Economics Economics

Economics

Economiccauses of war

Warand armed conflicts have become a characteristic of the moderneconomy. Since the early 20thcentury, the world has experienced major conflicts, one after theother. Some of the major armed conflicts in the world include theFirst and Second World War and a series of wars in Middle East,Africa and Eastern Europe. Recently, the war against terrorism,instability in Middle East and North Africa and the Syrian conflicthas had an impact on the global society. The relationship betweenwar and economics is not new. Economists in the modern world havebeen more concerned with the huge impacts of war on the economy. Warshave been associated with huge government spending, reduced economicproductivity, destruction of economic resources and displacement ofhuman capital. As a result, impacts negatively on the economy suchthat it takes time for the economy to recover from the impacts ofwar. However, in some cases, wars can have positive impacts on thewar. While economic implication of wars is very essential toeconomics, the role of economics in the emergency of modern warfareis an important economic question. Classical economic theorists havelinked armed conflicts to economic factors. There is no doubt thatmajor wars in the world may have series causative factors. Sometheorists have argued that the main causes of major conflicts in theworld is has a result of the capitalistic economic systems in themodern world.

Accordingto Robbins (1968), the argument that economics is the major cause ofwars in the modern society is not new. Economic motives have beenused to explain conflicts and wars throughout history. The desire togain, which has been a major characteristic of the capitalisticeconomy, has resulted into group conflicts in different stages ofhuman civilization. The desire to gain wealth and material well beinghas always been an important question in discussions related to armedconflicts at social groups, national, regional and internationallevels. However, it is important to note that the generalization andnature of explanations given by the classical economic thinkers makestheir thought different from modern economic thinkers’ point ofview. For example, in the past the economists would argue that thedesire to gain is an economic cause of war, without furtherexplanation. On the other hand, modern economists are more concernedwith explaining, expounding and analyzing the desire to gain as acause of armed conflict. Thus, there is a greater technical precisionwhen the modern economic explanation to war and economics is comparedto classical explanations. Modern economic explanations to wars andconflicts are systematic and analytical, supported by documentedfacts (Robbins, 1968).

Inearly human civilization, wars had an economic face. They played animportant role in industrial revolution and other major humandevelopment. Before the industrial revolution, which brought aboutmechanization of economic activities as well as warfare, thewillingness and ability of a society to engage in warfare wasdetermined by the economic might. The same can be observed in themodern wars. The number of men a society was able to train and payand the number of horses it was able to obtain determined itsmilitary power and success in war. An economically powerful societywould be able to raise a bigger enemy and therefore more willing toengage in territorial wars. At the same time, human nations wereunwilling to participate in wars because of inefficiencies incollecting taxes and difficulties in consolidating its economic powerto enhance its military power. For example, Germany was a hugecountry, with massive economic resources. It has the ability tocontrol major resources in Europe before industrial revolution.However, the fragmented economic power reduced the country into lesspowerful warlords. However, in the late 19thcentury, there was development in communication and transporttechnologies nations were able to consolidate their economic powers.This resulted into the need to secure territories and naturalresources. Western powers were able to assemble powerful weapons anddevelop well trained militaries. These are some of the explanationsto emergence of armed conflicts in the second half of the 19thcentury and first half of the 20thcentury. Some of the major wars associated with the need to extendpolitical influence for economic reasons include the American civilwar, the First and Second World War and the Franco Prussian war(Robbins, 1968).

Moderneconomists have trued to expound on the economic interests in majorglobal conflicts. There are numerous negative impacts of war to theconflicting nations. The big question has been what are the economicinterests that would force a country to go into war that threatensits economy? This can be explained by the delicate balance betweenpolitics and economics that characterize the modern economies. From ashallow analysis of the wars in the modern society, the wars aremotivated by political interests. For example, in the war in Iraq, itis not only about the politics in the United States but also whoholds power in major Middle East nations such as Egypt, Saudi Arabia,Palestine and other North African states. Some classical economistswould argue that this is an attempt to have an indirect control overthe huge crude oil resources in the region. Others will view it forma political point of view, the need to extend the political power andideologies of the western powers to the east. However, the debatethat has attracted a lot of attention has been the conspiracy betweenthe United States government and other forces in the oil industry togain access to the huge oil resources in Iraq through the war onterrorism. Although the economic argument that has been brought forthin regard to the war on terrorism has been exaggerated, there is nodoubt there is always an economic through and influence in majorwars.

Oneof the most important economic theories that link wars and conflictsto economics is the Marxian theory. Although some economist arguesthat it does not capture the complexity of the modern economies, itis a relatively ambitious theory that has influenced economicthoughts. Marxian theory argued that the spread of capitalisticeconomic systems and institutions in the world is the main cause ofwars in the modern world. Despite the inadequacies in the theory, anydiscussions on the relationship between war and economics have mademajor references to the Marxian thoughts. According to Marxiststheory of economic systems, war and crisis in the modern societiesare as a result of competition for resources, especially limitedresources as well as market for products between imperialistic powers(Robbins, 1968). Marxian theorists have argued that major conflictsand wars in the recent past have been caused by natural results ofthe capitalistic economies characterized by economic classes and afree market. Therefore, the world would be free from conflicts andwars if a world revolution occurs which over powers the imperialisticideas and the free market and class economy is overhauled. Accordingpt Rosa Luxemburg, one of the greatest Marxian theorist in history,argued that the rise of imperialism in the modern world is a productof the capitalistic economies seeking new markets for their products.The rapid expansions and modernization of the means of productionresulted into increased output. This is economically viable if thereis a corresponding increase in demand for the products. This isachieved if there is an expansion of the markets. Since the workingclass in the capitalistic economy is unlikely to fill the demand, thecapitalistic economies will seek to expand their market in the noncapitalistic economies, giving rise to imperialism. This is thefoundations of the underconsumption theory of socialist thoughts(Robbins, 1968).

Thecommunist thought about the impacts of underconsumptionion on theeconomy and how it contributes to crisis is ambivalent. However,according to Robbins (1968), a closer look at both versions of theunderconsumptionist theory using modern understanding of economicsystems suggests that the logics behind the theory were defective.For example, according to Leninist theory, the financial and capitalinvestment activities in the modern capitalistic economies are themain causes of wars that have been experienced in the recent past.Robbins (1968) argued that there is no economic logic in the theoryand therefore seems to be an invalid argument based on moderneconomic analysis. In the modern economies, nations and economicpowers have employed diplomatic tactics, political and economicalliances as well as wars to solidify their economic prowess. Theseare some of the most visible struggles of power in the modern world.This was not captured in the classical Marxian theories that proposedthe underconsumptionist thoughts. It is common knowledge that allinternational relations, both armed and diplomatic are aimed atexpanding and conserving economic power. Therefore, all internationalattempts by nations are influenced by economic factors. However,there is a departure from the classical thoughts on how economicfactors play a role in national, regional and global conflicts.Military power, although it results into control of limitedresources, it is in the narrowest sense. Additionally, contrary tothe assertions by Marxian theorists, under socialist or capitalistsystems, national power will always be dependent on economic factors(Robbins, 1968).

Accordingto Marxian economic concepts, capitalism results into two classes inthe modern society, the working class and the owning class. Thisresults into inherent antagonism which results into conflicts fromthe basic society to the global level. The capitalistic economicsystems always represent and seek to preserve the interest of theowning class, the bourgeoisies. This is through control of resourcesand means of production, and thus the power of the state. There isevidence that historically, conflicts between individuals, one socialgroup and another, one nation and another are linked to materialneeds. The material needs include the access and right to exploitlimited economic resources and physical security associated withthese resources. Therefore, in a capitalistic economic system, theactions at both macro and micro levels are influenced by economicinterests. For example, two land owners are likely to clash in theirquest to expand their agricultural activities in a particular area.According to Marxian thoughts, this acts as a precursor to strugglesbetween classes in the society which eventually result into wars andrevolutions. At the state level, the political class will have botheconomic and political power in a capitalistic economy (Robbins,1968). Thus, struggles between classes will most probably result intoarmed conflicts because of the pursuit for economic advantage. Thestrategy to enhance states power and safeguard interest results intoimperialistic tendencies.

Asstated earlier however, whether the nation is capitalistic orsocialistic, the power of the nation is influenced by politicalfactors. The nation is considered powerless if it has no command overeconomic resources. If the basic facets of the economy are locatedin territories where they are inaccessible to a nation as a result ofwar, it limits the power of a nation substantially. Thus, when thereis peace that is in absence of war, the accessibility of rawmaterials is limited by trade barriers and tariffs. To preservepower, nations will therefore go to any length to ensure that theyhave unlimited access to economic resources. A very good example isthe conflicts that have characterized regions that are rich innatural resources such as oil and precious metals. The Middle Easthas huge deposits of crude oil. The modern economies highly dependsof fossils oils, which makes crude oil a major resources in themodern world. The rush to secure adequate supplies of crude oil fromthe Middle East has been one of the major cause conflicts that havebeen evident in the region. Nations and organized groups haveresulted into wars in an attempt to control the huge economicresources. Additionally, economic powers around the world are haveindirect interests in some of the major wars in the mineral resourcesrich regions. Opponent of Marxian theories and the economic interestin war have argued that the imperialistic ideas do not apply in thisregard. Otherwise, there is no explanation to the reasons whysocialistic economies are also struggling to control some of the hugenatural economic resources (Robbins, 1968).

Generaleconomic theory

Economicsand economic thoughts had had an interesting history, especially inthe last two centuries. Economic thoughts have had contributions fromsome of the greatest thinkers of all times. This is because of thesignificance of economic theories and thoughts in the prosperity ofhuman society. Among the greatest economic thinkers of all times wasJohn Maynard Keynes, in the early 20th century. Hepublished the book “The general theory of employment, interests andmoney” in 1936, which remains an important reference book foreconomics in the modern times (Keynes, 1936). Thus, he is referred tobe the father of Keynesians economics, a school of thought that looksat the economic performance from the short run point of view. Thebook was published during the great depressions in the 1930s when therapidly developing economies were hit by one of the greatest economiccrisis. The Keynes thought provided a departure from the classicaleconomic thoughts to a new thinking which factored in the changingeconomic times. The conclusion of Keynes book was that the decisionsand actions of the private sectors will always result intoinefficiencies in the short run and thus at the macroeconomics level.Thus, government policies such as fiscal and monetary policies arevery essential in health economics. Keynes also advocates for a mixedeconomy where both the government and the private sector play anactive role, although a dominant private sector is preferable.

Keynesmakes reference to a number of classical economic theories andthoughts in developing his general theory of economics. Classicaltheorists argued that in a normal economy, there exists anequilibrium between supply and demand where the needs of theconsumers of a particular good or service are more that the capacityof the suppliers or producers. Thus, all products that have beenproduced will eventually be consumed. The equilibrium between supplyand demand is thus influenced by the prices of the commodity.Classical theories argued that due the surplus in production willnaturally result into reduced prices of the commodity and thusincrease demand for the product. Keynes thoughts provided a departurefrom these thoughts where he factors in other macroeconomic factorssuch as unemployment and inflation. According to Keynes, some ofthese structural factors have a huge influence on the economy. Forexample, Keynes argued that during recessions when the economy iscontracting, increased unemployment results in rapid drop in demandfor goods and services. In such situations, the price mechanism wouldbe unable to reverse the low demand of produced goods and services.Thus, Keynes observed that the economy can not be able to ensure fullemployment of the population. Thus, the government through itsestablished institutions has the responsibility of implementingmonetary policies that will save a contracting economy from collapse.For example, to increase demand, the government can use underutilizedsavings to increase spending thus increase demand. This forms thefoundation of Keynes thoughts that individual or private actions cancollectively influence the economy negatively (Keynes, 1936). Forexample, if individuals and private sector is not willing to spendtheir saving in the good and services available in the economy,collectively there is increase unemployment and decline in demand.This affects the potential output as well as the rate of growth ofthe economy.

Inclassical economics, a general glut was almost impossible, with someeconomists arguing that it was not possible. The general glutreferred to productions of goods and services beyond the aggregatedemand. However, according to Keynes, the glut happened regularly inthe economy and resulted in errors or judgment by the producers. Heargued that in some cases, producers reacted inappropriately, forexample, by lying off some of their employees as a result of a minoreconomic failure. The cumulative effect resulted into reduceddisposable income and thus reduced demand for goods and services.This culminates into a perpetuated economic problem affecting allsectors of the economy. This stressed the fact that the performanceof the economy is strongly liked to the ability of the economy tooffer employment. It the level of employment is low, the purchasingpower of the general public is diminished, due to lack of income.This results into reduced demand for goods forcing producers to scaledown their output. This results into increased unemployment sinceproducers are likely to react to reduced demand for their products.In this regards, the price mechanism, as proposed by classicaleconomists will not reverse the declining demand for goods andservices. This series of events will eventually result into aneconomic crisis. Keynes therefore, argued that the government has arole to play by devising policies that stabilize the economy byreducing the amplitude of the economic cycle. According to Keynes,this is one of the greatest economic problems, which contributed tothe economic crisis in the late 1920s and early 1930s. He proposedthat increased government spending can injects money in the economy,which increases aggregate demand, economic activities and output(Keynes, 1936). Eventually, the producers will be willing to employmore people since they are no surpluses in production resulting intoreduced unemployment.

Throughoutthe book, “The general theory of employment, interests and money”,Keynes tries to propose some of the solutions or how to avoideconomic crisis that results into depression. It is important to notethat his thoughts emerged when the western economies were strugglingwith the effects of the great depression. Keynes proposed to majorapproaches towards resolving the economic crisis, monetary policiestargeting interest rates and increased government expenditure andinvestment. Keynes strongly advocated for active fiscal policies bythe government. Classical economic thoughts argued that there is aneed to balance government budget for the economy to thrive. However,Keynes proposed a different approach by linking expansion andcontraction policies by the government to increase and decrease insavings. He argued that increased savings reduced the amount of moneybeing spent in the economy which lowered the demand for products aswell as labor resulting into unemployment. Thus, instead ofadvocating for a balanced government spending, Keynes would propose adecrease in government taxes to increase investments (Keynes, 1936).

Keynes proposes that the government should employ active policiesin managing the economy and regulating the activities of the privatesector which could ruin the economy. This includes governmentinterventions that will reverse some of the negative impacts of tradecycles tides. For example, government should be willing to spend morewhen the economy is suffering from an economic crisis or whenrecovery from a trade cycle is delayed. Government intervention is analso essential when there is a rapid increase and persistently highunemployment. In boom times, Keynes proposes that the government hasa huge responsibility of proposing policies that will keep to economyat quasi boom status as long as it is possible. A boom will yieldpositive trends in the economy, mainly increased demand for goods andlabor, decreasing unemployment. Additionally, it may result intoproblems in some sectors of the economy, for example, housingshortage around labor intensive regions and cities. Governmentmeasures that would ensure that the boom last is the mostappropriate. Thus, Keynes proposes that” the remedy for the boom isnot a higher rate of interest but a lower rate of interest”(Keynes, 1936, p 200). This is because higher interests are likely toabolish the boom.

Oneof the facets of economics that Keynes emphasized on was the issue ofwages, savings and spending. There is a widespread believe that thegreat depression was as a result increased unemployment rate whichresulted into massive decline in consumption power. Although thedetermination of wages and their rigidity is a very complex issue,Keynes advocated for the real wages rather than nominal wages in thenegotiation between employees and employers. This is because minimumwages and related negotiations between the worker and employers orthe government would complicate the ages and laws contract. Forexample, there will be natural rebellion again any reduction in theminimum wage. Therefore, wages negotiations should be focused on thereal wage and not the minimum wage. Although Keynes did not supportthe idea of abolishing minimum wages laws and other laws related tolabor unions and contract negotiations, he supported the need toincrease the flexibility of the labor market. Nonetheless, reducingthe wages in an attempt to cushion the employers from the impacts ofan economic recession does not make economic sense. The explanationmade in support to such ideas is economically faulty. According toKeynes, having considered all likely effects of wages cuts, it waslikely to make recession worse. This is based on the understandingthat to reduce the impact of an economic recession what is requiredis to revitalize the purchasing power of the masses to increasedemand for goods in the market. Cutting their earnings reverses theprocess making the situation worse (Keynes, 1936). Even in caseswhere the prices of commodities are failing, wages cut will havenegative impacts on the economy because rather than spending, peoplewill be tempted to wait for them to fall further. This will cause adownward spiral on the economy because the deflation will make theexisting debts more valuable.

Keynesmade references to the work of R. F. Kahn, a great economic scholarin the early 20th century, on the effects of employment,real income and multiplier effects on the performance of the economy.For example, when the government expenditure increases, there is amultiplier effect that result into increased spending. Increasedspending increases demand for commodity resulting into a series ofeconomic benefits. Keynes argues that government spending willincrease real income. Individuals who receive the funds willobviously spend a significant fraction of the money and save therest. The extra spending will increase the number of people with realincome which eventually increases the consumer purchasing power. Thisprocess, which is referred to as the multiplier effect continues. Atevery stage, there is an increase in consumer purchasing power untilthe multiplier attains equilibrium. However, according to Keynes,this hypothesis is only applicable in a closed economic system.Beyond a closed system, other factors such as increase in import willhave an influence on the multiplier effect (Keynes, 1936).

Keynesalso looked at how the interest rates influences the rate of capitalinvestment. According to classical economic models, the amount ofcapital investment in an economy is determined by supply of funds.Savings is the main source of fund for investment. That is, savingsare placed in the banks where investors can go and borrow atinterest. The interests rates will influence whether people will bewilling to take borrow the money or not. However, Keynes had adifferent view on the influence of interest rates on investment.Keynes views interest rates as the unwillingness of the entitiesholding the liquidity in the economy to surrender their control overliquidity. This has no influence on the rate of investment. Theamount of investment in an economy will be determined by theexpectations of profits in the long term. As a result, Keynes arguedthat in times of economic boom or turmoil, altering the interestrates will be an ineffective fiscal policy (Keynes, 1936). Even whenthe interest rates are low but there is no expectation of profits inthe long run due to low demand, the amount of investment will be low.

References

Keynes,J. M. (1936). The General Theory of Employment, Interest andMoney. Basingstoke, Hampshire: Palgrave Macmillan.

Robbins,L. (1968). The Economic Causes of War, New York, NY. HowardFeitig.

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