ABSTRACT
Defence economics is a relatively new sub-field of economics. One of the first specialist contributions in the field was by Hitch and McKean, The Economics of Defense in the Nuclear Age (1960). This book applied basic economic principles of scarcity and choice to national security. It focused on the resources available for defence and the efficiency with which such resources were used by the military. Like all economic problems, choices cannot be avoided. Scarce resources allocated to defence means that these resources are not available for alternative uses such as social welfare spending (e.g. missiles versus education and health trade-offs). But further choices are needed. Within a limited defence budget, resources have to be allocated between equipment and personnel, between nuclear and conventional forces and between air, land and sea forces. Military commanders have to use their limited resources efficiently, combining their inputs of arms, personnel and bases to ‘produce’ security and protection. Within such a military production function, there are opportunities for substitution. For example, capital (weapons) have replaced military personnel and nuclear forces have replaced large standing armies. Defence economics is about the application of economic theory to defence-related issues.
