The Importance of Arms Expendıture and Arms Productıon in the Czechoslovak Economy

Abstract

This article maps out the nature of arms expenditure, its interconnection with arms production in interwar Czechoslovakia, and it investigates the role of arms expenditure in the national economy of the state. At the time of deepest economic crisis, the state minimised arms expenditure, something which had a negative impact on the arms industry. With increasing political tensions, however, the state’s demand for arms industry products was rising, and eventually – for strategic reasons – the state endeavoured to support the relocation of production to safer locations. The state’s extensive investment in arming itself and in the buildup of defence infrastructure required substantial resources, which the state was unable to cover, not even with the aid of newly instated tax revenue. Thus, the state decided to cover the costs through debt financing. The public debt rose fast, even though the state owed most of this debt to domestic creditors and debt servicing costs also remained reasonable. The multiplication effect of extensive arms costs affected areas where the arms industry was concentrated, while the border region received hardly any stimulus, with high unemployment persisting there.