War economy is the term used to describe the contingencies undertaken by the modern state to mobilize its economy for war production. Philippe Le Billon describes a war economy as a "system of producing, mobilising and allocating resources to sustain the violence". The war economy can form an economic system termed the "military-industrial complex". Many states increase the degree of planning in their economies during wars.

Concerning the side of aggregate demand, this concept has been linked to the concept of "military Keynesianism", in which the government's military budget stabilizes economic business cycles and fluctuations and/or is used to fight recessions.

On the supply side, it has been observed that wars sometimes have the effect of accelerating progress of technology and industry to such an extent that an economy emerges greatly strengthened after the war, especially if it has avoided the war-related destruction. This was the case, for example, with the United States in World War I and World War II. Some economists (such as Seymour Melman) argue, however, that the wasteful nature of much of military spending eventually can hurt technological progress.