16 Capitalism’s Wars
Roberts
Ever since the end of the second world war, there has been some sort of war, between regional powers, or as proxy wars backed by imperialist powers. The monetary costs of war are huge, as the Watson Brown Institute shows, while the human costs of war are incalculable – not just the deaths and injuries, but also the destruction of homes, livelihoods, deprivation and disease and the horrors of migration. Wars are a scourge on humanity.
But are they beneficial to the capitalist economy? That’s another question. Wars are often seen necessary by governments and politicians to preserve a capitalist power’s control over resources, land, profit etc. And they are always portrayed by war-mongering governments to their peoples as necessary to ‘save the nation’ or ‘defend our way of life’. But are wars and military spending that goes with war a necessary cost to deducted from the profits of capital or alternatively an additional boost to making money? That question has been discussed and analysed over the last 150 years by capitalist strategists and Marxist theorists from Engels to Lenin and Luxemburg and on into the 20th century.
However, the costs of military spending have been in decline for most capitalist governments since the end of so-called ‘cold war’ with the Soviet Union. So interest in whether arms expenditure and wars are beneficial or detrimental to capitalism has also fallen away. A Marxist perspective on the economic of military spending has been badly neglected – until now.
Adem Yavuz Elveren, Associate Professor at Fitchburg State University in the US, has now rectified that with his new book, simply entitled, The Economics of Military Spending. As an earlier pioneer in such analysis, Ron Smith of Birkbeck University says in his foreword, Elveren “examines the interaction of military expenditures and the rate of profit and their contribution to capitalist crises. It not only redirects attention to an increasingly relevant old literature but also makes an original theoretical and empirical contribution to the analysis.” The book combines theoretical analysis with detailed econometric investigations for 30 countries over last 60 years.
The basic assertion of Marx that “the driving force of capitalism is profit.” And so the book “stands at the junction of defence economics and Marxist economics, examining the effect of military expenditure (milex) on the rate of profit, an indicator of the health of a capitalist economy.”
Elveren takes the reader through a brief history of military expenditure and its apparent economic effects. Then he considers various models of economic growth that connect military spending. He deals with the theory of ‘military Keynesianism’, popularly presented as an explanation for the fast growth and full employment in the post-war period, the so-called golden age of 20th century capitalism. And then he gets into the meat of argument by analysing the various versions of the theory of capitalist crises presented under the Marxist banner.
He expertly handles Luxemburg’s view on imperialism and military spending, as well as the Baran-Sweezy thesis of military spending compensating for a stagnating monopoly capitalism – and the so-called ‘permanent arms’ economy idea promoted by Michael Kidron in the post-war period, that capitalism can avoid crises by milex.
The theoretical question at debate in Marxist political economy is whether the production of weapons is productive of value? The answer is that it must be for the arms producers. The arms contractors deliver goods (weapons) which are paid for by the government by appropriating value (either present or future). These goods are new use values which have been made under capitalist conditions of production. The labour producing them, therefore, is productive of value and surplus value.
But at the level of the whole economy, arms production is unproductive of future value, in the same way that ‘luxury goods’ for just capitalist consumption are. Arms production and luxury goods do not re-enter the next production process either as means of production or as means of subsistence for the working class. While being productive of surplus value for the arms capitalists, the production of weapons is not reproductive and thus threatens the reproduction of capital. Arms production restricts the volume of use values that can be employed for reproductive purposes. So if the increase in the overall production of surplus value in an economy slows and the profitability of productive capital begins to fall, then reducing available surplus value for future investment through milex can damage the health of the capitalist accumulation process.
The outcome depends on the effect on the profitability of capital. The military sector generally has a higher organic composition of capital than the average in an economy as it incorporates leading edge technologies. So the sector would tend to push down the average rate of profit. On the other hand, if taxes collected by the state to pay for arms manufacture are high, then wealth that might otherwise go to labour is distributed to capital and thus can add to available surplus value. Which way does it go?
To help answer that question, Elveren offers the reader a circuit of capital model to include the military sector based on the model developed by Duncan Foley. But the question can only be answered empirically. And this is what Elveren does in the latter part of his book. He carries out a detailed empirical study to measure the impact of milex against the movement in the rate of profit on capital for most capitalist economies. This is a far more extensive study than any before. Elveren uses the Extended Penn World Tables and the Penn World Tables for his cross-country data.
Overall (from 1963-2008), milex had a positive effect on profit rates in capitalist countries, but that it had a negative effect in the shorter time period – the so-called neo-liberal period from 1980 onwards. It seems that milex helped to sustain profitability during the great profitability crisis that started in the mid-1960s to the early 1980s, but after that, milex acted against overall profitability in a period when profit rates were rising.
It seems that the productive sectors of capitalist economies had insufficient surplus value to invest at the previous pace as capitalists switched to financial speculation where profitability was higher. Military spending then became just another negative. Milex may have had a mildly positive effect on profit rates in arms exporting countries but not for arms importing ones. In the latter, milex was a deduction from available profits for productive investment.
Over the period 1963-08, Elveren finds that milex, as a stimulant to capital accumulation (with its high-level technology) was mildly positive in the US, but in other major countries it has a negative effect, particularly in those countries that imported their arms. In all countries milex was damaging for employment as a whole, as the arms sector used less labour on average. Thus milex may sometimes help the rate of profit for capital but the flipside is that milex will increase the ‘reserve army of labour’. And as Elveren adds “the effect of milex may change at different levels of the rate of profit”.
Elveren’s empirical work appears to back up the Marxist view of the role of military spending in a capitalist economy. It can act to lower the rate of profit on capital and thus on economic growth as it did in the neo-liberal period, when investment and economic growth slowed. But it can also help bolster the rate of profit through state’s redistribution of value from labour to capital, when labour is forced to pay more in taxation, or the state borrows more, in order to boost investment and production in the military sector.
In the greater scheme of things, milex is not decisive for the health of the capitalist economy. At its height, its share in GDP reached an average of 13%. But that was due to the Korean war. Even during the cold war period, that share fell by half to around 6% of GDP. With the collapse of the Soviet Union, military spending in the major imperialist powers halved again to 3%. Milex is not going to decide the future of capital, one way or the other.