What Does "Guns and Butter" Refer To?

Guns and butter generally refers to the dynamics involved in a federal government’s allocations to defense versus social programs when deciding on a budget. Both areas can be critically important to a nation’s economy. Depending on the global security environment, the defense may take priority over social, specifically in times of war. Times of war can have a substantial effect on a country’s economy and its societal progression.

Origin and Use

The term guns and butter has been linked throughout history to the challenges of war and the negotiations on defense spending. Its uses have varied from guns and butter, guns vs. butter, and guns or butter. Many trace the coining of the phrase to the beginning of World War I and the protesting resignation of Secretary of State William Bryan. Bryan was strongly opposed to the high expense and risks of nitrates for gun powder. His resignation was followed by the National Defense Act of 1916 which sought to help identify a nitrate production site in Alabama which would serve the national defense efforts in war time and chemical fertilization otherwise. 

Through the years, politicians have evolved the phrase guns and butter for use in all areas of fiscal budgeting where there is a substantial trade-off between defense and social. In general, politicians often use "guns or butter" arguments to state positions about national priorities that impact a nation’s economy.

Government Fiscal Budgeting

The United States has historically been the world leader in defense spending. Defense spending peaked during World War II when the U.S. reported a high of $716 billion in military spending compared to a high of approximately $414 billion by the Germans. Russia’s allocations to military climbed in the post-World War II environment nearly matching spending of the U.S. until the late 80s when Russia’s spending dwindled leaving the U.S. to remain the world leader.

Military expenditure by country.

Each year the president of the United States and Congress are involved in setting the fiscal budget which runs from October to September. The president presents his budget plan approximately one and a half years ahead of time followed by great debates throughout the House and Senate on the final budget.

The U.S. budget is primarily divided into two categories: mandatory and discretionary. The mandatory category is generally aligned with butter while discretionary includes defense and is associated with guns. Mandatory spending involves eligibility programs which help support the health of the nation’s citizens. In mandatory spending, the government considers programs like Social Security, Medicare, Medicaid, housing assistance, and welfare. In discretionary-defense spending, the government allocates funds to national security through the Department of Defense, State Department, and Homeland Security. In 2018 and 2019, the U.S. spent approximately 15% of the fiscal budget on defense at $623 billion and $676 billion respectively. This compared to approximately 62% for mandatory programs overall in 2019.

Comprehensively, allocations to butter programs in the mandatory category generally take greater precedent in times of peace. However, defense spending can require significant increases in times of war or increased security which can pull funds away from important social programs.

Graphical Economic Representations and Considerations

When discussing guns vs. butter spending there are a few key economic concepts that are also often considered in parallel. One classic example is the production possibility frontier (PPF) which defines the relationship between production of goods with consideration for opportunity costs. The PPF can be used when studying guns and butter spending. The curve defines the maximum levels that can be used for defense versus social. In the curve below, the chart shows one hypothetical graphical representation.

Guns and Butter Curve
Image by Julie Bang © Investopedia 2020

In this chart, maximum funding for butter would produce 1,000 pounds of butter and zero guns. Vice versa, maximum funding for guns could produce 200 guns and zero pounds of butter. When plotting the curve at different allocation points, the representation shows the balance that occurs when using funds for both butter and guns simultaneously with a limited amount of total funding available.

Article Sources
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