War economy is the term used to describe the contingencies undertaken by the modern state to mobilize its economy for war production. Philippe Le Billon describes a war economy as a "system of producing, mobilising and allocating resources to sustain the violence". The war economy can form a political-economic system termed the "military-industrial complex". Many states increase the degree of planning in their economies during wars.

Concerning the side of aggregate demand, this concept has been linked to the concept of "military Keynesianism", in which the government's military budget stabilizes economic fluctuations and/or is used to fight recessions.

On the supply side, it has been observed that wars often have the effect of accelerating progress of technology and industry to such an extent that the economy emerges greatly strengthened after the war. This was the case, for example, with the United States in World War II. Some economists (such as Seymour Melman) argue, however, that the wasteful nature of much of military spending eventually can hurt technological progress.

Germany under Nazi rule was an especially good example for an increasingly effective war economy. During the 20s with the Versailles treaty still somewhat intact, Germany secretly started first development of dual-use technologies and then built the Battleship A. With Adolf Hitler in power Germany soon remilitarized the Rhineland and re-instituted conscription, the Military-industrial complex was expanded as well. As World War II started in 1939 Germany had a full-effective war economy.

See also

• wartime communism