Castles, Battles, and Bombs

Castles, Battles, and Bombs

University of Chicago Press

2008

"Economics is a science of decision making."

Jurgen Brauer and Hubert Van Tuyll, professors of economics and history at Augusta State University, have written a history of war that uses economic principles (6 of them) to highlight decisions made relating to warfare or military spending through history.  It's an interesting book but a relatively dense read.  The principles are (1) Opportunity Costs, (2) Expected Marginal Costs and Benefits, (3) Substitution, (4) Diminishing Marginal Returns, (5) Asymmetric Information and Hidden Characteristics, and (6) Hidden Actions and Incentive Alignments.   More than anything the book analyzes how decisions regarding war and military spending were made and what economic factors combined with human behavior influenced those decisions.

This is a study in rationality.  The authors cite the work of Herbert Simon, who won an Nobel Prize in Economics, related to "Bounded Rationality."  This was the exploration of the consequences of man's limited rational capability.  Simon's work in "Administrative Behavior" described the work of the company as an adaptive system of physical, personal and social components that are held together by a network of intercommunication and by the willingness of the its members to cooperate and strive toward a common good.   The authors attempted to explain the situation, the economics involved, and the personal behavior of those involved, and how it all impacted the decisions that made relating to war.   Very interesting.

Economics according to the book is a study of behavioral principles by which a rational human being goes about his or her decision making.  People choose one thing that if not pursued would carry the greatest sacrifice, the highest opportunity costs.  In the Middle Ages, even though castles were enormously expensive (the equivalent, in some cases, of the income of the kindgom for a year), sovereigns would spend the required resources because the cost of a standing army was even more expensive.  This was remarkable in that resources were very limited (small tax base, no credit system, etc. -- how long would we have waged war in 2003 - 2010 without being able to borrow money to do it?).  One of my favorite quotes of the book is "A king in 1008 was far more aware of the need to make choices than a president in 2008."

In terms of cost benefit and marginal returns, there was an evolution of contracted or mercenaries armies (used in Renaissance Italy) to standing armies over time.  Cost was one issue but another was the unintended consequences of mercenary armies taking control of client states (I am reminded of William Walker in Nicaragua who was originally contracted as mercenary by one of the factions of civil war there -- he arrived with 80 men and took control of the country -- not good).  In looking at total war during the period 1618 - 1815, "the calculation of expected costs and benefits of each additional engagement in battle them might be said to have had a rational goal: to lower the total cost of war." 

Access to and the use of information was highlighted in the Civil War as the authors compared the battle decisions of Robert E. Lee as he faced a series of Union generals.  An assessment was made of diminishing marginal returns in radically increased bombing of Germany in the last years of World War II (increased bombing, according to the authors, actually had a negative impact for the Allies in that German morale increased under the horrific attack).  A study of substitution was made in the case of the French in standing down their armed forces in favor of developing nuclear deterrent during the Cold War (it should also be mentioned that France suffered incredible losses in Vietnam and Algeria). 

The last chapter focuses on the economics of terrorism in which the authors describe terrorist organizations as rational economic actors subject to opportunity costs and other factors affecting their decisions.  Key to an anti-terror strategy is to either decrease the revenue flow to terror organizations or increase the costs of their terrorists operations.  The authors cite the rational behavior of terrorists: "The overriding message is that the effort to tax terror (increase its costs) out of business calls forth resistance and breeds innovation, substitution, and efforts to increase productivity."

Final section of book assesses the economics of military manpower.  The authors contend that the productivity of military manpower carries implications for the demand of military manpower.  Different battle scenarios affect productivity.  As roles change, productivity of one type of warrior (highly trained, specialized skills in a high tech weapons approach) may not provide the same benefit in a different role (serving as body guards for diplomats).  Alternative mechanisms -- hiring the mercenary forces rather than mantaining them as part of a standing army may be the most economical chocies.