The Alchemy of War

It seems that all governments do today is go to war. Long before the modern era, war was a last resort. Conflict, especially between neighboring nations, was solved largely through marriage or diplomacy. An unending war wasn’t economically feasible because it depleted a nation’s resources. If a ruler lost a war, it would be devastating. War wasn’t a fight for complete dominance and destruction because a nation could only go to war to the extent the ruler could raise the gold to fight the war. In the modern era, with the advent of fiat money, war becomes out-producing and complete destruction. The finest example of this came during the FDR administration. Industrial production was captured by the government to focus on production for the war. Arms went from one percent to 40% of GDP. War became the business of the government, and corporations were there to meet it. Many innovations grew out of this government spending, and often much of the innovation is either funded by the government or derivatives of it. Giving rise to an economic theory known as military keynesianism. Governments can spur economic growth through increased spending on the military. The alchemy of war: turning lead into gold. It was a driver during World War II, where both the United States, Nazi Germany, and others spent their way out of the depression. In my mind, it is this pure form of government manipulation of markets that can only make the cycle worse. It relies on the assumption that wars and destruction can be drivers of economic growth, but the reality is that they simply divert from more optimal production.

The United States became the economic powerhouse of the modern era after the Second World War. The United States Congress passed a law promising to remain neutral. However, later, Congress passed a law allowing us to assist allies, in particular Great Britain. Thus, the United States became the arms dealer. FDR created a program to sell arms to direct allies. When the allies could no longer afford the weapons, they received them on credit. The United States was subsidizing the war, establishing the "arsenal of democracy." When the United States officially entered the war, production was the way to win. Much of Europe was ravished by the war. It was the role of the United States to push the allied forces over the edge to win the war. In the aftermath of the war, the effort to rebuild Europe began. A conference of 42 nations was held, and an agreement was made to establish the IMF and the World Bank. With this came a new economic system, with the dollar becoming the primary currency, all currencies tied to it, and the dollar backed by gold. This new system enabled countries to devalue their currencies. Allowed for a system of capital controls to help rebuild at the expense of their currency. Since they no longer needed to match gold to paper, The war appeared to be the reason the Great Depression ended. After the war, productive capacity increased with men returning to work alongside women. The reality is that this pushing of capacity leads to growth when combined with more global trade and cooperation. Something that had fallen to the wayside following the Great Depression as governments rushed to limit it. The United States was richer than ever, giving rise to the baby boomer era and furthering the spiral. Soon the convertibility of gold would end all together, and the world's economy became a system of promises.

The status of the United States as the "arsenal of democracy" persists today, albeit in a different capacity. It is with this power that the United States has become the world's policeman, spending 3.4% of GDP, greater than any other nation. Not only that, but the United States developed a means of giving aid to nations, which they then in turn purchased American weapons produced by private corporations on US subsidies. So the American government funds the development of these products, then gives aid to a nation so they can purchase them from companies that could only develop these weapons through the government. And the American people pay for it twice, once in the form of a loss of government budget directed to foreign nations and again in the form of inflation because government aid is given by increasing the money supply. If all a nation is doing is trying to figure out how to more effectively kill other people, it doesn't seem to be the ideal means of growth.

Not only has it distorted markets, but it also distorts labor and innovation. What happens in a world where most of the world's brilliant minds are working on weapons technology and not solving the real technological problems that plague society? Or how about directing the resources to healthcare, education, or even infrastructure? These become infeasible in a hypermilitarized economy. If other nations are pursuing weapons, all nations desire them because no nation wants to leave its people exposed. This is exactly what happened during the Cold War, and it will likely continue until we decide the war is bad for business and, most of all, for people.

After 911, the war shifted from a war against mostly nations to a war against non-state actors and the nations that aid them. Additionally, smaller nations that want to build roads or bridges for their nations get loans through the World Bank and IMF, which come with other strings attached. Nations are told what they can and cannot do. Social as well as economic reforms are enforced by the United States and NATO/Western Allies via these international institutions. Freedom became the economic weapon that countries yielded. This has led to a rise in China’s role as an international development powerhouse. It is a concerning rise for most, as it grows its influence over the world in a soft sense. China’s approach is to make loans, but all the work is done by the Chinese companies, effectively bringing business to them and making other countries pay for it. Payments are often made either in the form of cash or trade goods. With terms often being predatory as no jobs are created for the nation, simply infrastructure is created. It has left multiple countries in debt to China, forcing the seizure of national assets. Worse yet, many of these nations haven’t realized the benefits of infrastructure because simply making roads, rails, and dams does not have an immediate impact on economies.

So clearly, neither approach can be seen as sustainable. The growth of nations must come from inside, and exploitation can only lead to conflict. Likewise, this approach could push many countries to the opposite extreme. A globalized world cannot rely on a system that is unfair and one that places the views of other nations above the desires of its people.