Economic Consequences of War on the Warring Country

by;
Muhammad Nazrul and Yusoff

Many said that war could give an economic boost especially for the capitalist countries.
However, war at the same time can also give some sort of negative effect that will greatly change
the natural build-up of their economic structure of these countries. Joshua S. Goldstein stated
that, “War has influenced economic history profoundly across time and space. Winners of
wars have shaped economic institutions and trade patterns. Wars have influenced
technological developments. Above all, recurring war has drained wealth, disrupted
markets, and depressed economic growth.” (Joshua S. Goldstein, 2003). In this debatable
topic, every living souls had their own opinion and perception that somehow will be effected by
standard bias. In this case, we strongly agree that the war could give some economic
consequences towards the warring country. This stand was strengthen by some sort of economic
recession portrayed during the era of war. We found a lot of evidence to prove that the war had
given a lot of economic conflicts toward the attacked countries in the early period of World War
1. We learned that the war will entirely affect the political relation among worldwide and causing
all sort of problems to arise. War can caused the increment of national public debt and level of
taxation also the declining of public investment and consumption are some of the economic
consequences of the war especially towards the warring country.

First and foremost, war could lead to the increment of national debt and level of taxation
on the warring country. According to Romina Boccia in one of her article, she stated that,
“Recent economic research, especially the work of Carmen Reinhart, Vincent Reinhart,
and Kenneth Rogoff, confirms that federal debt at such high levels puts the United States
at risk for a number of harmful economic consequences, including slower economic
growth, a weakened ability to respond to unexpected challenges, and quite possibly a debt-
driven financial crisis” (Romina Boccia,2013). Whenever there was war on any country, they
would have to deal with other crisis like chaos, low in resources and low in the national fund. If
this kept up, the country could suffer from poverty and bankcrupty. In order to overcome those

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matter, the goverment would loan some money from other country. Thus, this will lead to the
increment of the national debt.
On top of that, Thomas Paine warned "war ... has but one thing certain, and that is to
increase taxes." (Thomas Paine, 1787). He was right to warn us as increasing the level of
taxation was one of the way the government could afford to pay for the war. Due to the damages
caused by the war, the government had to spend more than what they had collected in taxes. So,
they would have to earn the money by increasing the level of taxation. Moreover, paying for
wars was the central problem for any states. This was true especially in early modern Europe
(fifteenth to eighteenth centuries), when war relied heavily on mercenary forces. The king of
Spain was advised that waging war required three things - money, money, and more money.
Spain and Portugal imported silver and gold from America to pay for armies, but in such large
quantities that the value of these metals eventually eroded. Hence, without a doubt that war could
lead the increment of national debt and level of taxation on the warring country.

Next, according to Goldstein (2003), he stated that “the most consistent short-term
economics effect of war is to push up prices, and consequently to reduce living standards”.
This show that the country was now facing a decline of public investment and consumption
during the warring period. There will be a lot of citizen who unemployed as their place to make a
living are already crush down by the warring act. As a result, the annual Gross Domestic Product
(GDP) level of the current country will be decrease drastically. This would show that the country
had already lost to his rivals as their overall health of economic activities are already in a critical
state. Thus, the rival’s countries can take a great advantage towards these country as the current
country already shown the sign of losing towards them.
When the government increase their taxes to pay the war debt, the countrymen had loose
a big part of their income just to pay the taxes causing a great reduction of purchasing power
among the countrymen. This is due to these countrymen had to spend or save their expenditure to
be used for other means such as medicine or something that are much more important such as
education. This less economic activities show a small amount of dollar’s rotation in the country
causing a small domestic economic growth of the country.
“Paying for wars is a central problem for states” (Goldstein,2003). The main
intention of country during the warring period was to pay the war debt. The government will

2
spent most of the country expenditure to fulfil the need of the war and not to choose another
option to pay the debt by loaning the money from the world bank as its can drive the country into
bankruptcy. This caused the investment of country in daily infrastructure such as road and school
will be reducing due to maintain the economic states. In addition, the cooperate business
activities will also be affected drastically as the loss of clients trust due to the current act of the
country. Other than that, these clients also worry of their investment on the current country are
not worth enough to be maintained. As the clients retreat, the job opportunities also are swept
away with their absentness. This caused more and more citizen becoming unemployed.

Last but not least, war had caused a lot of tears wet the dry lands of the warring countries. With

son or daughter who lost their fathers on the battlefield, and a teacher who lost his job because of the

damage done to their only school, war however can somehow prosper some sort of benefits if there was a

positive action had been made to counter the all sad stories that already been written in the pages of the

history. Regarding to this topic, we use America as a model as these Uncle Sam’s can counter the effect

of war and turn them into opportunities to boost their economic growth some step forward ahead

compares to some other rival countries. Goodwin (1992) observed that “during the war, 17 million new

civilian jobs were created, industrial productivity increased by 96 percent, and cooperate profits

after taxes doubled”.

When war happened, there were a great demand of consumer-good product arise as one-third of

the overall output of the country’s production are being consumed to fulfil the need of the war. However,

America had prepared themselves to overcome the incoming problems such as lack of goods and hunger

among the civilian by boosting or expanding their total production completely. This strategic act had bear

an honour result as a numerous of jobs opportunities were created to their civilians. To fulfil this vacancy,

all nationalist from every corners of the country either white or black, men or women are welcome to join

the workforce. According to Goodwin (1992), he stated that “blacks and women entered the workforce

for the first time”. This act showed that America had practice a good openness among his countrymen.

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This also increased the overall productivity of the production and increased the number of expertise in

the demanding field either can reduced the number of unemployment among its civilians.

In addition, war was not only about the military superiority of the current country, it was also
measured by the superiority of technological advancement. Those world powerhouses such as America,
Britain and the Russia are racing among themselves to prove who are better in the invention sector. This
were then inspired the invention of the new technologies, new industries and new system that catalyst the
production growth of the industries. With the new technologies, there are more and more product can be
produce by the factory even in the short period of time. Thus, it also boost the production of the country.
Nevertheless, the invention of the new technologies also yields new earnings for the country. These new
technologies create some sort of demand on the international market. Those client’s country will pay any
amount of money to get the technologies to help their country to improve their production. This are a
good opportunity for the inventor’s country to take advantages on their demanding and gain as much
profits as they can and boost their economic states.

In a nutshell, war unconsciously affect the balance of economic system of the warring
country causing the increment of national debt and level of taxation also the declining of public
investment and consumption. The increment level of taxation and national debt are the solution
taken by the government to pay for the war. The Gross Domestic Product (GDP) that are affected
by the war will portray the current economic activity of the countries. There was without any
doubt that the war absolutely unhealthy and dangerous place to be. We should bare in our mind
that the war emerged is simply a man’s failure to think like a real man and behaving just like a
beast. Therefore, avoid war by discuss democratically before making any decision in order to
avoid from making a silly mistake that will ruin and perish our future.

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REFERENCES.

(Doris Goodwin, 1992)(The Way We Won: America's Economic Breakthrough During World
War II, 1992)(Joshua S. Goldstein, 2003)(The Oxford Encyclopedia of Economic History, ed.
Joel Mokyr,2003)(New York: Oxford University Press, 2003)(Romina Boccia, 2013)( How the
United States’ High Debt Will Weaken the Economy and Hurt Americans, Romina Boccia, 2013)
(Thomas Paine, 1787) (The Oxford Encyclopedia of Economic History, ed. Joel Mokyr,2003)
(New York: Oxford University Press, 2003)

Bibliography
Doris Goodwin (1992). The Way We Won: America's Economic Breakthrough During World
War II. Retrieved from website:
http://prospect.org/article/way-we-won-americas-economic-breakthrough-during-world-war-ii

Joshua S. Goldstein (2003). The Oxford Encyclopedia of Economic History, ed. Joel Mokyr
(New York: Oxford University Press, 2003). Retrieved from website:
http://www.joshuagoldstein.com/jgeconhi.htm

Romina Boccia (2013). How the United States’ High Debt Will Weaken the Economy and Hurt
Americans. Retrieved from website:
http://www.heritage.org/research/reports/2013/02/how-the-united-states-high-debt-will-weaken-
the-economy-and-hurt-americans

Thomas Paine (1787). The Oxford Encyclopedia of Economic History, ed. Joel Mokyr (New
York: Oxford University Press, 2003). Retrieved from website:
http://www.joshuagoldstein.com/jgeconhi.htm

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Author In Text Reference Reference List
Doris Goodwin (1992) “during the war, 17 million new The Way We Won: America's
civilian jobs were created, industrial Economic Breakthrough
productivity increased by 96 percent, During World War II
and cooperate profits after taxes Doris Goodwin, Fall 1992
doubled”. P1
Joshua S. Goldstein, “War has influenced economic War and Economic History 
(2003). history profoundly across time and Prof. Joshua S. Goldstein
space. Winners of wars have shaped
economic institutions and trade In The Oxford Encyclopedia
patterns. Wars have influenced of Economic History, ed. Joel
technological developments. Above Mokyr (New York: Oxford
all, recurring war has drained wealth, University Press, 2003).
disrupted markets, and depressed
economic growth.” P1
“the most consistent short-term
economics effect of war is to push up
prices, and consequently to reduce
living standards”. P3
“Paying for wars is a central problem
for states”. P4
Romina Boccia (2013) “Recent economic research, How the United States’ High
especially the work of Carmen Debt Will Weaken the
Reinhart, Vincent Reinhart, and Economy and Hurt Americans
Kenneth Rogoff, confirms that
federal debt at such high levels puts By Romina Boccia
the United States at risk for a number
of harmful economic consequences,
including slower economic growth, a
weakened ability to respond to
unexpected challenges, and quite
possibly a debt-driven financial
crisis” P2
Thomas Paine (1787) "war ... has but one thing certain, and War and Economic History 
that is to increase taxes." P5 Prof. Joshua S. Goldstein

In The Oxford Encyclopedia

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ARTICLE REFERENCES.

ARTICLE 1.
The Way We Won: America's Economic Breakthrough During World War II
Doris Goodwin, Fall 1992

America's response to World War II was the most extraordinary mobilization of an idle economy
in the history of the world. During the war 17 million new civilian jobs were created,
industrial productivity increased by 96 percent, and corporate profits after taxes doubled.
The government expenditures helped bring about the business recovery that; had eluded the
New Deal. War needs directly consumed over one-third of the output of industry, but the
expanded productivity ensured a remarkable supply of consumer goods to the people as well.
America was the only that saw an expansion of consumer goods despite wartime rationing. BY
1944, as a result of wage increases and overtime pay, real weekly wages before taxes in
manufacturing were 50 percent higher than in 1939. The war also created entire new
technologies, industries, and associated human skills.
The war brought full employment and a fairer distribution of income. Blacks and women entered
the workforce for the first time. Wages increased; so did savings. The war brought the
consolidation of union strength and far-reaching changes in agricultural life. Housing conditions
were better than they had been before.

ARTICLE 2.

War and Economic History 

In The Oxford Encyclopedia of Economic History, ed. Joel Mokyr (New York: Oxford
University Press, 2003).

War has influenced economic history profoundly across time and space. Winners
of wars have shaped economic institutions and trade patterns. Wars have
influenced technological developments. Above all, recurring war has drained
wealth, disrupted markets, and depressed economic growth.

7
Inflation

The most consistent short-term economic effect of war is to push up prices, and
consequently to reduce living standards. This war-induced inflation was described
in ancient China by the strategist Sun Tzu: "Where the army is, prices are high; when
prices rise the wealth of the people is exhausted" (Tzu Sun, c.400 BCE) His advice
was to keep wars short and have the money in hand before assembling an army.

Paying for wars is a central problem for states (see War Finance). This was
especially true in early modern Europe (fifteenth to eighteenth centuries), when war
relied heavily on mercenary forces. The king of Spain was advised that waging war
required three things - money, money, and more money. Spain and Portugal imported
silver and gold from America to pay for armies, but in such large quantities that the
value of these metals eventually eroded.

One way governments pay for war is to raise taxes (which in turn reduces civilian
spending and investment). U.S. revolutionary Thomas Paine warned in 1787 that
"war ... has but one thing certain, and that is to increase taxes." Another way to
pay for war is to borrow money, which increases government debt, but war-related
debts can drive states into bankruptcy as they did to Spain in 1557 and 1596. A third
way to fund war is to print more currency, which fuels inflation. Inflation thus often
acts as an indirect tax on a national economy to finance war.

Industrial warfare, and especially the two World Wars, created inflationary pressures
across large economies. Increasingly, governments mobilized entire societies for war -
conscripting labor, bidding up prices in markets for natural resources and industrial
goods, and diverting capital and technology from civilian to military applications.
World War I caused ruinous inflation as participants broke from the gold standard and
issued currency freely. Inflation also accompanied the U.S. Civil War, World War II,
and the Vietnam War, among others. War-induced inflation, although strongest in war
zones, extends to distant belligerents, such as the United States in the World Wars,
and, in major wars, even to neutral countries, owing to trade disruption and scarcities.

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ARTICLE 3.

How the United States’ High Debt Will

America is on a dangerous budget path. Current spending and debt are dangerously high, and
future spending and debt are on track to rise even higher in large part due to increasing
entitlement spending. Academic research shows that advanced economies like the United States
are at risk of significant and prolonged reductions in economic growth when public debt reaches
levels of 90 percent of GDP. High public debt threatens to drive interest rates up, to crowd out
private investment, and to raise price inflation. The implications would be severe and
pronounced for all Americans, but most especially for the poor, the elderly, and the middle
class. U.S. policymakers should learn from Greece and Japan and avoid a fiscal crisis and
economic stagnation brought about by public debt overhang.

U.S. federal spending in 2013, combined with depressed receipts from a weak economy, is on
track to result in a deficit of $850 billion. Publicly held debt in the United States will exceed 76
percent of gross domestic product (GDP) in 2013, and chronic deficits are projected to push U.S.
debt to 87 percent of the economy in 10 years.[1] Debt is projected to grow even more rapidly
after 2023. Recent economic research, especially the work of Carmen Reinhart, Vincent
Reinhart, and Kenneth Rogoff, confirms that federal debt at such high levels puts the
United States at risk for a number of harmful economic consequences, including slower
economic growth, a weakened ability to respond to unexpected challenges, and quite
possibly a debt-driven financial crisis.[2]