Guns versus butter model

In macroeconomics, the guns versus butter model is a simple 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.

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 Fact|date=July 2008.

This model does not typically correlate well with free market economies. [Mankiw, Gregory; "Macroeconomics", Worth Publishers, 2003, for GDP model see pp15-41.]

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."

Quoted usage of term

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." [ [http://www.bartleby.com/66/52/25152.html The Columbia World of Quotations, Columbia University Press, 1996, #25152] ]

Another use of the term was Margaret Thatcher's reference in a speech that, "The Soviets put guns over butter, but we put almost everything over guns."Fact|date=September 2008

See also

*Peace dividend — The amount of civilian goods produced by a decrease in defense spending.
*Arms race
*List of references to guns and butter in popular culture
*Buttered cat paradox

References

External links

* [http://www.people.fas.harvard.edu/~goodrich/IRnotes/Week06/Powell_BOOK_summary.pdf Guns vs. butter model] (Adobe .pdf format)