Global Corporate Intelligence: Opportunities, Technologies, and Threats in the 1990s

By George S. Roukis; Hugh Conway et al. | Go to book overview

would push resources into storage to recover some diversification, thereby reducing goods available when the war breaks out.


CONCLUSION

Analyses of the management of wartime economies consist of a set of prescriptions for centralized market control with little consideration of how policies fit into the objectives, technology, and strategy of a country engaged in war. Our objective has been to construct a general equilibrium war-game model in which particular war policies emerge in a Nash equilibrium. Specifically, we have integrated a war model with an existing model of financial crisis to examine the emergence of the use of financial weapons. We have found that financial warfare in the form of an asset freeze or a counterfeiting attack will emerge as an equilibrium outcome of a war game. In the narrow case represented by our model, financial warfare, by precluding potential industrial projects, will reduce the measured magnitude of the war, defined as the total amount of resources converted to war goods. We have also found that a counterfeiting attack is more damaging to war potential than an asset freeze.


NOTES
1.
Such books generally appear opportunistically in the second year of major wars. A partial list includes Chandler and Wallace ( 1951), Stein and Backman ( 1942), Steiner ( 1942), Backman ( 1952), and Brown University Economists ( 1942). Though these books serve as advice manuals for how to operate an economy in a major war, they present no systematic analysis of why recommended policies are optimal in a general-equilibrium war environment.
2.
Asset freezes, blocked accounts, war-zone-stamped money, occupation currency, counterfeiting, and secret accounts comprise a collection of financial weapons employed in major wars.
3.
Shubik and Verkerke ( 1986) have recently suggested that financial weapons might be employed to spark a financial crisis in an enemy country.
4.
This is in contrast to many authors in macroeconomics who treat war expenditure as exogenous. For example, the riveting examples in Lucas and Stokey ( 1983) concern the exogenous outburst and magnitude of war. In many cases, assuming the exogeneity of war is simply a theoretical convenience. Hall ( 1989), however, argues that military expenditures are among the few exogenous macroeconomic variables that can be used to identify macroeconomic structural models.
5.
A financial crisis also emerged during the first year of the U.S. Civil War. See Hammond ( 1970).
6.
See Sprague ( 1915), Morgan ( 1952), or Laughlin ( 1918) for descriptions of the crisis and its control in the United States, Great Britain, and Germany.
7.
The use of counterfeiting in warfare was not a new phenomenon. The British themselves employed this method in counterfeiting continentals during the Revolutionary War. The British openly advertised that they would distribute quality counterfeits to anyone at the cost of the paper. See Newman ( 1957) ( Ron Michener pointed out this

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