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Albert Gates

Modern War and Economy

(November 1941)

From The New International, Vol. VII No. 10, November 1941, pp. 274–8.
Transcribed & marked up by Einde O’Callaghan.

THE CHARACTER of the current World War was already foreseen in 1918. The stalemate of machine-gun warfare was suddenly overcome by the introduction of the steel tank and the improvement of the offensive power of the airplane. They were an omen of the future. The growth of modern science, particularly in the fields of chemistry and physics, prepared the ground for an unprecedented development of enormous and variegated instruments of destruction, which, in their mass, was destined to make unparalleled demands upon the industrial capacities of all nations. How shall a nation prepare itself for war? What are the industrial requirements of modern armies and how do these requirements affect normal peacetime economy? What principal changes occur in the productive character of industry, what economic laws are violated? This is the subject of a new study by the eminent Czechoslovak economist, the former director of Research of the Czechoslovak National Bank and representative at Geneva conferences, Dr. Antonin Basch. [1]

A great deal of political and economic theorizing is woven through the book, much of it undiluted nonsense, but the author has really contributed something positive to the question of how capitalist nations reorganize their economies to fit the needs of modern imperialist war. In establishing his main thesis, Dr. Basch directs attention to three obviously important facts:

  1. Modern war represents a harmonious balance between the home industrial front and the battlefield.
  2. The industrial requirements of the war machine make unavoidable a complete reorganization of the national economy.
  3. The economic struggle between nations is not suspended in the course of the war, but is, on the contrary, intensified because the industrial requirements of the Army and Navy one-sidedly accentuate the problems of an all-embracing peacetime economy.

The salient point to be remembered in this sphere is that the national economic plant must be entirely subordinated to the needs of war. No half-way measures are permissible, lest the war effort suffer from lack of its basic material requirements. Munitions and food, once the primary need of an army, no longer suffice. Mechanized and motorized warfare, the organization of armored and semi-armored divisions, the employment of vast armadas of gigantic planes, heavily equipped for fire power, massed artillery boasting an infinite variety of guns, and augmented sea weapons, place a terrifying load upon the home economic front.

Prerequisites for Arming a Nation

In their Handbook of the War, John C. DeWilde, David H. Popper and Eunice Clark write:

Some notion of the burden of supplying an attritional war can be gathered from the fact that the United States Army spent four billion dollars for ordnance alone in the last war. One hundred and fifty thousand soldiers can fire away two or three million dollars’ worth of ammunition in one day’s battle ... even guns must be replaced at rate of five to twenty-five per cent a month. A sixteen-inch gun is good for only one hundred accurate shots. No one can predict how much material will be consumed in a long war. During the last war the United States used up more men and material in one month than it had in ten years for the construction of the Panama Canal.

These are facts gleaned from the experiences of the last war. They no longer serve as a measuring-rod for war production and expenditure of materials in the present. Manpower, urgently required, is, nevertheless, in the terms of present-day needs, a secondary quantity in the assessment of a nation’s strength (England). The authors of the Handbook of the War, are correct in all respects when they say:

What constitutes the economic strength of a country? First, industrial capacity. No belligerent can survive long unless it possesses heavy industries capable of turning out large quantities of iron and steel. Well developed engineering, automotive and chemical industries are essential for the production of arms and ammunition ... Industry cannot live without a continuous supply of raw materials. Man cannot live without food. These are the real sinews of war.

Several important problems are indicated in these quotations and they will be dealt with in connection with Dr. Basch’s book.

Dr. Basch’s thesis is a simple one: the requirements of modern war urge deep-going economic changes in the national industrial organization in order to fuse the home and war fronts. Without this reorganization, the prosecution of a modern war is impossible. He writes:

The economic impact of total war between the great nations with a developed national economy is of such proportions and intensity as to interfere with all items of economic life.

This holds true for all the warring countries. In his elaboration of the methods employed by belligerents to realize this projected reorganization of their economies, he proves that they are similar, proceeding from an identical point of departure. “The essential structure of war economy is the same in totalitarian and in democratic countries, and inherent in all are certain common principles of function.”

Conflict between Production and Consumption

The following visible changes are inherent in the transformation of the economy of a nation from peacetime production to war economy:

  1. Augmented production of heavy goods of war.
  2. Reduction of consumer goods and the consequent reduction of the national consumption.
  3. Reduction in the investment of new capital.
  4. Depletion of the existing capital.

In the conflict between war production and mass consumption, one or the other must give way. The struggle between these two aspects of capitalist production can be and is resolved only by a severe decline in the production of consumer goods. This decline in the production of articles of consumption, food, clothing, shelter, luxuries, etc., cannot be long postponed. In the warring countries it began instantly with the outbreak of hostilities – even long before the war. The problem is being resolved already in the United States, even though it is not a belligerent in the old sense of the term. In each country the process undergoes different forms, all dependent upon a variety of national factors, but the basic orientation is the same. In describing this primary step essential for all countries, Dr. Basch explains:

The demands of total war are of such dimensions that, in my opinion, they cannot be satisfied for a longer period of tune from increased production alone. This means that the other items in the economic balance must be altered and adjusted and that consumption in the largest sense must be reduced.

There is current a belief that this unavoidable development in national economy holds true only for a country with limited resources, limited industrial capacity, and narrow participation in the field of world trade. It is this belief which permits of a degree of complacency – the hope that the United States will develop a complete war economy without necessarily reducing the ratio of consumption to the total production and without appreciably depressing the standard of living of the masses which inescapably accompanies augmented production of war goods (a complete absorption of the producing powers of all heavy industries guaranteed by the manner in which priorities in raw materials renders helpless the efforts of such consumer industries to remain in business).

Dr. Basch writes:

The opinion has been expressed that it may be possible to satisfy war demands by increased production without curtailing existing consumption. Quite apart from technical difficulties I find this view unacceptable. War requirements are too urgent and too vast to be thus satisfied, even in an economy with large resources.

Thus the initial step in the transition to a complete war economy strikes first and foremost against the masses. It means less of everything required to maintain the pre-war average standard of living. What does this imply for them? The author frankly points out that:

They involve a profound adjustment of the civilian population. In other words, a great total war tends inherently to depress the level of living of the fighting nations ... The standard of living can be raised only at the expense of armament production; it is impossible to have both more guns and more butter. (Emphasis mine – A.G.)

Consequently, bourgeois society must seek the ultimate depth to which civilian consumption can be reduced without a physical and moral deterioration of the population. No one country has established such a gauge, for it is clear that “the point at which exhaustion (of the masses) begins and makes itself felt differs according to national customs and endurance (tradition, standard of living over a period of years, revolutionary capacity of the proletariat, etc.).”

The Rôle of the State in the War Economy

The rôle of the state as the instrument of bourgeois social rule is nowhere so extravagantly evident as in a war period or in the preparatory stage immediately preceding it. The goal of production has been altered. The market no longer plays a dominant rôle because the all-consuming national and international market is the state, which now directs the entire economic activity. How can it be otherwise when production occurs solely for the benefit of the war machine? All industrial efforts, therefore, become extraordinary.

In addition to directing production toward this one goal, the state is confronted with manifold economic problems. Since it is the sole overseer of production, it must solve the acute dislocations which result from war economy. Among these problems are the maintenance of an adequate labor supply for war industries; the prevention of inflation arising from the contradiction in the rise of war production and the decline in consumption, accompanied by increasing employment and a larger total wage bill; bearing down upon the increasing class tension produced by the new economy; controlling, but not altering, the profit character of production; directing the flow of capital; deciding the character of priorities and maintaining, if possible, a favorable balance of foreign trade. In confirmation of this, Dr. Basch writes:

The main task of any war economy consists in organizing production and labor to provide the maximum supply of goods and services and in adjusting civilian consumption to war necessities and priorities on a large scale. But at the same time attempts have been made to avoid some of the mistakes and failures of the last war: inflation, war profiteering and great social changes.

It is not difficult to see what all this means for the great mass of the people. Where the initial war effort depends upon the reduction of the standard of living, government measures for alleviating national distress merely signifies the fear of the government that the profound dislocations created by the war will induce a serious conflict between the classes and render the new economy helpless. Thus, measures of “alleviation” are sought primarily for the purpose of blunting the extremes of war economy, to force the adoption of “class peace” for the duration – class peace as the only method by which the war program can be realized.

But at this point the state can finally resolve its problems in only one way: take the road of totalitarian political and economic rule. The “democratic” road is employable only for an historically brief period. Where totalitarianism was already in existence before the outbreak of the war, as in Germany, the swift transformation demanded of the democracies is not required. Since 1933 Germany has lived under a war economy. Then, what appears to be a fundamental divergence of methods between the fascist and democratic states is merely the difference between an already existent totalitarian state and one that is marching inexorably in that direction – it becomes quantitative.

Dr. Basch’s book is an important contribution to this phase of capitalist economy, for he illustrates concretely how every sector of the war economy is organized on the basis of an intensification of the exploitation of the proletariat.

The First Steps of the Belligerent States

Each of the warring states, and the United States, proceeded fundamentally in the same way to organize their economies for war. It is extremely illusory to attribute to totalitarian Germany an inherent economic superiority over the democratic nations because its preparations for war were further advanced than that of any other country. The explanation for this illusion lies in another field and does not concern the subject of this review. What is important for us to understand, however, is that all the belligerents, totalitarian and democratic, employ the same principle methods. One would err to say that the United States, for example, need not duplicate the German methods, nor that it will not be necessary for the American people to experience the same problems as the European peoples. As indicated above, such thoughts confuse the degree and intensity of an act with the act itself.

The central thesis of Dr. Basch’s book is to prove precisely the similarity in basic methods employed by all the governments, with this one difference – Germany began at least five years earlier than anyone else to prepare for the war which broke out in 1939 and had, with the triumph of Hitler, solved the “class” problem through the destruction of the proletarian organizations.

In Germany, Wehrwirtschaft (national defense economy) began officially with the consolidation of the fascist victory. The preparation of industry, the problems of labor, the organization of war production, and the development of new materials of warfare arising from the necessity caused by the peculiar position which Germany occupied in world economy (isolation from the world market and the international sources of raw materials), were supervised by the state. The state controlled the whole life of the nation.

From the very birth of the Third Reich, Germany set itself one goal: complete destruction of the Versailles Treaty and a complete imperialist redivision of the earth. The failures of the democratic nations to keep pace with Germany were, in the last analysis, political. They had hoped to utilize German rearmament (which they alone made possible) for their own interests. To explain in detail the origins of the democratic policies and their significance would take us far afield. It is necessary, however, to add a word here. If the democracies had so desired, the German military “renaissance” would never have taken place.

Unimpeded by the other powers, Germany proceeded to complete a total war economy. Wehrwirtschaft was completely in the hands of the state. The Four-Year Plan was initiated solely as a war measure. So thorough were these preparations that the German Reichsbank reported in 1939:

“The transition to wartime activity, thanks to the work of organization accomplished in the preceding years, has been rapidly and smoothly completed, enabling the economy to achieve the expansion of its productive capacity necessary to meet the wartime needs.” (Quoted by Basch.)

The German leaders understood exactly what they wanted and how they were to achieve it. Thus State Secretary Koerner had declared that:

“We are far ahead of our enemies, whose economic organization remains still extremely hesitant and incomplete.” (Quoted by Basch for the article by H.W. Singer, The German War Effort in the Light of Economic Periodicals)

What is it that the German state did? Basch again reiterates that it is identical with the activities of the other countries. He writes:

The purpose in actual war is the same as that of any other country – to increase production for war as much as possible and to mobilize all economic resources even more completely than under the defense economy (prior to the outbreak of actual war – A.G.). The general methods were: complete conscription of labor, extending rationing of civilian consumption and curtailing of non-defense production, centralized commandeering and gear of production by allocation of raw materials and labor, stabilization of the general price and wage level, and control of foreign trade and foreign exchange. Consumption was curtailed as far as possible in order to make any recourse to inflationary methods unnecessary. In other words, the state sought through a wholesale economic regimentation to achieve the maximum efficiency indispensable to the conduct of the war. (Emphasis mine – A.G.)

Lethargic Britain Finally Adopts A Full War Economy

After a belated start, the result of her political aims prior to the war, Great Britain has moved fast in the direction of Germany’s war economy. The Emergency Powers Act, passed on August 24, 1939, “authorized the government to take over or control any property or enterprise, but directly forbade industrial conscription.” Great Britain still attempted, in the beginning, to reconcile “business as usual” with the organization of its war production. But she has moved steadily away from that position since 1939. The Ministry of Food (a state institution) assumed complete control over food. The Ministry of Supply (a state institution) “became the sole importer and buyer of aluminum, copper, lead, zinc, sulphur, wolfram, pyrites, flax, wool, timber, molasses and other important materials.” The state assumed complete control of foreign exchange, foreign investments, and all finance.

What is it that held Great Britain back from pushing this “transition from peace to a war economy”? This subject of the relation of the “rich” democratic nations to the fascist has been repeatedly discussed in the columns of this magazine. Dr. Basch fortifies our thesis when he says:

Great Britain’s wealth in resources has tended to make her underestimate the magnitude of the economic effort involved in total war.

But with the fall of France, a marked change took place in British policy. In May 1940, a new emergency bill granted immense authority to the state to control the person and property of the entire population. Dr. Basch points out that:

... it was intended to empower the government to direct any person to perform any service required, to fix wage rates, hours and conditions of employment, and to inspect the premises and employers’ records. Munitions production was put directly under government control. Superfluous concerns might be ordered to shut down, subject to reasonable compensation. A special department to stimulate aircraft production was created. The government was thus granted power to institute a totally administered economy for the duration of the emergency and, especially, also to regulate production, distribution or consumption of any commodity and to control prices.

The manner in which the British state employs its powers is entirely dependent upon the course of the war and the state of its material resources. The course of the war up to the present moment has demonstrated that Great Britain approaches not a diminution of the war effort but, on the contrary, its intensification. The longer the war continues, the greater will be the similarity of its war economy to that of Germany.

The United States Has Also Joined the Pack

With increasing speed, American economy is traveling away from peacetime functions. Ruled by an interventionist government, it proceeded to march in the direction of a war economy with the onset of the European conflict. The adoption of the policy to make of America “the arsenal of democracy” and the passage of the Lease-Lend Bill presaged the new turn in the national industrial organization. The Battle of the Atlantic and acute developments in American-Japanese relations have hastened the process of economic reorganization.

The United States is the richest country in the world. The significance of this richness is brought home especially in this war. Possessing the greatest industrial plant in the world, buttressed with an enormous reservoir of native raw materials and geographically situated to obtain other indispensable raw materials, she is potentially the military giant of the world. Despite these favorable circumstances, the transition to a war economy in this country has been extremely halting because the Administration endeavored to accomplish the turn on the basis of peacetime methods. Roosevelt has hesitated to use his governmental powers in the same way that the British and the Germans employ theirs. But this situation cannot and is not being prolonged. In the United States, too, the government is rapidly assuming greater and greater control over the economic life of the nation. Entry into war would witness the complete passage to an overall war economy.

But it is interesting to observe, nevertheless, that for all of America’s richness, it must tread the path of the other bourgeois states. The installation of the Office of Production Management, with presumed powers of economic control, the efforts to pass measures of price control, the bills to control labor, the setting up of a priorities division, the increase of the national debt and the expenditure of an increasingly larger share of the national income for military purposes, all spell out the conscious movement along the European pattern. As a matter of fact, plans for economic reorganization on a war basis was originally further advanced in the United States than in any other country. It is conceded that the “German plan” found its main inspiration in post-World War American preparations for a future war.

A Comparison in Effort

Dr. Basch summarizes the paths of development in the two main belligerent powers, England and Germany, in the following pertinent manner:

If we compare the German and the British war economy, we find indeed a great similarity, despite a different degree of regimentation and commandeering; in both countries there is the policy of financing the war without inflationary effects, with taxation absorbing a great portion of national income; in Germany, a general freezing of prices and wages, in Great Britain a steadily expanding control of prices supported by various indirect devices. In both countries we see reduction of non-defense production in order to release labor for war production, lack of skilled labor and also conscription-registration of workers (which, of course, was initiated in Germany long ago). Further, there is rationing of consumption in both countries; in Germany this is comprehensive, in Great Britain more elastic and also working by indirect controls; in both there is great liquidity on the money and capital markets.

The United States follows closely upon the heels of the other two powers. The immensity of the war, the material requirements of the powers is so great, that the war economy dominates the whole of world economy. Thus, we observe a pyramid, the point of which is presently occupied by the United States, Great Britain, Germany and the Soviet Union. This sector rests upon the broader base of the British Empire, the Axis, Germany’s European conquests and the colonial possessions of all countries. Economic activity occurs for the sole purpose of providing the material prerequisites for continuing the war.

We have omitted a discussion of the Soviet Union in this review for several reasons. Dr. Basch, except for a brief statement declaring the identity of German and Russian economy, a theory which he forthwith ignores and disproves, does not deal with Stalin’s state. More important than that, however, is the fact that the Soviet Union stands outside the orbit of capitalist economy. Property relations are different, class relations are different. Consequently, its methods are at great variance with those employed in the capitalist states. As an important aside, however, it is necessary to state that little or no information is available on the economic war problems of the Soviet Union. Stalin has surrounded the country with an impenetrable veil of secrecy.

In Partial Summary

The victim of bourgeois war economy is the proletariat. Control of labor, i.e., wage ceilings, longer working hours, inability to change jobs, loss of democratic rights, suspension of its basic interests, are followed up by a reduction in the consumer goods. The transfer of the economic life of a nation to a war economy affects the proletariat in the first place. The bourgeoisie, by virtue of its wealth and the specific place it occupies in society, may also suffer inconveniences as a result of the new order of things, but their inconveniences are as nothing compared to the great masses. The standard of living of the two classes is incomparable, for a reduction in the standard of the bourgeoisie is, for all practical purposes, indiscernible, while a reduction of the already low living standards of the proletariat subjects it to increasing misery and physical strain.

The proletariat is not alone in this new milieu. War economy destroys the economic base of the petty bourgeoisie. Priorities make impossible their continuation in business. The development of a one-sided war economy, the reduction of consumer goods to the lowest possible level, eliminates their economic basis of existence. War production is impossible without complete subordination of the national economy to the power of monopoly capitalism, the big combines, the enormous mass production industries. No matter what efforts are attempted to “save the small business man,” they are doomed in advance. The bankruptcy of social reformists and the champions of the petty bourgeoisie is nowhere so evident as in their efforts to reconcile what is irreconcilable, especially in a period of war: monopoly capitalism and free enterprise.

* * *

The material discussed in this review is the most significant portion of The New Economic Warfare. There are other chapters in this simply written study which contain many figures illustrating and proving the fundamental theories involved. For those who wish to implement their economic studies of the present period of bourgeois economy, Dr. Basch’s work is an excellent source book.

But we have only scratched the surface of the problem. We hope to continue where we left off in this review, in forthcoming issues of The New International.


1. The New Economic Warfare, by Dr. Antonin Basch. Columbia University Press, 190 pp., $1.75.

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