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Matt Domsalla

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Castles, Battles, & Bombs Precis



In Castles, Battles, & Bombs, Augusta State University economics professor Jurgen Brauer and August State University history professor Hubert van Tuyll utilize an economics viewpoint to write military history. The duo illustrates how six economic principles – opportunity costs, expected marginal costs and benefits, substitution, diminishing marginal return, asymmetric information and hidden characteristics, and hidden actions and incentive alignments – play out in six episodes of military history. Building of medieval castles is used to highlight the importance of opportunity cost – while constructing a castle was an expensive proposition, it was a better value than raising a large army. The authors illustrated aspects of the principle-agent problem and the importance of contract incentives through the use of military contractors, or condottieri during the Italian Renaissance. The Age of Battles (1618 – 1815) and the concomitant decision on whether to offer battle highlighted the marginal costs and benefits of the leader’s decision. The authors utilize the American Civil War’s eastern theater to show how generals used information asymmetry to their advantage. World War II’s strategic bombing campaign highlighted the diminishing marginal return of strategic bombing by illustrating that continuous increases in the tonnage of bombs dropped, when other war effort inputs remained the same, eventually led to declining increases in the destruction sought. (A significant limitation of the assessment of strategic bombing’s marginal return was the information deficit of the campaign’s effects.) Finally, the development of the French force de frappe (nuclear weapons) illustrated capital-labor substitution – could nuclear forces be substituted for conventional forces.



Economics

· “Economics can usefully illuminate military history and show that new insights can be gained by the application of a well developed theory to a field that generally lacks theoretical rigor.” (6)

· Neoclassical microeconomics is the line of study from Adam Smith to the marginalist revolution of Alfred Marshall to modern formulation from Paul Samuelson. It postulates a set of behavioral principles by which a rational human being, hono economicus, makes decisions. Rational decision making is assumed. (8)

· “Opportunity cost – the cost of not pursuing the opportunity of doing something else.” (12)

· “Economics makes a prediction: it is that of the multitude of valuable things from which they must choose, people tend to choose the one thing that is most valuable to them, given the conditions prevailing at the time the choice is made.” (12)

· “To use limited resources in the face of unlimited wants necessarily implies constrained optimization, the maximizing of value constrained by the conditions at the time a choice is made.” (13)

· “Since the future is uncertain, decision making involves expected marginal benefits to be weighed against expected marginal costs, and the decision rule is straightforward: if the expected incremental benefit of an action outweighs its expected additional cost, then do engage in that action, and vice versa.” (17)

· The expectation of costs and benefits is influenced by preferences, resources, and prices. (17 – 18)

· “The principle of substitution says that if two goods yields comparable benefits users will eventually drive toward usage of the good with the relatively lower prices…if the benefit is fixed, people reach for the lower-cost item; if the cost is fixed, people reach for the higher-benefit item.” (21)

· Diminishing returns – “more of a thing is not necessarily desirable.” (25)

· “We should observe an intrinsic drive among competitors to go from a difference of degrees (more input of the same kind, with diminishing returns) to a difference in levels (a switch to inputs of a different kind, with rising returns), that is, of technological and strategic innovation.” (27)

· “Information problems can be grouped into two general classes: those involving hidden characteristics… and those involving hidden actions.” (28)

· “Market power can be exploited in that the side with superior information obtains a better deal that otherwise would have been possible.” (29)

· “Signaling and screening help overcome information problems, at a cost.”(30)

· “Hidden characteristics…cause problems before an action is taken or a commitment made [while] hidden action causes problems after an action or commitment is taken.” (33)

· “This highlights the difference between hidden characteristics and hidden actions: the former is about information and information transmittal before a commitment is made, the latter is about incentives and incentive alignment after a commitment has been made. The former is about being truthful, the latter about acting truthfully.” (35)

The High Middle Ages, 1000 – 1300: The Case of the Medieval Castle and the Opportunity Cost of Warfare

· “A king in 1008 was far more aware of the need to make choices than a president in 2008.” (45)

· “Choosing to build castles cost the opportunity to build armies.” (47)

· “Opportunity cost…refers…rather to the highest-valued alternative purchase one could have made.” (49)

· “To determine how much [building castles] cost rulers, we need to know the cost of castling compared with the cost of recruiting an army.” (53)

· “The nub of the problem was that resources invested by an attacker were much greater than those of the defender.” (65)

· “Edward I fought in three theaters of war, Wales, Scotland, and the Continent, and was ultimately successful in only one: Wales, where he engaged in substantial castle building. It is difficult to escape the conclusion that raising armies proved of much more limited utility to medieval rulers than did castles.” (68)

The Renaissance, 1300 – 1600: The Case of the Condottieri and the Military Labor Markets

· “The principal is the party requesting a service (the city-state), and the agent is the party contracted to perform it (the mercenary). Contract fulfillment requires that both parties perform the contracted action(s) and is therefore contingent on both parties being able to monitor and enforce contract provisions.” (84)

· “Principle-agent relations are fraught with difficulty, and contracts must be designed and redesigned accordingly, with special emphasis placed on credible enforcement.” (90)

· “The variety and changes in the contracts amply suggest that the parties were addressing disputes by writing their next contract differently.” (93)

· “If the mercenary system of the Italian Renaissance eventually come to an end, it was not for lack of political, legal, or requisite administrative sophistication. Instead it had very much to do with the difficulty of holding parties to contractual promises, with contract enforcement in a word.” (96)

· “As military organization changed, and certainty and permanence were to be found with employing states rather than with employing companies, the soldiery gradually drifted toward the states.”

· “Caferro’s chronicle of the gradual transformation of free-roaming mercenary companies first into semi-permanent, then permanent but locally bound forces conforms to contract-economic and game-theoretic expectation: repeated interaction in a competitive environment would foster the development of reputation effects, signaling of reliability, and an increase in contract certainty and stability.” (107)

The Age of Battle, 1618 – 1815: The Case of Costs, Benefits, and the Decision to Offer Battle

· “The choice of whether to offer any particular battle does not involve the total but rather the expected additional costs and benefits that a battle engagement might bring.” (133)

· “How the individual evaluates and reacts to a specific situation (economic perspective) is the result of how that individual processes information related to that situation (psychological perspective).” (123)

· “What is to be gained from giving battle that otherwise could not be gained and against what cost?” (124)

· “The calculation of expected costs and benefits of each additional engagement in battle then might be said that have had a rational goal: to lower the total cost of war.” (124)

· “Complexity in operations created complexity in calculations.” (131)

· “What stimulated [Gustavus Adolphus’s] attack at Lutzen was that the enemy had divided his forces, giving the Swede his best chance of victory. This constitutes a classic example of expected marginal cost/benefit analysis. All the other circumstances already existed, but the one additional item – a weakening in enemy numbers – led to the decision to attack.” (136)

The Age of Revolutions, 1789 – 1914: The Case of the American Civil War and the Economics of Information Asymmetry

· “The need for information about one’s own forces as well as the enemy’s is virtually insatiable…not only is the need for information insatiable but the information that is available in war often is inadequate, poor, unsatisfactory, and faulty…commanders’ knowledge concerning their own organization is of a far lower order than that of a business owner vis-à-vis his farm.” (164)

· “The telegraph’s effect on information flow was revolutionary.” (166)

· “Prejudices and perceptions were part of the information available to [McClellan], and information can never be disentangled completely from the personality that processes it.” (173)

The Age of the World Wars, 1914 – 1945: The Case of Diminishing Marginal Returns to the Strategic Bombing of Germany in World War II

· This chapter “makes a very specific, if technical point: to demonstrate that continuous increases in the tonnage of bombs dropped, when other inputs to the war effort remain unchanged, eventually yield declining increases in the destruction sought.” (201)

· “Thing about the incremental destructive effect of additional bombing tonnage applied, the marginal effect as economists refer to it.” (204)

· “Evidently, the largest number of aircraft produced occurred during the time period of the most intense bombardment of the industrial sites, in 1944.” (210)

· “When we examine the raw data…, we note that bombing in the 1,000+ ton range reduced the production index to an average of 32.6, whereas production in the 400 to 800 ton range reduced it to 34.8, about the same “bang” for a considerably smaller “buck” of aircraft and crews sacrificed in the attacks.”

· “While we share many authors’ skeptical look at the promise of strategic bombing per se, the specific point we make here concerns only the issue of diminishing marginal returns to strategic bombing.” (213)

· “The principle architects of America’s air war plan calculated that by destroying…124 electric, transportation, and oil targets in all, the Germany economy could be wrecked enough to make the Nazis sue for peace.” (213)

· “At best, the strategic air war appeared to secure modest delays in further increases in Germany production, rather than securing decreases.” (219)

· “In fairness to the Allied war effort, one must of course acknowledge that they suffered from severe information deficits during the war that made an assessment of the bombing’s efficacy difficult.” (227)

The Age of the Cold War, 1945 – 1991: The Case of Capital-Labor Substitution and France’s Force de Frappe

· “Nuclear weapons (capital) might be acquired to substitute for conscripted military manpower (labor) if the price of capital is low relative to that of labor.” (245)

· “That a nuclear force can do things in wartime that conventional weapons cannot does not mean that there can be no substitution. Nuclear weapons may be different, but they can be substituted for conventional weapons – if raw power is the main criterion.” (246)

· “A nuclear balance of power was actually more stable than a conventional one and also set limits to conventional war.” (255)

· “The costs of conventional forces that could strike by air or land and do that much damage [to Moscow as a nuclear weapon] appeared astronomical.” (275)

· “Monopoly always looks like the best system to the monopolist.” (278)

· “Budget choices were made. The nuclear force was substituted for conventional forces, particularly in terms of spending and numbers of personnel and maintenance of national security, and to some extent in the areas of deterrence and defense.” (285)

Economics and Military History in the Twenty-First Century

· “Economics cannot explain everything, but the extent to which its principles illuminate certain behaviors and events suggests a fruitful avenue for military historians to impose structure on description.” (287)

· “Economists’ fundamental proposition is that a terrorist organization…is a rational actor. That is to say that, given its beliefs, its members choose the where, the when, and the how of attacks subject to a set of constraints, which include the production costs if faces, and the labor, capital, institutional, and other resources available to the organization.” (290)

· “It can be shown that governments tend to overinvest in defensive measures and underinvest in offensive measures.” (294)

· Counterterrorist action ought to be broad-based across all countries and agencies…while governments struggle with international counterterrorist coordination, each one of them must beware of terrorist substitution and fortify likely substitute targets…for a terror organization, a low-labor, high-tech attack may be equivalent to a high-labor, low-tech attack…before a person joins a terror organization…that person has an option of choosing to participate in a terror action or a nonterror action…in liberal democracies terror success thrives on the constitutional free-press guarantee…the US cannot simply dispense with coalition-building, fortify its own borders, and deflect terrorists toward non-US targets.” (296 – 297)

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Castles, Battles, & Bombs – Jurgen Brauer and Hurbert Van Tuyll (2008)

The authors make the case that Economics and Economic theory can be used as a model to help explain military history. They explain 6 economic concepts and apply each one to a historical example to help explain behavior. They conclude with applying them to 3 modern problems.

Theory = set of laws = mature fundamental truths about how things work// model behavior.

I- Opportunity Cost – every choice has alternatives

a. 1000-1300 – Castles or Armies, usually choose costly castles for many benefits

II- Expected Marginal Costs and Benefits (at margins, cost/benefit, preferences)

a. 1618-1815 Age of Battles– engage or not engage = marginal cost/benefit/costly battle

III- Substitution–Benefit fixed will select lower cost item/cost fixed select higher benefit item

a. Cold War – Frances choice to substitute nucs for conventional forces

IV- Diminishing Marginal Returns –

a. Diminishing Returns of Strategic Bombing in Germany WWII

V- Asymmetric Information and Hidden Characteristics – the buyer beware

a. American Civil War and the Economics of Information Asymmetry

VI- Hidden Actions and Incentive Alignments – contract enforcement

a. 1300-1600 Case of the Condottieri and Military Labor market in Italy

Hughes – “Economic Models do apply, they are simple to understand and can explain behavior.”



“Good to have a discipline to help view things strategically, force thought in a disciplined way to think through future thought:



U.S. in an unprecedented state of not having to make strategic choices based on wealth, Raising and fielding a military has not been a problem – not the norm.



Rich way to approach strategy; start at objective and work backwards

Other way is to start at resources available and work towards to the objective.

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Castles, Battles, & Bombs – Jurgen Brauer & Hubert Van Tuyll

SUMMARY:

Using Economic principles to illuminate military history. Make the case for a cross-denominational approach to looking at history. Leads to more interesting, and different conclusions. Basis is on neoclassical economics (economics in a perfect world) at the same time they understand this limitation they try and reduce assumptions to clarify the analysis. See Themes below for six themes and six case studies.

THEMES

SIX ECONOMIC PRINCIPLES – CASE STUDY (CONCLUSION NEXT LINE BELOW)

1. Opportunity Cost – Have to give up something to get something. What am I giving up – Middle Age Castle Building

Castle = cheaper than Army. Since war is the duty of kings – choose the castle. Give up Army, gain defense.

2. Substitution – How much can one thing be substituted for another? If benefit same, will chose lower cost. – France’s building of a nuclear force. France builds nuclear force. More Bang for the buck than a standing army.

3. Diminishing Marginal Returns – What’s the $ of one more? What’s the benefit? WWII Strat Bombing (CBO). More bombs dropped meant that each additional bomb was less effective. May have actually helped Germans produce more. It was TAC NOT STRAT bombing (Js thought—ignores the pilot killing somewhat—not the original goal , but very important).

4. Expected Marginal Costs and Benefits – What’s the cost of $ more? What’s the benefit? Enlightenment age of warfare. Didn’t fight because it was too costly. Armies hard to maintain and keep. Enlightenment brings cost calculation to bear in warfare (math, science, other concepts now brought to bear in war).

5. Asymmetric Info and Hidden Characteristics – BEFORE a decision is reached there is imperfect information. Civil War case study. Novel ways of communication (telegraph, railroad, etc..) did note really help. Country that defended the home land had the informational advantage. TOUGH TIME getting this! J

6. Asymmetric Info and Hidden Actions—AFTER a decision is reached there is imperfect information. Condottieri in Renaissance. Not sure what the conclusion was other than they had to work out a system not to get hurt and to make sure everyone played by the rules. Muster rolls, branding, good pay. Maybe like the free agent system?

J’s THOUGHTS

Economic theory can illuminate a lot—but does have its limits. In seeking to provide an explanation of the past, they don’t necessarily provide a lens for the future. Diminishing returns may have some power in bombing theory—does it hold for other cases. More does not equal better. The Italian contract part just seems to focus on the action of contracting, not on the so what. Is there a way to better incentivize the world? Other militaries?

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