THE

ECONOMIC
S OF WAR
 The market economy involves peaceful cooperation.
It bursts asunder when the citizens turn into warriors
and, instead of exchanging commodities and
services, fight one another.

Sources: Dr. Mises is Visiting Professor of Economies at New York University. This is
abridged From a chapter of his book, Human Action (Yale University Press, 1949. 881 pages.
 Wars fought by primitive tribes did not affect cooperation
under the division of labor. Such cooperation by and large did
not exist between the warring parties before the outbreak of
hostilities. These wars were unlimited or total wars.

 This philosophy of boundless conquest also animated the

rulers of medieval Europe. They too aimed first of all at the
utmost expansion of the size of their realms. But the
institutions of feudalism provided them with only scanty
means for warfare. Vassals were not obliged to fight for their
lord more than a limited time.
 The combined effect of military, financial, and political
circumstances produced the limited warfare which
prevailed in Europe in the three hundred years preceding
the French Revolution. Wars were fought by comparatively
small armies of professional soldiers. War was not an affair
of the peoples; it concerned the rulers only. The citizens
detested war which brought mischief to them and
burdened them with taxes and contributions.
 Looking at conditions as they had developed under the system
of limited warfare, philosophers found wars useless. So they
reasoned as follows: Men are killed or maimed, wealth is
destroyed, countries are devastated for the sole
benefit of kings and ruling oligarchies. The peoples
themselves do not derive any gain from victory.

 The only cause of armed conflict is the greed of autocrats. The

substitution of representative government for royal despotism
will abolish war altogether. Democracies are peaceful. It is no
concern of theirs whether their nation’s sovereignty stretches
over a larger or smaller territory. They will treat territorial
 Under laissez faire peaceful coexistence of a multitude of
sovereign nations is possible. Under government control of
business it is impossible.

 Modern total war has nothing in common with the limited

war of the old dynasties. It is a war against trade and
migration barriers, a war of the comparatively
overpopulated countries against the comparatively
underpopulated. 
  It is a war to abolish those institutions which prevent the
emergence of a tendency toward an equalization of wage
rates all over the world. It is a war of the farmers tilling poor
soil against those governments which bar them from access
to much more fertile soil lying fallow. 
 “Modern civilization is a product of the
philosophy of laissez faire. It cannot be
preserved under the ideology of government
omnipotence . . . . To defeat the aggressors is
not enough to make peace durable. The main
thing is to discard the ideology that generates
war.”
 WAR & THE
MARKET
ECONOMY
• It is a widespread myth that the market economy may
be tolerated in peacetime, but in emergency situations
— such as a war — the government must seize control
of production. During war, resources that normally go
into consumer goods must be diverted into products for
the military; private consumption must fall.
• In the United States during the Second World War, this process
was short-circuited because the government clung to the union
doctrine that the workers' real take-home pay must not be
allowed to fall, even during wartime.
• Consequently, the government was reluctant to levy higher
taxes, and it imposed price controls to prevent "war
profiteering."
• Given these realities, the only solution was to further intervene
in the market, by imposing rationing schemes and other
controls, designed to ensure an adequate flow of resources into
the war industries.
 Modern wars are won with materiel. Capitalist countries
defeat their socialist rivals because private entrepreneurs
are more efficient in churning out products, whether
consumer goods during peacetime or weapons for their
governments. Even so, ultimately war and the market
economy are incompatible, as the market relies on peaceful
cooperation.
 ECONOMIC COSTS OF WAR

• The United States federal government has spent or

obligated 4.8 trillion dollars on the wars in Afghanistan,
Pakistan, and Iraq.
• This figure includes: direct Congressional war appropriations;
war-related increases to the Pentagon base budget; veterans
care and disability; increases in the homeland security budget;
interest payments on direct war borrowing; foreign assistance
spending; and estimated future obligations for veterans’ care.
• This total omits many other expenses, such as the
macroeconomic costs to the US economy; the opportunity
costs of not investing war dollars in alternative sectors;
future interest on war borrowing; and local government and
private war costs.

• The current wars have been paid for almost entirely by

borrowing. This borrowing has raised the US budget deficit,
increased the national debt, and had other macroeconomic
effects, such as raising consumer interest rates.
• Spending on the wars has involved opportunity costs for the
US economy. Although military spending does produce jobs,
spending in other areas such as health care could produce
more jobs. 
• Additionally, while investment in military infrastructure grew,
investment in other, nonmilitary, public infrastructure such as
roads and schools did not grow at the same rate. 
• Finally, federal war costs exclude billions of dollars of state,
municipal, and private war costs across the country – dollars
spent on services for returned veterans and their families, in
addition to local homeland security efforts.