Mitchell, Schoeffel, eds: Understanding Power: The Indispensable Chomsky: Ch. 3: The Permanent War Economy: note 9

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February 2002

Mitchell, Schoeffel, eds: Understanding Power: The Indispensable Chomsky: Ch. 3: The Permanent War Economy: note 9

9. For an articulation in the business press of the problems with domestic public works and social welfare spending, see "From Cold War to Cold Peace," Business Week, February 12, 1949, p. 19. An excerpt:

But there's a tremendous difference between welfare pump-priming and military pump-priming. . . . Military spending doesn't really alter the structure of the economy. It goes through the regular channels. As far as business is concerned, a munitions order from the government is much like an order from a private customer. But the kind of welfare and public works spending that Truman plans does alter the economy. It makes new channels of its own. It creates new institutions. It redistributes income. It shifts demand from one industry to another. It changes the whole economic pattern.

Similarly, business leaders also feared that the public would demand ownership of publicly-subsidized industries if they became involved in or informed about industrial policy-making. See for example, Frank Kofsky, Harry S. Truman and the War Scare of 1948: A Successful Campaign to Deceive the Nation, New York: St. Martin's, 1993. An excerpt (p. 37):

Although the aircraft companies could not have been more eager to tap the U.S. treasury, their executives were also enormously concerned that any federal funds they might receive not even resemble -- much less be called -- a subsidy. Their reasoning was the same that impelled William Allen, the president of the Boeing Airplane Company, to insist that any computation of the airplane makers' wartime profits be on the basis of sales, not investments. If the taxpayers were ever to realize how much the creation, expansion and current well-being of the aircraft industry depended on money they had provided, Allen and his counterparts feared, their outrage might result in a demand for nationalization. Advocates of such a measure might plausibly argue that as long as the public was expected to continue footing the bill to keep the airplane builders in operation, it might as well own that for which it was being forced to pay. . . . The trick, therefore, was for the industry to achieve the beneficial effect of a subsidy without the appearance of having taken one.

Earlier, the same considerations applied with respect to the government's foreign-spending programs -- which ultimately became military-spending programs, as discussed in footnotes 4 and 5 of chapter 2 of U.P. -- namely, business leaders saw them as an economic stimulus that avoided the dangers of increased domestic social-welfare spending. See for example, David W. Eakins, "Business Planners and America's Postwar Expansion," in David Horowitz, ed., Corporations and the Cold War, New York: Monthly Review, 1969, pp. 143-171. An excerpt (pp. 150, 156, 167-168):

Corporate liberal businessmen were generally agreed that the government should continue to help sustain full production and employment, but most of them were opposed to more internal planning -- that is, to an expanded New Deal at home. . . . In 1944, the National Planning Association offered a foreign economic policy plan on the scale of that proposed by Secretary of State George C. Marshall three years later. It called for a great expansion of government-supported foreign investment, and it did so strictly on the basis of American domestic needs, using, of course, none of the later justifications that were to be based on a Cold War with Russia. . . . The corporate liberal planners who began to work out the system during World War II [in groups such as the National Planning Association, the Twentieth Century Fund, and the Committee for Economic Development] were aware of the political potential of foreign aid -- in the sense that it would help create "the kind of economic and political world that the United States would like to see prevail." But their scheme had broader implications. It stemmed, first of all, from a well-learned lesson of the New Deal, that it was the duty of government to prevent the stagnation of the capitalist economy by large-scale compensatory spending. But that spending, if "free enterprise" at home was to be saved, had to be largely directed abroad. . . .

[The Marshall Plan's program of massive] foreign aid emerged to provide an elegantly symmetrical answer to several dilemmas. It was a form of government compensatory spending that avoided revived New Deal spending at home. . . . To have turned inward to solve American problems -- to allow foreigners to choose their own course -- might very well have meant, as [senior State Department and World Bank official] Will Clayton put it, "radical readjustments in our entire economic structure . . . changes which could hardly be made under our democratic free enterprise system." These men were fearful of the expanded New Deal solution to continued economic growth precisely because they felt that such a program would be compelled to move far beyond the most radical projections of New Deal planners.

For a more detailed description of the origins of the post-war military economy, and of military spending's general role as a "floor under the economy" to prevent the return to depression conditions, see Fred Block, The Origins of International Economic Disorder: A Study of United States International Monetary Policy from World War II to the Present, Berkeley: University of California Press, 1977, especially pp. 102-108.

For other articulations of these themes, see for example, Bernard Nossiter, "Arms Firms See Postwar Spurt," Washington Post, December 8, 1968, pp. A1, A18. This article quotes Samuel F. Downer, Financial Vice-President of the L.T.V. Aerospace Corporation, explaining why "the post-[Vietnam] war world must be bolstered with military orders":

"It's basic," he says. "Its selling appeal is defense of the home. This is one of the greatest appeals the politicians have to adjusting the system. If you're the President and you need a control factor in the economy, and you need to sell this factor, you can't sell Harlem and Watts but you can sell self-preservation, a new environment. We're going to increase defense budgets as long as those bastards in Russia are ahead of us. The American people understand this."

Robert Reich, "High Tech, A Subsidiary Of Pentagon Inc.," Op-Ed, New York Times, May 29, 1985, p. A23 ("national defense has served as a convenient pretext for the kind of planning that would be ideologically suspect if undertaken on its own behalf"); John Kenneth Galbraith, The New Industrial State, Boston: Houghton Mifflin, 1967. An excerpt (pp. 228-229):

In 1929, Federal expenditures for all goods and services amounted to $3.5 billion; by 1939 they were $12.5 billion; in 1965 they were approximately $57 billion. In relation to Gross National Product they increased from 1.7 per cent in 1929 to 8.4 per cent in 1965 and earlier in the same decade they had been substantially in excess of 10 per cent. Although the cliche is to the contrary, this increase has been with strong approval of the industrial system. There is also every reason to regard it, and the social attitudes and beliefs by which it is sustained, as reflecting substantial adaptation to the goals of the mature corporation and its technostructure. For the cliche has noticed only the ritual objection of business to government expenditure. Much of this objection comes from small businessmen outside the industrial system or it reflects entrepreneurial attitudes rather than those of the technostructure. And it is directed at only a small part of public expenditure.

All business objection to public expenditure automatically exempts expenditures for defense or those, as for space exploration, which are held to serve equivalent goals of international policy. It is these expenditures which account for by far the largest part of the increase in Federal expenditure over the past thirty years. . . . Legislators who most conscientiously reflect the views of the business community regularly warn that insufficient funds are being spent on particular weapons. No more than any other social institution does the industrial system disapprove of what is important for its success. Those who have thought it suspicious of Keynesian fiscal policy have failed to see how precisely it has identified and supported what is essential for that policy.

See also, Richard B. DuBoff, Accumulation and Power: An Economic History of the United States, Armonk, NY: M.E. Sharpe, 1989, ch. 6, especially pp. 98-100; Gabriel Kolko, Main Currents in American History, New York: Harper and Row, 1976, pp. 316-330. And see chapter 1 of U.P. and its footnote 1; chapter 2 of U.P. and its footnotes 4 and 5; and footnotes 7, 8, 10 and 11 of this chapter.