This survey reviews the literature on the economic determinants of military expenditure and the economic foundations of armament and disarmament. It considers the main economic effects of military expenditure and disarmament in developed and developing countries, including impact on consumption, investment, growth, employment, inflation and the balance of payment. It concludes that the main dividend of disarmament is peace itself and that disarmament without development is not synonymous of a durable peace. Disarmament by a reduction of defence spending constraints will not be decided by a rule of proportionality and should be progressive and gradual. It implies controls of military technology, R&D and international trade. Finally, it is useful to bear in mind the costs of peace as well as the investment for peace.