Glenn Reynolds has an interesting article at Forbes about the connection between wars and the expansion in state power. He argues – quite convincingly I think – that while war may once have been one of the primary causes of increases in state power, that increasingly, it is demand for other public goods and initiatives that drives state power. For example, I reckon that the environmentalist argument is likely to prove a significant justification for such increases in spending, tax and regulation, as will, alas, the current financial crisis.
The “war is the health of the state” argument is often one that some libertarians use to oppose any wars, even if such wars might have some legal/moral justification, on the grounds that wars inevitably create costs that outweigh the supposed benefits of toppling some nasty regime, etc. An example of this view comes from Robert Higgs, whom I recommend. But the WIHOS argument is not a fixed law, rather a general tendency with some clear exceptions. At the end of the Napoleonic Wars, for example, the UK public sector, such as it was, was retrenched and the income tax was abolished for more than two decades. The end of the Cold War saw significant cuts in military spending. Perhaps what is not so easily retrenched, however, are state controls and regulations over behaviour. Consider World War One. Before 1914, UK subjects did not need a passport; there was no Official Secrets Act and the role of the state, relative to that of our own time, was small. Now it is much larger.
WIHOS is not an iron law, but rather a sensible rule of thumb. Alas, there are plenty of other factors besides war that drive expansion of public spending and controls.