Monetary Policy and National Defense

This article will discuss the relationship between the monetary policy of a nation and its national defense.

There is a relationship between economic policy and national defense. In particular, a government must ensure a strong and stable national currency in order for defense spending to be effective.

When a country's central bank prints money or takes certain other actions the resulting policy is monetary inflation or an inflationary monetary policy. When this occurs prices rise around the economy and the currency is devalued ceteris paribus relative to other currencies. This is the source of many of the problems in many economies, but it is also the source of a national defense issue.

The problem occurs because in most countries national defense is assigned a finite budget for an inflexible period of time. For example, in the U.S. the DoD is appropriated annually. That budget is based on the assumption that if the government spends a certain number of dollars on defense then a certain number of actual goods and services will be purchased for the purpose of carrying out that national defense function.

Now consider that the Federal Reserve suddenly prints a large number of dollars after a budget has been passed. This creates a situation where the budget is now too small because each dollar buys less goods and services. It might be that there are less soldiers hired, less computers bought or less training provided. The various defense agencies will do the best they can, but at the end of the day this lack of funding will hurt our national security in some way.

Inflation can be caused by monetary policy, but there are other actions which can be taken by other branches of a government besides the central bank which also cause inflation.

Inflation, in turn, is only one way in which bad economic policy is related to national defense or any of the other functions of government.

Simply put, a better economy translates to better national defense. It also translates to better everything. Ironically, the best economy is found in a pure free market. This would imply that personal defense with maximal weapons rights and privatization of the military and police would allow for optimal defense and security, as would privatization of government in general maximize the efficiency of all functions of society in general.

Regardless of political preference, by long run economic necessity there will soon come a day when privatized national defense is simply stronger than centralized national defense and the privatized economy won't have to hide in the shadow of a centralized military shell any longer.

That's actually a good thing and not a scary thing. Privatized defense is associated with substantially lower crime and violent fatality.