Arbtirary thoughts on nearly everything from a modernist poet, structural mathematician and functional programmer.

Monday, June 8, 2009

War! Huh! What is it good for?

Actually... Absolutely nothing. So, I hear people bring up the economic benefits of war every so often, mostly regarding how WWII "got us out of the depression." before I talk about how little sense this makes, I'd like to point out that the US had mostly recovered from the depression before 1940. Last I checked, the US didn't get involved until December 1941, so time disagrees with this theory.

Now, let's talk about wars. Specifically, let's talk about WWII. People talk about how American industry was mobilized for the war. This is true, but there's a subtle fallacy at play here. Jobs, in and of themselves, do not add to the economic vitality of a nation. If they did, we could have everyone working rolling rocks up hills, and letting them fall down again, and we'd have a booming economy. What does add to economic vitality is the creation of capital. Capital is a good which can be used to make more goods. In other words, a booming economy is an economy which is one which is increasing its capacity to produce.

So, the construction of the factories and machinery to create the weapons of war was economically healthy because it created capital, but it ends here. All of those factories went to work building supplies for the war. What we then have is capital-- raw goods (mostly ore and oil) and processed goods (metal alloys, gasoline, rubber) -- being turned into finished products. All well and good, but these products are leaving the economy: To go be used (and destroyed) in a war.

What, then do we have? Capital that is not being used to create more capital. Capital which is being used exclusively to push products out of the economy. We were wasting capital.

And this capital waste rears its ugly head in the shortages and rationing. Capital was leaving the economy at an enormous rate. The market response is hyperinflation: If goods are rare (as they will be if all capital is leaving the economy), goods are expensive. This also happened in Europe after WWI, because all of their monetary capital was going to reparations (Germany, Austria), or repaying loans (Allied powers). (To be fair, Weimar monetary policy didn't help the hyperinflation.)
This hyperinflation can be curbed by fixing prices, but as we saw in the 70s (and every other time prices have been fixed), this leads to shortages. The rationing in the US was a response to the shortages. These shortages were caused because the capital was leaving the country.

In case you hadn't caught this, rationing is not a sign of a healthy economy. It is quite the opposite.

Next. The Marshall Plan. Total US aid in Europe was over 1.2 Billion. A healthy economy does not need billions of dollars pumped into it. Money from the US even came after the European economy had started turn around: After a few years of mass shortages. So a few years after the war, the economy, while recovering, was still in shambles. Should war have brought about a boom?

Finally, take a look at all the poorest nations in the world. They all have one thing in common: They have been war-torn for at least 10 years. In almost all of these conflicts, the war started for socia-political reasons, and after a short time, much of the fighting became centered around mines. Why? Because the combatants ran out of money, and need a way to finance the war. But if a war is good for the economy, they shouldn't need half-working mines to fund their wars.

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