Capitalism and Armaments: Business Cycles and Defense Spending in the United States 1945—1979

Abstract

Three possible economic explanations of U.S. military spending are examined: 1) the MIC explanation, 2) the economic stabilization and electoral defense cycle explanation, 3) the capitalist growth imperative explanation. Conditions for these explanations to be valid are formulated and tested with data about the development of defense spending, the U.S. economy, the business cycle, and fiscal policy, as well as an analysis of the Economic Reports and of secondary sources about U.S. defense and economic policies. All three economic explanations are considered inadequate. It is true that defense cuts have sometimes aggravated a recession, and that on other occasions defense has served as a cushion, or even worked more strongly anticyclically, when foreign policy crises occurred at the time of economic downturns. It is also true that military expenditures have played a role in fiscal policy. However, there have been economic reasons for increases and for cuts in the defense budget, and the amounts involved are rather small in absolute or relative terms. Defense is an important, but not the decisive factor in the U.S. business cycle; its weight has decreased substantially. There has been even no absolute growth in U.S. defense spending since the early fifties (in constant prices), and some absolute indicators have declined. Mostly, changes in U.S. military expenditures can and can only be explained by international and foreign/defense policy developments and considerations. These factors should be taken much more seriously.

The effects of military and non-military government expenditures on private consumption

“…Thus, from a Keynesian perspective, since greater military outlay is not offset by the contraction induced by higher taxes, wars typically cause a short-term economic boom boosting aggregate demand and consumption. As argued by Nincic & Cusack (1979) and Krell (1981), this is one of the main economic explanations of increases in military spending. However, Barker, Dunne & Smith (1991) have shown that such increases have contractionary effects on the UK economy.…”

What goes up, must come down? The asymmetric effects of economic growth and international threat on military spending

“…The factors accounting for this variation can be subdivided into external or international variables and domestic variables. External variables that have been correlated with a state's military spending include the state's overall strategic environment (Krell, 1981;Lebovic & Ishaq, 1997), the relative spending of its rivals (Hartley & Russett, 1992;Hewitt, 1992;Mintz & Ward, 1989;Nordhaus et al, 2012) and strategic rivals (Dunne & Perlo-Freeman, 2003;Fordham & Walker, 2005;Rosh, 1988), arms races Ostrom & Marra, 1986;Richardson, 1960), alliances (Olson & Zeckhauser, 1966;Murdoch & Sandler, 1984), and geography (Hewitt, 1992). International economic conditions such as development aid (Collier & Hoeffler, 2007) and sanctions and embargoes have also been found to impact spending (Batchelor et al, 2002).…”

On the Domestic Political-Economic Sources of American Military Spending

“…His analysis focuses on revenues and competing expenditure items and seeks to show that defense is (a) weak contender in the competition for scarce federal resources and (b) one that can acquire, for a limited period, greater resources when international events appear (in the public imagination) to threaten the security of the United States. 17 Gert Krell (1981), in a long and detailed recounting of post-World War II economic tendencies within the U.S. has attempted to evaluate the plausibility of what he describes as three "economistic" models of American military spending. These included (1) the military industrial complex notion, (2) the capitalist growth imperative idea, and (3) our argument with respect to the impact of economic stabilization and the electoral cycle.…”