The cost of killing crisis

The economics of war do not add up to anything good. Frances Coppola tallies.

Wars are costly. Not just for the participants, but for everyone. Human lives are destroyed, productive capacity is wrecked, birth rates fall, education and training stops, investment flees, the environment is degraded.

Those directly involved in the conflict – mostly, but not exclusively, young men – engage in the economically-unproductive activity of killing each other and destroying the war equipment expensively produced by the other side. For everyone else, the economic emphasis shifts to producing more and better weapons while trying to stay alive.

These days, most Western married women already work outside the home. If a Western country conscripted troops for a war, to whom would it look to cover the loss of productive workers?

For governments, there is the constant headache of persuading their citizens to put their lives on the line. States involved in extended wars typically resort to conscription to maintain the supply of troops. But since those eligible for conscription are prime-age workers, either more workers must be found or economic activity necessarily falls. During World War II, the shortfall was covered by married women who had not been working outside the home. But these days, most Western married women already work outside the home. If a Western country conscripted troops for a war, to whom would it look to cover the loss of productive workers?

It’s not just the loss of productive workers that limits conscription. The war itself imposes limits. In the war of attrition between Russia and Ukraine, both sides are using conscription – and troop losses are extremely heavy. For Ukraine, there is a real risk that it will simply run out of people. Russia has far more cannon fodder at its disposal, but it faces a growing threat from a formidable force – Russian wives and mothers, who don’t like their husbands and sons being fed into the Donbas meat grinder. Wars can be lost because of domestic discontent, and President Putin knows it.

There’s also the problem of financing the war. Producing munitions and supporting an army is extremely expensive, and the economic activity needed to fund it is usually considerably reduced. So governments often run out of money. They borrow (or sometimes steal) from their own populations: for example, Britain issued War Bonds to finance the Napoleonic wars. They borrow from friendly states: in both World Wars, the Allies ended up heavily indebted to the US. And they also obtain money from central banks: the Bank of England was originally created to fund Britain’s war with France. Borrowing heavily and/or using central bank money to fund a destructive activity while productive activity falls sharply inevitably raises domestic prices, often considerably.  War is inflationary.

Borrowing heavily and/or using central bank money to fund a destructive activity while productive activity falls sharply inevitably raises domestic prices, often considerably.  War is inflationary.

In a closed economy in which arms manufacture was entirely done by state industries using resources entirely obtainable from within the state, the money flow would be circular: the state would create money to spend on arms, the arms manufacturers would pay money to workers, workers would spend the money… wait, what would they spend it on? In a wartime economy, the state typically also controls the production and distribution of everyday basics such as food and energy – think of the Land Army and rationing in wartime Britain, for example. So, workers spend their money on whatever is available to keep them alive (which might not be much, since most productive capacity is diverted to arms production), and the money returns to the state. Under these circumstances, inflation can be controlled by means of financial repression and prices and incomes controls, as Keynes advised in How to Pay for the War.

But very few countries now have completely closed economies. The vast majority rely on imports to a greater or lesser extent. So, supply chains become military targets. Wartime Britain was not self-sufficient in food and raw materials, so relied on convoys from the US. The Atlantic convoys inevitably became a target for German submarines. Protecting the convoys became a vital task for the British Navy.

Supply chain disruption affects everyone, not just countries directly involved in the war.  As I write, the Houthi regime in Yemen is blockading traffic through the Red Sea. A consortium of mainly Western countries is sending warships to the Red Sea to try to ensure safe passage for shipping. But most shipping has nevertheless diverted to the longer and more expensive route round the Cape of Good Hope. Oil prices are already rising, and prices of other goods will also inevitably rise. War is inflationary.

Attacks on supply chains can impede munitions production. Russia is not self-sufficient in the parts required to make advanced weapons, so these supply chains might seem to be an obvious target for Western sanctions. Fortunately for Russia, the West’s scattergun approach to sanctions has proved entirely ineffective at closing down these supply chains. While production statistics from Russian sources need to be taken with a large pinch of salt – propaganda is, after all, a weapon of war – Russia does seem to be manufacturing large quantities of advanced weapons with little difficulty.

European arms manufacturers are doing very well out of the Ukraine war, but the cost is borne by European civilians.

Another costly effect of war is that countries not directly involved in the war divert domestic resources to rearmament. Because of the Ukraine war, countries across Europe are rearming,  including Germany, for the first time since World War II. When governments spend money on armaments, that money goes to those who manufacture arms. European arms manufacturers are doing very well out of the Ukraine war, but the cost is borne by European civilians.

And when the war is over, everyone is poorer. The losers in war typically experience economic collapse, sometimes accompanied by hyperinflation. But even the winners suffer. Physical capital in countries at war, whether winners or losers, is commonly severely degraded, and there is often considerable environmental damage. And the human toll is terrible, not only in lives lost but in life-changing injuries, mental trauma and, for women and girls, unwanted pregnancy. The children born of wartime rape are often outcasts, condemned through no fault of their own to a life of destitution. And for uninvolved spectators of war, the disruption to international trade and finance brings economic suffering. As Pope Francis said, war is always defeat. For everyone.

Since wars are so costly, why do humans still wage them? Simple: land. Land that has, or gives access to, prized resources such as coasts and rivers, minerals and high-quality farmland. The warlord that controls the best resources has the greatest power. Wars reshape the geopolitical landscape. The changes wrought by great wars reverberate down the centuries. So despite the terrible cost, the potential prizes make waging war very attractive for power-hungry warlords.

Most wars are fought over land and resources. The war in Ukraine is driven by President Putin’s desire to gain control of the strategically important northern coast of the Black Sea and the rich farmland of Ukraine. The current conflict in Gaza is the latest brutal expression of a long-standing fight about who should have exclusive rights to the land between the Mediterranean Sea and the Jordan River. Venezuela is currently laying claim to about two-thirds of its neighbour, Guyana, because of its extensive offshore oil resources. Ethiopia’s prime minister, determined to gain access to the Red Sea by fair means or foul, is threatening war against Eritrea. 

Since wars are so costly, why do humans still wage them? Simple: land. Land that has, or gives access to, prized resources such as coasts and rivers, minerals and high-quality farmland.

It’s easy to be fooled by wars of words, especially when warlords dress up their land and resource claims in historical and religious language. But historical and religious arguments don’t by themselves explain war. After all, if historical and religious arguments justified seizing land and resources now, then the Italian government would have a just claim to most of Europe, North Africa and the Middle East. Mussolini tried this line of argument. He lost.

War has been used as a means of settling land and resource disputes for centuries. But modern warfare makes the cost far, far too great. Too many people die, too much physical capital is destroyed, there is too much damage to the environment. And we have more important matters to attend to, not least the impending catastrophe of climate change. We cannot afford to wage war any more. For the sake of generations to come, this madness must end.