Madeline C.

Sibulo
2B-Med Tech
Mr. Tony Topacio
War Economy:
Economic Effects of War
Wars are expensive, destructive and disruptive. Large wars constitute severe shocks to
the economies of participating countries. Many specific economic effects of war are observed
throughout the course of history. There are three main economic effects that I want to express.
Two would be the negative and one is positive.
First is inflation. Paying for wars is a central problem for states and since the
government would need more money to pay for war, two things can be done, either to raise taxes
or to borrow money. The former would tend to push up prices temporarily while the latter will
increase government debt and as a result, there will be inflation.
Second is capital depletion. Wars destruct capitals like infrastructures, buildings, cities,
factories which greatly depresses economic outcome.
It is ironic that, from a certain perspective, wars can also be quite beneficial for an
economy. At certain times, a war may stimulate a national economy in the short term. There
comes the argument a war gives the economy a boost. The higher levels of government
spending associated with war tends to generate some positive effect in the short-term,
specifically through the increase in economic growth during spending most especially when the
preparation for a war is large enough. This was evident during the Korean War. The Korean war
was largely financed by higher tax rates with GDP averaging 5.8% between 1950 and 1953 with
GDP growth peaking at 11.4%. It all happened because of the many investments and
consumptions. The stock market also rose during the war.
In addition, winning a war is beneficial also to the economy. This was seen when the
French Third Republic paid 5 billion francs (or 1 billion dollars) to the German Empire after the
French lose in the Franco-Prussian War in 1871.
Although, the positive effects of a war are promising, it is important to note that there are
considerable opportunity costs of war spending. What could the economy look like if money
would have gone somewhere other than war? Military spending does produce jobs but spending
in other areas could produce MORE jobs!


References:
War and Economic History by Prof. Joshua S. Goldstein from http://www.joshuagoldstein.com/jgeconhi.htm
Economic Impact of War by Tejvan Pettinger from http://www.economicshelp.org/blog/2180/economics/economic-impact-of-war/
The French Indemnity of 1871 from http://www.jstor.org/stable/1928688