The economics of war: Vikings, Conquistadors and Vietnam

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Hello and thanks for downloading the More or Less podcast.

We're the program that looks at the numbers in the news, in life, and in war.

And I'm Tim Harford.

We economists are always banging on about the surprising and counterintuitive things that we can spot in the world around us through our super cool economics goggles.

And rightly so, economics goggles are cool.

So put on a pair with me and let's gaze at the world around us, which happens to contain clashing swords, flying cannonballs and exploding bombs.

We will be joined in our observations by journalist, economist and friend of the programme, Duncan Weldon.

He's written a new book, Blood and Treasure, which uses these economics goggles to study war and conflict.

So we should think of some examples, and one of the ones that caught my eye was the Vikings.

So I would have thought that being pillaged by Vikings is very bad news for your economy.

Yes, I mean, you know, being raided by the Vikings is

quite a zero-sum game.

You know, some people turn up in a boat, they kill a lot of people, they carry off movable wealth.

The economics of that aren't particularly interesting.

Yeah, I'm going to suggest negative sum, and I'm going to suggest that the Vikings are usually on the winning side.

Yes,

I will completely agree with that.

But what is interesting as the Viking age moves on is the Vikings begin to change tactics.

In economic terms, the Vikings start to move from being roving bandits to stationary bandits.

You know, a roving bandit is incentivized to grab as much as they can carry and do a lot of damage if they have to to grab it.

Whereas a stationary bandit, someone who is going to be in the same area for a long time, it starts to look more like a mafia protection racket.

You know, they're extorting money from people.

And if you're running a protection racket, if you're a stationary bandit, you're incentivized not to kill the goose that laid the golden egg.

So there start to be some advantages perhaps, some public goods provided by having a permanent Viking presence.

You know, another thing we can look at is payments of tribute to make the Vikings go away, you know, the Dane gold.

The Vikings were not

pirates in a children's cartoon who buried this treasure and put an X somewhere on a map.

They generally spent it.

And it would appear that a lot of what they spent was spent buying goods and services from the people that had paid it.

it.

What's really interesting is, and as much as we can put the evidence together, if we look at Europe in the 9th, 10th, 11th centuries, the so-called Viking Age when Vikings were prowling the coasts, we actually see a pickup in trade, exchange and production.

Moving on through time, let's stop off a few hundred years later with the Spanish conquistadors.

With the help of European disease, they defeat the Inca and Aztec empires, pillage the Americas for resources, and bring tons of gold and silver back to Europe.

You would think all that wealth would give them a huge advantage in the race for dominance in Europe, but not so.

It doesn't in the long run help the Spanish economy.

I would argue it harms it.

It harms it for a few reasons.

Most of which, I think, we can think of in terms of institutional development.

Now, generally, when medieval kings wanted to raise money, and they mainly wanted to raise money to fight a war, they had to summon a parliament, you know, to vote them funds.

If we look at the incidence of parliaments being summoned in the 1500s, the 1600s, into the 1700s, generally, as wars became more expensive, as states needed more money to fight them, the number of parliaments being called rose and parliaments sat for longer.

You see that in the Low Countries, you see that in England and Britain, you see that in France, you see that in the German lands.

You don't see it in Spain.

Spain is the odd exception where the number of parliaments being summoned and the length of those parliaments sitting actually falls.

They didn't need to summon parliaments to raise taxes because they had all of this money flowing in from the New World.

There was no institutional check and balance on the actions they took.

And instead they fought a series of increasingly expensive wars as part of an ultimately failed bid for European mastery.

They ended up even when their silver and gold wasn't enough resorting to borrowing to fund them rather than summoning parliaments when the debts got too high they resorted to short-term borrowing to meet long-term debt payments.

The end result was multiple Spanish defaults on their debts and Spanish income per head, which was lower 150 years after the discovery of the Americas than before.

Was it not simply that there was so much gold and silver there was just a massive outbreak of inflation?

I mean, yes, you know, you do get this big inflow of money.

So, sort of the end of the 15th century to the middle of the 17th century is a time usually called the European Price Revolution, or sometimes simply the Spanish Price Revolution.

In those 150 years, the price level rose by about six times.

Now, that actually only works out as 1.2% inflation a year, which sounds quite low to modern ears, but was high for the time.

So, yes, Spain was exposed to this change in prices, but so too was most of Europe.

So it can't fully explain why Spain experienced a relative decline.

Last example, the Vietnam War in the 1960s and 1970s.

And here, big-brained economists themselves were playing a significant role in the military strategy.

Duncan picks out one in particular, Walter Rostow, who was advising President Lyndon B.

Johnson as the war between the communist north and the capitalist South escalated.

So the working theory of Walter Rostow and American national security policymakers was that the war they faced in South Vietnam, all of the key decisions were being made in North Vietnam Vietnam by the leadership in Hanoi.

So the question was how to get the North to stop backing an insurgency in the South, and that is how America and its allies would win the war.

The answer, according to Rostow, was to bomb North Vietnam.

By destroying North Vietnamese infrastructure, they would raise the costs of supporting an insurgency.

in the south.

The North would eventually stop backing the insurgency and the war would end.

And the bombing was completely catastrophic.

I mean they dropped I think more bombs on North Vietnam than they dropped during the entire Second World War, which is pretty extraordinary.

But spoiler, the US did not defeat North Vietnam in the Vietnamese War.

So what fundamentally was wrong with the way that Rostow's theory had been interpreted?

I think Rostow went wrong in two important regards.

Firstly, he just misunderstood the incentives of the North.

You know, the North thought they were fighting a continuing war of liberation to liberate their entire country.

And even if they had lost all of their, you know, industrial infrastructure, that would have been a price worth paying.

They weren't thinking about this in purely economic terms.

But more importantly, what Rostow didn't get was the reaction function, in economic terms, of North Vietnam's allies, the Soviet Union and China.

And what generally happened over the war is the Americans would escalate by bombing further in North Vietnam.

They would destroy, say, fuel production, or they would destroy some industrial capacity.

And the Soviet Union and China would respond by stepping up economic aid to North Vietnam.

And the flows of Soviet and Chinese aid to North Vietnam, which the US was not fully aware of how large they were, but they were colossal.

They were more than making up for the damage done to economic infrastructure.

And every time the US escalated and bombed more, that aid stepped up further.

Thanks to Duncan Weldon, author of Blood and Treasure.

If you'd like to get in touch, please drop us an email to moreorless at bbc.co.uk.

We will be back next week.

And until then, goodbye.

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