Economic Impacts of War Throughout History

William Aventuro | March 31, 2022

Aside from the loss of life prompted by the existence of war there are major economic costs. Even though war has positive impacts on a society’s economy through the creation of new sources of demand and the addition of new jobs in an economy, there is a tremendous cost that is going into the expenses needed to take part in such a quarrel. Moreover, when a country spends money on war it increases output due to the extensive military equipment which is required as well as the resources needed to recover from both economic and physical destruction. However, one could argue that the acquisition of resources used to build bombs and other types of materials necessary to take part in a war could instead be used to improve healthcare and infrastructure, avoiding war altogether. Over the course of history, war has led to inflation which can ultimately lead to the loss of citizen’s money and a lack of overall confidence in a country’s financial system. This has been seen in the U.S. during the Second World War when the U.S. experienced inflation as a result of the fact that the economy was close to full capacity due to the high levels of spending that were occurring and the shortage of workers that took place.

When a nation is plagued by war and its ability to make goods is condensed, hyperinflation can also occur because countries print money in order to combat a lack of goods. In 1946, both Hungary and Austria experienced the highest rates of hyperinflation ever recorded. War can lead to higher oil prices simply because the conflict threatens supply chains. In the image below, the graph shows the rise in oil prices which occurred during the Gulf War of 1990. Prices rose from $21 a barrel in July to a high of $46 post-invasion, which was in mid-October, and after which prices fell.

Although the existence of war is able to cause a rise in domestic demand, we need to keep in mind the costs of war altogether. From the loss of human lives, military spending, cost of military spending, and efforts to rebuild destruction, there are countless different costs of war which often have an impact on a respected nation’s economy.

Edited by Maggie Reddington