Economics and War

Tue, Sep 3, 2013 - 7:58am

While we continue to read news about the ongoing Syria crisis, especially with President Obama’s desire to exact military punishment for an alleged Syrian chemical attack, it is worthwhile to think about the economics of war. We often hear it alleged that countries engage in wars to distract from domestic economic troubles. Distraction, to be sure, is not a cure. For society as a whole, war makes the economic situation worse by giving government bureaucrats even more power over the economy.

Robert P. Murphy, adjunct scholar of the Ludwig von Mises Institute, has put together a brief study guide which covers the economics of war as explained in the Austrian economist’s masterwork, Human Action. In opposition to Lenin’s thesis that market economy freedom leads to “imperialist wars,” Mises insists that war and the free market are far from compatible. While the market economy may be tolerated by an interventionist government in peacetime (see the Obama administration), it is a myth that government interventionists have much toleration for market freedom in time of war. According to Mises, “War, and in any case modern total war, peremptorily requires government control of business.”

Should U.S. intervention in Syria trigger a region-wide war in the Middle East which spreads to East Asia and the Pacific, involving Russia and China, expect the Obama administration to take charge of the U.S. economy and initiate a socialist war regime. This would be necessary not only because of an interruption of the flow of oil from the Middle East. It is part of the logic of major military emergencies. Expect widespread rationing, wage and price controls as well as inflation. Any major military conflict is likely to produce such a result as it has in the past, during two world wars.

In time of war the government becomes the primary consumer. Mises described the socialist war economies of World War II in the following terms: “All not absolutely indispensable civilian consumption was to be eliminated. The plants and farms were henceforth to turn out only a minimum of goods for nonmilitary use. For the rest, they were to devote themselves completely to the task of supplying the armed forces.”

Since World War II the United State has generally relied upon an alternative system for supporting its limited war regime. Government simply taxed and borrowed so that government itself became a prominent consumer in the market place. In fact, the United States has been so wealthy under the free market system that it has been able to follow this policy without severely impacting national civilian consumption or the country’s high standard of living. Given the present levels of debt, plus the mentality of the current administration, the next major regional war – especially as it may involve direct conflict with Russia and/or China – may readily discontinue the tax and borrow policies used to support the Vietnam War and the Iraq/Afghan wars.

“The sudden transition from peace to war revolutionizes the structure of the market,” says Mises, “[and] makes radical readjustments indispensable and thus becomes for many a source of high profits. The [government] planners and interventionists regard such profits as a scandal. As they see it, the first duty of government in time of war is to prevent the emergence of new millionaires. It is, they say, unfair to let some people become richer while other people are killed or maimed.”

The irony here is that the Obama administration probably possesses the wrong instincts for successfully running a war economy; for the country which resists the practices of war socialism is the country most likely to win the next major war. Setting aside the moral outrage reserved for capitalists who enrich themselves through the armaments business, the country that enriches the greatest number of armaments entrepreneurs is the country that will likely win the next major war. “It may be admitted that it is not ‘fair’ that war enhances the profits of those entrepreneurs who contribute best to the equipment of the fighting forces,” wrote Mises. “But it would be foolish to deny that the profit system produces the best weapons.”

President Obama has asked Congress to authorize a limited military strike on Syria in retaliation for the Assad regime’s alleged use of chemical weapons. “Having made my decision as Commander-in-Chief…” said Obama, “I will seek authorization for the use of force from the American people’s representatives in Congress.” The proposed limited strikes against Syria are said by experts to have game-changing implications for the outcome of the Syrian Civil War. Syrian President Bashar Assad has warned that any military strike by the U.S. against Syria could trigger a regional war. The Iranian government, in support of Syria, has “strongly warned” the United States that there “will be perilous consequences for the region” in the event of an American strike. Iranian officials are saying that, at the very least, they will retaliate on Israel in the event of an American strike against Syria.

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