One of my research interests is the economics of war and war making, and especially what economics can teach us about military organizations, how they’re structured, and how they operate. As part of this larger interest, I’ve recently been looking at military thought in history, and how economic ideas (or the lack thereof) have shaped strategic theory and practice.
I’ve been paying special attention to the military classics of ancient China, which are generally regarded as the first treatises on military thought. There are actually numerous economic insights in these works, even though most of them are likely accidental. But it turns out that in some ways they implicitly recognize key economic ideas that help explain how military organizations work and the role they play in carrying the logic of statecraft to its ultimate conclusion, namely, conflict.
The Chinese military classics predate systematic economic thinking, but they do hint at a handful of economic principles. I won’t quote from the texts here, as I only want to draw on some of their broader ideas, but for those interested, I examine them more closely in an introduction to the military classics (here), as well as in two papers on specific texts (here and here).
The classical theorists agree that warfare is the special domain of the state, and in fact, is vital to its survival. In general, without the ability to make war, states cannot endure for long. This fact sets up the central question of military strategy: how do states organize and execute warfare?
The ancient strategists unconsciously realized that this is a fundamentally economic question, not a technological or logistical one. Strategic decision making, like any kind of choice, is about using scarce resources to achieve ends. In fact, if anything, technology and logistics are economic categories because they involve connecting human knowledge and ends.
But how do military organizations go about this? How do they decide which resources to use, and how best to use them? Here lies one of the classics’ unintentional insights: the importance of economic calculation. Although the early strategists did not understand the vital roles of property and the entrepreneurial division of labor in society, they did in a rudimentary way perceive the inevitable alternative: militaries can only be organized along bureaucratic, hierarchical lines.
That is, military organizations are unable to rationally allocate resources because they lack market prices and the profit and loss system to evaluate their decisions. The classics repeatedly praise entrepreneurial traits like adaptability, creativity, innovation, foresight, and so on, but they fail to appreciate that armies have no system through which to effectively capitalize on these traits; without a price system, all the innovative thinking in the world amounts to very little.
That’s why militaries emphasize rigid hierarchies, clearly defined rules, and rewards and punishments as tools for motivation and control: these bureaucratic means are the only ones available in the absence of an entrepreneurial market capable of guiding decision making.
To push the analysis a step further, compare the military with a free-market firm. Austrians argue that economic calculation places limits on the size of firms, which require external markets to allocate resources. However, no such limits exist for armies, which are publicly and arbitrarily funded. So while a free market can never be dominated by “one big firm,” there are few constraints on the emergence of “one big army.”
It’s vital then to distinguish between the way entrepreneurs make decisions and the way public organizations do. Conflating the two leads to confusion all round, whether it’s downplaying the true destruction of war, or falsely implying that markets are destructive. Yet as Mises argued, these kinds of competition could not be more different: one represents the path to peace and prosperity, the other, ultimately, to the end of human society. But to truly appreciate this fact, we need first to think about the underlying economic problems involved, which so many military thinkers miss.
That means seeing military organizations for what they are: forms of socialist central planning. It’s not a coincidence that wherever war and socialism are implemented, the results tend to be the same.
