Eisenhower and the Military Industrial Complex

Permanent War Economy

From Wikipedia, the free 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.^[1]

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 —ie. 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."^[2]

Marxist theory

The term has also been used to refer to a Marxist theory which seeks to explain the sustained economic growth 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.^{[citation needed]}

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%.^[3] 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.

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^{[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.

The law of the tendency of the rate of profit to fall

Other Marxists like Chris Harman or Michael Kidron oppose any Keynesian explanation^{[citation needed]}. 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:

Rate of profit 

Rate of profit 

• p: rate of profit
• c: constant capital
• v: variable capital
• s: surplus value

Karl Marx assumes^{[citation needed]} 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.

Capital export

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 policy

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^[who?] 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]}

A different view

The case made by some Marxists^[who?], 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 Melman, Lloyd J. Dumasand 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 seriousopportunity 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.^{[citation needed]}

The counter-argument^{[by whom?]} 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.

Notes

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
2. ^ Noam Chomsky Counterpunch Interview
3. ^ A graph of "US national defence spending, as % of GDP" is in The Economist, June 30th, 2007.

References

• Oakes, Walter J. 1944, "Towards a Permanent Arms Economy?", Politics, February.
• Vance, T. N. 1950, "After Korea What? An Economic Interpretation of U.S. Perspectives", New International, November-December.
• Vance, T. N. 1951, "The Permanent Arms Economy", New International. [series of articles]
• Wilson, Charles Edward, "Army Ordnance (Vol. XXVI, No. 143, March-April, 1944".
• Tony Cliff, Perspectives for the permanent war economy. Socialist Review March 1957. Reprint Tony Cliff, Marxist Theory after Trotsky. Selected Writings. Volume 3. Bookmarks London 2003. ISBN 1-898876-93-2
• Chris Harman, Explaining the Crisis – A Marxist Re-Appraisal. Bookmarks London 1999. ISBN 0-906224-11-X
• Harman Chris Analysing Imperialism International Socialism 99. Summer 2003.
• Michael Kidron, Western Capitalism Since the War. Penguin Books Harmondsworth 1970.
• Alfred Sohn-Rethel, Industrie und Nationalsozialismus. Aufzeichnungen aus dem “Mitteleuropäischen Wirtschaftstag”. Wagenbach-Verlag Berlin 1992. ISBN 3-8031-2204-X
• Ernest Mandel, Late Capitalism. London: Verso, 1975.

Greatest Threat Since FDA Tried to Turn Nutrients into Prescription Drugs!

Let Your Voice be Heard on September 8th

The FDA has proposed new guidelines that will enable the government to ban the most effective dietary supplements you are now taking.

If these guidelines are enacted, many of the most valuable supplements you take today will be removed from the market.

What is Being Done to Stop this Travesty?

To give you an idea about how dangerous these draconian proposals are, Life Extension® helped organize a protest. And dozens of other health freedom organizations agreed to synchronize a consumer revolt.

The date of this citizens uprising is Thursday, September 8, 2011.

We need to convince Congress to review the FDA's absurd claims and stand against the draft New Dietary Ingredient (NDI) guidelines. Please join us in this nationwide campaign!


We're asking each of you to phone your Senators and Representative on September 8 and voice your opposition to the NDI (dietary supplement) guidance.

Tell them why you're upset over the NDI guidance, and ask them to hold hearings on the FDA's position. The FDA is clearly overreaching its authority, and the logic of its arguments is beyond absurd. Congress has FDA oversight and needs to review the agency's actions in creating this new guidance.

Please call the congressional switchboard toll-free at             1-877-762-8762      . They will connect you with your Representative's office. You can use the same phone number to be connected to the office of each of your two Senators. Here is a Citizen's Petition you can read to the health staff member you speak with:

"The FDA has proposed guidelines that place burdensome new restrictions on dietary supplements introduced after October 15, 1994. That means that nutrients that I have been safely using over the course of three decades will be subject to the FDA's oppressive policies that mandate costly animal testing. This translates into forced withdrawal from the market of many of my dietary supplements and higher prices for me if the supplement is allowed to be sold again. I ask that you call the FDA Office of Nutrition, Labeling and Dietary Supplements at             1-888-723-3366       and demand that they withdraw the proposed guidelines they issued in July 2011 and work with the Alliance for Natural Health to formulate safety guidelines that make sense for the consumer and the economy."

Click here to email this same petition to your Congressional members (but please also phone it in … it's that important!).

After speaking with the office of your Representative and two Senators, call the FDA Office of Nutrition, Labeling and Dietary Supplements at             1-888-723-3366      to read the following citizen's petition to them:

"I am petitioning the FDA regarding your draft guidance on New Dietary Ingredient notifications for dietary supplements known as Draft Guidance for Industry: Dietary Supplements: New Dietary Ingredient Notifications and Related Issues.

I demand that you immediately disregard all the proposals you outlined and instead consider a rational and scientific approach to regulating new dietary ingredients that will be submitted to you by the Alliance for Natural Health within the next 90 days.

Your proposed guidelines on New Dietary Ingredients will cause the price of my supplements to skyrocket, and some of these life-sustaining supplements are likely to disappear altogether.

This is not acceptable especially when there are no significant reports of adverse reactions to the supplements the FDA may ban.

In as much as your threat to ban my access to new dietary ingredients is causing me great anxiety which is injurious to my health, I insist that you immediately put your proposed new guidance on hold for a 90-day period so that the Alliance for Natural Health can submit comments to ensure a system that protects me against unsafe ingredients without destroying my access to low-cost effective nutrients."
Click here to print out this petition and add any words you choose and fax this to the FDA at the following number:             (301) 436-2639       (but please also phone it in … it's that important!).

You will be hearing more about this urgent matter from Life Extension and other health freedom organizations very soon.

Mark your calendar to participate in the citizens uprising on Thursday, September 8. On that date of September 8th, make these four toll-free phone calls (three to your members of Congress and one to the FDA).

Please don't let apathy stand in the way of the government's latest attempt to take away your most important dietary supplements.

For longer life,
William Faloon

Why We Can Prevail … For those who don't recall, the federal government came very close to transforming high-potency supplements intoprescription drugs in the 1970s. The medical establishment lobbied so hard that it was a foregone conclusion that Congress would change the law and force Americans to obtain prescriptions for many of their supplements. No one expected the consumer backlash that overwhelmed Congress into submission. Vitamin users inundated Congress with so many protests that the Proxmire Vitamin Bill was enacted in 1976. This bill prohibited the FDA from turning dietary supplements into "drugs" as the American Medical Association was urging. Annual vitamin sales were less than $2 billion in the 1970s, yet Congress received more mail from angry vitamin supplement users than any other issue except the Vietnam War. Today, Americans use over $26 billion of dietary supplements each year, so you can imagine how many angry protests Congress will hear when the public learns the FDA is trying toban every supplement introduced after October 15, 1994. The FDA's proposed guidelines represent the greatest threatto health freedom since the medical establishment tried to seize control over your right to ingest food supplements. Please act up on September 8th by contacting the FDA and Congress at the phone numbers provided in this e-mail.

Mark Your Calendar To Call In On September 8th!