TheMarketForIdeas

The science of economics has oftentimes proven itself to be more than capable at exceeding the role most people, especially those foreign to its potential, would grant it – the mere study of the economy – by having direct applications into many other fields. One need only read through the pages of David Friedman’s famous book Hidden Order: The Economics of Everyday Life (1996) in order to get a grasp on how economic thinking can be used to improve the way of tackling his daily challenges. Furthermore, in his academic course on Price Theory (1986), Friedman’s writings feature an entire chapter called The Economics of Love and Marriage, which uses economic principles to describe how the marketplace of love works and how certain policies may be implemented to improve the societal outcomes related to it.

The domain of war is yet another one where economics proves to be extremely useful and, just like that of love, one where everything is (allegedly) permitted. Since the war in Ukraine is still raging on as of the day of this article’s writing, a proper economic perspective on this subject appears to be needed now more than ever. Famous economists of the last century, such as Murray Rothbard (1950), focused their work related to this topic on the level of national policy. Rothbard, in particular, promoted a model where the sole purpose of the State is to use taxation and public spending in order to redirect the market from the production of consumer goods to that of military equipment and adjacent products. Friedman decided to once again take economics away from the economy itself and (this time) straight into the battlefield. By combining the Theory of Rational Expectations with the knowledge from Price Theory, Friedman managed to paint a very clear and helpful picture on how individual rationality works among the soldiers and generals fighting a war.

In this article, I intend to make use of information from Friedman’s essay The Economics of War (1983) as well as economic principles put forward by the Chicago School of Economics (of which Friedman is a member) and prove their usefulness and validity to the readers by contextualizing them into modern warfare, as well as into various situations from farther in history. 

Theoretical approach – The ever present threat of market failures 

To Friedman, the main economic problem on the battlefield is that of the market failure as a permanently gloomy threat hanging over every army and individual battalion. This statement alone immediately raises a couple of questions, which we will have to answer before moving on:

1. What does economics have to do with the way people fight, besides the obvious issue of the quantity and quality of available resources such as men, weapons, ammunition etc.?
2. How can a market failure situation occur mid-battle? Battles are not market exchanges.

The answer to the first question lies in the definition of economics used by Friedman. When he wrote his aforementioned essay, his definition was a somewhat Misesian one, claiming economics to be the study of human behaviour, though more recently he had been subscribing to a more general approach, labelling it as simply the study of rationality. Regardless of which of these definitions we use, it becomes clear how economists could give valuable insight into the way individual incentives function during military encounters.

As for the second question, market failures have themselves been oftentimes defined in such a way that they don’t necessarily have anything to do with actual markets. Simply put, a market failure is a situation in which individual rationality is incompatible with (doesn’t lead to) group rationality. It is an instance where every individual pursues his self-interest and, in doing so, makes the rational choice, but the end result is a lack of coordination within the group, leading to everyone’s downfall. It is easy to see how, in the context of a battle, such a downfall literally translates to death and defeat.

Man acts with purposeful behaviour. One purpose which takes top priority for most men is preserving their own lives. During war, another priority, though secondary in nature, arises to man – that his army should be the victorious one. For the army itself, however, the objectives are ranked the other way around. Defeating the enemy is the main goal, while preserving human lives, important though it remains, takes a back seat. After all, the victors suffer (and must be willing to suffer) casualties too. And so the partial conflict of interests becomes clear, even within the hierarchy of the same military unit – for example, soldiers will care about their lives more than about the lives of their generals and vice versa.

All that being said, if individual soldiers simply decide to pursue their apparent self-interest and flee the battle, even (or especially) when their side is winning, the benefits of such a decision would likely be short-lived and the costs would end up being much greater for everyone as a whole. Imagine a Ukrainian battalion defending its position in an area against the invading Russian forces with relative success. One of the men, after a quick economic calculation of costs and benefits, decides to abandon the battle. Rationally speaking, he appears to have made the right call. After all, if his team is winning, it is unlikely that one less soldier will flip the odds in favour of the Russians. Furthermore, if, for whatever reason, the Russians do manage to get one up on them, then the only choice becomes flee or perish anyway. Last but not least, his Ukrainian comrades might get a similar idea and, should everyone run but him, one man will certainly not be enough against an entire group of enemies, no matter the prior advantage. Therefore, no matter what everyone else is doing, the rational decision for that individual would be desertion. Obviously, the problem appears when every single soldier thinks exactly the same. Then everyone abandons the fight and the Russian offense, lacking as it initially was, ends up successful.

So the obvious solution is to stand and fight, because that would maximize the chances of a convenient outcome on both an individual and a collective level. But does that automatically mean that self-centred rationality is inherently impractical and/or immoral? Of course not, but one must admit that, in the case of market failures, collective coordination is the only proper way to achieve even the individually desired goals – and war definitely makes no exception to this rule. On top of that, actual markets usually feature a price system which helps spread the (mostly) correct information regarding decision making to people. In war, there is no such luxury. 

Further implications 

The application of economics to the domain of warfare can be used to further give us a better understanding of certain behaviours. Below, I will list and explain four phenomena which occur during battle that I found interesting to analyse through the theoretical lens of individual rationality and incentives.

For the first example, let’s take the way soldiers make use of their ammunition. Obviously, the intended purpose behind bullets is that they should be fired at enemies. And yet, Friedman’s research (1983) reveals that, during war, around one hundred thousand bullets are fired on average for every enemy killed. The explanation for this is that, since shooting a gun is easier from a fixed position and, logistically, camping in a so-called safe sweet spot is optimal for such an act, the shooter will often feel incentivised to simply lift his automatic fire weapon in the air and shoot randomly around him, since that is less dangerous than if he were to pop out his head and risk getting killed via headshot. After all, wasting your ammo sounds less costly than losing your life.

The second example is that of the correlation between equipment quality and courage. While it is commonsensical to assume that well-equipped soldiers will, caeteris paribus, show more confidence than those with inferior gear, it is crucial to mention that the key element which gives such a boost in bravery is what I prefer to call the functional accessibility of the arms being used. On short, the less input-heavy a weapon’s function is, the more confident the soldier using it will be. For example, the troops equipped with automatic rifles will, all other things being equal, display more courage in battle than those using semi-automatic or manual fire alternatives. That is because, while no man could singlehandedly win a war, he could determine the outcome of the battles in his immediate sphere of influence. And while there are a lot of factors to be taken into account for every individual situation one finds himself in, it is quite clear that the more you can rely on your equipment to do part of your job for you (e.g. firing automatically rather than having to pull the trigger for each bullet), the more your confidence will grow.

The third example is about how the soldier’s behaviour is influenced by the range of the weapon he carries. The shorter the weapon’s range, the more direct and potentially brutal the combat encounters will be. One would have to get close enough to his enemy in order to efficiently use such a weapon and hiding will never be a long-term solution, because you won’t be able to easily register any kills, unless your target gets close enough to your hiding spot, which would raise the risk of having it compromised. Alternatively, moving around with long-range arsenal may prove to be more troublesome, but distance is fortunately on your side this time. Therefore, chances of keeping your enemies away are significantly increased, especially when your comrades are placed between you and them.

Last but not least, the example which I like the most is a historical one and it relates to time constraints. I am talking about the uniquely unfortunate way in which World War One ended. The Armistice was signed on November 11, 1918 at 5 a.m. French time, but went into effect only six hours later, the reason being that the signatories wanted to end the war in a poetic fashion, on the eleventh hour of the eleventh day of the eleventh month. The ceasefire order spread relatively quickly among the troops and, for some, the outcome was as devastating as it was (economically) predictable. While the balance of war did not shift for the countries involved and their respective armies on the Western Front, with many offensive operations being cancelled due to the clear impossibility of fulfilling them in a mere six hour timeframe, the same could not be said for the fate which ended up being bestowed upon individual soldiers. Many men who suffered from some form of bloodlust, either due to a desire for revenge, excessive nationalism or simply the frustration that they were about to leave the Great War without having “scored” any kills, went into a frenzy, fighting more ardently during those last few hours than during the entirety of the war, with little to no regard for even their own lives. Their purpose was to kill and, upon finding out they have only a quarter of a day left, their time preference skyrocketed, making them act as if every second counted – because it did count. Time is a very limited resource and, in their case, its scarcity just went through the roof. Needless to say, many soldiers died as a result of this suddenly imposed constraint. Had the ceasefire order been effective immediately, up to 3000 deaths would have been avoided.

War is filled with challenges for everyone involved and economics can help us better understand them. Fortunately, it can also provide some ingenious recommendations on how to motivate the soldiers and generals alike to maximize their efficiency during battles. In the last part of this article, I will present some of these tactics. 

Practical approach – Incentive-based tactics to keep your soldiers ready and willing to fight 

According to Napoleon Bonaparte, the most important attribute of a good general/marshal is being able to make the right decisions based on good intuition and judgement, even more so than being intelligent. In the context of a battle, making the right call translates to “whatever makes you win with minimal effort”. Therefore, when fighting an enemy, one need not try and destroy him, but simply make him give up. That is easier said than done, but showing visibly more willingness to fight than him is usually the key to getting a potentially early surrender. Of course, things become a bit more complicated when you are the general of an army, because it is not only your will that you must be in control of, but also those of the men under your command.

Here are a few efficient tactics a general could use to incentivise his troops to stay in the fight for as long as possible:

The first option would consist in destroying the way back, so that the soldiers have no way to desert. Oftentimes throughout history, bridges would be burnt by armies upon having crossed them, for that very purpose.

The second option is to place a second line of soldiers behind the first one and have the men in the back line shoot the ones from the front line who attempt to abandon the fight. This tactic was used in the beginning of the war in Ukraine, when Chechen troops were placed behind the Russian ones and ordered to shoot at any man who tried to flee.

The third option is the most intuitive one – to make a list of all deserters and then track them down and punish them once the battle is over. Obviously, this necessitates that the battalion they belong to wins said battle. This leads to an interesting conclusion, which is that the reason why the generals who win most fights have fewer deserters and defectors among their men is not only because his soldiers will have more faith in him, but also because the chances that they will manage to survive and hunt down those who flee the battle are higher.

The fourth option is to use a tactic similar to that of the eighteenth century British army, which used to equip its soldiers with bright red uniforms that stood out visually and also to group them in rigid formations which left little room for escape. These measures succeeded both at decreasing the men’s ability to abandon the battle and, for those who managed to do that, at making them an easy target for their enemies and (now former) allies thanks to their unique-looking scarlet outfits. Naturally, making movement hard for the tactical formations may be perceived as a handicap, but back then, when troops were mostly shooting at each other from fixed positions with muskets, running around the battlefield was not much of an option to begin with (at least for non-deserters).

The fifth and last option which I will mention is to change the incentives themselves in order to make death in battle appear as an acceptable or even desirable outcome. This used to be done throughout history, even as recently as World War Two, mostly via culture and religion. For instance, the Vikings used to believe that the men who do not fall in battle (even the ones who go down with a sickness, perish in an accident or even die from old age) will be damned to suffer in Helheim (hell) until the day of Ragnarok. This incentivised the Scandinavian males of all ages to take up arms and fight, as well as to constantly seek further conquests. In religions such as Islam, bravery which leads to death in battle is supposedly rewarded in the afterlife with an eternity filled with luxury, indulgences, and women. Political ideologies such as Nazism make aesthetic use of death symbols such as the previously used totenkopf (the skull and crossbones) and promote the idea that dying in battle is preferable to living in defeat.

Encouraging your soldiers to fanatically fight to the death may oftentimes prove efficient for the army and country as a whole, but there is one major downside, which is that, for any such battalion, the first battle lost is also the last battle fought. Having a more rational approach to defeat and allowing your men to retreat when the fight is clearly impossible to win is likely the superior solution, since they would at least live to fight another day. 

Closing remarks 

An economic understanding of warfare can help both regular troops and military leaders identify and solve crucial issues, prevent easily avoidable damage, maximize efficiency during combat, control dangerous behavioural urges and spot clever shortcuts to achieve easier victories. That is because the key to having your army and comrades do your bidding is using proper incentives in order to motivate them – and understanding individual incentives is nothing if not the domain of economics.

After all, as Stephen Vincent Benet wrote in his epic poem John Brown’s Body (1928), “The science of war is moving live men like blocks”. The fundamental difference between the two is that blocks are mere objects, while men are living beings with free will who are unlikely to show indifference in the face of being shot at.

References 

Benet, S. V., 1928 – John Brown’s Body. New York City: Doubleday Publishing.

Friedman, D., 1983 – The economics of war. Blog – daviddfriedman.com [online]. Published initially in Blood and Iron: There will be war, 3^rd volume. Available at: http://www.daviddfriedman.com/Academic/economic_of_war/the_economics_of_war.htm [Accessed on May 15, 2023].

Friedman, D., 1986 – Price Theory: An Intermediate Text. Blog – daviddfriedman.com [online]. Published initially as a textbook by Southwestern Publishing House, San Diego. Available at: http://www.daviddfriedman.com/Academic/Price_Theory/PThy_ToC.html [Accessed on May 15, 2023].

Friedman, D., 1996 – Hidden order: The Economics of Everyday Life. New York City: Harper Business.

Hunter, B., 2022 – Russian “execution squads” hunting demoralized deserters, defectors. Toronto Sun [online]. Available at: https://torontosun.com/news/world/russian-execution-squads-hunting-demoralized-deserters-defectors [Accessed on May 15, 2023].

Rothbard, M., 1950 – The economics of war. Mises Institute, [online]. Available at: https://mises.org/library/economics-war-0 [Accessed on May 17, 2023].

Schenawolf, H., 2016 – British Army Uniforms during the American Revolutionary War. Revolutionary War Journal [online]. Available at: https://www.revolutionarywarjournal.com/british-army-uniform/ [Accessed on May 17, 2023].

Stevenson, D., 2018 – How the First World War ended. The British Library [online]. Available at: https://www.bl.uk/world-war-one/articles/how-the-first-world-war-ended [Accessed on May 16, 2023].

Tardi, C., 2020 – Rational Expectations Theory Definition and How It Works. Investopedia [online]. Available at: https://www.investopedia.com/terms/r/rationaltheoryofexpectations.asp [Accessed on May 15,2023].

Unspecified author/s, ? – Armistice on the Western Front. The National World War One Musem and Memorial [online]. Available at: https://www.theworldwar.org/learn/about-wwi/armistice [Accessed on May 16, 2023].