What is the Guns-and-Butter Curve
The guns-and-butter curve is the classic economic example of the production possibility curve, which demonstrates the idea of opportunity cost. In a theoretical economy with only two goods, a choice must be made between how much of each good to produce. As an economy produces more guns (military spending) it must reduce its production of butter (food), and vice versa.
BREAKING DOWN Guns-and-Butter Curve
In the chart, the red curve represents all possible choices of production for the economy. The black dots represent two possible choices of outputs. The point here is that every choice has an opportunity cost; you can get more of something only by giving up something else. Also, you'll notice that the curve is the limit to the production. You cannot produce outside the curve unless there is an increase in productivity.
Though the curve is meant to show a strict divide between only two options, production for military spending or food, it can also represent spending on military personnel, equipment, and operations versus all nonmilitary spending in an economy. This can include investments in domestic needs such as healthcare, education, utilities, and other services.
What the Guns and Butter Curve Reveals About Economic Strategy
The curve charts the tradeoff that occurs within the limits of production in a given economy. Money spent on the development and manufacture of jet fighters cannot be invested in infrastructure repairs such as replacement of aging bridges.
The curve shows the correlations that link government strategy, investment and production. If a nation chooses to focus on military buildup, the only way for its domestic production needs to be met is through an overall elevation of production. Such an increase would allow for nonmilitary products and needs to flourish; however, it also means the size and scope of military production would escalate in turn. Maintaining such elevated production in order to meet both needs can prove to be taxing on an economy.
The constraints of the guns-and-butter curve can be used to illustrate the strain put on Cold War-era nations that focused on military buildup while consumer goods suffered in response. Sustained pressure to fulfill military needs for defense was a contributing factor in the dissolution of the former Soviet Union, which experienced shortages on food, houses, and other domestic necessities. Part of the issue was the concerted effort to keep up with defense spending in the United States. In order for the domestic needs of the citizens to be fully met, the Soviet Union needed to escalate its overall production according to the economic model set forth by the guns-and-butter curve.