The Rise and Fall of Armies∗

For a thousand years, income growth was associated with a rising military employment share. But this share peaked in the early 20th century, after which military employment shares fell with income growth. Rising military shares were driven by structural change out of agriculture, and the recent declines are driven by substitution from soldiers towards military goods. I document evidence for this substitution effect: as countries’ incomes rise, the ratio of their military expenditure share to their military employment share rises too. I introduce a game theoretic model of growth and warfare that reproduces the time series patterns of military expenditure and employment. The model also correctly predicts the cross-sectional pattern, that military employment and expenditure shares are decreasing in income during wars. Finally, I show that faster economic growth can reduce military expenditure in the long run. JEL-Codes: E10, F51, H56, O40 ∗I am grateful for helpful comments and guidance from Michelle Garfinkel, Mikhail Golosov, Jon Hamilton, Erik Hurst, Loukas Karabarbounis, Robert Lucas, Brent Neiman, Nancy Qian, James Robinson, and Richard Romano. I am also grateful for feedback from seminar participants at the University of Florida and working group participants at the University of Chicago. Shubhi Agarwal provided excellent research assistance. †Website: www.jonathanjadams.com Email: [email protected]