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Home / War Economics – How Nations Prepare For International Conflict

War Economics – How Nations Prepare For International Conflict

This represents a war's casualties.

You may have seen numerous documentaries about World War II that tell what it’s like to fight on the front lines. Yet, have you ever thought about what it would be like as an ordinary civilian in those times? How would your life change if your country suddenly went to war? This can all be answered by war economics.

Nowadays, such a discussion grows more widespread as the conflict between Ukraine and Russia continues. Even people thousands of miles away can feel its impact, and more countries ramp up their military spending. Fortunately, this article can provide some insights.

We will begin by examining the economic situation during the Second World War. After that, we will explore how the recent Western conflict affects the Ukrainian economy. Later, we will talk about this crisis’s ongoing and impending effects on your life.

What Is a War Economy?

This shows the conditions in a war economy.

Look for the most popular books in history, and you’ll come across The Art of War. The Chinese general Sun Tzu wrote it thousands of years ago, and it guided generals from his time until now.

War economics is understanding how wars affect money and resources in a country or the world. It looks at how countries manage to pay for wars, including how they use people, money, and materials to support their military efforts.

This area also explores what happens to a country’s economy during and after a war, like how prices might increase or how the government spends money differently. Additionally, it studies the rebuilding process after a war is over and how that impacts the economy in the long run. In simple terms, war economics helps us see the financial side of wars, showing us the costs involved and how they influence people’s lives and the country’s economic health.

Yet, you may find the beginning of the book odd. It talks about choosing non-violent options for resolving conflicts instead of retaliating with an immediate armed response.

This does not mean that the ancient general shied away from physical confrontation. Rather, it emphasizes his experience as he knows that money is the lifeblood of armies.

Most people understand war based on how movies portray it. They often remember armies meeting on an open field and charging into each other.

Others remember men exchanging gunfire and rockets with their enemies. However, people don’t often think of how both parties got there or how they procured their weapons.

You need money to make all that happen. You need funds to acquire fuel and manufacture guns and ammunition. Throughout history, countries have made citizens shoulder the expenses of war production.

This is when nations turn their economies into war economies. A war economy takes shape when a country reorganizes its industries during a major conflict.

That way, the flow of goods and capital concentrates on military production. In turn, the people can aid the war effort. We can look at the First and Second World Wars as great examples.

How Did World War I Change Economies?

The First World War and the Second involved multiple fronts, so we will talk about America more often. Still, remember that the other countries affected performed similar measures.

The United States had a period of great economic development from 1914 to 1918. Europeans began buying US goods for the war as it maintained neutrality.

Eventually, the country increased the plants and equipment needed so it could keep up with demand. Later, it would turn out that the US would need these production facilities.

The United States entered the First World War in 1917. This was when it started massive government spending to shift industrial production and create a war economy.

What’s more, the war provided jobs to roughly three million people. This caused the unemployment rate to drop from 7.9% to 1.4% as more people enlisted for military service.

The impact lingered even after the War as the United States economy changed. Back then, it was a net debtor in international financial markets.

Due to WWI, the US invested huge sums of money in other countries, especially Latin America. The War also weakened Great Britain, allowing New York to become  t,”  h  e world’s leading financial hub.

Read More: How Economic Sanctions Work

How Did World War II Change Economies?

Many countries still had their war economies before the Second World War. That’s why the preparations for it went smoother than during WWI.

For example, Germany was already shifting to a war economy before World War II officially started. When Adolf Hitler came to power in 1933, it ramped up its arms production.

Germany focused all its factories and workforce on building equipment for the military. In turn, the country severely limited the manufacture of luxury goods.

Remember how America remained neutral while providing ammunition to Europe during World War I? This helped the nation establish trade relations that significantly boosted economic growth.

It shifted to a war economy after Japan struck Pearl Harbor. It issued war bonds and raised taxes to aid the war effort. Moreover, the US created the War Production Board or the WPB.

This helped allocate resources that war economics usually needed, such as oil, copper, and rubber. Also, more American women took more roles in military production and other roles that only men filled back then.

Modern products from the major wars

Such times it imposed a lot of uncertainty and scarcity on people. Many of the readily available products became harder to acquire.

That’s why folks started to make alternatives and even create other products. You enjoy many of their inventions nowadays, so they serve as great examples of the war’s economic impact.

Before we continue, note that this section isn’t meant to downplay the effects of such horrific events. Rather, this aims to highlight examples of the positive economic history that came from it.

  • Freeze-dried coffeeNestle found a way to preserve the taste of its coffee throughout its shelf life after the Second World War.
  • Ballpoint pens – Old fountain pens tend to smudge, so Laszlo Biro created the ballpoint pen as an alternative. One of Biro’s first customers was the Royal Air Force.
  • Instant noodles – Japan experienced food shortages after WWII, causing many Japanese to grow hungry. That’s when Momofuku Ando created the method of flash-frying noodles so people could cook them quickly in boiling water. As a result, instant ramen became a staple in Japanese households and American college dorms today.

The War Economy of Ukraine during Russia’s Attacks

You can see the teachings of the Art of War echo in modern conflicts in war economics. Take Russia for example. Many of its troops ran out of food and fuel as the conflict continued.

Once you apply the examples from earlier, you’ll understand why war economies needed careful planning. A lack of funding can turn into a supply shortage for your troops.

In turn, their military offensives may lose effectiveness. However, an ongoing war is much harder to analyze. After all, its people won’t bother calculating economic performance while they’re facing bombs and bullets!

The economic advisor of Ukrainian President Zelensky had the same sentiment. Alexander Rodnyansky said the war had “a catastrophic impact for our economy, [and] for the region overall.”

Rodyansky added, “It’s hard to put a number on that right now, but we can already see that we’ve given up percentages and GDP growth just because of what happened already.”

Hopefully, this war ends sooner so we can properly assess the damage. The country could start rebuilding, and the world may learn from this tragedy.

Final Thoughts

News reports may have already inundated you about the Ukraine-Russia War’s impact. That’s why you might already know how it skyrocketed food and gas prices.

This will probably cause hyperinflation and widespread recession in the long run. Learn how you can handle such severe economic downturns by clicking here.

If you’d like to learn more about worldwide financial trends, look no further! Financial Daily Updates has all the latest information on personal finance, investments, and more!

Published on April 8, 2022; Updated on February 15, 2024.

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