Tony Cliff

Perspectives of the Permanent War Economy

(May 1957)

From Socialist Review, May 1957.
Reprinted in A Socialist Review, London 1965, pp.34-40.
Reprinted with the title Perspectives for the Permanent War Economy in Tony Cliff, Neither Washington nor Moscow, London 1982, pp.101-7.
Transcribed and marked up by Einde O’Callaghan for the Marxists’ Internet Archive.
Thanks to Ted Crawford.

The economic level of society, the level its productive forces have reached. is the decisive factor in the organisatinn of its armies. As Marx said: “Our theory that the organisation of labour is conditioned by the means of production. is, it seems. nowhere as brilliantly corroborated as in the ‘human slaughter industry’.”

In the early period of capitalism the backwardness of the economy made it impossible to feed and arm large armies. Compared with the mass armies mobilized during the first and second world wars, the armies of early, rising capitalism were very small. Even during the Napoleonic Wars. France, ruler of practically the whole of Europe, did not at any time have more than half a million troops. The British armed forces at the time were less than a tenth of those of France.

All this changed with the First World War. Then France, whose population was only sortie ten million more people than during Napoleonic times (40 million against 30), mobilized as many as five million soldiers. The other belligerent countries showed similar increases.

Together with the tremendous increase in the size of the armies during the last half century. there came a change in the role of the military sector in the national economy.

Frederick the Great declared of the wars of the eighteenth century: “The peaceful citizen should not even notice that his country is at war.” Even during the wars of the nineteenth century, the Napoleonic Wars, the Opium Wars, the Crimean War, etc., the life of the belligerent nations was on the whole hardly affected.

1914 – The turning point

However, during the First World War, with a significant proportion of the population mobilized and a major portion of the economy harnessed to the service of war, not only the soldiers engaged in battle, but also millions of industrial workers, peasants, etc. – in fact, the whole civilian populauion – felt the impact.

Before the First World War, although the imperialist Powers were to some extent prepared for the struggle. it was usual for the economy to be hardly geared to armament production at all. It was only after the outbreak of the war that it was accommodated to the situation it was now squarely faced with – Guns or Butter.

Up to the First World War, therefore, it was possible to analyse the development of capitalism without paying much attention to wars or preparations for them, as they played a minor rôle in economic development.

Immediately after the First World War the military sector of the economy again dwindled: the large armies were to a major extent demobilized and armament production was drastically cut.

However in the wake of the great slump of the thirties and Hitler’s rise to power, a powerful peacetime military sector appeared for the first time in history. The Western capitalist powers – Britain, France and the United States – were slow to enter the armaments race. And although the industries of these countries did get some benefit from war orders, even at the outbreak of the war the war sector of the economy was not decisive: thus there were 11 million unemployed in the United States and one and a half million in Britain: the index of industrial output in the United States in 1939 had not yet reached the level of 1929. It was not until a few years later that the Western Powers harnessed their countries fully to the waging of the war.

Between 1939 and 1944 the production of munitions multiplied in Germany 5 times, in Japan 10 times, in Britain 25 times, and in the United States, 50 times. (F. Sternberg, Capitalism and Socialism on Trial, London 1951, p.438).

The War Economy


Milliard marks

Million pounds

United States
Million dollars








I. National income







II. Government expenditure
(Mainly arms)







II as % of I







* approximate figures

Whereas after the First World War there was a period of about a decade and a half in which no advanced country had a relatively large war sector, after the Second World War there was no such break. Soon after its end the armaments race was once again on.

It is clear that even with the present level of labour productivity no economy can allow half or more of its gross output to be devoted to war over a long period. The war sector had, as a matter of fact, eaten into the national capital of all the belligerent countries: factories and their equipment had worn out and not been maintained or replaced. housing had been neglected. cars, furniture, clothing etc. had hardly been replaced.

On the whole, even during prosperous periods of capitalism, some 80 per cent of the national income has been consumed by the civilian population. and at most 20 per cent or so devoted to capital accumulation. The following figures show the rate of accumulation in the national income in the past: Britain: 1860-9, 16.6 per cent; 1900-10, 12.2 per cent; 1919-24, 8.1 per cent; 1925-30, 7.6 per cent; 1934-7, 7.0 per cent. United States: 1900-10, 14.3 per cent; 1919-24, 12.2 per cent; 1925-30, 10.9 per cent; 1934-7, 5.0 per cent. France: 1870-9, 6.0 per cent; 1900-10, 9.0 per cent; 1913, 12.5 per cent; 1925-30, 11.2 per cent. Germany: 1900-10, 19.1 per cent; 1925-30, 7.7 per cent; 1934-7, 11.8 per cent. Japan: 1919-24, 21.9 per cent; 1925-30, 19.8 per cent; 1934-7, 21.9 per cent (Colin Clark, The Conditions of Economic Progress, First Edition, London 1940. p.406).

If, even with the present level of technique, 20 per cent of the national income were spent on armaments for any length of time. there would be scarcely any resources left for capital accumulation. in other words, the economy would stagnate.

Even if the military sector makes up, let us say. 10 per cent of the national economy of the capitalist countries, its effect on the economy in general is fundamentaal. Let us see how this comes about.

Arms, boom and slump

For more than a century capitalism has gone through a rhythmical cycle of prosperity and slump. Slumps occurred more or less regularly every ten years. But since the advent of a permanent war economy the cycle has somehow been broken. Twenty-four years have passed since the low point in the slump of the thirties-1933. Even since mass unemployment has gone from the major western capitalist countries, some eighteen years have passed.

To understand how this has come about, how a military sector of some 10 per cent or less of the national economy could prevent a general slump, we should first shortly sum up the cause of slumps under capitalism.

Cause of crises

The basic cause of capitalist crises of overproduction is the relatively low purchasing power of the masses compared with the production capacity of industry. As Marx said: “The last cause of all real crises always remains the poverty and restricted consumption of the masses as compared to the tendency of capitalist production to develop the productive forces in such a way, that only the absolute power of consumption of the entire society would be their limit.” (Karl Marx, Capital, Vol.III, p.568).

In the final analysis, the cause of the capitalist crisis is that a greater and greater part of the income of society falls into the hands of the capitalist class and a greater and greater part of this is directed not towards buying means of consumption, but, instead, means of production, that is, it is directed towards the accumulation of capital. But, as all means of production are potentially means of consumption – that is, after a certain lapse of time, the value of the means of production becomes consumption – the incorporated in means of relative increase in the part of the national income directed to accumulation compared with the part directed towards consumption must lead to overproduction. And this is a cumulative process. The increase in accumulation is accompanied by rationalization, resulting in an increased rate of exploitation. The greater the rate of exploitation, the greater is the fund from which accumulation is drawn as compared with the wages of the workers and the revenue of the capitalist. Accumulation breeds accumulation.

Effect of arms budget

Now the armament economy has very great influence on the level of popular purchasing power, the level of real capital accumulation, and the amount of goods seeking a market.

Let us assume that there are a million people seeking employment in a certain country. Further, that ten per cent of them are employed by the Government in producing arms – some 100,000 people. Their purchasing power would bring about the employment of more people elsewhere. The numerical relation between the size of the first group and the second is called by the great bourgeois economist Keynes, the Multiplier. For brevity this term can usefully be borrowed. if the Multiplier is 2 the employment of 100,000 workers by the State will increase general employment by 200,000. If the Multiplier is 3, the increase will be 300,000, and so on.

Hence there is no doubt that the cumulative effect of an arms budget of 10 per cent of the national income can be quite out of proportion to its size in increasing the purchasing power of the masses.

Guns and Butter

Again, when 10 per cent of the national income goes to arms, the capital resources seeking investment are drastically cut: in our example, from 20 per cent of the national income to 10 per cent. And the increasing purchasing power of thee people, together with the new State demand for arms, army clothing, barracks, etc., gives greater openings for capital investment.

In addition, the war economy naturally has a big effect on the rate of increase of the supply of non-military goods seeking civilian purchasers.

With the possibilities of employment increasing, wages may well rise. But this, paradoxically, does not deny the possibility of increasing profits: capital is working more fully than otherwise, there is much less capital working at a loss, its turnover is greater. Thus for instance, in the years 1937-42 total wages in United States industry rose by 70 per cent, profits by 400!

With the stupendous productive forces available to society at present, the increase in the armaments burden does not necessarily and always lead to a cut in civilian consumption. This was shown most clearly in the richest capitalist country in the world – the United States – during the Second World War. Although in 1943 the United States spent the huge sum of 83.7 milliard dollars on the war, civilian consumption did not fall, but was actually higher than before the war, rising from 61.7 milliard dollars in 1939 to 70.8 milliard in 3943 (expressed in 1939 prices), i.e., an increase of 14.7 per cent. The consumption of food rose by 70 dollars per head of the population, expenditure on housing and repairs by 12 dollars, purchases of clothing by 25 dollars. Spending on other goods, with the exception of cats, also rose. So long as armaments do not consume beyond a certain limit, the increased production of guns does not exclude an increased production of butter.

Why arms alone

Let us see what are the basic characteristics which distinguish the armament economy as a great stabilising factor for capitalist prosperity.

To succeed as a stabiliser the “Public Works” undertaken by the state must have the following basic characteristics:

(1) That they do not compete wit It private interests which produce in the same field. Thus, a state factory producing, let us say, shoes and competing with private shoe producers, would not decrease the danger of over-production of shoes, but increase if. But in the field of, say, barrack building, the state stands alone.

(2) That they employ the industries which are generally most affected by slumps -capital goods industries, heavy industry – industries whose weight in the economy is increasing and whose chiefs are predominant in the ruling class.

Seeing that whatever “Public Works” are undertaken, some sections of the class will benefit, such as, for instance, the producers of building materials, these sections will be quite ready to support such a programme. Other sections which benefit less but have to foot the bill through taxation, may well oppose or try to curtail it. Only if the main sections of the ruling class – those in heavy the industry, monopolists and the bankers – have a direct interest in the “Public Works” proposed, can these be carried out on a scale wide enough to prevent a slump.

(3) That they do not add much – in preference should subtract from – the productive capacity of capitalism and should, as far as possible, slow down the growth of social capital.

(4) That they do not add much, if at all, to the output of mass consumer goods and thus are not dependent on higher wages for an increasing market.

(5) That, while not adding to the national productive capital, the capitalist class should consider them an important factor in defence of its wealth and even a weapon for enlarging its prospective markets, in which case the capitalists would be quite happy to accept them. Thus, for instance, the American capitalists who had been very angry with Roosevelt for incurring an annual budget deficit of 2-4 milliard dollars (1934, 3.6 milliard, 1935, 3.0; 1936, 4.3; 1937, 2.7) did not mind a deficit of 59 milliard in 1941-2.

(6) That all major countries indulge in these “Public Works” to an extent corresponding to their level of national output and wealth. If only one or a few Countries were to do so, they would have less resources for capital accumulation, would suffer more than others from inflation, would be defeated in competition on the world market. Only if ALL major countries indulge in them, will each dare to do so.

Only armaments fit these necessary six characteristics of prosperity-stabilising “Public Works.”

Arms breed difficulties

There are three kinds of basic contradictions into which the permanent war economy may fall.

First, although on the whole there is conformity between the productive forces of society and the technique of the “slaughter machine,” the conformity is far from absolute. The burden of armaments may grow much quicker than the national output. Armaments can so cut into workers’ standards of living as to cause great social upheavals, and even a socialist revolution. Thus they could lead not to the prosperity of capitalism, but to its overthrow.

Secondly, although armaments may eat up a large portion of the national surplus value seeking investment, and thus weaken the forces leading to overproduction and slump, they may encourage a big advance in general technique and with it increasing pressure towards a slump. (Thus automation was, in part, the child of war industry.) Under such conditions, to keep capitalist prosperity going, instead of 10 per cent of the national income devoted to military ends, 20, 40 per cent or more will have to be devoted. This may create strong opposition among workers and lower middle class people, and perhaps mild opposition even among sectors of the capitalist class who would not benefit directly from the armament drive.

Competitive disarmament

Thirdly, the Powers may compete so fiercely on the world market that each, in order to strengthen it a position, would start to cut arms expenditure. We are at present witnessing Britain’s being pushed to cut her “Defence Budget” through competition with Germany, and deterioration of her international balance of payments. Up to now no country has been able to match the United States, force her to abandon the arms race and start competing on “who cuts the arms budget quickest.” She can afford the greatest military budget in the world and the greatest absolute investment in industry. But with the huge strides of Russian industry, it is possible that in another 10 or 20 years, she may, even if she does not reach the absolute level of United States industry, at least challenge the United States on the world market in certain branches – those of heavy industry. Then the United States may learn from Sandys and Macmillan how to cut the defence budget in order to circumvent defeat on the world market. The war economy may thus less and less serve as a cure for over production, a stabiliser of capitalist prosperity. When the war economy becomes expendable, the knell of the capitalist boom will surely toll. [1]



1. Of course, certain capitalist countries may face great economic upheavals and hardships even during the era of American prosperity. Thus capitalist Britain and France suffer from balance of payments crises caused by the general, military-induced, world prosperity. They are also affected gravely by the national uprisings of the colonial peoples. But in all probability, so long as the United States (with some half of world industrial output) continues to prosper, the life-belt will be thrown to the European junior partners of United States imperialism. Britain, France and Germany may well become more and more dependent on the United States. But as long as Uncle Sam is prosperous, he will not stop dishing out the dole.


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