Permanent war economy
Encyclopedia
The concept of permanent war economy originated in 1944 with an article by Ed Sard (alias Frank Demby), Walter S. Oakes and T.N. Vance, a Third Camp Socialist, who predicted a post-war arms race
. He argued at the time that the USA would retain the character of a war economy
; even in peacetime, US military expenditure would remain large, reducing the percentage of unemployed compared to the 1930s. He extended this analysis in 1950 and 1951.
The CEO of General Electric
and vice-chairman of the War Production Board
, Charles Edward Wilson
("Electric Charlie," not to be confused with "Engine Charlie," Charles Erwin Wilson
of General Motors) had already argued for the continuation of large scale military spending in a speech at the Twenty-Fifth Anniversary Dinner of the Army Ordnance Association on January 19, 1944. Although he did not use the term "Permanent War Economy" he did argue for an institutionalized war economy—i.e. a semi-command economy to be directed by corporation
executives, based on military industry, and funded by government. Wilson argued for this system for purely military reasons. He did not make any argument for a "military Keynesianism". The term refers to the economic component within the military-industrial complex
(MIC) (aka. "the Iron Triangle
") whereby the collusion
between militarism
and war profiteering
are manifest as a permanently subsidised
industry
. Wilson warned at the close of World War II
that the US must not return to a civilian economy, but must keep to a "permanent war economy."
which occurred in the decades following World War II
, especially amongst developed countries
. Marxists developed the theory when the anticipated stagnation of capitalism
which had previously followed World War I
did not recur. When post-WWII economic growth came to an end with the 1973 oil crisis
and gave way to a new period of deepening stagnation, Marxists viewed this as a typical development of late capitalism
.
The theory of the permanent arms economy (as it is called in order to be distinguished from other not necessarily Marxist war economic theories) commences with a difference between the period after the First and the period after the Second World War. Whereas after the First World War state expenditures for arms were soon cut back to peace levels, after the Second World War state expenditures on arms remained very high due to the developing Cold War
and the arms race
. These continuing strong expenditures on arms are according to the theory of the permanent arms economy the reason for the long boom up to the early 70s. Military spending was around 16% of gross domestic product
(GDP) in the 50s in the USA after 38% in 1944 during World War II. This spending rate has been in a slow decline since then and finally in the mid-90s it was only at about 2%. During the Vietnam War
in 1968 it was 9% and in 2003 it was 4%. This strong decline in military spending during the 60s and 70s meant the end of the permanent arms economy and the return of capitalist crisis.
The different versions of the theory differ in the way to explain the exact mechanism how armaments expenditures did stabilise the capitalist economy. A more “Keynesian
” version is to be distinguished from an approach, which is based on the law of the tendency of the rate of profit to fall
.
1) “Legitimation
crisis of late capitalism”
According to Jürgen Habermas
capitalism will suffer from a “legitimation crisis
” if there is too much state intervention, because this will lead people to ask for more. Capitalism will no longer be perceived as a system ruled by quasi-natural laws, but as something that can be formed by politics. An external threat to be countered by government expenditures on arms, however, avoids this danger for the ruling class
.
2) The balance of forces between the working class
and the capitalist class will be shifted in favour of the working class if there is too much spending on social welfare and other items benefitting working class people.
The end of military Keynesianism came when competitors to the US, like Germany
and Japan
, the countries that had lost the Second World War, were not allowed or could avoid building their own military machine. They were increasingly allowed to export arms, however. Finally the US could no longer play the role of the world Keynesian but had to prepare for competition
with nations like Japan and Germany. This resulted in cutting back on arms expenditures, thus bringing back crisis to world capitalism.
or Michael Kidron
oppose any Keynesian explanation. For them the decisive cause is the “siphoning off” of profits
away from private investment
expenditures to armaments expenditures, which count as “consumption
” in the System of National Accounts
. Harman emphasises that contrary to Keynesian assumptions arms expenditures were not financed by public debt but by taxes. Governments were able to keep public debt in check even though they had huge outlays for arms. Armaments expenditures did not work along Keynesian lines but because they interfered with the workings of the law of the tendency of the rate of profit to fall.
The traditional explanation for the law of the tendency of the profit rate to fall goes like this:
Karl Marx
assumes that the value composition of capital c : v rises with technical progress and as a means by capitalists to raise labour productivity
. This means that the rate of profit must eventually fall, if the rising value composition of capital is not counterbalanced by a rising rate of surplus value s:v. (The value composition of capital is often called organic composition of capital
, which is, however, defined by Marx in Das Kapital
, volume I, as the value composition of capital insofar as it reflects the movement of the technical composition of capital.)
If, however, profits are not spent on constant capital, but used for something else, the rise of the value composition of capital is slowed down if not stopped altogether. This raises the question, why capitalist should be prepared to give away parts of their profits if this does not serve directly their own interests, but “only” the interests of the system as a whole. The fall of the general rate of profit itself induces changes, however, which make it easier for the state in alliance with larger capital groups to intervene. So, the falling rate of profit is linked to the tendency of concentration
and centralisation of capital (as described by Marx in Das Kapital
, volume I). Firms become larger and larger. Large firms take over small firms. Concurrential capitalism becomes monopoly capitalism. The nature of capitalist competition changes. Firms no longer compete with each other inside branches but across branches. As a result it is no longer necessary to “outproduce” competitors. The demand for investment goods drops. Capacities of investment firms lay idle. These overcapacities in the investment goods industry threaten to trigger a downward spiral thus deepening the crisis.
That is why it is crucial that demand for armaments goes to what Marx called department I, the investment goods branch. This is the very department, which due to the changing character of competition with monopoly capitalism lacks demand for its products.
Weapons are technically close relatives of investment goods like machines. The demand for weapons by the government can therefore stabilise production of the investments goods industry, thus fending off a downward spiral into depression. The government buys goods of the surplus production and can realise surplus value for single firms. In this way it can stabilise capitalism. The government cannot, however, create surplus value. Expenditures on arms are economically “consumption” or waste, not investment. But this surplus value would not have been realised anyway, due to lack of demand for investment goods, which is a characteristic feature of monopoly capitalism. What the government can do is to fend off a downward spiral which often is triggered by lack of demand, causing lay-offs, reducing demand even further and so on. Due to armaments expenditures by the government the general rate of profit does not fall even further due to vicious circles but at least gets some stabilisation. (Karl Popper
in his The Open Society and Its Enemies
, vol. 2 "Hegel and Marx", gives a brief sketch of Marx's economic theory and the role expenditures on arms might play, if consumption of workers does not keep up with production.)
By this mechanism crisis could be postponed until the early 70s, when finally the internal contradictions of the logic of capital also took hold of the permanent arms economy with rising rates of inflation
, increasing government debts and so on. Also with this version of the theory, the free riders
like Germany or Japan forced the US to cut back on armaments expenditures.
”) mentions capital export as a countervailing tendency for the tendency of the profit rate to fall. The reasons, he puts forward, are that if capital finds in other parts of the world areas with lower costs and higher profit rates, capital exports increase the average rate of profit. It is Henryk Grossman
(and Marx’s “Grundrisse
”), who argues that capital exports in themselves are a cause, which postpones a crisis, which otherwise would follow from the rising value composition of capital and the tendency of the rate of profit to fall
.
who with a rather similar theory claims that the idea of an arms economy was applied rather deliberately in the Germany
of the 1930s to fend off a crisis for German capitalism. Based on analyses which were in fact influenced by Marxist theory, German capitalists came to the conclusion – according to Alfred Sohn-Rethel – that only arms expenditures as a kind of waste could “save” German capitalism for the moment. Thus, they decided to opt for Adolf Hitler
and his promises of increasing military expenditures.
, Lloyd J. Dumas
and John Ullmann. It should be noted that, without giving a specific reference, Melman states, in the 1974 edition of Permanent War Economy published by Simon and Scuster (p. 16), that "The concept of a "permanent war economy" formulated in 1944 was soon made a reality." The reference is almost certainly to Sard's article in February of that year in Politics. The critique centers on whether or not military spending has a "use value," i.e. a productive use within the economy. On the one hand, the macroeconomic stimulus of arms spending may be positive in the short run, when comparing such spending to the absence of any form of procurement. On the other hand, military spending represents serious opportunity costs. First, the economic benefits of spending in non-military areas may be greater, i.e. have greater multiplier effects. For example, an investment in a tank or plane is rapidly depleted and after the tank or plane is invented, leads to no further economic use value. Moreover, when the state fails to invest in key resources, this creates opportunity costs with respect to "socially necessary" or world competitive infrastructure investments. These costs are evident in depleted infrastructure, reduced spending on education, failure to develop massive investments in alternative energy and transit systems, and outbreaks of violence (such as riots) caused by uneven development.
The counter-argument is that military advances provide spin-off benefits for civilian technologies. Additionally, military spending may represent an overhead charge for an economy, allowing a nation to function without fear of invasion. Essentially, military spending ensures the property rights of a nation's citizens: an essential element of a capitalist system.
Arms race
The term arms race, in its original usage, describes a competition between two or more parties for the best armed forces. Each party competes to produce larger numbers of weapons, greater armies, or superior military technology in a technological escalation...
. He argued at the time that the USA would retain the character of a war economy
War economy
War economy is the term used to describe the contingencies undertaken by the modern state to mobilise 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".Many states increase the degree of...
; even in peacetime, US military expenditure would remain large, reducing the percentage of unemployed compared to the 1930s. He extended this analysis in 1950 and 1951.
The CEO of General Electric
General Electric
General Electric Company , or GE, is an American multinational conglomerate corporation incorporated in Schenectady, New York and headquartered in Fairfield, Connecticut, United States...
and vice-chairman of the War Production Board
War Production Board
The War Production Board was established as a government agency on January 16, 1942 by executive order of Franklin D. Roosevelt.The purpose of the board was to regulate the production and allocation of materials and fuel during World War II in the United States...
, Charles Edward Wilson
Charles E. Wilson (executive)
Charles Edward Wilson was a CEO of General Electric. He left school at age 12 to work as a stock boy at Sprague Electrical Works, which was acquired by General Electric, taking night classes and working up to president in 1939.During World War II he served on the War Production Board as executive...
("Electric Charlie," not to be confused with "Engine Charlie," Charles Erwin Wilson
Charles Erwin Wilson
Charles Erwin Wilson , American businessman and politician, was United States Secretary of Defense from 1953 to 1957 under President Eisenhower. Known as "Engine Charlie", he previously worked as CEO for General Motors. In the wake of the Korean War, he cut the defense budget significantly.-Early...
of General Motors) had already argued for the continuation of large scale military spending in a speech at the Twenty-Fifth Anniversary Dinner of the Army Ordnance Association on January 19, 1944. Although he did not use the term "Permanent War Economy" he did argue for an institutionalized war economy—i.e. a semi-command economy to be directed by corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
executives, based on military industry, and funded by government. Wilson argued for this system for purely military reasons. He did not make any argument for a "military Keynesianism". The term refers to the economic component within the 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...
(MIC) (aka. "the Iron Triangle
Iron Triangle
-Geographical:* Iron Triangle , the name U.S. forces in the Vietnam War gave to the Communist stronghold region northwest of Saigon* Iron Triangle , used during the Korean War to describe an area in Korea bounded by Ch'orwon, Kumhwa, and Pyonggang...
") whereby the collusion
Collusion
Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...
between 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 war profiteering
War profiteering
A war profiteer is any person or organization that profits from warfare or by selling weapons and other goods to parties at war. The term has strong negative connotations. General profiteering may also occur in peace time.-International arms dealers:...
are manifest as a permanently subsidised
Subsidy
A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor A subsidy (also...
industry
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
. Wilson warned at the close of World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
that the US must not return to a civilian economy, but must keep to a "permanent war economy."
Marxist theory
The term has also been used to refer to a Marxist theory which seeks to explain the sustained economic growthEconomic 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...
which occurred in the decades following World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, especially amongst developed countries
Developed country
A developed country is a country that has a high level of development according to some criteria. Which criteria, and which countries are classified as being developed, is a contentious issue...
. Marxists developed the theory when the anticipated stagnation of capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
which had previously followed World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
did not recur. When post-WWII economic growth came to an end with the 1973 oil crisis
1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
and gave way to a new period of deepening stagnation, Marxists viewed this as a typical development of late capitalism
Late capitalism
"Late capitalism" is a term used by neo-Marxists to refer to capitalism from about 1945 onwards, with the implication that it is a historically limited stage rather than an eternal feature of all future human society. Postwar German sociologists needed a term to describe contemporary society...
.
The theory of the permanent arms economy (as it is called in order to be distinguished from other not necessarily Marxist war economic theories) commences with a difference between the period after the First and the period after the Second World War. Whereas after the First World War state expenditures for arms were soon cut back to peace levels, after the Second World War state expenditures on arms remained very high due to the developing 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...
and the arms race
Arms race
The term arms race, in its original usage, describes a competition between two or more parties for the best armed forces. Each party competes to produce larger numbers of weapons, greater armies, or superior military technology in a technological escalation...
. These continuing strong expenditures on arms are according to the theory of the permanent arms economy the reason for the long boom up to the early 70s. Military spending was around 16% of gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
(GDP) in the 50s in the USA after 38% in 1944 during World War II. This spending rate has been in a slow decline since then and finally in the mid-90s it was only at about 2%. During the Vietnam War
Vietnam War
The Vietnam War was a Cold War-era military conflict that occurred in Vietnam, Laos, and Cambodia from 1 November 1955 to the fall of Saigon on 30 April 1975. This war followed the First Indochina War and was fought between North Vietnam, supported by its communist allies, and the government of...
in 1968 it was 9% and in 2003 it was 4%. This strong decline in military spending during the 60s and 70s meant the end of the permanent arms economy and the return of capitalist crisis.
The different versions of the theory differ in the way to explain the exact mechanism how armaments expenditures did stabilise the capitalist economy. A more “Keynesian
Keynesian economics
Keynesian 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...
” version is to be distinguished from an approach, which is based on the law of the tendency of the rate of profit to fall
Tendency of the rate of profit to fall
The tendency of the rate of profit to fall is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Das Kapital Vol. 3. It was generally accepted in the 19th century...
.
Military Keynesianism
The stabilising effect of armaments expenditures on the economy is more or less explained the same way as “non-military” Keynesians explain the effects of their policy. Therefore, additional explanations are needed as to why it is necessary to use military expenditures instead of just civilian useful state expenditures. Several reasons are put forward:1) “Legitimation
Legitimation
Legitimation or legitimization is the act of providing legitimacy. Legitimation in the social sciences refers to the process whereby an act, process, or ideology becomes legitimate by its attachment to norms and values within in given society...
crisis of late capitalism”
According to Jürgen Habermas
Jürgen Habermas
Jürgen Habermas is a German sociologist and philosopher in the tradition of critical theory and pragmatism. He is perhaps best known for his theory on the concepts of 'communicative rationality' and the 'public sphere'...
capitalism will suffer from a “legitimation crisis
Legitimation crisis (concept)
In political science a legitimation crisis is said to occur when a governing structure still retains the legal authority by which to govern, but is not able to demonstrate that its practical functioning fulfills the end for which it was instituted....
” if there is too much state intervention, because this will lead people to ask for more. Capitalism will no longer be perceived as a system ruled by quasi-natural laws, but as something that can be formed by politics. An external threat to be countered by government expenditures on arms, however, avoids this danger for the ruling class
Ruling class
The term ruling class refers to the social class of a given society that decides upon and sets that society's political policy - assuming there is one such particular class in the given society....
.
2) The balance of forces between the working class
Working class
Working class is a term used in the social sciences and in ordinary conversation to describe those employed in lower tier jobs , often extending to those in unemployment or otherwise possessing below-average incomes...
and the capitalist class will be shifted in favour of the working class if there is too much spending on social welfare and other items benefitting working class people.
The end of military Keynesianism came when competitors to the US, like 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...
and 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...
, the countries that had lost the Second World War, were not allowed or could avoid building their own military machine. They were increasingly allowed to export arms, however. Finally the US could no longer play the role of the world Keynesian but had to prepare for competition
Competition
Competition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...
with nations like Japan and Germany. This resulted in cutting back on arms expenditures, thus bringing back crisis to world capitalism.
The law of the tendency of the rate of profit to fall
Other Marxists like Chris HarmanChris Harman
Chris Harman was a British journalist and political activist, and a member of the Central Committee of the Socialist Workers Party...
or Michael Kidron
Michael Kidron
Michael Kidron was a revolutionary thinker and cartographer. He was part of the leadership of the International Socialists through the 1960s and 1970s. He is perhaps best remembered for his visually arresting The State Of The World Atlas.-Early life and career:Kidron was born on 20 September...
oppose any Keynesian explanation. For them the decisive cause is the “siphoning off” of profits
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
away from private investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
expenditures to armaments expenditures, which count as “consumption
Consumption (economics)
Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...
” in the System of National Accounts
National accounts
National accounts or national account systems are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry accounting...
. Harman emphasises that contrary to Keynesian assumptions arms expenditures were not financed by public debt but by taxes. Governments were able to keep public debt in check even though they had huge outlays for arms. Armaments expenditures did not work along Keynesian lines but because they interfered with the workings of the law of the tendency of the rate of profit to fall.
The traditional explanation for the law of the tendency of the profit rate to fall goes like this:
Rate of profit
Rate of profit
- p: rate of profitRate of profitIn economics and finance, the profit rate is the relative profitability of an investment project, of a capitalist enterprise, or of the capitalist economy as a whole...
- c: constant capitalConstant capitalConstant capital , is a concept created by Karl Marx and used in Marxian political economy. It refers to one of the forms of capital invested in production, which contrasts with variable capital...
- v: variable capital
- s: surplus valueSurplus valueSurplus value is a concept used famously by Karl Marx in his critique of political economy. Although Marx did not himself invent the term, he developed the concept...
Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
assumes that the value composition of capital c : v rises with technical progress and as a means by capitalists to raise labour 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...
. This means that the rate of profit must eventually fall, if the rising value composition of capital is not counterbalanced by a rising rate of surplus value s:v. (The value composition of capital is often called organic composition of capital
Organic composition of capital
The organic composition of capital is a concept created by Karl Marx in his critique of political economy and used in Marxian economics as a theoretical alternative to neo-classical concepts of factors of production, production functions, capital productivity and capital-output ratios. Marx first...
, which is, however, defined by Marx in Das Kapital
Das Kapital
Das Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...
, volume I, as the value composition of capital insofar as it reflects the movement of the technical composition of capital.)
If, however, profits are not spent on constant capital, but used for something else, the rise of the value composition of capital is slowed down if not stopped altogether. This raises the question, why capitalist should be prepared to give away parts of their profits if this does not serve directly their own interests, but “only” the interests of the system as a whole. The fall of the general rate of profit itself induces changes, however, which make it easier for the state in alliance with larger capital groups to intervene. So, the falling rate of profit is linked to the tendency of concentration
Market concentration
In economics, market concentration is a function of the number of firms and their respective shares of the total production in a market...
and centralisation of capital (as described by Marx in Das Kapital
Das Kapital
Das Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...
, volume I). Firms become larger and larger. Large firms take over small firms. Concurrential capitalism becomes monopoly capitalism. The nature of capitalist competition changes. Firms no longer compete with each other inside branches but across branches. As a result it is no longer necessary to “outproduce” competitors. The demand for investment goods drops. Capacities of investment firms lay idle. These overcapacities in the investment goods industry threaten to trigger a downward spiral thus deepening the crisis.
That is why it is crucial that demand for armaments goes to what Marx called department I, the investment goods branch. This is the very department, which due to the changing character of competition with monopoly capitalism lacks demand for its products.
Weapons are technically close relatives of investment goods like machines. The demand for weapons by the government can therefore stabilise production of the investments goods industry, thus fending off a downward spiral into depression. The government buys goods of the surplus production and can realise surplus value for single firms. In this way it can stabilise capitalism. The government cannot, however, create surplus value. Expenditures on arms are economically “consumption” or waste, not investment. But this surplus value would not have been realised anyway, due to lack of demand for investment goods, which is a characteristic feature of monopoly capitalism. What the government can do is to fend off a downward spiral which often is triggered by lack of demand, causing lay-offs, reducing demand even further and so on. Due to armaments expenditures by the government the general rate of profit does not fall even further due to vicious circles but at least gets some stabilisation. (Karl Popper
Karl Popper
Sir Karl Raimund Popper, CH FRS FBA was an Austro-British philosopher and a professor at the London School of Economics...
in his The Open Society and Its Enemies
The Open Society and Its Enemies
The Open Society and Its Enemies is an influential two-volume work by Karl Popper written during World War II. Failing to find a publisher in the United States, it was first printed in London by Routledge in 1945...
, vol. 2 "Hegel and Marx", gives a brief sketch of Marx's economic theory and the role expenditures on arms might play, if consumption of workers does not keep up with production.)
By this mechanism crisis could be postponed until the early 70s, when finally the internal contradictions of the logic of capital also took hold of the permanent arms economy with rising rates of inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, increasing government debts and so on. Also with this version of the theory, the free riders
Free rider problem
In economics, collective bargaining, psychology, and political science, a free rider is someone who consumes a resource without paying for it, or pays less than the full cost. The free rider problem is the question of how to limit free riding...
like Germany or Japan forced the US to cut back on armaments expenditures.
Capital export
A similar effect can result from capital exports. Again profits are siphoned off from private investment. Marx (volume III of “Das KapitalDas Kapital
Das Kapital, Kritik der politischen Ökonomie , by Karl Marx, is a critical analysis of capitalism as political economy, meant to reveal the economic laws of the capitalist mode of production, and how it was the precursor of the socialist mode of production.- Themes :In Capital: Critique of...
”) mentions capital export as a countervailing tendency for the tendency of the profit rate to fall. The reasons, he puts forward, are that if capital finds in other parts of the world areas with lower costs and higher profit rates, capital exports increase the average rate of profit. It is Henryk Grossman
Henryk Grossman
Henryk Grossmanalternative spelling: Henryk Grossmann , was a Polish-German economist and historian of Jewish descent....
(and Marx’s “Grundrisse
Grundrisse
The Grundrisse der Kritik der Politischen Ökonomie is a lengthy manuscript by the German philosopher Karl Marx, completed in 1858. However, as it existed primarily as a collection of unedited notes, the work remained unpublished until 1939...
”), who argues that capital exports in themselves are a cause, which postpones a crisis, which otherwise would follow from the rising value composition of capital and the tendency of the rate of profit to fall
Tendency of the rate of profit to fall
The tendency of the rate of profit to fall is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Das Kapital Vol. 3. It was generally accepted in the 19th century...
.
Question of deliberate policy
Some authors emphasise that the permanent arms economy was not something planned by capitalists. It was like a lucky fate, which came upon monopoly capitalism by special circumstances, which cannot be repeated at will or by planning. This contrasts with the view of the German Marxist Alfred Sohn-RethelAlfred Sohn-Rethel
Alfred Sohn-Rethel was a Marxist economist and philosopher especially interested in epistemology. He also wrote about the relationship of German industry with national socialism.-Life:...
who with a rather similar theory claims that the idea of an arms economy was applied rather deliberately in the 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...
of the 1930s to fend off a crisis for German capitalism. Based on analyses which were in fact influenced by Marxist theory, German capitalists came to the conclusion – according to Alfred Sohn-Rethel – that only arms expenditures as a kind of waste could “save” German capitalism for the moment. Thus, they decided to opt for Adolf Hitler
Adolf Hitler
Adolf Hitler was an Austrian-born German politician and the leader of the National Socialist German Workers Party , commonly referred to as the Nazi Party). He was Chancellor of Germany from 1933 to 1945, and head of state from 1934 to 1945...
and his promises of increasing military expenditures.
A different view
The case made by some Marxists, that military spending is necessary and useful for capitalism, has been contested. The central arguments against this position have been made by economists like Seymour MelmanSeymour Melman
Seymour Melman was an American professor emeritus of industrial engineering and operations research at Columbia University's Fu Foundation School of Engineering and Applied Science....
, Lloyd J. Dumas
Lloyd J. Dumas
Dr. Lloyd Jeff Dumas is a Professor of Political Economy, Economics, and Public Policy in the School of Economic, Political and Policy Sciences at the University of Texas at Dallas....
and John Ullmann. It should be noted that, without giving a specific reference, Melman states, in the 1974 edition of Permanent War Economy published by Simon and Scuster (p. 16), that "The concept of a "permanent war economy" formulated in 1944 was soon made a reality." The reference is almost certainly to Sard's article in February of that year in Politics. The critique centers on whether or not military spending has a "use value," i.e. a productive use within the economy. On the one hand, the macroeconomic stimulus of arms spending may be positive in the short run, when comparing such spending to the absence of any form of procurement. On the other hand, military spending represents serious opportunity costs. First, the economic benefits of spending in non-military areas may be greater, i.e. have greater multiplier effects. For example, an investment in a tank or plane is rapidly depleted and after the tank or plane is invented, leads to no further economic use value. Moreover, when the state fails to invest in key resources, this creates opportunity costs with respect to "socially necessary" or world competitive infrastructure investments. These costs are evident in depleted infrastructure, reduced spending on education, failure to develop massive investments in alternative energy and transit systems, and outbreaks of violence (such as riots) caused by uneven development.
The counter-argument is that military advances provide spin-off benefits for civilian technologies. Additionally, military spending may represent an overhead charge for an economy, allowing a nation to function without fear of invasion. Essentially, military spending ensures the property rights of a nation's citizens: an essential element of a capitalist system.
See also
- Charles Erwin WilsonCharles Erwin WilsonCharles Erwin Wilson , American businessman and politician, was United States Secretary of Defense from 1953 to 1957 under President Eisenhower. Known as "Engine Charlie", he previously worked as CEO for General Motors. In the wake of the Korean War, he cut the defense budget significantly.-Early...
- Iron triangleIron triangleIn United States politics, the iron triangle is a term used by political scientists to describe the policy-making relationship among the congressional committees, the bureaucracy , and interest groups....
- List of countries by military expenditures
- 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...
- Military budget of the United StatesMilitary budget of the United StatesThe military budget is that portion of the United States discretionary federal budget that is allocated to the Department of Defense, or more broadly, the portion of the budget that goes to any defense-related expenditures...
- Military KeynesianismMilitary KeynesianismMilitary 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...
- Perpetual warPerpetual warPerpetual war refers to a lasting state of war with no clear ending conditions. It also describes a situation of ongoing tension that seems likely to escalate at any moment, similar to the Cold War.-In past history:...
- Ultra-imperialismUltra-imperialismUltra-imperialism, or occasionally hyperimperialism and formerly super-imperialism, is a potential, comparatively peaceful phase of capitalism, meaning "after" or "beyond" imperialism. It was described mainly by Karl Kautsky...