How War Impacts the Economy
By - Caden Rachwal
Warfare has a huge impact on the economy. There is a decline in the working population, there can be loss of buildings and businesses, rise in debt and also there is disruption to normal economic activities. In many cases war leads to inflation. In turn when the inflation rises, people lose their savings that they have built up. To give an example of when war impacted the economy by creating inflation would be when during the Civil War, the confederacy printed money to pay their soldiers which made the value of money in the economy to decline. Inflation will often wipe out people’s entire savings.
War also can cause a rapid rise in national debt. The reason that the debt increases is because in an effort to win the war, countries will end up borrowing more money than they normally would. World War One and World War Two caused a lot of national debt for the United Kingdom. After both of these world wars, the national debt rose very sharply. At the end of World War Two, the national debt rose to 150 percent and by the early 1950s the national debt was up to 240 percent. The reason that the debt was so high for the UK was because they borrowed money from the United States during World War Two and then after the war was over they started to pay these loans back. Since the United States was not involved in the first two years of the war, they did not lose as much money because they were able to sell weapons and supplies to the UK during the first two years. Another thing to make a note of would be to note the opportunity cost of war. If the government spends 300 billion dollars on weapons and on military spending, that is 300 billion dollars that could have been spent on healthcare or education or put back into the economy to benefit the country in other ways. For brief amounts of time, war can boost the domestic economy. It provides full employment, higher economic growth, increased rate of innovation because the military is inventing new and better technology, and it also will boost domestic demand. There are other ways how warfare can impact the economy, but these are the most common and influential ways.
Works Cited
Pettinger, Tejvan, et al. “Economic Impact of War.” Economics Help, 10 Mar. 2020, www.economicshelp.org/blog/2180/economics/economic-impact-of-war/.
says, Bill Hendrick, et al. “Confederate Inflation Rates (1861 - 1865).” InflationData.com, 13 Nov. 2019, inflationdata.com/articles/confederate-inflation/.
I never really thought about how war can cause inflation. With wars people often overlook the economic side because as you said they are kept up in winning, but after reading your post I can't help but wonder what would be different if people paid more attention to the economics of war. If we took the opportunity cost of 300 billion dollars and put it into other programs like education or medicare, would the country we live in operate differently? I think that if this money was put into these other programs the country would have a better quality of life and the amount of people who were struggling to get education and medicare would hopefully decrease.
ReplyDeleteIt is really interesting to learn about the debt side of the War. Most of the time in classes we only really learn about inflation such as in WWII when Germany was mass printing money making it worthless. War is like a double edged sword, on one hand it can be good for the economy and can bring lots of money and new jobs, but on the other people on the home front may have worse lives living in fear as well as people dying.
ReplyDeleteThe first graph you have about the inflation in the Confederacy is really surprising. I didn't know that inflation was that high, and I think it's crazy how volatile the whole thing was over the span of just 4 years. I also think its interesting how the UK was able to pay back their debt relatively quickly. I wonder if the US could possibly learn something from that and start repaying our debt.
ReplyDeleteWar is always historically known to make or break an economy. Winners of a war, don't necessarily have a booming economy. Just look at the end of WWI when all the leading countries were deprived of money, which lead to the Treaty of Versailles. Britain was especially at a loss with the cost of war. Especially for Germany, the war has destroyed the economy. In terms of WWII, however, war has made an economic boom, and greatly increased all countries GDP, and revived German's Economy (at least half of it). To help aid Germany, unlike the Treaty of Versailles, America aided and gave Germany money to help boost its economy. Like you mentioned before, war creates demand. The government increases its spending, factories are manufacturing and jobs are being created. Like demand-side economics, when the government increases its spending, demand increases, thus raises supply, ultimately raising prices. WWII is the reason the U.S. became a global power. I would argue that even though war creates debt, that debt is easily paid off from the positive impacts of war and a booming economy.
ReplyDeleteI think it's interesting to see the other things war effects other then just the deaths of people, most people now wouldnt think much about war causing debt because we didnt live in a war, so seeing just how bad of an effect they have is very interesting.
ReplyDeleteI didn't know that the civil war caused a huge inflation. But since knowing WW1 and the soon following great depression, as well as having to use payment tickets for rationing in WW2, Im not surprised. It so interesting to see that a war can do this, even if you are the winner, there really is no winning if your country is in a financial crisis.
ReplyDeleteThere are many good points in this Blog. One that I found to be one of the most interesting was how you talked about instead of spending so much on weapons and military spending, they could use that money to help the people who have been affected by war. I completely agree.
ReplyDeleteI really like how you show the long term effects of war. Not only do people die, but the economic status of these countries take a huge hit. It interested me that the confederates printed out money. When I think of war inflation the first thing I think of is the inflation Germany caused by printing out money after WWI to pay off their debt, not the inflation caused by the confederates. I also liked how you talked about war debt. It shows how countries can win a war, but that doesn't mean they are winning. The opposing country may be defeated, but now you're billions of dollars in debt.
ReplyDeleteWhile reading this post, it got me thinking. If the U.s. didn't participate in the war the first two years, why are we in such bad debt right now? It could be because of the way we utilize our money. Being able to know how these wars impacted the economy can give you a headstart and a little bit of knowledge about the national debt crisis and how it impacts us today. Caden did very well on explaining this because I never really understood or even knew what could be causing these things until now. One thing you could possibly try is try relating it do the present because a lot of things that happen in the past can still carry on to the present and even the future. Your broung up debt and the value of money, so even there you could talk about the value of money then, like you did in the post, and add how the value of money has changed from then to now. But other than that this was a very well detailed and informal post and I really learned from it.
ReplyDeleteI feel like war and battles are always measured in deaths and injuries, so it was very interesting to see how much more stress and strain war put on a country. It really makes you wonder what other aspects of life are changed and affected by war, because none of us have lived through a war to truly know what it's like.
ReplyDeleteI thought this blog was very useful. Many of us know that the great depression was somewhat caused by WW1 but it was interesting to learn that the economy had a huge part in the Civil war. I really enjoyed the information in your blog. I enjoy history and I like learning about this aspect of history and more specifically war. I wonder what the outcome would be if the war was shorter thus causing less money needed to be invested into the war.
ReplyDeleteI like that you are talking about how much a country spends on wars and how many people lose there jobs because of inflation, and how much debt a country can take on. But wars can create jobs, who is making the planes, tanks, guns, ammunition in World War II, the government is spending money and the people are getting the money. Jobs are be created and when people get money, they will spend it and go back to the government via tax.
ReplyDeleteI really liked this piece. I knew about how battles within the war are measured with the men lost and is often a deciding factor in a victory or a defeat. Yet, the point of the US national debt rising 150% after the war surprised me and the toll it takes on a country is something more people should be aware of. The money that goes into supplying a military much less the amount that is needed to provide enough ammo and ship the men and women over seas is astronomical. Overall, great piece!
ReplyDeleteI really like how you put this together, with the opportunity cost and and examples. In the US's case, they not only entered late, but also were basically never bombed. Pearl harbor happened, but they not only didn't get hurt, but because of how much weapons they sold, the US became even more powerful. Back to the economics, it shows how much war can hurt and economy. In the US, in stark contrast to many superpowers before it, the elites make money instead of losing money to war. That is one thing that contributes to how much war we go into. War makes very different materials, and therefore has to stop the production of many other things. That is one thing that makes recovering hard is the lack of production on things that are needed to recover, consumer products like cars.
ReplyDeleteWar has a very interesting impact on the economy. In most cases, the destruction and loss of life caused by war is enough to ruin a flourishing economy. However, there are cases where the side effects of war actually help the economy temporarily. The North side of the US Civil War experienced an industrial boom after the conclusion of the war. Likewise, WW2 was a cause of what brought the US out of the Great Depression. I do not think it is war itself that brings about economic growth, but rather events that are often associated with war. If we look at WW2, the United States was shielded from the destruction of infrastructure and most of the loss of life, but still acted as many other countries had. It increased government spending and employed massive amounts of new laborers, pouring wealth into circulation. The participation of women in the workforce increased dramatically, and wages increased as demand for labor increased. These effects are likely the reason the US was able to climb out of the Great Depression, but they did not have to be caused by a war. A similar event happened when the US was still very young. During the Market Revolution, the US spent a large amount of money building roads and canals throughout its country, which had similar effects as WW2. From looking at this, we can see that we may be able to create an economic boom similar to those seen after a war without causing the destruction of infrastructure and loss of life. This may be done with government funded projects that will provide benefit to the country.
ReplyDeleteInteresting topic, I enjoyed reading. I would disagree with you in that there are some positive effects to the economy that war can bring. As you mentioned, a positive would be the minor boost from new jobs regarding arms manufacturing and research. However, this only temporarily employs people, and the moment the war is over, they are again out of a job and extremely vulnerable to the newly inflated economy. In conclusion, war is essentially never good for business.
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