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Causes of recessions - not one mention of the wars? One of the most popular misconceptions is that wars cause recessions. In fact military spending is often a cause of rapid economic growth.
Eisenhower Jan Part of the problem is a misunderstanding of what a recession is. A recession is a period of negative economic growth - falling output, rising unemployment. Recession does not mean rising government borrowing though of course a recession, invariably leads to higher borrowing.
Wars invariably lead to an increase in government spending on military. This is usually financed by a combination of tax and government borrowing, but, mainly borrowing.
This spending creates additional demand in the economy, creating employment in armament manufacturers. In the midst of the Great Depression, the two countries who successfully reduced mass unemployment quickly were Japan and Germany - who aggressively re-armed.
There were other reasons for falling unemployment. But, the expansion of the military sector was a key factor in boosting growth and employment. The US and UK only really solved mass unemployment with the onset of the Second World War when they began a massive extension of military spending.
The Second World war was immensely costly for all parties. At the end of the Second World WarBritain was very nearly bankrupt. A loan from the US was essential to keep economy afloat. But, huge national debt is not the same as a recession. The Legacy of War on the Economy.
There are occasions when the end of a war can lead to recession. In the Napoleonic Wars, Britain had a huge increase in military spending. However, at the end of the Napoleonic wars, many soldiers were demobilised.
Combined with inflation, battered world trade and unemployed ex-soldiers the economy suffered a period of contraction and high unemployment. In this case, the prolonged wars undoubtedly contributed to this economic crisis. The economy experienced high unemployment, and periods of deflation.
Though this was exacerbated by other issues such as the damaging alignment to the Gold Standard and the subsequent deflationary pressures. The expansion in military spending helped contribute to a decade long economic boom.
Conclusion Every case is different, but, generally wars provide a boost to domestic demand through higher military spending. The aftermath of wars is more uncertain. Making the transition from a war economy to a peacetime economy can be difficult, though there is no clearcut effect. It depends on too many variables.
Of course, none of this justifies war. Japan and Germany reduced unemployment successfully by having a totalitarian military state.
But, the same result could have been achieved from spending on hospitals and education. The problem is there is often greater political will for higher government spending and borrowing if it is fighting a war.Try Our Friends At: The Essay Store. Free English School Essays.
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