Guns versus butter model

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In economics, the guns versus butter model is the classic example of the production possibility frontier. It models the relationship between a nation's investment in defense and civilian goods. In this model, a nation has to choose between two options when spending its finite resources. It can buy either guns or butter, or a combination of both. This can be seen as an analogy for choices between defense and civilian spending in more complex economies.

The "guns or butter" model is generally used as a simplification of national spending as a part of GDP. The nation will have to decide which level of guns and butter best fulfill its needs, with its choice being partly influenced by the military spending and military stance of potential opponents.

This model does not typically correlate well with free market economies.^[1]

1 Origins of the term
2 Actual application
3 In popular culture
4 See also
5 References
6 External links

[edit] Origins of the term

One theory on the origin of the concept comes from William Jennings Bryan's resignation as secretary of state in the Wilson Administration. At the outbreak of World War I, the leading global exporter of nitrates for gunpowder was Chile. Chile had maintained neutrality during the war and provided nearly all America's nitrate requirements, as it was also the principal ingredient of chemical fertilizer in farming. The actual export product was guano containing high levels of phosphorus and nitrogen.

With substantial popular opinion running against U.S. entry into the war, the Bryan resignation and peace campaign (joined prominently with Henry Ford's efforts) became a banner for local against national interests. Bryan was no more pro-German than Wilson; his motivation was to expose and publicize what he considered to be an unconscionable public policy.

The National Defense Act of 1916 directed the President to select a site for the artificial production of nitrates. It was not until September 1917, several months after America entered the war, that Wilson selected Muscle Shoals, Alabama, after more than a year of competition among competing political rivals. A deadlock in Congress was broken when Senator Ellison D. Smith from South Carolina sponsored the National Defense Act of 1916 that directed "the Secretary of Agriculture to manufacture nitrates for fertilizers in peace and munitions in war at water power sites designated by the President". This was presented by the news media as "guns and butter."

[edit] Actual application

Perhaps the best known actual usage (in translation) was in Nazi Germany. In a speech on January 17, 1936, Minister of Propaganda Joseph Goebbels stated: "We can do without butter, but, despite all our love of peace, not without arms. One cannot shoot with butter, but with guns." Sometime in the summer of the same year, Hermann Goering announced in a speech, "Guns will make us powerful; butter will only make us fat."^[2]

In state-run economies (where GDP is controlled by a central planning authority or the government), as well as nations with consistently stagnant or declining GDP, the "guns and butter" model becomes real. When Ronald Reagan was increasing defense spending in the 1980s, the Soviet Union was forced to choose between military spending or civilian spending.^[3]

[edit] In popular culture

Gang of Four's classic 1979 album Entertainment! includes the song "Guns Before Butter."

In the 2001 John Singleton movie Baby Boy, Ving Rhames' character claims there are "two types of niggas, niggas with guns... and niggas with butter."

The San Francisco jam band, Hot Buttered Rum String Band, has a song titled Guns or Butter - an anti-war song with the line "less guns, more butter."

[edit] See also

Peace dividend — The amount of civilian goods produced by a decrease in defense spending.
Arms race

[edit] References

^ Mankiw, Gregory; "Macroeconomics", Worth Publishers, 2003, for GDP model see pp15-41.
^ The Columbia World of Quotations, Columbia University Press, 1996, #25152
^ Schweizer, Peter; "Reagan's War", Random House, 2002, pp. 207, 218, 230, 232, 238