A Theoretical Analysis of State Intervention in the War Economy

Ⅰ. The Essential Conflict Between Economics and War

The core task of economics is to explain the laws of the social division of labor, not to study war. Economics has long proven that the cornerstone of social survival is cooperation. The mechanism of competition in the market aims to serve consumers better; it simply does not apply to theories of war, which have destruction as their goal.

For a rational ruler, while the public might hold some affection for him out of traditional inertia, the old-style monarch who did evil simply for the thrill of power is irrelevant in the context of modern civilization. People often indulge in history, forgetting that modern civilization is built precisely on the rejection of such barbarism. Discussing the legitimacy of democratic politics is not the economist's job, but the only certain conclusion political scholars have reached is this: The function of democracy is to remove incompetent rulers through the ballot box.

Ⅱ. Why Dictators Are Destined to Fail

Modern developed nations need not lose sleep over the threat of authoritarian regimes. The reason is simple: Socialism is logically unworkable. It cannot produce better products than capitalism, and atomic bombs are no exception. The powerful weapons of the World Wars were, without exception, the masterpieces of private enterprises in capitalist countries. The greatest characteristic of capitalism is high-efficiency invention and creation. The Wright brothers, Rheinmetall, Boeing—behind these names are private enterprises.

Only private enterprises can perform "economic calculation"—even when it comes to guns, planes, cannons, or nuclear weapons. In wartime, governments are merely the buyers of these military products. Giant entrepreneurs, who originally chased profits in industry, only shifted to production because they sensed the government's urgent demand for military supplies and the potential for profit.

In contrast, look at the dictator. Today, some still try to defend obsolete authoritarian civilizations, whether out of religious fanaticism or other excuses. But a totalitarian dictator can never explain, within a rational hierarchy of values: Why does the urgency of building nuclear weapons override the desperate need to fix the poultry industry to feed the starving populace? This is an anti-human inversion of values.

Is it better to produce one atomic bomb, or two? The Japanese in Hiroshima and Nagasaki certainly couldn't understand this question by physically enduring the bombs. They couldn't even accurately calculate the death toll or economic loss. Why did the US drop two instead of three? How do you measure the "value" of the physical destruction of over 15 square kilometers caused by each bomb? From the perspective of factors of production, is this a profit or a loss? Why is making one bomb effective protection, but making ten a waste? Before the bomb explodes, in the absence of market prices, how do you define "yield"?

viewed through the lens of economic calculation: Why would a dictator who didn't finish elementary school produce guns better or faster than entrepreneurs in a free market? Is the dictator rational? If he were rational, he should be able to calculate the devastating consequences of war. If he insists on starting a war, can his fanaticism replace rational economic calculation?

A ignoramus consumed by ambition daring to declare war on developed nations? This is as absurd as expecting someone who can barely read to study military strategy, or expecting a nursing infant to command an aircraft carrier across the Pacific to defeat a small bamboo raft. It’s not just naive; it’s ridiculous. No one would be stupid enough to let the operation of a warship depend on a baby's cry. By the same token, it is an undeniable fact that North Korea could not have attacked the United States during WWII. He can only roar within a closed intranet, masking his incompetence by redefining "imperialism."

We need not mythologize Hitler's tanks and cannons; facts prove he did not win the war. A rational person would never start a war destined for destruction—this logic is indisputable. We can admit an irrational person might start a war, but we must also admit: Under his irrational rule, it is fundamentally impossible to produce more effective killing machines.

Ⅲ. The Psychological and Historical Roots of the Fallacy

Since the dictator's calculation is flawed, why does the shadow of war linger? First, there is the manufacturing of "imaginary enemies."

George Orwell provided a perfect case study in 1984: Oceania claims to be in a perpetual state of war, and the people must always be ready. Those helicopters dropping from the sky aren't from Eurasia; they are often "Big Brother's" accidental productions—this is so-called "preparedness production." Better to make helicopters to blow up your own people than to produce better gin. When the privileged class sips red wine, who cares about that?

If anyone questions this self-destructive preparedness, bureaucrats will sophistically claim it is to guarantee the "right to production for survival." However, this logic is absurd in a market economy:

It is like a barista claiming that to guard against a potential "bombing" by a competitor across the street, he not only stops refining his latte art but instead buries landmines in his shop every day, researches explosives, and sets traps under customers' seats. He turns the cafe into an arsenal and calls it "defending the coffee industry."

However, no sane barista would dare claim this is to protect customers from the rival's landmines while they drink coffee—because in real market exchange, a competitor's only "weapon" is better service and price, not bombs.

Even taking a step back, even if this barista has a masochistic obsession with grinding coffee beans, that is still a production decision regarding raw materials; it cannot be twisted into aggression against others. From this passion for production, one cannot logically derive a "threat theory," nor the necessity of solving market competition through violent brawls—the causal logic simply doesn't hold water.

Beyond manufacturing enemies, another major error is temporal dislocation. People fail to realize that war is neither a ghost of history nor a phantom of the future; war is always "present tense." No Austrian today says, "We must build weapons today because we fear the resurrection of the Austro-Hungarian Emperor from centuries ago," or to defend against some fictional future enemy. There is no need to discuss whether imaginary enemies were plausible in ancient times; at least in the modern world, constructing them is unnecessary. The atomic bomb was not a product of pre-WWII US "preparedness"; it was created in the "now" of the war itself.

The Pope launching the Crusades may have stemmed from religious fanaticism—explaining that madness is Freud's job. However, those who use this to argue that "democratic nations must use state intervention to prepare for war" make a fatal logical error. They assume victory depends on who is more fanatical, ignoring that modern war is essentially a contest of industrial production capacity.

Socialists claim that "Hitler lost because he focused on tanks and missed the atomic bomb; his lack of passion for the bomb led to the Nazi downfall." This argument is logically bankrupt. It’s like saying a blind man failed to paint the Mona Lisa because he "picked the wrong brush." Hitler's failure didn't come from a wrong "tactical choice" between tanks and nukes, but because he chose an "interventionist system" destined to fail at effective calculation and innovation. No matter how fanatical a dictator is, irrational passion cannot replace cold, hard economic calculation.

Expecting a regime that stifles freedom of thought and private property to build an atomic bomb faster than the free market is to ignore economic laws. A planned system that can't even sort out the poultry industry might possess blueprints for a nuke, but it cannot stop its social cooperation system from crumbling under the industrial crush of capitalism. Is a German dictator with a nuke inherently more threatening than a Soviet dictator with one?

Economics has nothing to say about the insane motives behind Hitler's invasion of Europe; economics has never been related to historicism. The Chinese habit of treating history as a deity stems from a deep-rooted cultural obsession with antiquity. Almost every educated Chinese family is influenced by this. However, obsessing over history, analyzing it, or even imitating it is not the same as summarizing laws. You cannot derive the Big Bang Theory from five thousand years of Chinese history. If a modern president copies the governance of the Qin Dynasty, it will only be a cycle of tyranny. The only lesson history gives us is not to repeat mistakes, not to use it as a library of reusable laws.

Therefore, the real threat is not the madness of dictators, but whether we actively strangle our own freedom to defend against madmen. The best preparedness is never a government-controlled garrison economy, but retaining the free market system that can build atomic bombs and fighter jets faster, cheaper, and more efficiently than any dictator. Hoping to resist a dictator's fanaticism by imitating his methods (interventionism) is the express lane to serfdom.

Ⅳ. Preparedness and Insurance

Economics has a clear analysis of the consequences when the state acts like a thug collecting protection money.

Even if the above analysis fails to convince everyone, let's step back. Hitler didn't flatten Europe because European nations lacked preparedness. Those who preach preparedness fail to understand the most important concept in economics: Preparedness is not savings. Individuals save for a better future, which is effective investment; what is called "saving for a rainy day" today usually refers to insurance, not savings. I am reluctant to use the term "middle class," but their understanding of savings is completely wrong—not only does it fail to resist inflation, but it also misunderstands the meaning of savings. Importantly, preparedness is an irrational consumption of resources. Individual preparedness is insurance, hedging against the market based on risk factors.

The real problem is that those promoting preparedness are no different from insurance salesmen creating anxiety on the street, but their nature is far more malicious. A rational person buys insurance to hedge against a catastrophic event they hope will not happen and which has a low probability. No one buys fire insurance hoping their house burns down; they are buying the financial ability to rebuild after a disaster.

However, the state's "preparedness insurance" is logically inverted: It forces everyone to pay continuously for a high-consumption, high-risk, and highly destructive activity. This is like forcing a healthy person to buy "amputation insurance," where the only way to "claim" the policy is to ensure his limbs are cut off. The former is voluntary risk management; the latter is forced capital consumption. The biggest feature of this mandatory "state policy" is the absence of liability. When the German Empire's war machine collapsed, no decision-making bureaucrat was held responsible for this failed policy. Only the ordinary people, forced to repay reparations in the ruins, bore the consequences. This logic applies equally to American taxpayers in the Pacific War.

Is dental insurance more urgent, or car accident insurance? This depends entirely on individual needs. By what right does the state, after stripping people of their wealth through taxation, arbitrarily declare that the "ammo" it buys is a better guarantee than "healthcare" or "bread"? What is the ethical basis for forcing someone who will never use this "war insurance" to pay for it? Socialists helplessly declare defense a "public good everyone should enjoy," but this is full of logical paradoxes. You only need to ask: If the atomic bomb provides a policy that allows people to "stand tall," why does the state hold the bomb, but the people do not?

In the earliest times, governments obtained armed forces through conscription, claiming to protect the homeland—otherwise, everyone would be slaves, or to prevent genocide after invasion. In that tribal era lacking free trade and modern economic theory (i.e., division of labor), chiefs believed conquest was the only way to acquire wealth. The problem is, without market transactions, chiefs couldn't judge if the loot exceeded the cost. It is now common knowledge that there are no winners in war.

Whether the logic of tribal preparedness applies today is a huge question mark. Who can say that for the national economy, it is necessary to prioritize the least important preparedness insurance over critical areas like food and medicine? Even assuming it is critical, not even economists can tell the king what is most critical—but the market can. On what basis do our patriots arrogantly believe preparedness is necessary? How much preparedness is enough? Did Singapore prioritize building nukes in the 80s to prevent a British invasion? Was China's prosperity during the Reform and Opening Up achieved through war preparedness? Who can predict the moment war will strike? Even if tribal preparedness was a protective measure, it is far from proven that it is indispensable in the modern age of economic calculation. The conclusion that the state must tax or even use inflation to manufacture weapons crumbles upon analysis.

Ⅴ. The Conclusion: Liberty as the Only Shield

The trouble is not preparedness itself, but the ideology behind it. It implies accepting policies of "economic intervention" and "inflation." Politicians take the stage pushing for preparedness, claiming to protect domestic industries. But from the most fundamental economic theory, exports and imports are merely expressions of national gain or loss. Simply put, protecting so-called domestic "waste" industries means forcing citizens to buy inferior domestic products at high prices. This needs no explanation. However, when unemployment is high and the government claims preparedness protection, both economic and military strategies inevitably support inflation. Discussing deflation is unnecessary; it is just another form of interventionist policy. In any case, we cannot support this ideology.

If people genuinely need state war protection, what then? Let’s ask a different question: Hitler pushed the war budget to its peak, but did he protect German citizens? When the Gestapo drove trucks to transport domestic Jews, why was there silence, yet here people argue about the necessity of war for protecting citizens? Let them scream; they are always happy to confuse these terms. What one should do when their life is threatened is not a subject for economics, nor is there any reason to impose it on economic policy.

In free capitalism, the most important point is the people's right to choose protection and the freedom to migrate. In the Soviet Union, privileged Russians could immigrate to the US, while the "noble" proletariat farmers had to provide free labor in gulags for the great prophet Stalin. Reportedly, no one was allowed to leave the Gulag without permission, or they would be torn apart by Siberian wolves. If that can be called protection.

However, the people who invented and promoted the "weapon" of tooth extraction didn't use it to conquer Europe. When Hitler took the gold teeth of local Jews, no one could protect them, even though they were "domestic citizens." In fact, the most important thing in capitalism is the establishment of private property rights. It conflicts not only with dictatorship but also concerns the interests and lives of the poor. No one fails to benefit from capitalism, whether as a server or the served. But under statism, no ordinary person receives so-called state protection in wartime; only the privileged class harbors such hallucinations. Blaming the poor's lack of self-defense capability on insufficient state preparedness is unreasonable. Since the goal was never achieved, how can one expect the policy to protect anything?

Since so-called state protection policies have never historically achieved what they advertised, but instead repeatedly became accomplices in stripping citizens of life and property, continuing to hope for protection through interventionism becomes a pure fantasy. A dictator's lust for power might incite momentary fanaticism, but in the face of cold economic laws, this irrational impulse will eventually crumble.

War and plunder have never created wealth, just as bureaucracies have never manufactured safety. Ultimately, what sustains a society's survival in the jungle of violence is only the individual's right to choose, the freedom to innovate, and that system of economic calculation that dictates can never hope to match. Facts have proven that only free capitalism is the most effective defense of the interests and dignity of every ordinary person.