Reassessing the permanent arms economy

Issue: 127

Gonzalo Pozo

In his 1938 Transitional Programme (entitled “The Death Agony of Capitalism and the Tasks of the Fourth International”), Leon Trotsky had predicted an imminent collapse of the Soviet Union and an equally imminent crisis of Western capitalism. However, the world landscape after the war was fundamentally different, if not diametrically opposed to the one anticipated by Trotsky. From 1950 Western capitalism entered the longest and most buoyant period of economic expansion in its entire history for two decades: “High employment, fast economic growth and stability are considered normal,” wrote Michael Kidron in 1970; the system as a whole had been working “twice as fast between 1950 and 1964 as between 1913 and 1950”.1

The US economy tripled in size between 1940 and 1970; West Germany’s gross domestic product (GDP) had quintupled between 1950 and 1970, and France’s economy grew four times larger in the same period. “Even the miserable, long-declining British economy was producing about twice as much” by the end of the 1960s compared to 1940.2 And while the “good” times rolled in the West, the Soviet Union not only stubbornly refused to disappear but actually expanded and consolidated its grip on Eastern Europe after the destruction of Nazi Germany.

Trotskyism, already bedevilled politically by the organisational and political inadequacies of the Fourth International, was left in theoretical disarray.3 Beyond Trotskyism, the post-war resurgence of capitalism convinced many on the left that a combination of liberal democracy (which could provide the working class with an ability to influence the state) and Keynesian policies (based on the state’s ability to boost aggregate demand, create employment and fend off the spectre of recessions) would be able to create an exit from the boom and bust swings of the business cycle, thus ushering in a new and sustainable period of prosperity.

In the early 1970s, and particularly after 1973, the boom came to a sharp halt, breaking open a deep international crisis characterised by the simultaneous blight of high inflation and high unemployment (so-called stagflation). Those who had tied their colours to the mast of Keynesianism, and who by the late 1960s had come to be part of a dominant consensus in economic theory and policy, were left out in the cold. Similarly, most Marxists found themselves caught between the rock of the unexplained boom and the hard place of the unexpected slump. The length and timing of both events had squarely defied their analysis and expectations.

For many of those on the left who had originally denied the importance of the boom it was better to be late (by about a quarter of a century) than wrong. Perhaps, they wondered, the crisis of the 1970s meant that Trotsky had been right all along? This was the position adopted by Ernest Mandel, for example, who had argued in 1979 that Trotsky’s error was in the timing of his prediction, rather than in its logic.4 But however tempting it might have been to cling to the solace offered by this intellectual somersault, in the end, as Chris Harman put it:

it was not all that easy merely to accept that Marx’s theory of crisis had always been correct when everyone knew it had not explained the real world for 30 years, even if it suddenly did now.5

The twin predicament of orthodox Trotskyists and left-Keynesians highlighted a failure of theory: without a substantive explanation of the post-war boom, there was no clear explanation of the crisis and no analytical guide for any hue of socialism.

Apart from unprecedented levels of GDP growth and negligible levels of unemployment, Western capitalism after the Second World War had two further characteristics of considerable historical novelty. The first was the increasing role of the state in the economy; the second was the enormous level of arms spending, the highest ever seen in peacetime. The main European powers had waited a little over a decade after the First World War before they had begun rearming. Arms spending began to increase particularly sharply after Hitler’s rise to power in 1933, driving some of the world’s major economies in a frenzied ride “from slump to war”.6 This time round, though, the aggressive nature of fascism and the technological developments in industry, communication and transport since the First World War would greatly accelerate the descent into armageddon.7 But following the Second World War levels of military spending (which had dipped in the years immediately after 1945) shot up around 1950 and remained high into the 1970s. In the US, where the increase was sharpest, the military burden hovered around 9 percent in the entire period ranging from 1950 to 1970.8 In the UK and France it had increased from 5.1 percent and 5.5 percent respectively to 6.5 percent.9 An adequate analysis of post-war capitalism would have to incorporate an account of these elements too.

During the late 1940s and early 1950s a few Marxist authors had sought to analyse what seemed to most non-Marxists the simple fact that capitalism was growing quickly and relatively stably over a long period. In particular, the US Trotskyist Ed Sard and Tony Cliff in Britain shared a similar concern. Despite important differences in the content and scope of their accounts, both sought to articulate a working economic analysis of post-war capitalism which would be firmly rooted in Marxist political economy. This project would also be in a position to avoid the Keynesian departures just mentioned (and with them the illusion that capitalism could be soundly managed and made stable and sustainable indefinitely). Finally, such a project should be the result of an honest dialogue with the historical events that were transforming the system during the Cold War, and would thus be able to avoid the scholasticism of those whose analysis of capitalism dogmatically rested on either its march to “imminent breakdown”, or the breakthrough of a “permanent prosperity”.

This lineage was the basis for what would develop in the 1960s as the theory of the permanent arms economy, which, along with Cliff’s theories of state capitalism and deflected permanent revolution, has constituted one of the central tenets of the political tradition of this journal ever since. The first aim of what follows is to look at the formation of the theory by charting its family tree, an approach which is especially pertinent since the permanent arms economy is the one key contribution of the International Socialist (IS) tradition which did not originate with Tony Cliff. As we shall see, what the International Socialists (predecessors of the Socialist Workers Party) developed into a systematic Marxist understanding of the arms economy had been a number of insights evolved through a long, implicit dialogue with Keynesianism and underconsumptionist theories of post-war capitalism.

Military Keynesianism

Following the publication of Keynes’s General Theory of Employment, Interest and Money in 1936, and very especially after the outbreak of war in 1939, Keynesian policies had begun to receive widespread attention. The Second World War itself seemed to have provided the best confirmation of the advantages of economic interventionism, and of the use of public expenditure as a means to ensure growth and high levels of employment. It was really during the war that Keynes had got the attention of state managers in treasuries and ministries. Keynes himself noted the short-term economic benefits of military expenditures, but considered them unproductive in the long run, since they would divert factors of production and fulfil no socially useful role (apart, of course, from defence itself). As he lamented, “It is, it seems, politically impossible for a capitalist democracy to organise expenditures on the scale necessary to make the grand experiments which would prove my case—except in war conditions”.10

The use of arms spending, which came to be viewed as a panacea against stagnation, represented a corruption of Keynesian economics, blurring his original distinction between better or worse uses of demand management when deployed by secretaries of defence. As Michal Kalecki, a prominent left-Keynesian, had been observing since the mid-1930s, the rise of arms spending had the added virtue of acting on aggregate demand in an economic sphere where the state would not compete with private capital.11 Moreover, given the immediate advantages of military spending, such as the ease with which resources could be allocated to defence relative to other kinds of budget, it began to be assumed that there was a direct line between militarism and Keynesian effective demand. This misappropriation led Cambridge political economist Joan Robinson to speak of military Keynesianism as the worst brand of “bastard Keynesianism”: “It was the so-called Keynesians who persuaded successive presidents that there is no harm in a budget deficit and left the military-industrial complex to take advantage of it. So it has come that Keynes’s pleasant daydream was turned into a nightmare of terror”.12

Keynesianism also began to influence Marxist analyses of post-war capitalism. Even before the war, in 1939, the Hungarian economist Eugen Varga had written Two Systems: Capitalism and Socialist Economy, a book which had taken up the economic problem of German rearmament. Varga was the head of the Moscow Institute of World Economy and was accepted to the Soviet Academy of Sciences in 1939. He pointed at the salutary effects of militarism in Germany (also noted by Kalecki), where aggregate demand had grown to a point at which unemployment had been all but “liquidated”.13

A similar combination of Keynesian and Marxist preoccupations appears in Paul Sweezy’s remarks on the arms economy in his The Theory of Capitalist Development (1942). Without any explicit commentary on historical events around him, the founder of the influential US Marxist journal Monthly Review briefly considered the three consequences of militarism’s rise “to a position of permanent and steadily growing importance”.14 The first element he highlighted was the rise of a class of “favoured monopolists in those industries, like steel and shipbuilding, which are most important to the production of armaments”. The particular relation between these big conglomerates and the state (the notion of monopoly capitalism) meant that militarism benefited monopoly capitalists by securing large orders for them and providing them with lucrative outlets in which to reinvest their enormous profits.15 The second important consequence of military Keynesianism was its capacity to offset the capitalist system’s tendency towards underconsumption (the system’s tendency to produce more value that could be realised by the market). Military Keynesianism made this possible because arms spending was, in Sweezy’s analysis, no different to any other kind of consumption
expenditure.16 The third important element was that arms expenditure benefited the capitalist class as a whole, since through it the state was able to create demand (and open markets) where previously there had been nothing.17

Sweezy’s original arguments were refined and taken forward in a series of essays co-authored with his friend and collaborator Paul Baran in 1966 (entitled Monopoly Capital). Baran was also directly influenced by Keynesian economics. In fact, one of the key concepts in Monopoly Capital, the “aggregate economic surplus” (which is the difference between the value of what a society produces and the cost of producing it) was closer theoretically to standard macroeconomic indicators than to surplus value as understood by Marx.18 Their main argument was that big businesses and large corporations had come to dominate Western capitalism since the 1870s.19

On account of their particular internal structure (primarily their size and the reduced competition they faced in the market), these economic units could successfully continue to push for lower production costs while keeping the market prices of their goods relatively high. As a result, monopoly capitalism had a tendency to produce a high level of aggregate surplus, which would rise faster than the economy would be able to absorb through normal consumption or investment. How could economies deal with the growing threat of underconsumption? One possibility was advertising (the “sales effort”, as they called it), and a second was state spending through general welfare provision. But for Baran and Sweezy, the most important outlet for aggregate surplus was military spending, since the retrograde political ideology of corporations made militarism, rather than social projects, the choice of preference.20

Through the theory of monopoly capital, Baran and Sweezy were able to provide a Marxist explanation of something which was by this stage universally acknowledged—that without military expenditures the US economy would have easily slipped back into the recession of the 1930s. As they insisted, the US post-war economic boom was squarely down to high levels of weapons spending since the war: “The difference between the deep stagnation of the 1930s and the relative prosperity of the 1950s is fully accounted for by the vast military outlays of the 50s”.21

However, the interesting difference between professional Keynesian economists and policy makers, on the one hand, and Baran and Sweezy on the other, was that the latter did not believe in the “illusion that perpetual prosperity can be assured through the unlimited expansion of the arms budget”.22 First, monopoly capitalism, as in the classical theories of imperialism, contained the seeds of instability and international conflict. Secondly, as they pointed out, the military sector was becoming increasingly capital intensive over time, and this characteristic considerably diminished its potential benefits to employment. It is worth noting that Baran and Sweezy were not convinced that working class resistance was likely to impose a limit on the system they had described: if anything, the political end of monopoly capital might be the result of revolutionary ruptures in the periphery.23

Whatever its other virtues, the theoretical ambitions in Monopoly Capital contrasted somewhat with its relative lack of empirical substance. If Baran and Sweezy were correct, the logic of military Keynesianism dictated that the higher the degree of development in a capitalist economy, the greater the level of military spending as a portion of national income. A greater capacity to create aggregate surplus product would lead to a higher degree of underconsumption, and in turn this would have to be counteracted by larger levels of public and, in particular, arms spending. Further, the larger the extent of the arms economy, the greater the levels of growth and income per capita. Did this hold true empirically?

In the mid-1970s the economist Albert Szymanski set out to establish the validity of these claims, comparing per capita growth rates, employment rates and levels of public spending and military spending as a percentage of gross national product (GNP) from 18 economies and in the period between 1950-68.24 His results were mixed. In general, he could not find proof that higher income countries spent a larger proportion of their GNP in the arms economy (the key exceptions were the US, a high-income country with high military spending; and the UK, which had a disproportionate level of arms spending for its relatively low level of income).25

Secondly, Szymanski could not confirm Baran and Sweezy’s expectation that higher levels of defence spending yielded higher growth rates, although he did find that higher public spending generally accompanied higher rates of growth.26 These mixed results did not constitute a refutation of the general arguments in Monopoly Capital. Rather, Szymanski concluded, they meant that Baran and Sweezy had been wrong to mark out the arms economy as the main outlet for underconsumption.27 An important conclusion followed: “Monopoly capitalism is more flexible than Baran and Sweezy lead us to believe.” In other words, Baran and Sweezy had not been able to establish a necessary economic link between monopoly capitalism and arms spending, as opposed to higher levels of welfare spending.28

A second issue of heavy theoretical importance in Baran and Sweezy was the role of military expenditure as a solution to underconsumption and, therefore, stagnation and crisis. This should mean that the ruling class, or at least its most powerful and influential sections, understood and pursued the economic effects of military spending. If so, it should also be possible to show that the fluctuations in military spending responded more or less directly to fluctuations in the economy as a whole (with, say, increases in arms expenditure following falls in GDP or employment).

Both issues reappear in relation to the theory of the permanent arms economy as developed by Kidron and Harman, and so we will consider them further in that context. For now we turn to an alternative understanding of the link between arms spending and growth after the Second World War, and its lineage within British Trotskyism.

Ed Sard

Ed Sard was a member of the Workers Party and then of the Independent Socialist League, the organisations that supported Max Shachtman’s version of Trotskyism. At different stages (and behind different pseudonyms—Walter J Oakes, TN Vance) Sard had been analysing the effects of arms spending during and after the war.29 By 1951 he had amassed an impressive amount of data and theory dissecting the role played by the arms sector in American post-war capitalism. Sard’s “Permanent War Economy” (signed by TN Vance) appeared serialised in the US Trotskyist journal New International, and built its insights on an earlier piece of his (this time signed by Walter Oakes), published as early as 1944, and entitled “Toward a Permanent War Economy”.

These works in effect contain all the essential elements of the theory later expanded by Kidron in the 1960s, and especially Harman thereafter, and are as rich, original and witty as they are unknown.30 Sard had been the first to place the role of militarism squarely in the domain of rate of profit, arguing that the basic contradiction of capitalist accumulation expresses itself, a dilemma for the ruling class. Analysing capitalism meant resorting to the “fundamental Marxian concepts of the increasingly high organic composition of capital and the falling average rate of profit”.31

Marx argued in Capital, volume 3, that competition among capitals led them to increase their investment in means of production more rapidly than in labour power—a rise in the organic composition of capital. But since it is workers who create surplus value, the result was a tendency for the rate of profit to fall. The key problem for capitalism in general, and after the crisis of 1929 in particular, contended Sard, was finding a way to protect growing levels of accumulated surplus from unprofitable investment while stabilising the system and reducing unemployment.32 However:

The ruling class is impaled on the horns of a most deep serious dilemma [sic]: to allow these growing and mature accumulations to enter into economic circulation means to undermine the very foundations of existing society (in modern terms, depression); to reduce or eliminate these expanding accumulations of unpaid labour requires the ruling class or sections of it to commit hara-kiri… The latter solution is like asking capitalists to accept a 3 percent rate of profit, because if they make 6 or 10 percent they upset the apple cart and destroy the economic equilibrium. This is too perturbing a prospect; consequently, society as a whole must suffer the fate of economic disequilibrium unless the ruling class can bring its state to intervene in such a manner as to resolve this basic dilemma.33

State interventions of this kind, wrote Sard, were hardly new: for example, the Egyptians built pyramids.34 More recently Roosevelt had the New Deal, and Hitler his rearmament programme. Both were interventions by the state, financed by borrowing, which took “accumulated surplus labour for which there is no opportunity for profitable private investment”, consuming it in ways which created employment and stabilised the system, at least for a while.35 The big difference between the New Deal and Germany, however, was that rearmament programmes did not bring the state into direct competition with private firms for profitable investment opportunities in the civilian economy. Thus, Sard argued, despite the fact that the bourgeoisie needed state intervention, state intervention was only acceptable for capitalists when it concentrated on building up the arms sector. By disposing of excess surplus in this “socially acceptable” way, the state was acting on behalf of all the members of the ruling class. This was, for Sard, the distinguishing feature between a war economy and militarism in general: the former “exists whenever the government’s expenditures for war (or ‘national defence’) become a legitimate and significant end purpose of economic activity”.36

In his analysis of the US economy from 1939 to 1950, and through a wealth of official data on employment, profits, prices and taxes, Sard was able to show that the surplus value in the hands of private capitalists grew coinciding with rises in the rate of profit.37 The inevitable tendencies which Marx had outlined in Capital, in which the permanent quest for accumulation pushed the organic composition of capital up and the rate of profit down, meant that capitalist economies would stride towards class polarisation and unemployment. But for Sard, these tendencies had been eliminated by the permanent war economy, which represented, and this is crucial, a “new phase in capitalist development”:

The basic characteristics of the Permanent War Economy are the permanence of the sizable level of war outlays, which have become a legitimate expression of growing state intervention in the economy, and the high rates of capital accumulation and production accompanied by insignificant levels of unemployment. If there were no other consequences, aside from the danger of mortal defeat in battle, it might be assumed that the capitalist system had acquired a new lease on life.38

The permanent war economy was thus a theory of the “future” laws of accumulation of capital, which meant that Marx’s basic analysis of the tendency of the rate of profit to fall would have to be revised. Sard was not only calling it as it unfolded, but critically, he was anticipating the trends which would follow into the 1960s. First, Sard expected the rate of profit to remain at “levels comparable to the best pre-war years, its tendency to decline being offset by increasing state intervention”.39 Secondly, Sard doubted that the new phase of relative stability would be able to hold for too long.

The irrationalities of rearmament and imperialism fed on each other, and this made Sard conclude that the Third World War was likely to break out sometime after 1960. The need to avert such a possibility was the essential lesson to be derived by the organised working class from the study of the new system. Moreover, the permanent war economy did not do away with the dangers of rising inflation, and before long this would result in a general decline in living standards. Ultimately, the whole setup was to be viewed as an unhealthy and risky form of shock therapy: “Treatment is far from painless and even the doctors cannot say whether the cure will be lasting”.40

Chris Harman (and, as we shall see, Cliff) noted that Sard was wrong to expect a fall in living standards. This criticism had already been levelled against him in the late 1940s, when it was becoming abundantly clear that living standards were generally improving.

In 1951 Sard had restated the point in a more circumspect way by responding that the ability of the war economy to increase employment had increased the number of income earners per household. However, he cautioned, the growth of state intervention in the economy and, with it, the growing levels of arms spending were substantially increasing tax pressure on workers.41 While it was perfectly possible for family incomes—and their living standards—to rise, that still had to be tempered against the general rising trends in the rate of exploitation, inflation, and taxes, which, as he showed for his studies of the US, disproportionately affected lower incomes.42 Beyond these and other small difficulties, Sard’s original analysis proved immensely influential.43 As we shall see, his research and insights inspired an important analysis of the post-war boom and militarism in the US; in Britain they directly influenced the theoretical development of the IS tradition, to which we now turn.

The Socialist Review Group

Since the early 1950s, Tony Cliff and the founders of the Socialist Review Group had acquainted themselves with the work of the Shachtmanite Workers Party in the US, and with it Sard’s ideas on the permanent war economy. Already in 1951 and 1952 Duncan Hallas had written two articles for Socialist Review which, in quite general but incendiary terms, expressed the group’s concern with the connections between rearmament and the notion of waste, the booming post-war economy and imperialism. The first of these texts, entitled “Problems of Rearmament”, centred on government plans to increase UK military spending after 1949. These plans, in Hallas’s estimation, represented a dramatic change in trend since the end of the war and their huge cost would have to be borne directly and indirectly by workers. Rearmament would tend to crowd out commodity production and harm British exports as well as push up prices and force down wages. In an echo of Sard, Hallas insisted that it fell on the organised working class not simply to resist the economic effects of disarmament, but to bind that struggle to the fight against imperialism:

The rulers of the two great empires are preparing a new bloodbath. They have no other way out. But for the vast majority of the people everywhere their road means new sacrifices, new exploitation, new oppression. And for what? To enable the militarists, the bureaucrats, the plutocrats to rivet their chains more securely on the masses… The problem of “rearmament” for the workers is how to turn the imperialist war (latent or actual) into a civil war.44

In his second article in 1952 (“The Permanent Crisis”) Hallas argued that “the root cause of all economic difficulties in capitalist society is the problem of what the economists call ‘effective demand’,” although, as he explains, this problem is partly due to the fact that under capitalism it is not enough simply to find consumers for one’s products, but it is imperative to do so at “a profit to boot”. There are only two ways out of this situation. The first, of course, would be the social ownership of the means of production. The second was military spending, since “rearmament is not the cause of the crisis; in a sense it is a solution”. Indeed, as Hallas wrote:

the period from 1945 to 1949 was one of booming industrial production and high profits. Even today…there is still a semi-boom. This is due to the production on a considerable and rapidly growing scale of a very peculiar type of commodity; very peculiar in the sense that, in general, it is purchased only by governments; namely armaments.45

As in his 1951 text, Hallas warned that rearmament was not an easy exit for the problems of capitalism. Rearmament booms, according to Hallas, limited the production of mass consumer goods, depressed living standards and exacerbated class antagonisms—this (mistaken, as it happens) expectation also appears, as we have just seen, in Sard’s work. Beyond that, Hallas’s fragments on rearmament also anticipated an ambiguity within the Socialist Review Group’s take on the arms economy. Sard had been very explicit that the key function of the war economy was to offset the tendency for the rate of profit to fall. Hallas wrote about rearmament with an indirect sense of the problem of profitability, but with explicit references to
underconsumption, unemployment and aggregate demand, an ambiguity which would resurface in Tony Cliff’s own contribution.

Cliff had already been studying the nature of the Soviet system for some years before the late 1940s. As he put it later, “understanding Russia became the key to unlocking an understanding of the post-war boom”.46 The basic line in his analysis of state capitalism is that international competition between the two rival blocs during the Cold War ensured that Russia harnessed its economy to winning the arms race and outproducing its rivals in the West. Along with Stalinisation at home, this enormous “geopolitical” pressure from abroad had the effect of accelerating the reconstitution of Soviet society as a class society, internally organised as a gigantic capitalist unit, and inserting it into the capitalist international economy as weapons and economic competitor vis-à-vis the capitalist powers.47 State capitalism in Russia was characterised by the overwhelming if not total weight of state regulation: credit and all industry were under the state’s control. And the significance of this was enormous, argued Cliff.

The reproduction of capital on an extended scale (accumulation) is imperative under capitalism. As Marx had argued in Capital, volume 3, this extended reproduction is a contradictory process, limited by two internally related tendencies: the first is for the rate of profit to fall, and the second is towards the production of more value than can be realised by the market. Capitalism contains within it its propensity towards crisis, and evolves through a permanent succession of booms and busts. But in The Class Nature of Soviet Russia (1948), Cliff showed that state capitalism has a way out of this predicament. He found that the staggering size of the arms economy in Soviet Russia and the degree to which it devoted itself to the production of the “means of destruction” had insulated it from the cycles of boom and bust.48 The reason was that weapons spending involves the consumption and production of a special kind of good: they are neither means of consumption (which help maintain the labour power that will later on be the source of surplus value), nor means of production (the plant and machinery required for later cycles of production). Weapons are “means of destruction”, and in terms of their economic function they can be compared to the private consumption of the ruling class. As Cliff put it, “The products consumed by the bourgeoisie do not appear as an element in any form in the new production cycle. It is only a negative element, a subtraction from the process of reproduction”.49

Weapons expenditures in state capitalism represent “the collective consumption of the capitalist class”, and economically play a similar role to the consumption of luxuries by the ruling class, which also do not contribute directly or indirectly to the reproduction of capital.50 Marx had already noted in the Grundrisse that “the unproductive consumption of capital replaces it on one side, annihilates it on the other”.51 But Bukharin was one of the first to link it systematically to the question of militarism in his Economics of the Transition Period. He rejected the idea that arms spending could in any way be beneficial for capitalism.52 Militarism and war were, as far as capitalist accumulation was concerned, not just unproductive but outright destructive. The military economy cut into the mass of surplus value and drained the economy from its productive energies, throwing valuable resources into an unproductive activity. But, according to Bukharin, war is not unproductive simply in the sense that it destroys things rather than creating them. War is unproductive from the point of view of capital accumulation, for, as he explains with disarming clarity, “a cannon cannot be transformed into an element of a new productive cycle; gunpowder explodes into thin air and does not reappear during the ensuing cycle”. The same goes for the living labour wasted in war: militarism creates “soldier power”, but soldier power, unlike labour power, will not be used in the creation of surplus in the next productive cycle. As a result, “war is accompanied by a ‘distorted’, regressive, negative character of the reproduction process. In each successive reproduction cycle the real production base becomes narrower instead of expanding”.53 If one compounds this to the physical destruction that usually ensues in war, the obvious result is a “growing underproduction”, or “expanded negative reproduction”.54

As in Bukharin, Cliff saw the production of means of destruction as unproductive in the sense that it did not play any role in the productive investment of capital. But while Cliff did not deny the destructive effects of militarism and war (Bukharin’s idea that they could potentially drive the economy to negative extended reproduction), critically, Cliff also saw that:

in respect of capital accumulation, the direct result of a war economy is in essence the same as that of a crisis, in respect of the level of production, the use of productive capacity, a war economy is like a capitalist boom: in both the economy works at full blast. The boom-war-boom cycle would thus appear as the abolition of the economic cycle, as all the time there would be full employment, and the economy would be working at full blast.55

Cliff returned to the question of post-war capitalism and rearmament in a brief article called “Perspectives of the Permanent War Economy”, published in 1957.56 In this text, the arms economy had opened up new possible spheres of accumulation for the ruling class. By stimulating employment (and in contrast to what Sard and Hallas had assumed), the permanent war economy drove up the level of wages, but paradoxically this income expansion was compatible with a high level of profitability: between “1937 and 1942, total wage levels in United States industry rose by 70 percent, profits by 400 percent”.57

A final key element in Cliff’s discussion of the arms economy as applied to Russia, however, was that the arms race could only act as a temporary stabiliser: “When the war economy becomes expendable, the knell of the capitalist boom will surely toll”.58 But discussing these themes in 1957, Cliff had abandoned any reference to state capitalism and military spending as the collective consumption of the capitalist class. Some sporadic mention was made of overproduction, but for the most part the gist of the piece was Keynesian, in the sense that the emphasis had shifted back from the effect of arms spending on the rate of profit to the problem of underconsumption and unemployment.59

By the early 1960s the ideas of Sard and Cliff, as well as the attention given to the question by Hallas, contained all the essential points which would be updated and reformulated by Mike Kidron and Chris Harman as part of the theoretical contribution to the IS tradition. But it was only in Kidron and Harman’s writings that the ambiguities about underconsumption and aggregate demand were finally dispelled. It was with these authors, and Harman in particular, that a fully fledged formulation of the theory of the permanent arms economy first incorporated all these insights as a systematic account of post-war capitalism: of the growing role of the state in the period, of its impact on the rate of profit, of the nature of state capitalism, and the contradictions which would eventually end the boom in the early 1970s.

Kidron, Harman and International Socialism

Mike Kidron had been thinking about the effects of military spending since the early 1960s. In the polemical text “Reform or Revolution”, published in one of the first issues of this journal, Kidron noted the meteoric rise of state planning and military spending since the war, and began to intimate that, far from a hindrance, the arms economy was acting as a “solution” to the problem of overproduction:

The arms budget cuts deep into investible surpluses; it provides resources for the capitalist state to maintain a rough correspondence between the major economic sectors; and, through its effect on the size, structure and number of the important capital concentrations it makes the need to correlate the parts of the system apparent.60

Though its connection to the rate of profit was still not explicit at this stage, Kidron saw the beneficial effects of arms spending particularly in the way in which it refined the state’s ability to regulate and plan the economy. The following year, in another article published in International Socialism (“Imperialism: Highest Stage but One”), Kidron had begun equating the economics of the post-war boom and the “permanent arms economy”, though he did not really define his categories or explain how the two related in any detail.61 Thus the first systematic formulation of the theory was only published in 1967 (“A Permanent Arms Economy”).62 Here, echoing Marx’s Grundrisse, Kidron was already considering the problem of capitalist overproduction, and the idea that surplus value could be diverted from
productive capitalist investment, thus counteracting the tendency of the rate of profit to fall.63 As Kidron argued, for Marx,

all output flows back into the system as productive inputs through the either workers’ or capitalists’ productive consumption—ideally there are no leakages in the system and no choice other than to allocate total output between what would now be called investment and working class consumption; secondly, in a closed system like this the allocation would swing progressively in favour of investment. If the first assumption, that all outputs flow back into the system, was dropped—in other words, if some of these outputs are lost to the production cycle—then there would be no need for investment to grow more rapidly than the labour employed. The law of the falling rate of profit would not operate. “Leaks” of surplus value from the closed cycle of production/investment/production would offset the tendency of the rate of profit to fall.64

Of course, historical capitalism had never been a closed system. In the book Capitalism and Theory, published in 1974, Kidron continued:

Wars and slumps have destroyed immense quantities of output, incorporating huge accumulations of value, and prevented the production of more. Capital exports have diverted and frozen other accumulations for long stretches of time.65

In line with this, Kidron saw that the high levels of arms spending since the onset of the Cold War were acting as a drain on the accumulation of capital, leaking significant quantities of surplus value that would have otherwise been pressed to find outlets of profitable investment. Also the particularities of the arms sector made it a classic site of fast technological innovation, and these advances could easily “spin off” into the civilian economy, further contributing to growth. These enormous amounts of arms expenditures made it possible for the system to reach for full employment, and inordinately high growth rates.66 But crucially, since investment in the arms economy represented unproductive consumption (Cliff’s “collective consumption of the capitalist class”, or “luxury” in the sense that they do not play a part in later cycles of productive investment), they did not affect the rate of profit.67 For that reason, “military expenditure is a particular form of waste that can appeal to capitalists connected to a particular state”, as Harman wrote.68 In this way the arms economy acted as a release valve on the tendency of the organic composition of capital to rise and, therefore, on the tendency of the rate of profit to fall.69

None of this meant, as Kidron had stressed throughout the 1960s, that the arms economy should be viewed simply as a tool of economic policy, consciously deployed by the state to fend off the threat of economic downturns (in other words, as a countercyclical measure). Though he admitted such planned interventions often took place, particularly since the 1960s, Kidron, and in general all relevant theorists of the permanent arms economy in the IS tradition, were militantly sceptical about military Keynesianism, and the ability of demand management to stabilise the system for as long and profoundly as the post-war boom.

In Explaining the Crisis, and again in Zombie Capitalism, for instance, Harman argued that what allowed Western capitalism to invest at a sufficiently high scale to keep it booming was precisely the arms economy’s ability to keep rates of profit at much higher levels than those in the previous decades, something further confirmed by the much slower rise of the organic composition of capital in the West during the boom. And yet, argued Kidron, while the arms economy might have increased the regulatory prowess and efficacy of the state, and thus toned down the anarchy of production at home, it had acted to exacerbate the competition abroad, in the anarchy of international competition. The reason for this was that the arms economy, unlike any other type of state economic intervention, involved a “domino effect”:

The arms budget’s flexibility as a stabiliser within each national economy is set at risk by its mediation between economies. To expand armaments for good national economic reasons as the US was doing in 1960-1 to offset approaching recession invites retaliatory escalation for equally good international strategic reasons. There is nothing to ensure that escalation stops at the point of stability.70

Moreover, the permanent arms economy, in its domestic (dependent) and international (independent) dimensions, was as contradictory a system as any. Particularly in the smaller arms economies of the West, he argued, there was a clear limit to the level of military outlay that could be afforded by a state. This ceiling to arms production imposed an incentive to raise its productivity, and thus to make it more technologically intensive. Thus Kidron (like Baran and Sweezy) also saw that the capacity of the arms economy to eliminate unemployment had its own limits. Moreover, the anarchic nature of international arms competition ensured that the high rates of growth across the system were spread unevenly among its units. In this way, the permanent arms economy had the potential to alter any configuration of international conflict or cooperation (the international balance of military power).71

Kidron had worked out the basic formulation of the permanent arms economy, explaining its basic logic, harnessing it to the other general characteristics of the post-war boom, and pointing to its general contradictions, which made it amply clear that the setup he had described could not work as a stabiliser of capitalism indefinitely. What Kidron had not provided, however, was an empirical analysis of the theory, the confirmation of which would have required showing a correlation between high levels of military expenditures, decreases (or low increases) in the organic composition of capital, and as a result, increases (or low falls) in the rate of profit.

Beyond the empirical work, the theory begged a number of questions. First, what of those Western booming economies where military burdens were low compared to the levels of state expenditure? Second, how had military rivalries changed under the permanent arms economy? Third, what made the post-war boom run its course, and how could the permanent arms economy help explain the crisis of the 1970s? The task of answering these questions and completing the theory fell to Chris Harman. In his book Explaining the Crisis, Harman took on the job to such an extent that, while Kidron’s input in the IS’s understanding of the permanent war economy is crucial, it is Harman who made the most important contribution to developing it as a systematic theory.

Harman advanced the theory of the permanent arms economy to account not only for the boom, but for the broader geopolitical antagonisms of the Cold War, in a way in which the economics of post-war capitalism became related to the theory of imperialism. The boom had emerged, as Harman explained, in a system of state capitals. For this reason, the defeat of Japan and Germany after 1945 had not, in his view, ended the imperialist partition of the world which was characteristic of classical imperialism. On the contrary, it had inaugurated a new race, which was bound to become extreme when the influence of the two surviving superpowers of the Second World War (the US and Russia) had begun to interact in the former dominions of their wartime foes. The unequal economic development of either bloc determined their different strategies—an informal, open capitalist domination under the imperial oversight of Washington, against the more annexationist formal domination by Moscow over its areas of influence. It also set military competition between them in motion. But this was not simply a replay of the old land grab which characterised European imperialism before the First World War:

The imperialism which necessitated arms spending was not the imperialism of a single empire, in which a few “finance capitalists” at the centre make super-profits by holding billions of people down. Rather, it was the imperialism of rival empires in which the combined capitalists of the whole of each ruling class have to divert funds from productive investment to military expenditure in order to ensure that they hang on to what they already possess… The logic of state capitalist imperialism was to exploit workers in order to accumulate means of destruction, so defending your ability to exploit still more workers and accumulate still more means of destruction.72

A key consequence of this was the restructuring of international alignments. The main capitalist economies had gone to war against each other twice within the first four decades of the 20th century. But now these rivalries could be softened, since in the midst of high growth and profit rates the US arms economy could guarantee an international environment which allowed different Western economies to find attractive investment sources. While the good times lasted, argued Harman, the thaw within the West would find its mirror image in détente between the US and the USSR.73

In this system of imperialist state capitals, the tendency towards the statification of the economy was coming into conflict with the tendency for its internationalisation. Over time the enormous growth of international output made the pressure to internationalise the forces of production hard to resist: the inner constitution of Western state capitalists began to change with the emergence of international finance and multinationals.74 The second contradiction had been marked by the rise of non-military state capitals, above all West Germany and Japan. These were high-income countries in which (as a consequence of their defeat in the war) military spending had remained low, but in which growth rates continued to increase at a fast pace: the anomaly was that these economies were growing without military spending, and yet with high profit rates. These economies had a competitive advantage: they were able to make much higher levels of productive investment than any other capitalist economy, and were much more competitive in the international markets as a result. In these countries the state might not be intervening to set up an arms economy, as in the US, France and the UK, but it was nevertheless intervening—for example, in Japan, where “the heads of big business and the state have worked together to ensure the growth of Japanese national capitalism”.75

Japan and West Germany’s advantage in trade began to exert pressure on the rest of Western capitalism; in turn capitalist states began to divert resources back from arms into productive investment. The result, of course, would be to increase the organic composition of their capital and to begin to exert a negative pressure on their rate of profit. In the early 1970s “the dynamic of market competition was relentlessly undercutting the dynamics of military competition” which had fuelled the boom.76 Either the rate of profit was allowed to fall, and instability would rule the system or, in order to offset it, the rate of exploitation had to be increased (in essence, wage cuts). Neither possibility could salvage the profit rates of the boom. The oil shocks of the early 1970s did the rest.77 The boom ended, and the world economy, with arms spending no longer able to keep the system’s rate of profit from falling, entered a period of instability and contraction.

Problems of the permanent arms economy

One of the most interesting aspects of the permanent arms economy is that many of the criticisms that could be levelled against it, and of the contradictions that could be noted within it, have been raised by the authors of the theory themselves.

For instance, in an article entitled “Two Insights do not Make a Theory”, Kidron regretted that the collective views of the IS tradition on state capitalism had not “kept pace with the formation and consolidation of state capitalism as a world system”.78 While enormously important in his day, Cliff’s insight had tended simply to be applied to the other Soviet countries, and no full theoretical understanding of the role of state capitalism had been developed. What the IS tradition was failing to see, therefore, was that world capitalism had become an integrated whole, made up of state capitalist units in which the autonomy of private capitalism had been reduced to the minimum. This had big consequences for the permanent arms economy.

Kidron’s original take was that surplus was drained from the productive capitalist sector of the economy to produce weapons, but since weapons are “luxury” goods, the effect was to alleviate the tendency of the organic composition of capital to rise, and therefore to offset the tendency of the rate of profit to fall. Such argument was correct, insisted Kidron, but only insofar as it referred to private capital as analysed by Marx.

Since then the extent of the historical development of state capitalism in the world economy meant that its logic needed to be reversed. In state capitalism the private capitalist productive sector could not be insulated from the non-capitalist, non-productive sector. Thus the idea of unproductive consumption draining surplus from the productive sector was impossible, since “non-productive expenditure essential to the system has to be borne by capitals directly”.79 This no longer represented a leak from the cycle of capital accumulation, but a transfer of resources from one sector to the other, which would push up its organic composition of capital, bringing down the general rate of profit. The devastating conclusion must be that the boom had not taken place as a result of the permanent arms economy, but despite it.80

One strange confusion in Kidron’s auto-critique was the idea that unproductive consumption had to be carried out by a non-capitalist sector of the economy (a sector which, as he argued, would have been absorbed by the extreme development of state capitalism he envisaged). But arms production (or any other unproductive investment for that matter) might be (and is) carried out by private capital too. Yes, this increases general investment, but the amount that goes to arms production is “stolen” (drained) from the amount directed into productive investment, which is where the rate of profit is determined. Moreover, Kidron was clearly exaggerating the reach of state capitalism, as Harman argued in his response that same year (“Better a Valid Insight than a Wrong Theory”). There were crucial differences between state capitalism in the East and the West, and the trend towards state capitalism needed to be contrasted with “another trend—towards dependence on firms which see their interests as differing from the interests of the national capital”. Banks, particularly in the US, were again beginning to dominate over industry, and operate across the world market in ways which could leave nation-states “helpless and bemused”.81

As we have seen, Kidron had formulated the relation between the boom, post-war militarism and the rate of profit, and had provided some empirical data which showed that strong levels of growth had coincided with high levels of arms spending. But while Kidron’s empirical work supported the logic of his argument, it did not confirm it. Since he did not consider the role of non-military state capitals in enough detail, and did not explain why arms spending had remained so high into the late 1980s (thus well into the crisis), he has sometimes stood accused of putting forward an interesting but ahistorical account.82

Two articles appeared in the 1970s, one by Albert Szymanski which we have already encountered, and another by Ron Smith in 1977, which, though primarily concerned with the validity of Baran and Sweezy’s Monopoly Capital, contained critical material germane to the permanent arms economy (explicitly so in the case of Smith). The data in Szymanski and Smith showed that the weight of what Harman called non-military state capitals was more important than can be gauged from his account (and not limited to Germany and Japan). Szymanski and, later, Edelstein also show that throughout the boom very few countries apart from the US sustained higher levels of military spending over non-military state expenditure.83 The theory of the permanent arms economy by implication does not give sufficient attention to this fact. None of this poses a direct empirical challenge to Kidron and Harman. For one thing, the theory is an explanation of world capitalism’s growth and stability after the war. What this means is that exceptional cases like Germany and Japan (or Austria, Sweden and even others) do not contradict the general theory, but represent “contradictory factors within this growth”.84

Secondly, cross-comparisons between several cases related to standard macroeconomic indicators do not confirm or refute the theory. They do not look into profit rates in relation to the levels of organic composition of capital. Also they tend to contrast data within a time frame (and so they lose the comparison between, say, profitability levels during and before the boom). Finally, the dynamic of the system is historical: neither Kidron nor Harman was suggesting that there is a mechanical economic relation between military spending and the boom, a correlation which can be
established with greater or less success. There are plenty of avenues in which to develop the theory empirically. But grasping it is a question of political and historical analysis, and not simply of political economy (Harman’s account of the Cold War should amply demonstrate this).

A second difficulty concerns the problem of agency. The permanent arms economy argues that military spending stabilised capitalism since the war, allowing it to grow at its fastest rate in history. But it is very difficult to conceive of such a system without some sense that militarism is being used by the state and by the ruling class in its own interests. Even if this were so, there is clearly a historical case to answer.

As we have seen, since the Second World War “bastard Keynesianism” was predicated on the idea that deficits were less important than the state management of aggregate demand to obtain growth and full employment. The military version of bastard Keynesianism was popular in economics as well as in government departments (perhaps more so in the US than anywhere else). This surely implies that state managers pursued military expenditure as countercyclical policies. Moreover, defenders of Monopoly Capital have produced a wealth of examples and testimonies which illustrate the high degree of agreement between the military establishment and the business elite on the economic benefits of heavy military outlay during the 1950s and 1960s. Perhaps the classic piece of evidence here is US National Security Council 68, a top secret report mainly written by the State Department’s head of Policy Planning, Paul Nitze. NSC-68, prepared in early 1950 and signed by President Truman in September that year, spelt out the key vectors for US foreign policy during the following two decades. It defines a strategy of “gradual coercion” of the Soviet Union, combining elements of containment with a call for permanent increases in the peacetime levels of military expenditure. For our purposes, however, NSC-68 contemplated that “in an emergency the United States could devote upward of 50 percent of its gross national product to these purposes”. Although, as NSC-68 acknowledges, such rearmament would be costly:

From the point of view of the economy as a whole, the programme might not result in a real decrease in the standard of living, for the economic effects of the programme might be to increase the gross national product by more than the amount being absorbed for additional military and foreign assistance purposes. One of the most significant lessons of our World War Two experience was that the American economy, when it operates at a level approaching full efficiency, can provide enormous resources for purposes other than civilian consumption while simultaneously providing a high standard of living.85

Documents such as these suggest that there is a plan, and an understanding that the effects of increasing arms spending are not only instrumental in winning the arms race, but that they also have essential beneficial effects on the economy. For Baran and Sweezy, the actual answer was mixed. On the one hand, they insisted, militarism needed to be seen as the result of the rise of the US to imperial domination during the Cold War: such were “the necessary expenditures of world empire”.86 In as far as US militarism brought economic gains, these were the indirect benefits of imperialism. US imperialism was not only primarily concerned with geopolitical gains against the Soviet Union, but simultaneously sought to secure a free area of operation for US corporations.87 Since the profits of militarism are reaped by a handful of private interests, these in turn begin to form a platform from which they can determine the decisions behind militarism. This cluster of private interests around the military establishment is cemented within the state, further contributing and feeding back to the external dynamic of imperialism.

Kidron and Harman are, as we have seen, ambiguous on this issue. While it is clear that they both view military spending as a result of the military competition of the Cold War, they constantly refer to instances which can only be made intelligible by reference to class agency. Thus, as Kidron argues in a passage quoted above, US arms budgets were being deployed as “economic stabilisers for good economic reasons”. And while Harman insists that the boom was not down to Keynesian demand management, he readily acknowledges that countercyclical policies certainly form part of state interventionism during the boom.88 Again, while he downplays the historical importance of Keynesianism in post-war capitalism, Harman is still able to claim that the heads of Japanese state and business managed to look beyond their short-term interests and work together in the interest of general profitability. His overview of the new imperialism explicitly resorts to military Keynesianism as an important aspect of George W Bush’s foreign policy.89

Harman’s account of Cold War imperialism crosses the logic of military rivalry and the collective endeavour of the whole of the ruling class, striving to keep profits high.90 Beyond Harman’s insistence that both kinds of interaction feed on each other, his use of the theory of the permanent arms economy often swings from one kind of explanation to the other. It is clear therefore that the theory allows more room than most to consider how agency has historically played a key role in driving the system forward. It is not simply about geopolitical necessity. Harman’s account of Cold War alliances and frictions could be substantially improved if we could outline its agencies in detail. While the understanding of post-war capitalism that informs the permanent arms economy is superior theoretically, in terms of its political analysis, a comparison to alternative versions of the boom might be salutary.

The arms economy today

Beyond the empirical avenues that remain open in Kidron and Harman’s theory, and the pending task of investing it with a clearer sense of agency, the theory of permanent arms economy continues to pose two questions of relevance. The first, and most difficult, concerns the notion of waste and unproductive consumption, which aside from an important theoretical question remains essential to understanding the historical evolution of capitalism today. But the arms economy no longer fulfils the same role as it did during the post-war boom—indeed, it could not. What elements of the system most directly modulate the rate of profit today?91 A second, perhaps less momentous spin-off of the arms economy is the role of military production today.

Within the vectors of Kidron’s and Harman’s theory, once the boom had begun to unravel, arms spending would no longer work its old salutary effect. As production became internationalised, and as the pressure intensified on state capitals to become competitive in the world market, the imperative was to begin diverting resources back from the military sector and into productive investment. But, of course, towards the end of the boom and into the crisis of the 1970s, profit rates had begun to dive. In a new context of failing competitiveness, the arms economy had lost its ability to offset the falling rate of profit. More defence demand now only meant a higher budget as well as a trade deficit. This had been exactly the effect of increased military spending during the Vietnam War and in the early 1980s under Ronald Reagan.

After the collapse of the Soviet Union and the end of the Cold War the defence sectors of most states underwent a radical makeover. The levels of defence demand, which had risen towards the end of the 1980s, suddenly slumped and stayed low until it started rising again around 1999 (the exceptional moment in this trend for both the UK and the US came in 1991, the year of Operation Desert Storm in Iraq). In the US, for instance, procurement expenditure fell by 41 percent, and military outlays had dropped in real and nominal terms by 1998.92 In the UK the same trend unfolded: a small increase until 1992, and a continued (much smoother) fall in military spending from £30.8 billion in 1990 to £23.2 billion in 1999 (with reference to 2000 prices). Since then the state and private arms sales picked up again, in a trend which continues today. Something similar happened across Europe, China and Russia with different degrees of intensity (for instance, Russian military spending in the 1990s collapsed from over 15 percent of GDP in 1987 to its lowest level of 3.3 percent in 1998, while China’s changed only very slightly). The unevenness in the levels of current military spending and the changes in those levels from year to year are staggering. If present trends continue, the US will be spending close to $650 billion a year on defence: this represents just under 45 percent of the world total. The next big spender is China, whose share of global military expenditure is currently just under 6 percent; France, the UK and Russia’s share of the total is between 4 and 5 percent, but however modest, it is also on the rise.

At the beginning of 2009 the Stockholm International Peace Research Institute (SIPRI, the standard database for arms sales and production) put the estimated world level of military expenditure at just under $1.5 trillion; this is an average 2.4 percent of global GDP, which, while low compared to the levels of the 1980s, represents a 45 percent increase over the previous ten years. So while the end of the Cold War led to a drastic fall in military spending during the age of globalisation, the present decade is returning world military spending to Cold War levels. The obvious, if not very intriguing, question is, why have the quantity and growth of military spending picked up so significantly since 2000? You guessed it: it’s primarily as a result of the “war on terror”, and in particular the US wars in Iraq and Afghanistan.93

There are, of course, a number of important US firms that benefit directly from this expansion of the US defence budget. In the same period 44 American arms manufacturers were able to account for just over 60 percent of the sales of the world’s top hundred companies (taken from a ranking compiled by SIPRI and including, of course, the likes of Boeing and Lockheed Martin). Many of the orders they have received are of armed and so-called mine-resistant ambush-protected vehicles, high on demand in Afghanistan and Iraq.94 To finance this and everything else, the US defence budget is already at its highest level since the Second World War. The result, in complete congruence with the logic of the permanent arms economy, has been a spiralling federal deficit, which has fallen more than short in rescuing Western capitalism from yet another crisis.

The theory of a permanent arms economy, along with deflected permanent revolution and state capitalism, has represented, to borrow just one from a thousand inspired phrases by Mike Kidron, “the theoretical nutrient” of the IS tradition. Its evolution, analytical depth, empirical range and political use chime with the intellectual ethos of the tradition which developed it. As Kidron said in the 1970s:

We must fight in defence of the following:
1. Thesis of tendency of rate of profit to decline.
2. A concept of the basic unit of capital which includes the productive activities of the state.
3. The distinction between the abstract model and the historical system
4. The proposition that in a period of capitalist decline unproductive expenditure (esp military) is as determinative of the system as productive expenditure.95

The theory of the permanent arms economy continues to rest on these pillars.


1: Kidron, 1970, p11.

2: As Kidron and Harman emphasised, the effects of the boom, undeniable on a world scale, were very uneven across the capitalist system: “For every success story there were half a dozen failures”-Harman, 1984, p75.

3: See Callinicos, 1990, especially chapters 2 and 3, and Cliff, 1999, p49.

4: Mandel, 1979, p171. This remark had been pre-dated by his attempts to explain the revival of capitalism after the war, particularly through his concept of “neo-capitalism”, and his later notion of “late capitalism”.

5: Harman, 1984, p77.

6: Harman, 2009, pp155-156.

7: A very useful account of the ebb and flow of militarism between 1919 and 1939 can be found in Bond, 1998, chapter 5.

8: Edelstein, 1990, p422. According to Kidron, by the end of 1950s, the US military sector absorbed 60 percent of gross fixed capital formation-Kidron, 1970, p51.

9: Smith and Smith, 1983, p23. Compare with Smith, 1977, p62. The levels in the Soviet Union were incomparably higher (averaging around 40 percent between 1950 and the 1980s).

10: Bellais and Coulomb, 2008, pp369-371. See also Foster and others, 2008.

11: Kalecki, 1972, pp78-80.

12: Robinson, 1978, pp8-9.

13: “Liquidation of unemployment” is the formula used by Varga to denote full employment- Varga, 1939, pp137-138.

14: Sweezy, 1970, p308, emphasis added.

15: Sweezy, 1970, p308.

16: Sweezy, 1970, p233.

17: Sweezy, 1970, p309.

18: Baran and Sweezy, 1975, p23.

19: The term “monopoly capital” was formulated in opposition to the orthodox Communist notion of state monopoly capitalism. See Harman, 2009, p167, and 1984, pp148-154.

20: Baran and Sweezy, 1975, pp178-205.

21: Baran and Sweezy, 1975, p176, emphasis added.

22: Baran and Sweezy, 1975, p211.

23: Baran and Sweezy, 1975, p351. Indirectly, Cliff’s theory of deflected permanent revolution challenged this view. For a recent assessment, see Zelig, 2010.

24: Szymanski, 1973-4.

25: Szymanski, 1973-4, pp5-8.

26: Szymanski, 1973-4, pp9-12.

27: Szymanski, 1973-4, p14.

28: Szymanski, 1973-4, p14.

29: Though the bibliographical references are to the pseudonyms used by Sard, the main text will refer to Sard for simplicity’s sake. On a related matter, see Perry, 2004, for a discussion of the role of pen names in American Trotskyism.

30: Though in Explaining the Crisis, Chris Harman does refer to Sard and use his data-Harman, 1984, pp77-80, and especially pp165-166.

31: Oakes, 1944.

32: In an earlier, very important piece, written under yet another pseudonym (Frank Demby), Sard had explained the US’s entrance into the Second World War by mapping an analysis of the war effort onto the sharp increase of US investment in the western hemisphere before and during the war-Demby, 1941.

33: Oakes, 1944, emphasis in the original.

34: Sard has come under some fire for comparing the war economy to ostentatious consumption in ancient and medieval societies, and stood accused of not differentiating between capitalist and pre-capitalist modes of production. Harman offers a more generous interpretation in 1984, p166.

35: Oakes, 1944.

36: Vance, 1951, part one.

37: Vance, 1951, part three. These findings are reviewed and updated in Harman 1984, pp79-81.

38: Vance, 1951, part one.

39: Oakes, 1944, and again Vance, 1951.

40: Vance, 1951, part five.

41: Vance, 1961, part six, section A.

42: Vance, 1951, part five.

43: Sard’s writings were not only formative for the theoretical contribution of the IS tradition, but also for the US left, in particular Monthly Review. A recent piece in that journal hails Sard as a visionary of underconsumptionist (!) theories of militarism (Haberkern, 2009). Interestingly, Kidron himself seemed to agree with this assessment, when he wrote that the origins of the permanent war economy were the “heavily Keynesian view of the post-Second World War economic order set out in 1944 by ‘Walter J Oakes’ and later elaborated by ‘TN Vance’”-Kidron, 1977. As should be clear from the following pages, there are much closer ties between Sard and Kidron than between Sard and underconsumptionist theories of post-war militarism.

44: Hallas, 1951.

45: Hallas, 1952.

46: Cliff, 1999, p52.

47: Cliff’s analysis of state capitalism in Russia can be found in Cliff, 1948.

48: Cliff, 1999, p52.

49: Cliff, 1948, chapter 8, part 12.

50: Cliff, 1948, chapter 8, part 12, and 1999, p52. Marx discusses the production of luxuries in Capital, volume 2. For a discussion of unproductive consumption see Harman, 2009, chapter 5, Mohun, 2002, and Harman, 1984, pp38-39. See also Fine and Harris, 1979.

51: Marx, 1973, p751.

52: Bukharin, 1982, pp47-54. The point remerges in Kidron, 1961, especially in his discussion of “destructive ironmongery”, more on which below.

53: Bukharin, 1982, pp52-53.

54: Bukharin, 1982, p53.

55: Cliff, 1948.

56: The piece was extended and republished in Cliff, 1999, chapter 3.

57: Cliff, 1957, and Cliff, 1999, p56.

58: Cliff, 1948.

59: According to Harman, Cliff’s 1957 text emphasised the underconsumptionist element of the theory for the sake of clarity and presentation-Harman, 1984, p166.

60: Kidron, 1961.

61: Kidron, 1962.

62: Kidron, 1967; it was republished as part 1, chapter 3, of the book Western Capitalism Since the War-Kidron 1970 [1968]. References are to the text in book form.

63: Though, according to Harman, Kidron was unaware of the passage in the Grundrisse quoted earlier-Harman, 1984, p38; Harman, 2009, p130.

64: Kidron, 1965, p10.

65: Kidron, 1969. p16-17.

66: The fact that military spending was funded through taxation might dampen the pace of growth, but not significantly. As Kidron adds, “Were capital left alone to invest its entire pre-tax profit, the state creating demand as and when necessary, growth rate would be very much higher”-Kidron, 1970, p49.

67: Kidron based this on the work of the Austrian classical economist Ladislaus von Bortkiewicz (and also on the Cambridge economist Piero Sraffa), who showed that whatever the degree of investment in the unproductive sector, its effect on the rate of profit there would not affect the general rate of profit in the economy.

68: Harman, 2009, p131.

69: Apart from Sard and, tangentially, Cliff, there was one other important antecedent for the analysis of the economic effects of militarism which directly concentrated on its effects on the tendency of the rate of profit to fall. I am referring to The Law of Accumulation and Breakdown of the Capitalist System, written by the Polish Marxist economist Henryk Grossman in 1929. For a full review of his arguments see Kuhn, 2007, particularly pp129-131, and Harman, 2009, pp77-78 and 131.

70: Kidron, 1970, p61.

71: Kidron, 1970, p61-64.

72: Harman, 1984, pp87-88.

73: Harman, 1984, pp89-90. See also Harman, 2009, p180.

74: Harman, 1984, p91. We return briefly to this point in the following section. See also Harman, 2009, pp170-172 and 200.

75: Harman adds, and this is important, that such a process takes place “regardless of considerations of short-term profitability”-Harman, 1984, p96. There are some important implications in this and other similar statements which we return to in the following section.

76: Harman, 1984, pp98-99.

77: Harman, 1984, p102.

78: Kidron, 1977.

79: Kidron, 1977.

80: The general tenor of Kidron’s text was that the IS tradition needed to rework a general theory which could tie up all the loose ends-Kidron, 1977.

81: Harman, 1977.

82: See, for instance, Lovering, 1987, and in a different way, Smith, 1977.

83: Szymanski, 1973-4, p7; Edelstein, 1990.

84: Harman, 1984, p94.

85: National Security Council-68, 1950, p41.

86: Foster and others, 2008.

87: Baran and Sweezy, 1966.

88: Harman, 2009, p164.

89: Harman, 2009, pp272-273.

90: Harman, 1984, p88.

91: Joseph Choonara has recently argued that fictitious capital had come to play a similar role to the arms economy in the context of the recent crisis. See Choonara, 2009.

92: SIPRI, 2009. Unless stated otherwise, all are collected from SIPRI’s report and database. When in dollars, the values refer to 2005 prices; SIPRI measures military expenditures as a percentage of GDP, rather than the more conventional GNP. SIPRI collects all its data from open sources, among them official government statistics. What this means is that military spending is almost certainly higher in reality.

93: Though see Johnson, 2008, for a relation of US arms spending in connection to the theme of military Keynesianism.

94: For the transformation of the private arms sector in general and in the Global South in particular, see Bitzinger 1994 and 2003 respectively.

95: Kidron, 2006.


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