Economics of War (and also peace)

June 3, 2009 (LBO) – Wars have always been fought with one objective. That is to take forced possession of economically valuable assets belonging to the enemy. The list may vary from time to time, but a typical set of such coveted assets goes on as follows: land including right to water; young women including children; treasure; and able-bodied men as slaves.

Since it is ˜forced possession’, wars do not come within the ambit of standard economic theory which is based on ˜voluntary exchange’. It should rather be studied in a new branch of economics known as ˜economics of violence’.

Voluntary exchange leads to a ˜win-win’ situation

An exchange effected by means of violence is also an exchange. But unlike a voluntary exchange, it lacks the ability to perpetuate and sustain itself. This is because, in a forced exchange, one party wins, while the other loses. In contrast, in voluntary exchanges, both parties end up in a ˜win-win’ situation. Hence, only such exchanges could thrive and sustain, because the parties have incentives to continue for mutual benefit.

But forced exchanges have no such salutary features. For ins