Search

This article presents a discussion on the research paper "The Economic Analysis of Defense: Choice Without Markets," by Fred S. Hoffman of RAND Corp., published in the May 1959 issue of the journal "American Economic Review." There are two questions confronting those who make military decisions that Hoffman considers to be economic questions, how much to spend on military preparedness and what allocations to make among the many sorts of military capabilities competing for resources. An answer to the first question involves bringing together the community's opportunity function, which lists efficient alternative productive arrangements, and the community's preference function, with military preparedness as one of the choices. The answer to the second question involves the maximization of output, in this case military output, with given inputs. It is, in effect, part of the process of defining the community's opportunity function. The process of sub-optimization is the partial equilibrium aspect of the military maximization problem.

The article focuses on problems of trade between planned economies. These problems can be, firstly, problem of trade between economies in which free enterprise has simply ceased to exist. Secondly, the problem of trade between those countries and others, and finally, the problem of trade faced by partially socialized economies which practice state trading in some fields but not all, both among themselves and with enterprise economies. The conduct of trade is in the hands of state monopolies or boards which operate within the framework of agreements negotiated by governments. A country that indulges in a high degree of specialization in an international trading community in which a fair amount of competition prevails and in which prices are the principal guide to buying and selling, subjects its economic development to the dictates of the market. In return it obtains a higher per capita consumption or may support a larger population or both. There could be cases where the combination of credit and long-term contracts would be of advantage to both trading partners.