Crisis Management

Marcel van der Linden’s tribute rightly lauds Sard’s prescience. Certainly, as van der Linden notes, these keen insights were aided by Sard’s direct access to the internal data of the War Production Board. His position as editor of the publication Statistics of War Production provided the raw material from which Sard was able to divine the shape of things to come.

Having said that, if some aspects of Sard’s predictions were uncannily on the nose, others fell short. His theory of the permanent war economy has faced many decades of theoretical critique and empirical challenge, and now is a good time for an overall assessment.

Here it is important to note that in the permanent war economy thesis, Sard and those following in his wake envisioned a new evolution of capitalism in the postwar United States. State spending on arms production, they believed, fundamentally transformed the dynamics of the capitalist system, rendering much of Karl Marx’s analysis obsolete. Military spending provided an outlet for surplus, thus indefinitely postponing the return of crises, which many on the Marxist left believed were endemic to the system.

From this perspective, the unprecedented stability of the postwar “golden age” — characterized by low unemployment and high profitability — was entirely premised on the parasitic growth of the military-industrial complex. Sard did note that other, nonmilitary forms of large-scale state spending such as public works projects and infrastructure investments could produce the same economic effects. But capitalists would always object to what they viewed as intrusions into the realm of private accumulation.

Precisely because Sard believed military expenditure was the special outlet for surplus keeping this entire system aloft, he expected such expenditure to continue at consistently high levels into the postwar years. Elaborating on his initial formulation in 1951, Sard seemed to have been vindicated. After the brief blip of postwar reconversion and declining arms budgets, by the late 1940s and the early ’50s, the US government was once again making enormous investments in the expansion of arms-production industries, and military expenditure as a percentage of GNP climbed to levels never seen in a peacetime economy.

Not So Permanent

Arms spending remained high through the 1950s and ’60s, alongside low rates of unemployment and rising profitability. However, Sard had vastly overestimated the significance of that spending. As Ernest Mandel would later show, updating Sard’s projections on military expenditure into the 1970s, ultimately, Sard was describing an economy at war, not the weight of permanent war spending in a peacetime economy.

Sard had extrapolated from the 1951 data on military spending as a percentage of GNP the new normal under peacetime conditions. This was a problem, because in 1951, the United States was very much at war. US military spending as a percentage of GNP/GDP would never again reach the Korean War–era peak of 13–14 percent — not even during the US wars in Vietnam, Afghanistan, and Iraq. Though Sard correctly predicted the permanence of war spending in the postwar United States, he vastly overestimated the weight of that spending.

While other theorists elaborated on Sard’s thesis over subsequent years and decades, Michael Kidron’s version — by this point, it was more commonly referred to as the “permanent arms economy” thesis — stands out as the most systematic of the bunch. Unlike Sard, Kidron attempted to explain the role of arms spending in the US economy in relation to the capitalist system’s fundamental laws of motion, rather than through an understanding of crises as being rooted in overproduction or underconsumption.

While the broad contours of the social and economic function of arms spending in Kidron’s formulation mirrored those described by Sard, for Kidron, the real significance of arms spending lay in its ability to offset a declining rate of profit. He believed that it did so largely by directing investment into the production of commodities that were either fast-wasting (because they blew up or quickly became obsolete) or merely sat idle. In either case, arms did not enter into expanded capitalist production or the reproduction of the workforce.

For Sard, the decision to direct state investment toward arms production rather than other, more socially useful forms of production was a political one, since only military investment could garner the support of the capitalist class. In Kidron’s permanent arms economy, the special qualities of military industries made them uniquely — or, at least, consummately — well suited to offset a falling rate of profit.

Temporary Fixes

Unlike Sard, Kidron grappled with the most substantive problem for the permanent arms economy thesis — the return, with a vengeance, of economic crisis from the late 1960s, amid continued state investment in arms production industries. Kidron attributed this to the emergence of “state capitalism” in the postwar United States.

Others, like Ernest Mandel, argued that arms spending had never possessed the magical ability to forestall crises granted by the permanent arms economy thesis. It was, Mandel wrote, “certainly not a deus ex machina in any way capable of achieving a qualitative change in the mechanisms of the capitalist mode of production.”

Instead, Mandel suggested, military expenditure had contradictory macroeconomic effects. Yes, it did work to drive up the rate of profit, in part by increasing exploitation in the form of state taxation of wages. At the same time, the capital intensity of arms industries, like the high-tech aerospace industry, accelerated the very processes that led to a falling rate of profit and, ultimately, crisis conditions.

The high-tech nature of many US arms industries also led Mandel to suggest that overall, increasing state investment in arms production might actually speed up the rising organic composition of capital, and thus accelerate a falling rate of profit, across the whole economy. This was because military industries were never totally siloed off from nonmilitary industries, and rapid technological change in military industries would ultimately influence civilian industries too.

For a contemporary example of this phenomenon, one need only be reminded of the military origins of the internet as ARPANET. Critics of the military-industrial complex such as Seymour Melman and Mary Kaldor suggested that these spillover effects of military technology on the civilian economy generally retarded innovation and thus economic growth.

More recent empirical studies lend credence to the idea that the effects of arms spending are not as straightforward as the permanent arms economy thesis proposed. A 2016 study by Adem Elveren and Sara Hsu, looking at profit rates in twenty-four Organisation for Economic Co-operation and Development (OECD) countries between 1963 and 2008, found that military spending had a positive effect on profitability only up until the neoliberal era, when that relationship reversed. In a 2019 follow-up study, Elveren found no significant relationship between military expenditure and profitability between the 1980s and the early 2000s.

No Guarantees

The key point is that state investment in arms production may contribute to higher rates of profit across the economy, but only under certain circumstances. It is by no means guaranteed. Marxist economist Michael Roberts, in his review of Elveren’s 2019 book on military expenditure, put it succinctly: “In the great scheme of things, milex [military expenditure] is not decisive for the health of the capitalist economy.”

In fact, Roberts argues, following on from Paul Mattick’s critiques of the permanent arms economy thesis during the 1960s, state investment in arms production imperils the capitalist accumulation process by “restricting the volume of use values that can be employed for reproductive purposes.” This becomes especially problematic when an economy is descending into recession conditions, when capitalists are already loath to invest in production and likely to speculate or hoard.

While large-scale state investment in arms production during the early decades of the Cold War played a role in spurring growth and prosperity, continued military investment in the latter decades of the twentieth century and beyond may have accelerated economic decline. Between 2006 and 2010, for example, US military spending was on the rise in both absolute and relative terms, just as the broader economy spiraled into recession conditions.

War and war production in the neoliberal period have became increasingly technologically intensive. As such, this failure to cohere to the midcentury pattern may illustrate precisely Mandel’s critique of the permanent arms economy thesis: the contradictory effects of military expenditure and the higher-than-average composition of capital in arms-producing industries.

Theorists of the permanent arms economy envisioned a clear and unidirectional role for arms spending in propping up a new transmutation of the capitalist system. It was the key change in the postwar productive landscape, underwriting the unprecedented prosperity of the golden age of US capitalism.

Crucially, these theorists saw the permanent arms economy as an obvious political problem: by staving off crises and keeping employment high, this form of state investment essentially bought off the US working class, freezing class relations in place, and rendering null any possibility of revolutionary overthrow. Meanwhile, hostilities mounted at the international level, a global interimperialist arms race bringing the entire world closer to nuclear holocaust with each passing year.

Military Keynesianism

While debates around the permanent arms economy thesis unfolded in the relatively cloistered world of the socialist left, another theory describing a very similar dynamic had undisputably profound political consequences on the national political scene. Theorists of “military Keynesianism” also linked economic stability to large-scale state investment in arms production, which they enthusiastically endorsed.

Military Keynesianism informed the positions of Cold War politicians and capitalists and even those of organized labor. AFL-CIO leaders lent their support to the growth of military production industries, believing that the expansion of arms-producing industries would equate to the growth of good union jobs and broad economic prosperity.

Those commitments have produced enduring conflicts in the American labor movement, which in recent years have come to a head. In this regard, the United Auto Workers is a particularly striking example. While the union has led on opposition to Israel’s genocidal destruction of Gaza, it simultaneously represents a large proportion of workers in the military-industrial complex, manufacturing the very bombs, aircraft, and other war materiel that facilitates the onslaught.

With geopolitical tensions and arms budgets on the rise, it is unclear how labor unions will orient themselves toward the prospect of expanded defense production in the future. The coming years may see a repeat of Cold War military boosterism.

Politicians and arms contractors alike love to tout the job-creating, economy-boosting perks of new weapons programs. They never fail to mention “good jobs” in sales pitches or to append inflated employment figures to ads for futuristic weapons systems.

There is also an insidious and despairing logic contained within the permanent arms economy thesis. If investment in military production has a unique ability to stabilize the economy, then there will always be a compelling reason for the working class to support its expansion.

Guns and Butter Unionism

During the Vietnam War, International Ladies’ Garment Workers’ Union (ILGWU) education director and staunch George Meany ally Gus Tyler summed up the logic of “guns and butter” unionism: while it might seem “monstrous to advocate war as a way to continue the war on poverty, to make mass murder a measure for mass uplift,” the linkage of domestic prosperity to war and war production was simply the “bitter facts, the ironic logic.” The “bitter” fact Tyler asserts is the idea that, when it comes to war spending, labor’s interests remain hopelessly divided — between international working-class solidarity and domestic prosperity.

The mixed legacy of state investment in arms production over the twentieth and twenty-first centuries calls Tyler’s “ironic logic” into question. Nor is there any reason to believe that jobs at major military contractors are immune from the forces that have degraded work in other sectors.

In the neoliberal era, defense firms shed workers, increasing their reliance on outsourcing and offshoring. Though arms spending remained high throughout the 1970s and ’80s, those good, high-paying production jobs significantly declined as defense industries became increasingly technologically intensive. Recent labor disputes at Boeing underscore the point.

The Left has countless reasons to oppose ramped-up militarism and the expansion of domestic military production industries. This would still be the case whether or not military expenditure possessed the ability to usher in an era of renewed economic prosperity, but as it stands, “guns and butter” may no longer be on the table.

Both theoretical challenges to the permanent arms economy thesis and more recent empirical data suggest that far from being a magic bullet, military expenditure cannot stabilize the economy under all circumstances, and it may be especially unlikely to revive an already flagging US economy. Warmaking cannot ultimately be relied upon to produce “mass uplift” — yet another reason why it can and should be opposed, wholeheartedly and without reserve.