Saturday, December 03, 2005
War and Capitalism
If it weren’t for the fact that people die and get killed, wars could be categorized as just another business venture – in grand style. Just like any other business venture, the purpose of going to war is to increase wealth and gain capital stock. Just like any other business venture, the act of war entails the manufacturing and use of goods and services in demand. And, just like any other business venture, war generates waste. Although rational, civilized individuals will abhor this concept, from a strict economic perspective it can be argued that manpower, whether military or civilian, is but another usable resource in the basket of commodities the consumption of which can be accounted for as well. So much for the dead …
Empires and nations have fought wars always and invariably for the purpose of increasing wealth, but only two civilizations in the annals of history have acknowledged such purpose openly: the Romans in their conquest of the Mediterranean Basin and the Mongols in their subjugation of Asia. It was very clear to the Romans and to the Mongols that the sole, only purpose for marauding was to steal everything in sight, and such purpose was very widely acclaimed and publicized. It can be said, in fact, from an anthropological perspective that neither the Romans nor the Mongols – in their linear logic of thought and living – would have understood any other reason for going to war. All others have fought wars using cover ups of all sorts – from the melodramatic to the utterly laughable – with the precise purpose of disguising the sole, real reason. Nations in the Middle Ages almost invariably fought wars ‘in the name of God’, as if God had ever commanded any such deed, with the tacit or open consent and benediction of the ecclesiolatry. The Modern Era brought forward an innate anthropological sense on the part of conquerors, beginning with the Spaniards, who crossed oceans for the sole purpose, as they put it, of ‘spreading civilization’ – as if anyone had ever asked for or appointed them to any such task. So did the British and the French. In more contemporary, post-romantic times it was the turn of the former enslaved to fight for ‘country and freedom’ and even more recently, and still vivid in the memory of some, it was the assertion of a ‘dominant race’ over … well, everybody else. It is incredible to what lengths human hypocrisy can sometimes be stretched out.
Whereas, as aforesaid, wars have been fought invariably with one scope in mind, such scope has taken a political turnout in contemporary times. After WWII the three major wars of the Twentieth Century – Korea, Vietnam and the first Gulf War – have been fought with precise political motivations as primary aim. The danger of allocating economic resources to fight this type of war is that the use and consumption of capital stock is not replenished by victory. Or, to be more specific, victory may lead to political gains, which do not necessarily convert and translate into economic benefits.
Capital in a market economy is an essential element in entrepreneurial planning, an estimate of the market value at a definite date of a particular business plan. A given business or entrepreneurial plan implies a time structure of production for the individual enterprise—a pattern of inputs (capital goods, labor and natural resources or land) applied at earlier dates followed by a pattern of outputs sold at later dates. However, the accumulation of capital – or capital stock as it is sometimes referred to – in wartime does not follow mere free-market laws. For one thing output, or most of it, is skewed towards manufacturing of items inherently useful for the purpose of war which, were it not for the particular time at which such output is manufactured, would not have widespread applications for civilian purposes. It is hard to imagine what could be accomplished by civilian enterprises and entities with all those leftover guns, munitions, tanks and fighting aircraft and arsenals. Hence, because of its very specialized and unique purpose, if not already destroyed or otherwise wasted during the war any such output is due to obsolescence after the conflict with the proximate result that resources, whether natural or man-made, are ultimately destined to waste.
Likewise, costs of manufacturing do not follow the regular capitalistic patterns of supply-side economics. As it is widely known, supply-side economics is a school of macroeconomic thought which emphasizes the importance of taxation and business incentives in encouraging economic growth, in the belief that businesses and individuals will use their improved terms of trade to create new businesses and expand old businesses, which in turn will increase productivity, employment, and general well-being. Such, however, cannot possibly be the case in an environment such as wartime when perceived military necessity counts heavily with those responsible for making government investments. In fact one can speak of ‘market socialism’ to the extent that there is only one single, large investor in a wartime economy – the government - financing industrial production of specialized goods and services to be used by only one single, large customer - the government, again. To the extent, therefore, that both production and consumption are monopolized one can factually speak of socialism within capitalism during wartime.
Military brass the world over are fond of casting their profound knowledge of economics on to the populace to justify, in terms of real value, the convenience of war. One such economic tenet so freely and lavishly dispensed by military establishments is that war creates jobs, both during and after wartime. On a critical analysis this statement doesn’t seem to hold much water. It certainly is not a novel populist theory, having been acclaimed by one form of government or another at any given time throughout history. For instance, job creation was what the fascist regime used to exhort and rally Italians in 1935 to invade … Ethiopia. The allocation of manpower resources does not alter the pool of manpower if the same manpower that exists in peacetime is suddenly allocated for war. What merely changes is the action – soldiers do not typically shoot anybody in peacetime as opposed to wartime – but that hardly bears any economic benefit. In fact, switching to wartime will generate a waste of resources. Widespread conscription, on the other hand, increases the pool of capital stock but here again one can speak of socialism within capitalism, as there is only one employer. Furthermore, a general draft can hardly be thought of as a free-market manifestation by its own very nature. And as it relates to postwar job creation, if the workforce is employed to dismantle all the leftover specialized output – that can arguably be seen as an added and consequential cost of production or, more likely, as an added waste.
In conclusion, therefore, it doesn’t appear that war is a profitable allocation of resources. In a modern economy with an extensive division of labor and highly articulated production the capital stock consists of a vastly heterogeneous, intricately related collection of production and means of production. If the economy is to function effectively, the capital stock must assume a certain structure and this cannot be achieved in a monopolitarian situation or when capitalism acts and smells like socialism. In general, whatever the usefulness of the government’s wartime investment program for the immediate purpose of gaining military victory, it gives rise to serious distortions of the capital structure because of the specialization of output required and thereby has less value for postwar productive purposes than the sheer amounts spent on durable assets during the war might seem to imply. And, therefore, in spite of all justifications brought forth by politicians war is not a profitable allocation of capital resources, and the ever expanding budgetary costs of wars fought the world over and the waves of red ink they invariably ravages economies with are evidence and proof of it.
Luigi Frascati
Real Estate Chronicle
