Guns versus butter model

In macroeconomics, the guns versus butter model is an example of a simple production–possibility frontier. It demonstrates the relationship between a nation's investment in defense and civilian goods. In this example, a nation has to choose between two options when spending its finite resources. It may buy either guns (invest in defense/military) or butter (invest in production of goods), or a combination of both. This may be seen as an analogy for choices between defense and civilian spending in more complex economies.

The "guns or butter" model is used generally as a simplification of national spending as a part of GDP. The nation will have to decide which balance of guns versus butter best fulfills its needs, with its choice being partly influenced by the military spending and military stance of potential opponents. Researchers in political economy have viewed the trade-off between military and consumer spending as a useful predictor of election success.

One theory on the origin of the concept comes from William Jennings Bryan's resignation as United States 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 of the US's nitrate requirements. It also was the principal ingredient of chemical fertilizer in farming. The export product was sodium nitrate, a salt mined in the northern part of Chile that often is referred to as Chile saltpeter.

With substantial popular opinion running against US entry into the war, the Bryan resignation and peace campaign (joined prominently with Henry Ford's efforts) became a banner for local versus 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.

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