantry will be afflicted with increased taxes. When all strength has been exhausted and resources depleted, all houses in the central plains utterly impoverished, seven-tenths of the citizens' wealth dissipated.
There is also the opportunity cost of war. Directing the resources of the state at assets which will blow up or be destroyed unproductively may create a great deal of activity - and even wealth for some lucky producers - but it diminishes the overall value of the economy.
Is War Necessary for Economic Growth by Vern Ruttan is a good place to start. Ruttan discusses how war (and preparation for it) can drive innovation and thus productivity.
This contrasts with the (stereo)typical assessment that goes something like: war drives government spending thus increasing economic activity and, hence, GDP. While true on its face, such arguments fail to account for dead-weight costs (that is, induced allocative inefficiency) and opportunity costs. Ruttan focuses on the possibility of productivity gain, not on supposed direct economic benefits of war.
Edit: For example, war preparation led to “general purpose technologies”, such as nuclear energy, the Internet, modern aviation, supercomputing and the development of semiconductor (solid-state) technology. Ruttan doesn’t argue that defense spending should necessarily be pursued, indeed he points out that it has been “inordinately expensive.” Clearly, development of some technologies require public research, e.g. when the benefits cannot be captured by a private firm. He simply notes that military spending is one mechanism to achieve such research. However, the successes listed above came about as part of a program to encourage development of “dual use” technologies; as of 1993, U.S. military spending no longer has such a goal.
An essential boundary condition is not set, ie. the “size” of the war we are talking about. Above a certain size, the benefits to a country’s economy are only dependent on whether the war is won or lost (think WW I/II). Below that size, my guess is that the stimulus from spending on war can be achieved by other means, especially without killing masses of people. Compare the innovation from going to the moon with those from going to Vietnam.
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