From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Wed Nov 03 2004 - 11:10:20 EST
At 1:31 PM +0000 11/3/04, Paul Cockshott wrote: >Rakesh > >As for military expenditures their main positive effect is not >through the increase in effective demand per se but in the >consumption of higher cost or morally depreciated capital equipment >that military spending and even more war cause. High cost capacity >used up, opportunities for investment in lower cost capital goods are >thereby widened and anticipated profitability improved: war thus >allows for the destruction of capital that depression would otherwise >effect. > >------------ >Paul > >It is probably the case that the destruction of capital equipment >produced by the 2nd world war increased profitability in Japan >and Germany, but can you think of any other cases? Capital is not only directly destroyed, it is used up as a result of war time activity. It is not as Jerry says factories have to be bombed per se. War consumes capital in two ways. > >In the US, UK, and France there was much less destruction of >productive capital. In the US there has been no significant >military damage since the Civil War. Since the US accounts for >the greater part of world Military expenditure, the main effect >of this has to be seen in terms of the boost to economic >activity that it has produced in the USA for the last 60 years. > >What would the economic history of the US have been like if >during that period military budgets had been at 1920's levels? First, deficit financed military expenditures could have depressed anticipated profitability. Seventy years later, Clinton's post Cold War military cuts seem to have put some downward perssure on long term interest rates and helped along a recovery in investment. Second, military expenditures were indeed a major source of autonomous demand as investment faltered throughout the entire industrialized world. Death, as Mattick Sr put it, proved to the greatest of all Keynesians. > >I would have expected several recessions at least as severe >as those of the 30s. See above about Clinton. Once autonomous increases in investment and consumption failed, the US state has again attempted stimulus through unproductive war related and anti terrorism expenditures. But the effect so has not been great, and Bush has not dared bring deficits again to Reaganite levels of 6% GDP in fear of spooking the bond markets and international investors. rb
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