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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 United States 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.[1]


Military KeynesianismEdit

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[by whom?]:

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.[citation needed]

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.[citation needed]

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.[citation needed]

Capital exportEdit

A similar effect can result from capital exports. Again profits are siphoned off from private investment. Marx (volume III of “Das Kapital”) 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.[citation needed]

Question of deliberate policyEdit

Some authors[who?] 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-Rethel 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[citation needed]. Based on analyses which were in fact influenced by Marxist theory, German capitalists came to the conclusion – according to Alfred Sohn-Rethel[citation needed] – 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.[citation needed]


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.[citation needed]


The central arguments against this position have been made by economists like Seymour Melman, 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.

See alsoEdit


  1. ^ See Peter Drucker, Max Schachtman and his Left. A Socialist Odyssey through the 'American Century', Humanities Press 1994, p. xv, 218; Paul Hampton, "Trotskyism after Trotsky? C'est moi!", in Workers Liberty, vol 55, April 1999, p. 38