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Introduction: The Fundamental Economic Problem of the Military

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Abstract

Contemporary military organizations are anything but private companies. Both military and civilian bureaucracies who do not function according to free-market principles administer them. Quite the contrary: As these bureaucracies control all economic activity in the armed forces, a planned economy system is established. Any economic analysis that ignores this fundamental problem not only leads to false conclusions, but also to irrelevant policy recommendations.

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Notes

  1. 1.

    An initial small mistake is a big one in the end (Thomas Aquinas 2001).

  2. 2.

    Ironically, this situation is quite advantageous for defense economists. If state bureaucrats could manage any armed force just like a private business, the field of defense economics would not exist; a primer on strategic management and cost accounting would suffice.

  3. 3.

    Here and in the following, the term ‘residents’ denotes all inhabitants of a state, irrespective of their citizenship or political rights, whose taxes, duties and levies fund the armed forces. In contrast, ‘citizens’ here and in the following refers to the subpopulation of residents that have political rights.

  4. 4.

    The extent to which the international law of war can protect residents in this case is very much a question of how the occupation force behaves.

  5. 5.

    Although the capital stock can remain unharmed during wartime, it might still be reduced after defeat. For example, between 1945 and 1952, the Soviet Union expropriated and deconstructed industrial assets in the East German occupation zone in order to add these assets to its own capital stock.

  6. 6.

    The net capital stock is the sum of all replacement values for all capital goods used for production in the economy. These assets include civilian buildings, machinery, equipment, livestock, crops, research and development and computer programs. Both physical and cyber warfare may damage and destroy all of them.

  7. 7.

    The statistical value of a life is estimated at not less than two million US$ (Viscusi and Aldy 2003; Doucouliagos et al. 2012), so a violent end of life or permanent disability significantly reduces the productivity that human beings can realize over the course of their working life. This reduction also diminishes the tax base of the nation state (Holcombe 2008).

  8. 8.

    For example, between 1945 and 1947, the United States expropriated all German patents and deported German scientists to the USA (Gimbel 1986, 1990).

  9. 9.

    From hereon, the terms ‘armed forces’ and ‘military organization’ will be used interchangeably.

  10. 10.

    For example, in the battles of Salamis (480 BC), Agincourt (1415), Galveston (1863) and Longewala (1971).

  11. 11.

    The use of the term ‘institution’ among economics differs from its colloquial usage as ‘important organization’ or ‘authority’. In the remainder of this book, the term is used exclusively in the economic sense explained here.

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  1. Swiss Federal Institute of Technology, Military Academy, Birmensdorf ZH, Switzerland

    Marcus Matthias Keupp

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Keupp, M.M. (2021). Introduction: The Fundamental Economic Problem of the Military. In: Defense Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-73815-0_1

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