Military Keynesianism
Encyclopedia
Military Keynesianism is the accusation that John Maynard Keynes
advocated government economic policy in which the government devotes large amounts of spending to the military
in an effort to increase economic growth
. In fact, the English economist John Maynard Keynes
advocated that government spending be used to "in the interests of peace and prosperity" instead of "war and destruction". An example of such policies are the Public Works Administration
in the 1930s in the United States
.
On the demand side, increased military demand for goods and services is generated directly by government spending. Secondly, this direct spending induces a multiplier effect of general consumer spending. These two effects are directly in line with general Keynesian economic doctrine.
On the supply side, the maintenance of a standing army
removes many workers from the civilian workforce
. In the United States, enlistment is touted as offering direct opportunities for education or skill acquisition.
Also on the supply side, it is often argued that military spending on research and development
(R&D) increases the productivity
of the civilian sector by generating new infrastructure
and advanced technology
. Frequently cited examples of technology developed partly or wholly through military funding but later applied in civilian settings include computer
s, aviation
(particularly regarding helicopters and supersonic
travel), radar
, nuclear power
, and the internet
.
Another primary criticism of military Keynesianism faults not its economic intuitions, but adverse social effects. Many assert that the maintenance of large peacetime armies and growth of military spending lead nations into war
, while also encouraging militarism
and nationalism
. These critics often attack the argument that the military prevents young men from sinking into crime by claiming that many soldiers who return from war are worse off physically or mentally than they would have been as unemployed persons at home.
A similar critique is that military Keynesianism accelerates the growth of a military-industrial complex
– industrial sectors largely dependent on military spending. Because the military-industrial complex is a large employer and constitutes a significant fraction of aggregate demand
, it is politically difficult for the government to reduce deficit military spending. The end result of this, it is feared, is a cycle of constant war and continually high military spending.
Other critics point out that while military research and development can sometimes find later application in civilian industries, it is less efficient than simply researching civilian applications directly. Many point to the recent examples of Japan
and Germany
, economies which have had great success in developing new technology despite low military spending compared to nations like the United States.
One of the central economic critiques of Military Keynesianism is known as the broken window fallacy. Based on a parable by the 19th-century French economist Frédéric Bastiat
, it points out that if a person broke a grocer's window then some people could argue that it was a benefit to the town, as it would provide a job for a glazier, who would then buy more from the tailor and so on. Bastiat pointed out that this is deceptive and illogical reasoning, as it ignores what the grocer would have bought had he not been forced to buy a new window - it ignores, in modern economic terminology - opportunity cost
. Military Keynesianism fails to take into account opportunity cost
- i.e. what those soldiers would have been doing instead of being soldiers, and also what arms companies could have been making instead of war material.
Another economic critique of military Keynesianism is that military spending comes from general taxation. It requires high levels of taxation to fund military spending, and that taxation must come from the productive sectors in the economy, thus being a long term drag on economic growth (this is one of the central criticisms of Keynesianism in general).
Some critics, and even some supporters, contend that in the modern world, these policies are no longer viable for developed countries because military strength is now built on high-technology professional armies, and the military is thus no longer viable as a source of employment of last resort for uneducated young people.
First, there is the differentiation between the use of military spending as 'pump primer', and efforts to achieve long term multiplier effects by the given spending. A government may opt to approve the purchases of fighter planes, warships or other military commodities so as to weather a recession. Alternatively, it may opt to approve the purchase of fighter planes, warships or other military commodities throughout all the years of a given business cycle. Since the construction of large armament systems requires extensive planning and research, capitalist states generally prefer to rely on arms' purchases or other military allocations for longer-term macro-economic policymaking and regulation.
A second differentiation that needs to be made is between primary and secondary forms of military Keynesianism. In both cases, the state uses the multiplier mechanism in order to stimulate aggregate demand in society. But the primary form of military Keynesianism refers to a situation where the state uses its military allocations as the principal means to drive the business cycle. In case of a secondary form of military Keynesianism, the given allocations contribute towards generating additional demand, but not to the extent that the economy is fully, or primarily, driven by the military allocations.
The third differentiation starts from the observation that modern capitalist economies do not function as closed systems but rely on foreign trade and exports as outlets for the sale of a part of their surplus. This general observation applies to the surplus generated in the military sector as well. As the vast amount of data regarding state promotion of arms' exports do confirm, - capitalist states actively try to ensure that their armament corporations gain access to import orders from foreign states, and they do so amongst others in order to generate multiplier effects. Hence, there is a need to also differentiate between the two forms of domestic and 'externalized' military Keynesianism. (3)
There are clear historical examples where a government's military spending did have stimulatory effects, notably Nazi Germany in the 1930s and the United States during World War II. In both case, military spending was credited with recovery from the Great Depression. But large arms' spending was also due to military objectives pursued by Nazi Germany, respectively the US, during WWII.
In today’s discourse, the term "Military Keynesianism" is most frequently discussed in relation to the United States, particularly the administration of President Ronald Reagan
in the 1980s. Reagan’s administration pushed for significant tax cuts, while increasing military spending to confront the Soviet Union
in the Cold War
. This was in practice a policy suggestive of military Keynesianism, although Reagan defended it, arguing that military spending was necessary to combat Communism
by outspending the Soviet Union. It also coincided with the early 1980s recession
, with some arguing that the resulting stimulus helped end the recession.
For many in the United States worried about the adoption of these economic policies, their fears abated somewhat with the reduced military spending of the 1990s which was commonly described as the peace dividend
of the end of the Cold War
. However, the ongoing War on Terrorism
and current Iraq War have increased defense spending beyond the levels of the 1980s, although not as a percentage of GDP.
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
advocated government economic policy in which the government devotes large amounts of spending to the military
Military
A military is an organization authorized by its greater society to use lethal force, usually including use of weapons, in defending its country by combating actual or perceived threats. The military may have additional functions of use to its greater society, such as advancing a political agenda e.g...
in an effort to increase economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
. In fact, the English economist John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
advocated that government spending be used to "in the interests of peace and prosperity" instead of "war and destruction". An example of such policies are the Public Works Administration
Public Works Administration
The Public Works Administration , part of the New Deal of 1933, was a large-scale public works construction agency in the United States headed by Secretary of the Interior Harold L. Ickes. It was created by the National Industrial Recovery Act in June 1933 in response to the Great Depression...
in the 1930s in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
.
Keynes' 1933 Letter to Roosevelt
In 1933, John Maynard Keynes wrote an open letter to President Franklin Roosevelt urging the new president to borrow money to be spent on public works programs.Economic effects
The economic effects advanced by supporters of military Keynesianism can be broken down into four areas, two on the demand side and two on the supply side.On the demand side, increased military demand for goods and services is generated directly by government spending. Secondly, this direct spending induces a multiplier effect of general consumer spending. These two effects are directly in line with general Keynesian economic doctrine.
On the supply side, the maintenance of a standing army
Army
An army An army An army (from Latin arma "arms, weapons" via Old French armée, "armed" (feminine), in the broadest sense, is the land-based military of a nation or state. It may also include other branches of the military such as the air force via means of aviation corps...
removes many workers from the civilian workforce
Workforce
The workforce is the labour pool in employment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic region like a city, country, state, etc. The term generally excludes the employers or management, and implies those involved in...
. In the United States, enlistment is touted as offering direct opportunities for education or skill acquisition.
Also on the supply side, it is often argued that military spending on research and development
Research and development
The phrase research and development , according to the Organization for Economic Co-operation and Development, refers to "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of...
(R&D) increases the productivity
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
of the civilian sector by generating new infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
and advanced technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
. Frequently cited examples of technology developed partly or wholly through military funding but later applied in civilian settings include computer
Computer
A computer is a programmable machine designed to sequentially and automatically carry out a sequence of arithmetic or logical operations. The particular sequence of operations can be changed readily, allowing the computer to solve more than one kind of problem...
s, aviation
Aviation
Aviation is the design, development, production, operation, and use of aircraft, especially heavier-than-air aircraft. Aviation is derived from avis, the Latin word for bird.-History:...
(particularly regarding helicopters and supersonic
Supersonic
Supersonic speed is a rate of travel of an object that exceeds the speed of sound . For objects traveling in dry air of a temperature of 20 °C this speed is approximately 343 m/s, 1,125 ft/s, 768 mph or 1,235 km/h. Speeds greater than five times the speed of sound are often...
travel), radar
Radar
Radar is an object-detection system which uses radio waves to determine the range, altitude, direction, or speed of objects. It can be used to detect aircraft, ships, spacecraft, guided missiles, motor vehicles, weather formations, and terrain. The radar dish or antenna transmits pulses of radio...
, nuclear power
Nuclear power
Nuclear power is the use of sustained nuclear fission to generate heat and electricity. Nuclear power plants provide about 6% of the world's energy and 13–14% of the world's electricity, with the U.S., France, and Japan together accounting for about 50% of nuclear generated electricity...
, and the internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
.
Criticisms
The most direct economic criticism of military Keynesianism maintains that government expenditures on non-military public goods such as health care, education, mass transit, and infrastructure repair create more jobs than equivalent military expenditures.http://www.ips-dc.org/reports/071001-jobcreation.pdfAnother primary criticism of military Keynesianism faults not its economic intuitions, but adverse social effects. Many assert that the maintenance of large peacetime armies and growth of military spending lead nations into war
War
War is a state of organized, armed, and often prolonged conflict carried on between states, nations, or other parties typified by extreme aggression, social disruption, and usually high mortality. War should be understood as an actual, intentional and widespread armed conflict between political...
, while also encouraging militarism
Militarism
Militarism is defined as: the belief or desire of a government or people that a country should maintain a strong military capability and be prepared to use it aggressively to defend or promote national interests....
and nationalism
Nationalism
Nationalism is a political ideology that involves a strong identification of a group of individuals with a political entity defined in national terms, i.e. a nation. In the 'modernist' image of the nation, it is nationalism that creates national identity. There are various definitions for what...
. These critics often attack the argument that the military prevents young men from sinking into crime by claiming that many soldiers who return from war are worse off physically or mentally than they would have been as unemployed persons at home.
A similar critique is that military Keynesianism accelerates the growth of a military-industrial complex
Military-industrial complex
Military–industrial complex , or Military–industrial-congressional complex is a concept commonly used to refer to policy and monetary relationships between legislators, national armed forces, and the industrial sector that supports them...
– industrial sectors largely dependent on military spending. Because the military-industrial complex is a large employer and constitutes a significant fraction of aggregate demand
Aggregate demand
In macroeconomics, aggregate demand is the total demand for final goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a...
, it is politically difficult for the government to reduce deficit military spending. The end result of this, it is feared, is a cycle of constant war and continually high military spending.
Other critics point out that while military research and development can sometimes find later application in civilian industries, it is less efficient than simply researching civilian applications directly. Many point to the recent examples of Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
and Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, economies which have had great success in developing new technology despite low military spending compared to nations like the United States.
One of the central economic critiques of Military Keynesianism is known as the broken window fallacy. Based on a parable by the 19th-century French economist Frédéric Bastiat
Frédéric Bastiat
Claude Frédéric Bastiat was a French classical liberal theorist, political economist, and member of the French assembly. He was notable for developing the important economic concept of opportunity cost.-Biography:...
, it points out that if a person broke a grocer's window then some people could argue that it was a benefit to the town, as it would provide a job for a glazier, who would then buy more from the tailor and so on. Bastiat pointed out that this is deceptive and illogical reasoning, as it ignores what the grocer would have bought had he not been forced to buy a new window - it ignores, in modern economic terminology - opportunity cost
Opportunity cost
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...
. Military Keynesianism fails to take into account opportunity cost
Opportunity cost
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...
- i.e. what those soldiers would have been doing instead of being soldiers, and also what arms companies could have been making instead of war material.
Another economic critique of military Keynesianism is that military spending comes from general taxation. It requires high levels of taxation to fund military spending, and that taxation must come from the productive sectors in the economy, thus being a long term drag on economic growth (this is one of the central criticisms of Keynesianism in general).
Some critics, and even some supporters, contend that in the modern world, these policies are no longer viable for developed countries because military strength is now built on high-technology professional armies, and the military is thus no longer viable as a source of employment of last resort for uneducated young people.
Forms of Military Keynesianism
For the purpose of scientific clarity, the following forms of military keynesianism may be differentiated:First, there is the differentiation between the use of military spending as 'pump primer', and efforts to achieve long term multiplier effects by the given spending. A government may opt to approve the purchases of fighter planes, warships or other military commodities so as to weather a recession. Alternatively, it may opt to approve the purchase of fighter planes, warships or other military commodities throughout all the years of a given business cycle. Since the construction of large armament systems requires extensive planning and research, capitalist states generally prefer to rely on arms' purchases or other military allocations for longer-term macro-economic policymaking and regulation.
A second differentiation that needs to be made is between primary and secondary forms of military Keynesianism. In both cases, the state uses the multiplier mechanism in order to stimulate aggregate demand in society. But the primary form of military Keynesianism refers to a situation where the state uses its military allocations as the principal means to drive the business cycle. In case of a secondary form of military Keynesianism, the given allocations contribute towards generating additional demand, but not to the extent that the economy is fully, or primarily, driven by the military allocations.
The third differentiation starts from the observation that modern capitalist economies do not function as closed systems but rely on foreign trade and exports as outlets for the sale of a part of their surplus. This general observation applies to the surplus generated in the military sector as well. As the vast amount of data regarding state promotion of arms' exports do confirm, - capitalist states actively try to ensure that their armament corporations gain access to import orders from foreign states, and they do so amongst others in order to generate multiplier effects. Hence, there is a need to also differentiate between the two forms of domestic and 'externalized' military Keynesianism. (3)
Examples
It has been argued that there have been no clear-cut historical examples of military Keynesianism in action. The reason presumably being that the theory of military Keynesianism requires that the increased military spending be intended to exclusively fulfill an economic goal (i.e. to enhance growth, or increase employment) by Keynesian means. However the goal of military spending may well be a combination, for instance to both achieve some military, or political goal, and to generate multiplier effects for the economy. Thus, a country like Nazi Germany did see economic stimulus from military spending, but the economic goal of that military spending was also to gain land and plunder it.There are clear historical examples where a government's military spending did have stimulatory effects, notably Nazi Germany in the 1930s and the United States during World War II. In both case, military spending was credited with recovery from the Great Depression. But large arms' spending was also due to military objectives pursued by Nazi Germany, respectively the US, during WWII.
United States
In the United States, prior to 2009, the only time the deficit rose over 6% of GDP was in or immediately after wartime: the Civil War, World War I, and World War II, with a peak being reached of 30.3% in 1943. Keynesian economists point to the large deficits during WWII as being the cause of the US recovery from the Great Depression, and that prior fiscal stimulus had been insufficient due to opposition to large deficits. That is, military mobilization provided the popular political support for Keynesian stimulus.In today’s discourse, the term "Military Keynesianism" is most frequently discussed in relation to the United States, particularly the administration of President Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....
in the 1980s. Reagan’s administration pushed for significant tax cuts, while increasing military spending to confront the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
in the Cold War
Cold War
The Cold War was the continuing state from roughly 1946 to 1991 of political conflict, military tension, proxy wars, and economic competition between the Communist World—primarily the Soviet Union and its satellite states and allies—and the powers of the Western world, primarily the United States...
. This was in practice a policy suggestive of military Keynesianism, although Reagan defended it, arguing that military spending was necessary to combat Communism
Communism
Communism is a social, political and economic ideology that aims at the establishment of a classless, moneyless, revolutionary and stateless socialist society structured upon common ownership of the means of production...
by outspending the Soviet Union. It also coincided with the early 1980s recession
Early 1980s recession
The early 1980s recession describes the severe global economic recession affecting much of the developed world in the late 1970s and early 1980s. The United States and Japan exited recession relatively early, but high unemployment would continue to affect other OECD nations through at least 1985...
, with some arguing that the resulting stimulus helped end the recession.
For many in the United States worried about the adoption of these economic policies, their fears abated somewhat with the reduced military spending of the 1990s which was commonly described as the peace dividend
Peace dividend
The peace dividend is a political slogan popularized by US President George H.W. Bush and UK Prime Minister Margaret Thatcher in the early 1990s, purporting to describe the economic benefit of a decrease in defense spending. It is used primarily in discussions relating to the guns versus butter...
of the end of the Cold War
Cold War
The Cold War was the continuing state from roughly 1946 to 1991 of political conflict, military tension, proxy wars, and economic competition between the Communist World—primarily the Soviet Union and its satellite states and allies—and the powers of the Western world, primarily the United States...
. However, the ongoing War on Terrorism
War on Terrorism
The War on Terror is a term commonly applied to an international military campaign led by the United States and the United Kingdom with the support of other North Atlantic Treaty Organisation as well as non-NATO countries...
and current Iraq War have increased defense spending beyond the levels of the 1980s, although not as a percentage of GDP.
See also
- Permanent war economyPermanent war economyThe concept of permanent war economy originated in 1944 with an article by Ed Sard , Walter S. Oakes and T.N. Vance, a Third Camp Socialist, who predicted a post-war arms race...
- Military-industrial complexMilitary-industrial complexMilitary–industrial complex , or Military–industrial-congressional complex is a concept commonly used to refer to policy and monetary relationships between legislators, national armed forces, and the industrial sector that supports them...
- Iron triangle (US politics)
- CountercyclicalCountercyclicalCountercyclical is a term used in economics to describe how an economic quantity is related to economic fluctuations. It is the opposite of procyclical. However, it has more than one meaning.-Meaning in policy making:...
- Keynesian economicsKeynesian economicsKeynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
External links
- Cheap Wars by Jonathan NitzanJonathan NitzanJonathan Nitzan is a Professor of Political Economy at York University, Toronto, Canada. He is the co-author of Capital As Power: A Study of Order and Creorder, published 2009. Their writings focus of the nature of capital in capitalism and provide an alternative view to that of Marxist and...
, Ph.D. Associate Professor of Political Economy, and Shimshon BichlerShimshon BichlerShimshon Bichler is an educator who teaches political economy at colleges and universities in Israel. Along with Jonathan Nitzan, Bichler has created an engaging power theory of capitalism and theory of differential accumulation in their analysis of the political economy of wars, Israel, and...
, Lecturer of Political Economy - Defense Doesn't Need Stimulus by Christopher Preble, Ph.D. History
- Doesn't all the war spending stimulate the economy? And shouldn't the Bush tax cuts do the same? So why are we falling into recession? Dollars & SenseDollars & SenseDollars & Sense is a magazine dedicated to providing left-wing perspectives on economics.Published six times a year since 1974, it is edited by a collective of economists, journalists, and activists committed to the ideals of social justice and economic democracy.It was initially sponsored by the...
magazine - Military Keynesianism to the Rescue? by Robert HiggsRobert HiggsRobert Higgs is an American economic historian, economist combining the insights from the Public Choice, Institutional and Austrian schools of economics, and a classical liberal or libertarian in political and legal theory and public policy...
, Ph.D. Professor Emeritus of Economics - Rich Nation, Strong Army: National Security and the Technological Transformation of Japan by Richard J. Samuels, Ph.D. Professor of Political Science
- The economic disaster that is military Keynesianism: Why the US has really gone broke by Dr.Chalmers JohnsonChalmers JohnsonChalmers Ashby Johnson was an American author and professor emeritus of the University of California, San Diego. He served in the Korean War, was a consultant for the CIA from 1967–1973, and chaired the Center for Chinese Studies at the University of California, Berkeley from 1967 to 1972...
in the English edition of Le Monde DiplomatiqueLe Monde diplomatiqueLe Monde diplomatique is a monthly newspaper offering analysis and opinion on politics, culture, and current affairs. It was first created mainly for a diplomatic audience as its name implies... - ROBERT B. REICH
- http://www.petercusters.nl/LatestPublications/Military-Keynesianism-Today-An-Innovative-Discours