– What is war economy?
In: Economics
Simply put, the state of an economy when a country is at war.
There are typically significant changes to how an economy functions at war vs at peace. Industries are retasked to produce materials needed for the military and a significant amount of goods are earmarked by the government for the war effort and never made available to the normal marketplace. The government will often take a far more active role in controlling both production and distribution in furtherance of the above goals.
Case in point, if you look at the history of the US during WWII, you’ll see that many factories retooled to produce weapons of war, rationing of many goods was common so surplus could be diverted to the troops, women worked in factories instead of the home because the men were overseas, etc.
War economy refers to a country re-tooling its economic output for war. The government steps in and takes a tighter control over industry and economic output.
Industries stop producing consumer and export goods and instead produce war material tanks, planes, guns, ammo.
WW2 is the classic example of this as it was a Total War meaning that the resources of the entire country became dedicated to the war effort.
The key difference is that it wasn’t just dedicated suppliers like Raytheon and Lockheed making weapons during WW2. Companies like Ford, GM, and Chrysler stopped making cars and started making bombers and tanks.
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There’s no proper “strict” definition of a war economy, but it’s generally held to include at least some of the following:
1. Increased or outsized government spending on the military
2. Diversion of certain economic activities to support the military
3. Rationing or other emergency measures taken to divert resources to the military
4. Changes in law (notably, labor law) to allow flexibility in moving resources around
War economies are generally temporary and emergency-based. If a nation is always under a ‘war economy’ then it’s just ‘the economy’.
The intention is that war requires a sudden influx of resources that is, by necessity, driven by the government and not private enterprise, so laws and decisions are enacted to quickly override existing economic laws and principles. And it has to be quick, since war can’t wait for a few fiscal quarters.
The classic simple model in economics is that you can produce up to 100 units, your pick, of guns and butter. In peacetime maybe you want to produce a lot of butter and few guns, because your citizens need to eat. In wartime, you maybe want to draw back on butter production and increase gun production, because you need the weapons to fight the war.
Scale up in terms of numbers and complexity, and “war economy” is just basically taking the lever and pushing it toward the “guns” side of the guns-and-butter spectrum.
In practice this can involve all sorts of different policies: government going deeply into debt to finance arms production, government ordering factories and workers to retool (or retrain) and shift over to military production orders, production quotas, rationing, and so on.
It is the economy of a nation during war, geared to support said war. Sometimes it is a slight shift, other times you completely retool everything.
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