The political economy of milorg

The Review of Austrian Economics https://doi.org/10.1007/s11138-025-00684-4 The political economy of milorg Brigitta C. Jones1 · Christopher J. Coyne1 Accepted: 2 June 2025 © The Author(s) 2025 Abstract Kenneth Boulding argued that the people and organizations that constitute the war industry hold a special place in economic systems. They blur the line between private and public, and producer and destroyer. At the core of the war industry is the unique military organization, or what Boulding called “milorg,” which includes the entire network of public and private organizations, and the people who populate those organizations, involved in the war industry. The purpose of this paper is to explore the political economy of the milorg by engaging in comparative institutional analysis. We do so by comparing how the milorg, relative to private firms outside of the military industry, answers four fundamental economic questions—(1) What is to be produced? (2) At what price and quantity is it to be produced? (3) How is it to be produced? (4) With whose resources is it to be produced? To explore the answer to these questions we focus on incentive and epistemic institutionalism. Incentive institutionalism focuses on the incentive structures created by different institutional arrangements. Epistemic institutionalism, in contrast, focuses on the different forms of economic knowledge emerging from different institutional arrangements. Keywords Kenneth Boulding · Economic calculation · Economic problem · Milorg · Military sector · War production JEL Classification B53 · F52 · H10 1 Introduction Discussing the unique nature of the war industry, Kenneth Boulding (1963) offered a thought experiment from the perspective of an alien visitor looking down on the world economy. He noted that the visitor might begin by observing two broad categories of economic actors—“producers” who accumulate capital which they utilize to engage in positive-sum, wealth-creating activities, and * Brigitta C. Jones Christopher J. Coyne 1 Department of Economics, George Mason University, Fairfax, USA Vol.:(0123456789) B. C. Jones, C. J. Coyne “destroyers” who extract resources from the producers in order to produce the means of destruction. Boulding went on to note that the alien would observe some unique features of this producer-destroyer relationship. “At times, large numbers of producers join the destroyers’ organization; and at other times, large number of destroyers go back to being producers” (p. 6) Further “the person from outer space would observe, moreover, that on frequent occasions, the destroyers receive praise and adulation from the producers” (p. 6). The purpose of Boulding’s thought experiment was to highlight that the people and organizations that constitute the war industry hold a special place in economic systems. They blur the line between private and public, and producer and destroyer. At the core of the war industry was the unique military organization, or what Boulding called “milorg.” The purposefully broad term “milorg” was meant to differentiate the war industry from private firms in other, non-war industries. The milorg includes the entire network of public and private organizations, and the people who populate those organizations, involved in the war industry. Annually, resources extended by nation states on the global war industry are estimated to total $2.2 trillion (Stockholm International Peace Research Institute 2023). These expenditures have real affects both in terms of the opportunity cost of the scarce resources employed in defense production, and in terms of broader changes to the capital structure and market process. The purpose of this paper is to explore the political economy of the milorg by engaging in comparative institutional analysis. We do so by comparing how the milorg, relative to private firms outside of the war industry, answers four fundamental economic questions—(1) What is to be produced? (2) At what price and quantity is it to be produced? (3) How is it to be produced? (4) With whose resources is it to be produced? To explore the answer to these questions we focus on incentive and epistemic institutionalism (see Boettke, 2018). Incentive institutionalism focuses on the incentive structures created by different institutional arrangements. Epistemic institutionalism, in contrast, focuses on the availability and transmission of economic knowledge emerging from different institutional arrangements. We contribute to three strands of literature, the first of which is the literature on the war economy (Barnet, 1971; Gansler, 1982; Hensel, 2015; Hooks, 1991; Kambrod, 2007; Lapp, 1968; Roland, 2021; Sorensen, 2020; Thorpe, 2014). This scholarship, which is interdisciplinary in nature, focuses on a range of topics including the structure of the war industry, the influence of special interests in the operation and evolution of the industry, and the influence of the defense industry on warmaking. Our paper is the closest to the research focused on the economic aspects and implications of the war industry (Melman, 1970, 1971, 1985, 1997; Duncan & Coyne, 2013a, Coyne and Yatsyshina 2024). Our contribution is to explore how producers in the defense sector differ from how they engage with answers to fundamental economic questions relative to their purely private sector counterparts. While it is widely recognized that there is a trade-off between spending resources on military versus consumer goods, as per the logic of the “guns or butter model,” we add nuance by clarifying key distinctions between how economic questions are The political economy of milorg answered in these different contexts. This, in turn, has broader implications for economic systems and economic welfare. Second, we contribute to the literature in comparative institutional analysis which explores how variation in institutions influence economic outcomes. We contribute to this scholarship by demonstrating its applicability to the defense sector. In doing so, we pay careful attention to the incentive (“incentive institutionalism”) and epistemic (“epistemic institutionalism”) aspects of different institutional arrangements (see Boettke, 2018). Finally, we contribute to the literature on entangled political economy, which focuses on how individuals in the private and public sectors are intertwined in a network of overlapping exchange relationships. Just as Wagner (2016) emphasizes that politics is a peculiar business, we emphasize that the milorg is too as recognized by Boulding (1963). We explore some of the features and implications of this unique business. We proceed as follows. Section 2 gives context to the milorg, laying out the structure of the U.S. defense sector and briefly discussing its evolution through time. Section 3 explores how the milorg answers four fundamental economic questions relative to private firms in private markets. Section 4 concludes. 2 The defense industrial base (...truncated)