Economists' Views on the Costs of War. Part I.

Defense through the Stages of Society

As with so many topics in economics, a survey of writings on the costs of war can begin with Adam Smith. Smith began Book V of An Inquiry into the Nature and Causes of the Wealth of Nations (1904, first pub. 1776) with an analysis of the costs of defense in different societies at different stages of development. He started Part I of Book V with the simple observation that

The first duty of the sovereign, that of protecting the society from the violence and invasion of other independent societies, can be performed only by means of a military force. But the expence both of preparing this military force in time of peace, and of employing it in time of war, is very different in the different states of society, in the different periods of improvement.

Smith reasoned that in its earliest form, a society consisted of a “nation of hunters” in which each man was a warrior and the tools of his trade were simultaneously the tools of war. In such a setting, society “is at no expence, either to prepare him for the field, or to maintain him while he is in it,” because his daily life requires that through his own labors he prepare and maintain himself. Similarly, a nation of herdsmen or shepherds, accustomed to a nomadic life with no fixed habitation, is by its nature constantly prepared to march as an army according to the needs of defense as easily as it changes location in accordance with the seasons.

Once a society takes up some form of agriculture, however, the situation changes. Although daily life spent toiling against the elements still prepares a community’s people to some degree to fight, it also requires that at least some of its inhabitants remain behind to protect and tend the homeland. In terms of state spending, if a military campaign occurs between the planting of the seed and the harvesting of the crop, those participating could leave without much loss of personal revenue, but as campaigns grow longer and the important work of the fields goes undone, the state is forced to incur costs to pay for the services of its military men.

As society progresses further to one increasingly composed of artisans and industry, the expansion of manufacturing and advances in the technology in warfare make it impossible for individuals to pay their own expenses as they prepare themselves to conduct war. In paragraphs 8 and 9 of Part I, Book V, Smith writes that

The moment that an artificer, a smith, a carpenter, or a weaver, for example, quits his workhouse, the sole source of his revenue is completely dried up…. When he takes the field, therefore, in defence of the public, as he has no revenue to maintain himself, he must necessarily be maintained by the public.

When the event of war ceases to be determined, as in the first ages of society, by a single irregular skirmish or battle, but when the contest is generally spun out through several different campaigns, each of which lasts during the greater part of the year, it becomes universally necessary that the public should maintain those who serve the public in war, at least while they are employed in that service. Whatever in time of peace might be the ordinary occupation of those who go to war, so very tedious and expensive a service would otherwise be far too heavy a burden upon them.

As the scope of military campaigns expanded, so did the costs of properly equipping an effective army, as described in paragraph 42:

Both their arms and their ammunition are become more expensive. A musket is a more expensive machine than a javelin or a bow and arrows; a cannon or a mortar than a balista or a catapulta. The powder which is spent in a modern review is lost irrecoverably, and occasions a very considerable expence. The javelins and arrows which were thrown or shot in an ancient one, could easily be picked up again, and were besides of very little value…. As the superiority of the modern artillery too over that of the ancients is very great, it has become much more difficult, and consequently much more expensive, to fortify a town so as to resist even for a few weeks the attack of that superior artillery. In modern times many different causes contribute to render the defence of the society more expensive. The unavoidable effects of the natural progress of improvement have, in this respect, been a good deal enhanced by a great revolution in the art of war, to which a mere accident, the invention of gunpowder, seems to have given occasion.

Standing Armies versus National Reserves

Smith’s next question was how the state should organize that defense, as a militia or reserve system in which all men receive a measure of military training, or as a standing army in which soldiering becomes a distinct trade of its own. As might be expected of such a well-known advocate of the division of labor, Smith came down in favor of the specialized standing army, a position made clear in paragraph 13 of Part I, Book V:

…In order to carry [the art of war] to this degree of perfection, it is necessary that it should become the sole or principal occupation of a particular class of citizens, and the division of labour is as necessary for the improvement of this, as of every other art. Into other arts the division of labour is naturally introduced by the prudence of individuals, who find that they promote their private interest better by confining themselves to a particular trade than by exercising a great number. But it is the wisdom of the state only which can render the trade of a soldier a particular trade separate and distinct from all others…. It is the wisdom of the state only which can render it for his interest to give up the greater part of his time to this peculiar occupation.

Here we see the distinct position that war holds in Smith’s political economy—in other endeavors, the division of labor necessary for improvement comes most naturally in the absence of action by the state; in war, where division of labor is required not just for improvement of its art but for the very survival of the society, it is only through the intervention of the state that such specialization can occur. There is a certain irony in Smith’s view—once free markets have encouraged a high enough degree of specialization, it then becomes preferable for the state to step in and organize a specialized standing army.

Not all of Smith’s conclusions were accepted by other economists. Writing over a century after Smith, English economist Charles F. Bastable concurred with much of Smith’s analysis of the development of war as connected to state finances, but took exception to his treatment of the question of the relative desirability of a reserve system compared to a standing army. Having the advantage of being alive after the nineteenth century successes of European armies, particularly the Prussian army, that relied on a mandatory nationwide reserve organization, Bastable, in Public Finance (1917, first pub. 1892) was more willing to acknowledge that such a reserve system had advantages to it, not the least of which were financial. In paragraph 13 of Chapter II, Book I, he wrote:

As regards the cost or sacrifice involved in the various methods of defence, the national army presents two great advantages: (1) it requires less direct outlay, and (2) its real pressure is not so acutely felt. It is plain that services obtained through legal compulsion will be cheaper than those that are hired in the labour market at the current rate. Moreover, when the duty of military service is general, and enforced without favouritism, the sacrifice entailed by it will probably be less felt than if the large amount of additional funds needed under voluntary enlistment had to be levied through taxation.

This did not mean that he was entirely convinced of the superiority of the German system, as he called it. Continuing with paragraph 13:

It yet remains doubtful whether the indirect losses may not be more than the gains just mentioned. The real cost of an army formed on the German type is hard to measure…. Though the compulsory service in [Germany] reduces considerably the amount of direct outlay by the State, it inflicts a tax on those compelled to serve, whose amount could be measured only by what they would pay in order to escape it. [Another] influencing condition is the indirect effect on the productive powers of the country.1

From these two passages, we see that economists have long recognized military spending as a drag on an economy’s resources, not a stimulus. In addition to the enormous amount of labor that is diverted to military training and away from more productive endeavors, Bastable identified two more potential costs of the German system. In paragraph 15 he wrote:

It may, indeed, be argued that the habits of discipline and order acquired during service should be placed to the credit of the German system, but this questionable item would not much affect the general result, more especially when we add the probable loss of originality and initiative, which is another result of discipline. The national army system further involves a supervision of the movements of all the members of the potential war force, and such regulation must in some degree restrict the free flow of labour to suitable markets.

Taking all of these costs and benefits into consideration, Bastable concluded that no one system is uniformly better than the other, and that countries with different circumstances would be best served with different military organizations.

Benefits from the High Costs of Armaments

Both Smith and Bastable devoted attention to the implications of the ever-increasing costs of weapons necessary for defense as the technology of war advanced. We have already seen how rising costs were pivotal in requiring the state take on the expense of paying for defense. They both also pointed out that the high costs themselves produced some offsetting benefits, at least to the most modern, wealthy societies, societies that both men equated with civilization itself.

Returning to Book V of Smith’s Wealth of Nations, Part I concludes with this observation in paragraph 43:

In modern war the great expence of fire-arms gives an evident advantage to the nation which can best afford that expence, and consequently to an opulent and civilized over a poor and barbarous nation. In ancient times the opulent and civilized found it difficult to defend themselves against the poor and barbarous nations. In modern times the poor and barbarous find it difficult to defend themselves against the opulent and civilized. The invention of fire-arms,… an invention which at first sight appears to be so pernicious, is certainly favourable both to the permanency and to the extension of civilization.

Bastable took up this point, that war’s increasing costs put those states best able to afford them on much more secure footing than their rivals, and in paragraph 21 of Chapter II, Book I, added to the argument the idea that defense spending could have a beneficial impact on industrial production.

Against the undoubted evil of the great increase of outlay on armaments, it is satisfactory to be able to point to some compensation, or at least alleviation. One result is to favour the wealthier, and therefore the most industrious nations. A rich State can obtain the best ships, rifles, and cannon, and so gains the same advantage over its poorer rivals that civilised peoples generally gained over barbarians by the invention of firearms. The increased cost of warlike equipment is accompanied by an immense expansion of industrial production… and finally, though this is problematical, the skill developed in aiding the work of destruction is also of service for industry.

So not only are wealthy, industrious nations better equipped to handle the costs of war, but as a result of their higher spending, they might further enhance their relative positions through improvements in their stocks of capital and labor. Thus, war, despite its horrors and costs, is viewed to advance the interests of civilization against “barbarians,” just as do industry and commerce.

Conclusion, and a Look Ahead

The passages examined above have all focused on the costs of preparing for war, the role and options for a state organizing its resources for its own defense, and some of the benefits that have been associated with military production. In the next Teacher’s Corner, we will examine some of the costs and benefits that past economists have associated with war itself, the economic impacts of disruptions caused by actual fighting. We will also highlight what they have written about the motivating forces behind war, and their visions of the future of war.