April Newsletter: Women & Money, War Costs, Hedging, and More!

War is usually discussed in terms of strategy, politics, or morality. But it is also an economic event, and the Austrian school of economics offers a distinct way of understanding it. Instead of relying primarily on historical data or statistical models, Austrian economists begin with a simple premise: individuals act purposefully. From this starting point, Austrian economists build a logical framework, known as praxeology, to explain how economies function. This contrasts with most other schools, which lean heavily on empirical observation and mathematical modeling.

At its core, Austrian economics views a healthy economy as one based on voluntary exchange. Buyers and sellers interact freely, prices emerge from those interactions, and resources flow to their most valued uses. This system depends on consent. No one is forced to participate, and that absence of coercion is not incidental, it is foundational.

Murray Rothbard, one of the leading Austrian thinkers, pushed this idea further by asking us to imagine a world with no violence at all. In such a setting, every transaction is voluntary, and all economic outcomes reflect genuine preferences. This becomes the benchmark. From there, any introduction of coercion, especially organized coercion by the state, can be analyzed as a deviation from this ideal.

War is the most extreme form of that deviation. It is not just coercion, but organized, large-scale violence. Economically, it redirects resources away from what consumers actually want and toward what governments demand. Labor, capital, and production are pulled into military use, regardless of whether those uses create real value. The concept of opportunity cost becomes unavoidable. Every tank produced is a car, a home, or a medical device not produced.

The way wars are financed deepens the distortion. Governments can tax, borrow, or create money. Taxation is visible and politically costly. Borrowing pushes the burden into the future. But monetary expansion, often the most subtle tool, spreads the cost through inflation. When new money enters the system, it does not affect everyone equally. Those closest to the source, typically governments and their contractors, benefit first. Others further out face higher prices later, after the money has already worked its way through the system.

This is why Austrian economists emphasize that war is inflationary. It is not just about rising prices in a general sense. It is about a distortion in relative prices and purchasing power. The economy does not simply “heat up.” It becomes misaligned. Signals that normally guide investment and production become unreliable.

Some argue that war can stimulate growth, pointing to rising GDP during wartime. The Austrian response is straightforward. GDP measures activity, not value. Destroying resources and then rebuilding them can increase measured output, but it does not make society richer. True wealth comes from producing goods and services that people voluntarily choose, not from forced redirection of resources.

War also disrupts entrepreneurship. In normal conditions, entrepreneurs rely on price signals and profit and loss to guide decisions. During war, those signals are distorted by controls, rationing, and political priorities. Economic calculation becomes more difficult, and mistakes become more likely, with long-term consequences.

From the Austrian perspective, the conclusion is clear. War is not an engine of prosperity. It is a process that replaces voluntary exchange with coercion, distorts prices, redistributes wealth, and erodes real economic progress. At its core, it is inflationary, not just in prices, but in the deeper sense of expanding money and power at the expense of a functioning market system.