[mises] War and the Economy

Eugen Leitl eugen@leitl.org
Fri, 14 Mar 2003 08:36:59 +0100 (CET)


War and the Economy

by Llewellyn H. Rockwell, Jr.

[Posted March 10, 2003]

The National Bureau of Economic Research dates the peak of the last business
cycle at March 2001, and has yet to call a trough, which is to say it hasn't
yet observed an end to the contraction or the beginnings of an economic

The number of months we have traveled from the end of the last peak to the
current day is 24. The NBER has used its method for dating business cycle
pronouncements on peaks and troughs since the 1850s. The average period of
contraction runs 8 months. The current downturn is the longest on record
since the Great Depression, and next month it will become the second longest
since 1882.

This is another way of saying: folks, this is getting serious. Yet what is
Washington talking about? Not the decline in employment, savings, the
dollar, nor the increase in debt, deficits, government spending, and prices.
No, Washington wants war with Iraq. It plans to spend at least $100 billion
to bring it about, in a year in which the deficit will balloon to $400
billion plus and American incomes and payrolls are under serious strain.

The Mises Institute has worked relentlessly to call attention to the dangers
of the recessionary environment (and the dangers of the bubble that preceded
it), as well as the distraction and destruction of war. Bill Moyers, who has
a show on PBS, found himself intrigued by this combination of being against
the war but for a free and globally engaged commercial republic. I went on
his show to talk about this [TRANSCRIPT], but his curiosity tells me that a
primer on war and economy is needed.

Behind the current confusion of ideological categories is the longstanding
canard that war is good for the economy. If what you care about is a
prosperous economy, why wouldn't it make sense to spend hundreds of billions
of dollars on huge industrial products like military planes and tanks? Why
not employ hundreds of thousands in a great public-works program like war?
Why not destroy a country so that money can funnel to American companies in
charge of rebuilding it? Doesn't all of this help us out of the recession?

All these questions somehow come back to Bastiat's "Broken Window" fallacy.
In the story, a boy throws a rock through a window. Regrets for this act of
destruction are all around. But then a confused intellectual pops up to
explain that this is a good thing after all. The window will have to be
fixed, which gives business to the glazier, who will use it to buy a suit,
helping the tailor, and so on. Where's the fallacy? It comes down to
focusing on the seen (the new spending) as versus the unseen (what might
have been done with the resources had they not had to be diverted to window

Let us never forget that the military is the largest single government
bureaucracy. It produces nothing. It only consumes resources which it takes
from taxpayers by force of law. Making matters worse, all these resources
are directed toward the building and maintenance of weapons of mass
destruction and those who will operate them. The military machine is the boy
with the rock writ large. It does not create wealth. It diverts it from more
productive uses.

How big is the US military? It is by far the largest and most potentially
destructive in the history of the world. The US this year will spend in
excess of $400 billion (not including much spy spending). The next largest
spender is Russia, which spends only 14% of the US total. To equal US
spending, the military budgets of the next 27 highest spenders have to be
added together. If you consider this, and also consider the disparity of the
US nuclear stockpile and the 120 countries in which the US keeps its troops,
you begin to see why the US is so widely regarded as an imperialist power
and a threat to world peace.

This is very hard for Americans to understand. We tend to think of the
American nation as a mere extension of our own lives. We all work hard. We
mind our own business. We tend to our families and involve ourselves in
local civic activities. We love our history and are proud of our founding.
We are pleased by our prosperity (even if we don't know why it exists). We
think most other Americans live the way we do. We tend to think our
government (if we think about it at all) is nothing but an extension of this
way of life.

A deadly military empire? Don't be ridiculous. The military is just
defending the country. Bush is a potential tyrant? Get real! He's a good
man. Those crazy foreigners who resent the US are really no better than
those people who attacked us on September 11, 2001: they envy our wealth and
hate us for our goodness. We are a godly people, which makes our enemies
ungodly, even demonic. This is a short summary of a widely held view, one
that those who seek a government-dominated society use to build their
public-sector empire.

What most Americans refuse to face is that what the government does day to
day, and in particular its military arm, is not an extension of the way the
rest of us live. Government knows only one mode of operation: coercion. It
does not cooperate; it coerces. Because it is constantly overriding human
choices, it makes unrelenting error, most often producing consequences
opposite of the stated intention. This is no less true in its foreign
operations than it is in its domestic ones.

Consider the most recent military action in Afghanistan. The Taliban was
nothing but a reincarnation of the opposition tribes the US supported when
the country was being run by the Soviets in the 1980s. Back then we called
them freedom fighters. When the Taliban fled the capital city last year, the
US knew where to look for them because the US assisted in building their
hideouts during the last war.

What did the war do to the country? All hoopla aside, it is no freer, no
more democratic, and no more prosperous. The warlords are running the
country and women are still subject to fundamentalist Islamic dictate. How
many civilians did the US kill? Thousands, perhaps many thousands. During
the war, every day brought news of a few dozen innocent dead, all verified
by humanitarian organizations monitoring the situation. We don't have a
definitive final tabulation because the US bombed radio and TV stations and
worked to keep news of the dead from leaking.

The New York Times reports concerning the newest proposed war: "General
[Richard] Myers gave a stark warning that the American attack would result
in Iraqi civilian casualties despite the military's best efforts to prevent
them." Americans don't like to think about this, but it is a reality
nonetheless. As for best efforts, one would have to turn a blind eye to the
history of US warfare to believe it.

With regard to Iraq in particular, let us remember that the US has waged
unrelenting war on that country for twelve years, with bombings and
sanctions that the UN says have killed millions. The entire fiasco began
with the Iraqi invasion of its former province, Kuwait, which the US
ambassador was warned about in advance and responded that the US took no
position on the border-oil dispute then brewing.

But let's return to the economic costs associated with war. It does not
stimulate productivity. It destroys capital, in the same sense that all
government spending destroys capital. It removes resources from where they
are productive—within the market economy—and places them in the hands of
bureaucrats, who assign these resources to uses that have nothing to do with
consumer or producer demand. All decisions made by government bureaucrats
are economically arbitrary because the decision makers have no access to
market signaling.

What's interesting this time around is how the markets seem to have caught
on. The prospect of war is inhibiting recovery. The stock market is now at
1998 levels, with five years of increased valuations wiped out. The
recession itself, the longest in postwar history, may have been the
inevitable response to the economic bubble that preceded it, but the drive
to war is prolonging it. It could get worse and likely will. Consumer
confidence is falling, as is consumer spending. Unemployment is rising. The
dollar is falling. Commodity prices are rising. All signs point to a
man-made economic calamity.

The deficit is completely out of control. The idea of tax cuts is fine, but
let's not pretend as if the bill for government spending doesn't need to be
paid by someone at some point. It will be paid either through inflation or
higher taxes later. In the meantime, deficits crowd out private production
because they need to be financed through bond holdings. War will only make
the problem worse. From time immemorial, war has gone along with fiscal

War also goes hand in hand with government control of the economy. Bush has
increased spending upwards of 30 percent since he took the oath of office.
He has imposed punishing tariffs on steel, hardwood, and wheat. He has
created the largest new civilian bureaucracy erected since World War II. He
has unleashed the federal police power against the American people in
violation of the constitution. All of this amounts to a war on freedom, of
which commercial freedom is an essential part. This is why no true partisan
of free enterprise can support war.

But what about September 11? Doesn't that event justify just about anything?
Let us not forget that this was a multiple hijacking, of which there have
been hundreds over the decades since commercial flight became popular. The
difference this time was that the hijackers gave up their lives rather than
surrender. It was a low-budget operation, and needed no international
conspiracy to bring it about. It was easily prevented by permitting pilots
to protect their planes and passengers by force of arms, but federal
bureaucrats had a policy against this.

In any case, there is no evidence that Iraq had anything to do with 9–11.
The Iraqi regime is liberal by Muslim standards and for that reason hated by
Islamic fundamentalists. Unlike Saudi Arabia, it tolerates religious
diversity, permits gun ownership, and allows drinking. It has a secular
culture, complete with rock stars and symphony halls, that few other Muslim
states have.

Yes it is a dictatorship, but there are a lot of these in the world. Many of
them are US allies. The focus of the Bush administration on Iraq has more to
do with personal vendettas and Iraqi oil. In waging war, the Bush
administration proposes to spend twice the annual GDP of the entire Iraqi
economy! The US will spend $2 for every $1 it will destroy—the very
definition of economic perversity. What's more, an attack will only further
destabilize the region and recruit more terrorists intent on harming us.

Meanwhile, the prospect of war has markets completely spooked. Is this a
narrow economic concern? Not in any way. Prosperity is an essential partner
in civilization itself. It is the basis of leisure, charity, and a hopeful
outlook on life. It is the means for conquering poverty at the lowest rung
of society, the basis on which children and the elderly are cared for, the
foundation for the cultivation of arts and learning. Crush an economy and
you crush civilization.

It is natural that liberty and peace go together. Liberty makes it possible
for people from different religious traditions and cultural backgrounds to
find common ground. Commerce is the great mechanism that permits cooperation
amidst radical diversity. It is also the basis for the working out of the
brotherhood of man. Trade is the key to peace. It allows us to think and act
both locally and globally.

What makes no sense is the belief that big government can be cultivated at
home without the same government becoming belligerent abroad. What also
makes no sense is the belief that big-government wars and belligerent
foreign policies can be supported without creating the conditions that allow
for the thriving of big government at home. The libertarian view that peace
and freedom go together may be the outlier in current public opinion. But it
is a consistent view, the only one compatible with a true concern for human
rights, and for social and global well-being.


Llewellyn H. Rockwell, Jr. is president of the Mises Institute in Auburn,
Alabama, and editor of LewRockwell.com. Send him MAIL, and see his Mises.org
Daily Articles Archive. For Lew's appearance on Bill Moyers's show, see your
local PBS listings. The show was first available for airing on March 7,