WHAT IS 'War Economy'

War economy is the organization of a country's production capacity and distribution during a time of conflict. A war economy must make substantial adjustments to its consumer production in order to accommodate defense production needs. In a war economy, governments must choose how to allocate their country’s resources very carefully in order to achieve military victory while also meeting vital domestic consumer demands.


War economy refers to an economy of a country at war. A war economy prioritizes the production of goods and services that support war efforts, while also seeking to strengthen the economy as a whole. During times of conflict, governments may take measures to prioritize defense and national security expenditures, including rationing in which the government controls the distribution of goods and services, as well as resource allocation in which certain resources are assigned to various uses. In times of war, each country approaches the reconfiguration of its economy in a different way and some governments may prioritize particular forms of spending over others.

For a country with a war economy, tax dollars are primarily used on defense. Likewise, if the country is borrowing large amounts of money, those funds may go mostly toward maintaining the military and meeting national security needs. Conversely, in countries without such conflict, tax revenue and borrowed money may go more directly toward infrastructure and domestic programs, such as education.

War economies often exist out of necessity when a country feels it needs to make national defense a priority. War economies often demonstrate more industrial, technological and medical advancements because they are in competition and therefore under pressure to create better defense products at a cheaper cost. However, because of that focus, countries with war economies may also experience a decline in domestic development and production.

Examples of War Economies

All of the major members of both the Axis and Allied powers had war economies during World War II. These included countries such as the United States, Japan and Germany. America's economic strength was a vital pillar that allowed the Allies to receive the money and equipment needed to defeat Axis.

Because wars can sometimes have the effect of accelerating technological and medical progress, a country’s economy can be greatly strengthened after the war, as was the case with the United States after both World War I and World War II. Some economists argue, however, that the wasteful nature of military spending ultimately hinders technological and economic advancement.



  1. Price War

    A price war refers to a circumstance wherein rival companies ...
  2. Economy

    An economy is the large set of interrelated economic production ...
  3. Closed Economy

    A closed economy considers itself self-sufficient and has no ...
  4. Mixed Economic System

    A mixed economic system is one that features characteristics ...
  5. Canada Savings Bond (CSB)

    Canada Savings Bond is a financial product issued by the Bank ...
  6. Country Limit

    Country limit is the aggregate limit that a bank places on all ...
Related Articles
  1. Investing

    War's Influence On Wall Street

    Blitzkrieg? Dawn raids? Sounds like the markets and the battlefield have a few things in common.
  2. Insights

    The Pros And Cons Of Price Wars

    Cheaper prices for the customer may seem great, but aggressive price cutting has a downside.
  3. Personal Finance

    Economic Effects Of Life After Military Service

    The end of operations in Iraq and Afghanistan will have an impact on the economy. Discover how.
  4. Investing

    4 Commodities Affected By World Conflicts

    What happens to commodities when political disagreements lead to war?
  5. Investing

    Economic Conditions That Helped Cause World War II

    Dire economic conditions following the First World War intensified antagonisms between nations that would eventually lead to the outbreak of World War II.
  6. Insights

    How Would a Trade War Affect You

    On Friday, July 6th, at exactly 12:01 am, the U.S. fired the first shots of war. They weren’t missiles, or drones, or marines, but instead, billions of dollars worth of tariffs aimed at the Chinese ...
  7. Insights

    At $1 Trillion, Apple is Bigger Than These Things

    As the first company to cross a market cap of $1 trillion, Apple is now larger than the GDP of The Netherlands, the U.S. Budget Deficit and the cost of the Vietnam War.
  8. Investing

    Tech Big Shots To Beat $4 Trillion In Valuation

    Facebook, Apple, Amazon, Google and Microsoft are poised to have a combined market valuation of more than $4 trillion.
  9. Investing

    How to Invest in Uncertain Times

    Learn about the challenges of investing in uncertain times. Find out how to protect your money with future events being difficult for investors to predict.
  1. What are some advantages of a market economy over other types of economies?

    Learn what a market economy is, the main assumption behind a market economy and some important advantages it has over other ... Read Answer >>
  2. How is an economy formed and why does it grow?

    Find out how an economy forms and why it grows, including the role that financial markets play and how productivity increases ... Read Answer >>
  3. What is the history of corporations in America?

    Read a short history of the American corporation, from the first industrial producers to the period of American business ... Read Answer >>
  4. What indicators are used in exchange rate forecasting?

    Learn what economic indicators are most widely used to forecast a country’s exchange rate and how various foreign exchange ... Read Answer >>
Trading Center