War Economy- Definition & Priorities
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Khushi AgarwalWar Economy- Definition & Priorities
Uploaded by
Khushi AgarwalWar Economy: Definition, Priorities,
Example
Michelle P. Scott is a New York attorney with extensive experience in tax,
corporate, financial, and nonprofit law, and public policy. As General
Counsel, private practitioner, and Congressional counsel, she has advised
financial institutions, businesses, charities, individuals, and public officials,
and written and lectured extensively.
What Is a War Economy?
War economy is the organization of a country's production capacity and
distribution during a time of conflict. A war economy must make substantial
adjustments to its consumer production to accommodate defense production
needs. In a war economy, governments must choose how to allocate their
country’s resources very carefully in order to achieve military victory while
also meeting vital domestic consumer demands.
KEY TAKEAWAYS
• War economy refers to an economy of a country at war.
• Governments in a war economy must decide how to allocate resources
to account for their defense needs.
• War economies generally use tax dollars for defense spending.
• War economies often are responsible for industrial, technological, and
medical advancements due to the pressure to create better products at
a cheaper cost.
Understanding War Economy
War economy refers to an economy of a country at war. A war
economy prioritizes the production of goods and services that support war
efforts, while also seeking to strengthen the economy as a whole.
During times of conflict, governments may take measures to prioritize
defense and national security expenditures, including rationing, in which the
government controls the distribution of goods and services, as well as
resource allocation. In times of war, each country approaches the
reconfiguration of its economy in a different way and some governments may
prioritize particular forms of spending over others.
For a country with a war economy, tax dollars are primarily used on defense.
Likewise, if the country is borrowing large amounts of money, those funds
may go mostly toward maintaining the military and meeting national security
needs. Conversely, in countries without such conflict, tax revenue and
borrowed money may be used to improve infrastructure and domestic
programs, such as education.
War economies often exist out of necessity when a country feels it needs to
make national defense a priority. War economies often demonstrate more
industrial, technological, and medical advancements because they are in
competition and therefore under pressure to create better defense products
at a cheaper cost. However, because of that focus, countries with war
economies may also experience a decline in domestic development and
production.
War Economy Example
All of the major members of both the Axis and Allied powers had war
economies during World War II. These included countries such as the United
States, Japan, and Germany. America's economic strength was a vital pillar
that allowed the Allies to receive the money and equipment needed to defeat
the Axis powers.
The U.S. government transitioned to a war economy after the Japanese
attack on Pearl Harbor, raising taxes and issuing war bonds to help fund the
war effort.12
The War Production Board (WPB) was formed to allocate resources to the
war effort, including copper, rubber, and oil, award defense contracts to
civilian corporate interests, and incentivize military production among civilian
business owners.3 Famously, women around the United States participated
in the war economy by taking military production jobs and other positions
previously filled by men, many of whom had joined the military.4
Special Considerations
Because wars can sometimes have the effect of accelerating technological
and medical progress, a country’s economy can be greatly strengthened after
the war, as was the case with the U.S. after both World War I and World War
II. Some economists argue, however, that the wasteful nature of military
spending ultimately hinders technological and economic advancement.
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