Notes on Economic Warfare

Despite the disaster in Viet Nam, deterrence did play a role in maintaining the peace. The mathematical models of the cold war showed that much. They also showed that deterrence could generate an unbounded arms race. Michael Intriligator and D. Brito [1984] asked the inevitable question: “Can Arms Races Lead to the Outbreak of War?” They concluded that they do not, as long as their trajectory remains within a “cone of deterrence” or balance of military power. They argued that the doctrine of “Mutual Assured Destruction” which had guided US (and Soviet) strategy was a sufficient basis for the peace. The proof of the pudding was the eating: the US and USSR had not engaged in direct military conflict despite forty years of cold war. Needless to say their views aroused a storm of controversy. But the more counter-intuitive they were, the more the elegance of their argument became apparent. Economists revel in emulating Adam Smith by demonstrating that policies bring about results which are no part of anyone’s intention. Rather than focus on particular aspects of the Intriligator-Brito model, I decided to accept its main outlines for the sake of argument, and explore the economic consequences of an unlimited arms race. Their model—and my earlier explanation for the cold war expressed in the previous chapters—stressed the demand for armaments. None of us had paid sufficient attention to the supply side of the equation. When the resource cost of arms is introduced into the reckoning, the arms race itself proved to be a weapon of war—economic war. As long as the USSR was compelled to match the US, their economy and therefore their military power was going to decline. When Ronald Reagan took office in 1980 it became apparent that he had found the ultimate weapon—Gross National Product. Except for editorial corrections, this chapter is unchanged from the original 1985 article in Conflict Management and Peace Science [Wolfson, 1985]. Since that time, the breakdown of the Soviet economy has made the economic view of the meaning of the cold war almost truism.