MIA: History: ETOL: Document: Workers Party/Independent Socialist League: Neither Capitalism nor Socialism

Workers Party/Independent Socialist League

E. Haberkern & Arthur Lipow (eds.)

Neither Capitalism nor Socialism


Seymour Melman

How the Military Economy Works: The System


Neither Capitalism nor Socialism, pp. 295–312.
From The Permanent War Economy, 1974.


STATE CAPITALISM is a business economy whose top directorate is located in government. The state-capitalist part dominates the entire economy even though private business may still operate within it. [A] With respect to decision-making on production, the enterprises and the top management of state capitalism retain the essential characteristics of private-business capitalism. These features include separation of decision-making from producing; income linked to decision-making role; organization of decision-making on a hierarchical basis; a professional-occupational imperative among the decision-makers to extend their decision power individually and in competition with other management groups. These features continue under state capitalism even as the forms of control are different from private-business capitalism. [1] In the classic business economy, the chiefs of the larger industrial and financial units usually had substantial political influence. In state capitalism the chiefs of the economy are also the political chiefs of government. Hence, state capitalism joins peak political and economic decision power. This is visible in the mainly civilian-oriented state capitalism of Western Europe and Japan. In the United States and in the U.S.S.R., with their permanent war economies, military power is added to this concentration.

At the enterprise level, state capitalism involves substantial changes for the management of individual firms. Typically, the management of an enterprise cannot be autonomous as under private capitalism, where a business may be small but still independent, controlled by its managers or manager-owners. Owing to the location of the chiefs of state capitalism in government, political considerations are introduced into the relationships among local-enterprise managers. In dealing with higher authority they do not confront senior managers, as in private capitalism, but top managers who also wield political power.

Since the top management of state capitalism spans the whole economy in its sphere of control, its enterprise planning takes the effective form of national planning, even affecting enterprises that may be privately owned and controlled. At once this opens up opportunities for stability for the individual state-capitalist enterprise insofar as it is relieved of at least a part of the uncertainties stemming from dependence on unpredictable market behaviors. Thus a state-capitalist top management can, if it so wishes, guarantee the market for its subordinate firms. This is notably the case under the military form of state capitalism, where the government is the only legal purchaser of the product.

However, instability (as in unresolved class and race antagonisms, prices, production levels and relative value of national currency) remains a feature of state capitalism. The sustained competition for extension of managerial control among the sub-managers, competition among the state managers of nations with state-capitalist economies, and the effects of the parasitic qualities of military economy all contribute to instability.

Under both private and state capitalism, access to capital is a crucial consideration. The state-capitalist enterprise manager (civilian-oriented) must compete for his share of capital by political-economic methods. The position is changed for the state-capitalist enterprise manager in military economy. He is assured of priority in capital allocation, since the military economy is given first place in the attention of government decision-makers.

In place of the self-correcting mechanisms of private capitalism, state-capitalist economy, especially in its military form, is more typically regulated by a system of subsidies. Such payments from government appear under private capitalism when government moves in to regulate parts of the economy. But subsidy systems flourish to their fullest under state capitalism, where the chiefs of the economy use their political decision power to enforce their economic priorities. Subsidies appear in civilian-oriented state capitalism, but they take on special characteristics where military economy is the priority state activity. In the latter case the subsidy is rendered on behalf of economically parasitic activity, thereby yielding no economic return to the society for the subsidy grant.

In the Marxist school of economics in particular, attention has been focused on inequality of income under capitalism, associated with occupational (class) position. From this standpoint, military economy introduces a new factor: relatively higher pay, job for job, in the military economy encourages loyalty to that system, thus blurring class and other interest-group conflicts. Thereby, state capitalism, in its military form, cuts through conflict of class versus class and introduces income inequality based upon type of industry and even geographical location, rather than upon occupation. Classic conditions of exploitation are thus revised in accordance with the military priorities of the state-capitalist rulers.

The military economy is more than a collection of enterprises and assorted research organizations that maximize costs and subsidies. On a macroeconomic or system level it is the core of a specifically American form of state capitalism.

The idea of the military economy as an economic subsystem within the larger economy is no theoretical abstraction, for that economy has been made into a deliberately managed industrial system. In Pentagon Capitalism (1970) I showed that there is a formal managerial organization, with detailed procedures for decision-making and for controlling the military-industrial and allied system. Further evidence on the system level of economic planning by the Pentagon comes from studies of the pattern of contract allocations, their location and their timing. For more than a decade military contracts have been awarded among major firms so that levels of activity could be sustained. As the work on one project was phasing out, a fresh contract was allocated to start a phasing-in process. [2] No pattern of this sort could endure over an extended period simply by chance or as the outcome of free-wheeling competition for the new money grants. The whole mode of operation has the characteristics of a production control system, unusual only for the large scale of operations.

As an entity the military economy has unique characteristics which affect the surrounding economy and society. A set of key characteristics is summarized here, without pretending completeness, in order to portray the range of consequences from the system as a whole. These are in four parts: first, aspects of the parasitic quality of military economy and its extension-of-control dynamic; second, the expansionist propensity of the managers of military economy; third, major impact on the civilian economy; fourth, the dominance of the military over the civilian economy in America’s state capitalism.

The Parasitic Nature of Military Economy

The gross national product is composed of productive and parasitic growth. As usually measured and presented, GNP includes all of the money-valued output of goods and services – without differentiation in terms of major functional effect. To appreciate the nature and effects of a permanent war economy, a functional differentiation is essential. Productive growth means goods and services that either are part of the level of living or can be used for further production of whatever kind. Hence, they are by these tests economically useful. [B] Parasitic growth includes goods and services that are not economically useful either for the level of living or for further production.

Military goods and services are economically parasitic. This differentiation is fundamental. When it is applied it is possible to perceive and diagnose a series of consequences that flow from military economy. In the absence of the differentiation between productive and parasitic growth, the activity of military economy appears as simply an extension or a part of the ordinary civilian economy. All money income, regardless of source, is then treated as contribution to wealth.

For most Americans, effects attributable to parasitic economic growth are not apparent. Such differentiations are virtually non-existent in textbooks of economics. Accordingly, the generations of Americans who have been instructed via the usual economics texts and courses are not equipped to see a part of the economy as parasitic. Instead, their appreciation of economy is dominated by theories about competitive market relations, the allocation of incomes, and the role of government as a regulator of economy.

In a permanent war economy whole industries and regions that specialize in military economy are placed in a parasitic economic relationship to the civilian economy, from which they take their sustenance and to which they contribute (economically) little or nothing. This results in the operation of a system of “internal imperialism” among the states of the Union. This phenomenon shows up in the relation of federal tax payments by the individuals and businesses of a particular state to federal expenditures in particular states.

For example, in New York State from 1965 to 1967, $7.458 billion was paid out in taxes to the federal government in excess of the federal expenditures in New York State. Similar relationships, though in lesser amounts, showed up for New Jersey, Pennsylvania, Illinois and Michigan. On the other hand, certain states enjoyed large net gains. During the same period, California received more than $2 billion yearly in expenditures from the federal government in excess of the total tax payments made from that state. Texas received $1 billion annually in excess of taxes paid out, and Virginia received $1.3 billion each year more than its tax payments. [3] Similar exploitative relations contribute to the industrial and general community deterioration in, for example, older New England and Midwestern civilian-industry areas as against the locales of military-industry concentration with their abundant evidence of good living and flashy “high-technology” work places.

The economic significance of parasitic economic growth is often rendered obscure by the apparently small magnitude of some of the spending involved. Money spent on military research and development reflects economically parasitic activity, but research and development costs are rarely a major item of expense in manufacturing industry. On the average, U.S. manufacturing firms spend about 3 or 4 percent of their net sales dollars for these purposes. In the nation’s gross national product about one and a half percent has been spent on military research. But the significance of this activity cannot be measured by its proportionately small cost. Thus, when research and development is not properly done on behalf of civilian industry, results like poor product design or poor production methods can have disastrous effects on the economic position of the industry. When as little as one and a half percent of U.S. national product is diverted to military research it seems little enough, but that accounts for more than half of the national research and development effort and has left many U.S. civilian-products industries at a competitive disadvantage due to faltering product designs and insufficient improvement in industrial-production efficiency.

The Propensity to Expand

A second basic feature of state capitalism is the relentless thrust for enlargement of decision power that is normal to management. Under state capitalism this conventional occupational imperative is given unprecedented capability in terms of the resources that can be applied to these goals. In turn, the state managers have enlarged their goals in keeping with their ability to draw larger resources from the national income for their purposes. By 1965 the state management of the Pentagon actually advertised for advice on how to “maintain world hegemony.”

The Army Research Office announced a public request for bids for a wide-ranging study on methods of achieving a Pax Americana. Here is the exact announcement as it appeared in the U.S. Department of Commerce Daily Bulletin asking for bids for government work:

Service and materials to perform a research study entitled “PAX AMERICANA” consisting of a phased study of the following: (a) elements of National Power; (b) ability of selected nations to apply the elements of National Power; (c) a variety of world power configurations to be used as a basis for the U.S. to maintain world hegemony in the future. Quotations and applicable specifications will be available upon request at the Army Research Office, 3845 Columbia Pike, Arlington, Va., until 1 May 1965. [4]

With goals of such dimensions, we may begin to understand why there has been a sustained growth of the budgets of the Department of Defense throughout the 1960s and even the further planned growth from 1973 through 1980.

The military-industry system operates under the assumption that indefinitely large capital funds are available for the military and related plans of the state management. In this understanding the state management is strongly supported by key members of Congress, as, for example, by Congressman F. Edward Hebert. (Democrat, Louisiana), chairman of the House Armed Services Committee. Said Congressman Hebert in 1972, “I intend to build the strongest military we can get. Money’s no question.’ [5]

As the military economy endured, its enterprises looked like reasonable investment opportunities. With the enlargement of assets, private and government-provided, these, in turn, became part of the scope of decision-making to be conserved by the Pentagon’s top managers. [C]

In 1964, Senator George McGovern and thirty other members of the Senate, paralleled by similar efforts in the House, offered legislation for setting up a National Economic Conversion Commission. The bills were killed by decisive pressure from the White House and senior officers of the Pentagon. [6] Thereby, these men saw to it that there was no ordered capability in the United States for moving from a military economy to a civilian economy. Job dependence on the Pentagon was maintained. The Council of Economic Advisers in 1969 defined an agenda of productive economic replacements for military spending (which I will discuss in Chapter Eight). Its work was ignored and never followed up. The military-industry firms and the state management that directs them have avoided or opposed steps to prepare for a peace economy, apparently on the assumption that to do that would remove a major justification for the continued high level of military budgets.

The Impact on Civilian Economy

The economic consequences of a permanent war economy for the host society are a compound of civilian goods and services forgone and major damage inflicted on the economically productive economy. The full cost to a society of parasitic economic growth exceeds the money value of the materials, man-hours and machinery used up for military products. Equivalent inputs turned to economically productive uses yield their direct output many times over. Beyond that, the outputs include improvements in the quality of labor and capital.

The operation of a permanent war economy entails a large cost for American society, measured in terms of what has been forgone in order to build and operate an immense military system. From 1946 to 1975 the combined budgets of the Department of Defense were more than $1,500 billion. This exceeds the value of all commercial and residential structures in the United States. [7] Thus by putting this much effort into the military system what was forgone was an opportunity to reconstruct physically whatever has gone into disrepair in America’s towns and cities. Here is another view of opportunity forgone: I once estimated that $22 billion a year would spur economic development – worldwide; about a third of America’s military economy bill for 1946-75 would have funded such a worldwide effort for twenty years. [8]

Calculating the cost of the Vietnam War to the U.S. economy will doubtless engage the attention of economists and others for many years. For a start, Tom Riddell estimates the cost at $676 billion, including not only the direct military outlays but also the military assistance to client governments, interest on national debt and payments for veterans which will endure for a long time. [9]

How have the U.S. military outlays actually affected other kinds of spending within the American economy? After all, the same dollar can’t be spent on different things at the same time. What exactly have we not purchased by buying a permanent war economy?

Professor Bruce Russett at Yale has researched this problem by means of statistical analyses of the main parts of the U.S. national-income accounts. These data, appropriately diagnosed, can answer the question: For each dollar spent on the military, what did we buy less of? Russett has shown that, on the average, over the period 1939–68 each U.S. dollar spent for military purposes was associated with $.163 less expenditure for durable consumer goods, $.110 less for producers’ durable goods, and $.114 less for homes – among other decreases. [10] “Guns” take away from “butter” even in the United States, with a gross national product valued annually at over $1,000 billion.

Actual U.S. investments in machinery and non-residential buildings was $1,481 billion from 1946 to 1973. At the same time, because of heavy military spending, the U.S. economy missed out on major new capital investment. The value of the production equipment and buildings that were forgone in U.S. economy from 1946 to 1973 because of military spending was at least $660 billion, or 45 percent as much as was actually invested. If one includes a further allowance for a compounding effect in such calculations – i.e., machines producing other machines in addition to final products – then the total capital outlays forgone in the United States from 1946 to 1973 because of the pre-emption of capital for the military exceeds $1,900 billion, or 135 percent of actual investment. However conservative the mode of estimation, one result is clear: the relatively poor condition of plant and equipment in many U.S. industries is no mystery. U.S. policy traded off renewal of the main productive assets of the economy for the operation of the military system. [11]

Ordinarily a civilian economy can look forward to making substantial advances in its total productivity because of the gains that can be made in the efficiency of machinery and in the efficiency of labor. Thus as new machinery is designed and used in production there is more output per unit of labor time, and very often even more output per unit of capital invested. The increments of additional output per unit of capital continue as long as the new machinery is used. However, if new machinery, however efficient, is installed for producing military materiel, then what emerges is military materiel which no factory can use for any further production. The result is that the normally available addition to production capability which stems from installing new production equipment is forgone for the whole society. That is also the reason why investment in military industry, while adding to the flow of money, does not serve as a competent offset to declining investment in new productive machinery.

Similar reasoning applies to the productivity of labor. Economists have been giving increasing attention to improvement in the quality of “human capital,” meaning especially the better work capability that is the consequence of good physical and intellectual upbringing. For individuals, that capability leads to improvement in real income. The same is true for societies. The cost of education to the individual or to the community can be viewed as an “investment” that yields a net return to the individual and the community in the form of increases in actual earnings, due to a greater work capability. Such an annual increase can be calculated as a percent of the “investment” to show an estimated “rate of return.” Thus high-school education has been associated with yearly improvements in earnings that amount to 28 percent of the cost of the education. For college graduates the average gain in earnings has been at the rate of 15 percent yearly on their educational “investment.” [12]

When the investment in fresh educational competence, at whatever level, is subsequently applied to non-productive economic activity, then the community loses the potential economic gain from human competence that ordinarily accrues to it when that capability is applied to productive work.

A second major form of impact of the military on the civilian economy is a process of industrial deterioration that generates uninvestable capital and unemployable labor. An unprecedented phenomenon has appeared in the United States: the formation of a large network of depleted industries and a flight of capital from the country. (Chapter Four will give details on “depleted” industries: those that have lost capability for serving all or part of their domestic markets and have been replaced by foreign producers because of a combination of technical, managerial and economic deterioration.)

Many theorists of capitalist economy, especially those in the Marxist tradition, have sought to explain recurring problems of capitalism as a result of the tendency of a business-based economy to generate surpluses of capital and surpluses of labor. Uninvestable capital and unemployable labor were certainly fundamental features of what happened in the United States during the Great Depression, 1929–39. The World War II economy soaked up surpluses of capital and of labor. In the chapters that follow, I will provide evidence to demonstrate that the U.S. permanent war economy, through depletion of industry and the flight of capital, has been a prime generator of uninvestable capital and a prime generator of unemployable labor.

The sustained normal operation of a large cost- and subsidy-maximizing economic system produces a major unintended effect in the transfer of inefficiency into the civilian economy. Insofar as the cost-maximizing style of operation is carried with them by managers, engineers or workers as they move individually from military to civilian employment, the civilian economy becomes infected with the standards and practices that these men and women learned in the military sphere. For civilian industry, the introduction of such practices is definitely counterproductive. To be sure, this need not apply to all individuals in the same degree. But to the extent that professional-occupational patterns are transferred, the transfer of inefficiency is “impersonal” – i.e., it operates independently of particular features of individual personality.

The U.S. civilian economy has also suffered from domestic inflation and a decline in the value of the dollar – both effects strongly impelled by the permanent war economy, and accelerated by the disastrous war in Vietnam.

In 1950 the Treasury of the United States had $24 billion in gold reserve. [13] This declined to $9–10 billion by 1973. This dissipation of the U.S. gold reserve has been due substantially to a massive net accumulation of dollars in the hands of foreigners as a consequence of foreign military spending by the U.S. government. With large military forces overseas since the end of World War II, U.S. bases in thirty countries, and fighting the Korean and Vietnam Wars, U.S, armed forces have spent dollars heavily abroad. Dollars were accepted in payment for goods and services rendered and the relative value of the dollar was maintained until 1971, when the dollar holdings abroad exceeded three times the U.S. Treasury’s gold reserve. Around the world doubts arose about the Treasury’s ability to redeem these dollars in gold. The unreadiness of foreigners to buy American goods at existing market prices combined with the glut of dollars to generate a crisis in the value of the U.S. currency, culminating in the financial debacle of August 15, 1971. The U.S. government suspended redemption of dollars held abroad for gold, and the relative value of the dollar dropped. The full financial and political consequences of this process have yet to be seen. Economically parasitic output contributes to price inflation. While price inflation has diverse causes, there is no escaping the fact that war-making in the United States since 1945 has occasioned sharp price increases. This was especially true for the period 1965–73. Having the ideological consensus faith that the U.S. economy is indefinitely productive and able to turn out guns and butter as desired, the Johnson administration proceeded to heat up the war in Indochina. But there was no “reserve army” of unemployed and underemployed skilled workers around as in 1939, so the swift pile-up of war-serving economic demands from 1965 on fueled a fast price inflation.

After all, parasitic economic growth involves payment for work whose product immediately leaves the marketplace. The materials, power and equipment that are used up for making military products, and the goods consumed by the military-industry labor force must be supplied by the civilian labor force, which receives nothing that is economically productive from the military economy. This is not to say that harsh political control measures might not restrain such a process; but that would imply a rather more controlled society than has been acceptable to Americans. Significantly, the military economy suffers little or no hardship from inflation or decline in the relative value of the dollar. For the military top management receives a fresh levy of capital each year as a proportion of the national income. Rising prices at home or abroad have not deterred maintenance or enlargement of the military economy.

The Dominance of the Military Economy over the Civilian

How important is the state-capitalist controlled military economy in relation to the traditional civilian economy? Which economy in the United States is the more powerful one? I propose three tests of importance:

  1. control over capital;
  2. control over research and development; and
  3. control over means of production of new technical personnel.

The name of the economy is capitalism, and control of capital is a decisive feature of the system. Capital, in conventional usage, means the accumulated funds of a size that makes them useful for investing purposes. Thereby a million dollars is not only a million times greater than one dollar; for the latter can be used primarily to get consumer goods, while the former can be used to buy machinery and buildings and to engage workers to do the bidding of a management. It is therefore vital to know what is the relative position of the managers of the state-capitalist military economy as controllers of capital, as against the private economy. Profits retained by corporations and the sums set aside for capital consumption (machinery and buildings “used up”) are a measure of the fresh capital available to private U.S. management for investment. In 1939, for every dollar of this private corporate capital, the War and Navy Departments received thirty-five cents from the federal government. By 1971, for every dollar of this private corporate capital the budget of the Department of Defense alone received $1.06. That means that by 1971 the government-based managers of the U.S. military system had superseded the private firms of the American economy in control over capital. [14]

The main military department of the federal government could deploy for its purposes more than the maximum capital fund that remained ( after tax levies ) for the managers of all U.S. industrial and commercial corporations. That the federal government as a whole, not to say one section of it, should have such economic power reflects a substantial change in the institutional location of economic decision power, from the private corporation to the federal government’s state management.

Americans who have been critical of concentration of economic power have focused on the corporate giants of U.S. industry. The new state-capitalist power, however, dwarfing the big firms in physical assets and scale of operations, was erected and sustained in the name of defense, and has been bolstered by an ideological consensus that strongly justifies its operation as a fine pillar of the economy. However, no Presidential budget message – from Truman to Nixon – ever declared the desirability of making the federal government into the top management of a state-capitalist economy. People would be dismayed at the very idea.

The second criterion is control over research and development. Its importance is indicated by the fact that this function determines control over new technology for products, materials and production methods. This is a key element in the operation of any technology-dependent society. In this respect the dominance of the federal government and of its military agencies has been over whelming. More than half of the research and development brains of the United States has been applied to military and related research activities during the decades 1950–70. The military and related agencies of the federal government have accounted for 80 percent of the federally sponsored research money, which has dominated the field. [15]

The third criterion is control over means of production of new technical talent. During the 1950s and 1960s the federal government and its military-serving agencies in particular played a dominant part in enlarging funds for research and for graduate-student support and in opening up new job opportunities for young engineers and scientists. One of the main effects of these initiatives was to induce the deans and faculties of American engineering schools to revise their curricula and research orientations to emphasize knowledge and training best capable of servicing the expanding requirement of the new military economy. Owing to the new emphasis on where the action was (money, jobs), there was a relative de-emphasis of manpower, attention and money in the universities and technical schools from training men and women for civilian-industry technologies. “Sophisticated technology,” the code word for military-sponsored work, became the obvious center of attention for bright young people who were set on “making it” in the universities and the “non-profit” think tanks that were speedily established in response to the money proferred from the Pentagon. In the engineering schools of the country the period 1950–70 saw the flowering of “engineering science,” with highest prestige accorded to no-application, pure research, flashy new facilities and lots of support for graduate students, especially in fields like electronics – with direct or indirect military or space-agency interest. At the same time, curricula and technical research in classic fields of civilian-engineering responsibility, like power engineering, were accorded lesser priorities. [D] By these tests of decision power the new state-capitalist economy has become the dominant one as against the private-capitalist economy in the United States. I do not imply that the corporate managements of private capitalism have withdrawn from the scene or have ceased to utilize their position to affect government policies that are favorable to their interests. However, the new condition of economy and society means that the chiefs of the state-capitalist economy dominate the scene and utilize their peak authority over economy, politics and the military to direct domestic and foreign policy to their purposes. This has introduced new capability for system-wide policy flexibility, made visible by the moves toward detente with the U.S.S.R. and China, coupled with impressive budget increases for the military core of the state-capitalist economy at home. This ability to maneuver at will nevertheless does not denote indefinite policy rationality and control. For the successes of state capitalism, in its own terms, bring about a range of effects, mainly unintended, that are crisis-producing in the wider economy and society.



A. Various writers refer to “mixed economy” as one that is only partly state capitalist, by various criteria – like percent of GNP coming from the “public sector.” Rather than using taxonomic categories of “private” and “public sector” to differentiate economies, I prefer to focus on functional features of which mode of decision-making on production is central.

B. There are, of course, other kinds of usefulness: political, esthetic, military, religious. Here we are interested primarily in economic usefulness. Thus, the absence of economic usefulness does not preclude other effects.

C. At the same time the employees and communities involved in the military economy became, for obvious self-interest, protagonists of the larger policies that sustained a permanent war economy. When Ernest Fitzgerald appeared at the gate of an aerospace firm in California for a meeting on the war in Vietnam, supporters of the war policy distributed lapel stickers with the motto “Don’t Knock the War that Feeds You.”

D. In universities, commitments to programs and to faculty, once made, can be long-enduring. I therefore remember the comment of a senior electronics engineer, saying that during the 1950s and 1960s those who went into power engineering were “the dregs” of the profession. With this “I’m all right, Jack” outlook, this man’s main concern was to justify the priority accorded his brand of work, and never mind these awkward problems about energy supply and utilization. By implication such problems can be left to “the dregs.” In a similar vein a bright undergraduate in a leading engineering school assured me that there was little point in his school’s curriculum being cluttered up with instruction bearing on how things are made, since the school was not really interested in training engineers so much as in training “leaders.”



1. Many theorists of capitalism have characterized it as consisting essentially of a system of markets, of exchange relations. This is the recurring theme of the main-line literature of economics, from textbooks to scholarly journals. But wherever there is division of labor there must be exchanges of products for life to continue. It is scientifically useless to imply that capitalism corresponds to any economy that includes division of labor and necessarily associated exchange relations. For there is division of labor and exchange in feudalism and in the economics of primitive societies, and in non-managerial democratically controlled economy. See M. Herskovits, Economic Life of Primitive Peoples, New York 1940.

2. J.R. Kurth, The Political Economy of Weapons Procurement: The Follow-on Imperative, American Economic Review, May 1972.

3. J.R. Anderson, The Balance of Military Payments among States and Regions, in S. Melman, ed., The War Economy of the United States, St. Martin’s Press, 1971, Chapter 17.

4. Cited in I.F. Stone’s Weekly, May 10, 1965.

5. Article by Jack McWethy, Washington Post, March 26, 1972.

6. National Economic Conversion Commission, hearings before the Senate Committee on Commerce, 88th Congress, 2nd Session, on S. 2274, May 25, June 22, 1964.

7. U.S. Bureau of the Census, Statistical Abstract of the United States, 1973, p. 337.

8. S. Melman, The Peace Race, Ballantine Books, Braziller, 1962, Chapter 8. Melman, Our Depleted Society, Holt, Rinehart & Winston and Dell Books, 1965, Chapter 7.

9. T. Riddell, The $676 Billion Quagmire, The Progressive, October 1973.

10. B.M. Russett, What Price Vigilance?, Yale 1970, Chapter 5.

“In this volume I do not attempt a full assessment of the direct cost of military operations to the American economy. It would probably require a reckoning of at least three elements as a first approximation: the direct budgets; the economic use values forgone; and the capital productivity forgone. The first is the sum of Department of Defense budgets 1946–75, about $1,500 billion. The second is the money worth of the economic use-values that were forgone because the $1,500 billion was used for non-economic purposes. (Note that this is not the same as the opportunity cost concept, since the trade-off here is not between the use of a set of inputs for one or another economic output. In the case of the military application of a set of inputs there is no economic use value that emerges at all. There are military or political use values. But that is not the same thing. Hence there is a social cost in the absence of the ordinarily present economic use values. This is an issue in value theory that deserves further attention.) Third, there is the estimated capital productivity gain forgone. Altogether, these would add up to more than $3,600 billion, an immense social cost, exceeding in magnitude the national wealth of the United States. (See U.S. Department of Commerce, Statistical Abstract of the U.S., 1973, p. 337)”

11. The regression coefficients of the effects of U.S. military spending on civilian activities are given in B. Russett, op. cit., p. 140. These factors for producers’ durable equipment and non-residential structures, p. 178, plus an allowance of 25 percent as marginal productivity of capital in the U.S. (Russett, p. 144) were applied to actual U.S. military expenditures, 1946–73 (The Budget of the U.S. Government, 1974, and other years). The estimated total capital-goods output forgone as a result of the military spending of a given year was, therefore, military outlay × .178 × .25 × number of years to 1973. The sum of effects for each year from 1946 to 1973 is $661.19 billion. When allowance is further made for a compounding effect, reinvesting of 25 percent of new capital outputs, then the estimated sum of these effects from 1946 to 1973 is $1,992.7 billion. These estimates are compared with actual producers’ fixed investment in the U.S. (U.S. Department of Commerce, Survey of Current Business, March 1973; Business Statistics, 1971) 1946–73, which totaled $532.6 billions of non-residential structures, $948.6 billion of producers’ durable equipment.

12. See discussion and bibliography in U.S. National Commission on Productivity, Education and Productivity, by T.W. Schultz, Washington, D.C., June 1971.

13. For early discussion of these developments see T. McCarthy, The Garrison Economy, Columbia Forum, September 1967; also S. Melman, Our Depleted Society, Holt, Rinehart & Winston and Dell Books, 1965, Chapter 7.

14. “Undistributed profits (after inventory valuation adjustment) and capital consumption allowances” define the internal sources of funds for U.S. “non-farm, non-financial corporate business” for 1971 (Board of Governors of the Federal Reserve System, in Economic Report of the President, 1973, Washington, D.C., 1973, p. 282). Equivalent 1939 data from U.S. Bureau of the Census, Statistical Abstract of the United States, 1942, Washington, D.C. 1942, pp. 224ff. U.S. military spending, 1939 and 1971, from Economic Report of the President, 1973, p. 193. Since the data for capital available to private corporate management includes the funds of nominally private military-industry firms, the 1971 ratio of military funds to private capital is understated.

15. See William M. Magruder, Technology and the Professional Societies, Mechanical Engineering, September 1972.

Last updated on 8 November 2020