War Economy: Definition, Priorities, Example

What Is a War Economy?

A war economy is the organization of a country’s production capacity and distribution during conflict. It requires adjusting consumer production to meet defense needs. Governments must carefully allocate resources to achieve military victory and meet domestic demands.

Key Takeaways

• War economy refers to an economy of a country at war.
• Governments must decide how to allocate resources for defense needs.
• War economies generally use tax dollars for defense spending.
• War economies are responsible for industrial, technological, and medical advancements.

Understanding War Economy

A war economy prioritizes war-supporting goods and services while strengthening the overall economy. During conflict, governments may prioritize defense and security expenditures, including rationing and resource allocation. Different countries reconfigure their economies in various ways, with some prioritizing specific spending.

In a country with a war economy, tax dollars primarily fund defense. Borrowed money may also largely go towards the military and national security. Conversely, countries without conflict use tax revenue and borrowing for infrastructure and domestic programs, such as education.

War economies drive industrial, technological, and medical advancements due to competition and pressure to create cost-effective defense products. However, they may experience a decline in domestic development and production.

War Economy Example

During World War II, major Axis and Allied powers had war economies, including the United States, Japan, and Germany. The United States’ economic strength was crucial for providing the necessary funding and equipment to defeat the Axis powers.

After the Japanese attack on Pearl Harbor, the U.S. government shifted to a war economy by raising taxes and issuing war bonds. The War Production Board (WPB) allocated resources for the war effort, awarded defense contracts, and encouraged military production among civilian businesses. Women played a significant role in the war economy by taking on military production jobs and filling positions previously held by men who had joined the military.

Special Considerations

Wars can accelerate technological and medical progress, strengthening a country’s economy after the conflict, as seen in the United States after World War I and World War II. However, some economists argue that excessive military spending hinders technological and economic advancement.