Introduction to Economics                                      Lesson 08/07



There are innumerable definitions of War, including the absence of peace and vice versa.  Perhaps one of the most famous is that of the Prussian military strategist, Carl von Clausewitz [1780 – 1831], who opined that war was the continuation of politics.  In recent times the word has been used, for a variety of reasons, freely and loosely.  Hence we have the war on AIDS, the war on drugs, the war on smoking, the war on obesity, the war on poverty, the war on terrorism, and so forth. 

The primary meaning of War, certainly in the Western world, is an armed conflict between 2 or more nation-states.  This definition excludes revolts, rebellions, revolutions and even civil wars. The Iraqi War, at least at its inception, fits this definition.  In this regard, the time of the commencement of the war is generally accepted as being the attack by the U S A and its allies, including Australia, on Iraq.

The economic aspects of the War can be examined and considered in a variety of ways.  These include the connection and significance of economics with respect to the causes of the war, the ongoing conduct of the War and, eventually, to its ultimate consequences.



In his 1973 book “ The Causes of War”, the Australian economic historian Geoffrey Blainey [Born 1930] considered a variety of the causes of war.  He devoted a chapter to Economics, and to the economic drives and pressures leading to war.  Whilst he concluded that economics had its place therein, he did not accept that economic pressures and ills were the main stirrers of wars There were other factors, including emotional, cultural and psychological and the inherent nature of human beings.  .

The generally stated reason, at the time, for the starting of the War was the alleged possession of Iraq of so-called weapons of mass destruction [WMD] and the alleged likelihood of the Iraqi dictator, Saddam Hussein, using them, particularly against the West.  In effect, this was a claim to be acting in self-defence, by way of a clear and present danger, justifying a pre-emptive strike.  Thus the attack could be said to be a case of need rather than greed.

As the stated basis for the war has seemingly proved groundless, the tendency has been to substitute a claim that a major, if not the major, cause for the war was the need to remove the tyrant Saddam Hussein and bring democracy to the Iraqi people.  Arguably this is merely a post hoc rationalisation

An economic basis for the war is frequently alleged to be a desire of the American people to acquire control of the Iraqi oilfields, potentially the second largest in the world.  This does not appear as a likely proposition, however, given that the mass of the American people would have little to gain from American control of such oil, and hardly accounts for the actions of the allied nations, other than the USA, which joined in the attack. 

One suggestion has been that Saddam Hussein was proposing to start charging for Iraqi oil in Euros rather than US dollars, which could have had a significant effect on the ability of the USA to maintain the US dollar as the world’s reserve currency.  A similar suggestion has been made about Iran, which might partly explain the vaunted preparations for war against that country.  

A more likely possible economic cause of the war could be said to be the economic benefits that might flow personally to the various powerful individuals in the USA government, who were the instigators of the war, and their individual supporters who could be expected to benefit individually from such war, whether through oil or producing, servicing or supplying material for the war effort.


Ongoing Conduct

Assuming one does not accept the proposition that the Iraqi War is over and that the USA and its allies have already won, the economic aspects of the ongoing war are significant and largely negative.  First and foremost is the cost, which by any standard is enormous. 

The direct cost of the War to the USA to September 2007, excluding interest, veterans’ entitlements and so forth, is US $ 456 billion, compared to an initial budgeted cast for the war in March 2003 of US$ 70.6 billion.  Similarly the UK has spent 7.4 billion pounds, compared to a 2003 estimate of 3 billion pounds.  The USA is estimated to be spending US$6 billion per month.  Such expenditures are beginning to starve other respective areas of government budget expenditure.

Another negative economic aspect is the loss of wealth in buildings, infrastructure and equipment destroyed or damaged, not only of the allies, but of the Iraqis as well.  Interruption to the flow of Iraqi oil has been one cause of the significant increase in petrol price.  And then of course there is the value of the loss of life and suffering of injured and wounded allied personnel, and again of course, of the Iraqi people.

Perhaps not the least negative economic aspect of modern wars, such as the Iraq War, is the loss of government monetary restraint that it engenders,. and which is already beginning to be observed in the USA.  If unchecked the result could be runaway inflation and the destruction of the economy.

The preponderantly negative economic aspects of conducting a war could perhaps explain the attitude of the famous British economist Edwin Cannan [1861-1935] who wrote, “ What should I answer to anyone who had the impertinence to ask me, what did I do in the Great War ?  The best answer I can think of is, ‘I protested’ “.


Ultimate Consequences

By the nature of the exercise itself, determining the likely ultimate economic consequences of the Iraq War is difficult and complex.  If the market for Iraqi oil is developed and opened up, there could be significant economic benefits.  As well, the successful democratising of Iraqi society and its opening up to increased economic integration with the West could well have significant economic benefits.  However if one factors in the significant negative costs and losses actually incurred, it is difficult to consider that any such positive aspects will cancel out or exceed them.


                                David Sharp

                                      22 May 2007




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