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Can Wall Street Afford Peace?

(Fall 1962)

From International Socialist Review, Vol.23 No.4, Fall 1962, pp.99-104.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

ON THE eve of the 17-nation disarmament conference convened last March 14 in Geneva, a large-scale propaganda campaign was launched to allay widespread fears in the capitalist world that any significant cut in military spending will lead to a severe economic crisis, particularly in the United States. Moscow, as well as Washington, joined in this historically unique campaign.

In this age of potential nuclear annihilation, it might seem that the exclusive concern would be whether the United States, as well as all other atomic powers, can afford not to disarm. But just before the Geneva conference opened, agencies of both the United States government and the United Nations released official reports and studies devoted to serious and extensive analyses of whether capitalist United States can afford – economically speaking – to disarm. Never before has disarmament been discussed as a possibly grave threat to US economic stability in such an open and official manner.

“The new attempt that will be made in Geneva next week to negotiate a world-wide treaty for general and complete disarmament has again raised the question of whether the United States could afford to disarm,” began Max Frankel in his special Washington dispatch to the March 5 New York Times. His lengthy article immediately makes clear that he’s not discussing some military hazard which the US cannot “afford” to risk. He explains:

“Since World War II, when huge military expenditures became an important element of the country’s economy, the thought of eliminating these expenditures from the federal budget has raised fears of a major depression. The quick downward response of the stock market to ‘peace scares’ has been symbolic of a widespread suspicion that even if the country wished to disarm and felt safe enough to do so it could not agree to disarm without risking financial chaos.”

Frankel’s article is a report and analysis of a study made by a panel of American economists for the United States Arms Control and Disarmament Agency set up last year by President John F. Kennedy. The panel is headed by Emil Benoit, associate professor of international business in the Graduate School of Business at Columbia University. He is also Director of the Program of Research on Economic Adjustments to Disarmament, financed by private foundations. Prof. Benoit’s own formulations on the subject may be read in the chapter he contributed to The Liberal Papers, a symposium edited by James Roosevelt and published in April 1962 by Doubleday & Company, Inc.

On March 11, less than a week after Frankel’s report on the Benoit panel study and three days before the Geneva parley opened, the United Nations made public its report by ten economics experts on “the national economic and social consequences of disarmament in countries with different economic systems and at different stages of economic development.” The ten experts, who had been chosen by the late UN Secretary General Dag Hammarskjold, came from countries as politically and economically divergent as the United States, France, Britain, India, Pakistan, Sudan and Venezuela, all with capitalist economies, and the Soviet Union, Poland and Czechoslovakia, all non-capitalist countries with nationalized economies.

WE MUST carefully note at the outset that the United Nations and the United States Arms Control and Disarmament Agency studies both concede, either directly or by implication, that rapid and total disarmament by the Soviet Union can be achieved without any economic crisis or serious dislocation of economic activity. Moreover, these reports, as well as commentaries on them in the US press, agree that disarmament would be immediately advantageous to the Soviet Union and the other non-capitalist countries.

The summary of the UN study published in the March 12 New York Times, disposes of the major economic problem posed by disarmament in the Soviet Union and other countries with nationalized, planned economies, in one paragraph:

“In the centrally planned economies, where productive capacity is usually fully utilized, it would be necessary to convert plants producing military equipment to production of durable consumer goods and of such investment goods as can be produced in them with only minor retooling. This can be done rapidly.”

Almost four columns of condensed type are used in the Times summary of the UN report to explain how it might be possible for the highly industrialized capitalist countries, particularly the United States and Great Britain, to avert economic decline and mass unemployment despite disarmament.

Both the US and the UN studies emphasize disarmament as a serious economic problem only for the private-profit economies. We will examine more fully what the official reports have to say on this aspect of the problem further on in this article. First, let us see what they say about the economic consequences of disarmament for the Soviet Union.

In the very last paragraph of his analysis of the Benoit panel report, Max Frankel summarizes all it has to say on the effect of disarmament on the Soviet Union:

“Should disarmament come, the experts point out, the fate of the non-Communist world would depend more than ever upon the peaceful economic competition between East and West and the two worlds’ capacities for aiding underdeveloped continents. If the United States were unprepared, they say, it could lose that long-range contest the day it achieves the long-elusive goal of freedom from war.”

THE experts – this special panel of American economists headed by Columbia University’s Professor Benoit – have trepidations about the “long-range” economic prospects of the United States compared to those of the Soviet Union once “freedom from war” is achieved.

On the basis of this same study, Frankel asserts that “the Russians ... derive from their Marxist schooling a deeply held conviction that disarmament would quickly give them the lead in any peaceful economic race with the West.”

But just two paragraphs before, Frankel admits that it’s not the Russians at all who voice doubts about the economic viability of American capitalism in a disarmed world. The Times correspondent writes:

“However, although the Russians, for their own political reasons, now agree that the capitalist system could withstand the shock of disarming, a great many persons both here and abroad have their doubts.”

The subversive talk about the economic hazards of peace for US capitalism is not being spread by the Russians after all, but by anonymous “great many persons both here and abroad.” The great many persons “here,” at least, are identified in part by Frankel when he notes the “quick downward response of the stock market to ‘peace scares’ ...”

Another New York Times analyst, C.L. Sulzberger, reporting from Geneva in the March 17 issue, also repeats ritualistically the formula: “Moscow is convinced the United States cannot afford to disarm because this would wreck our capitalist economy.” But then he goes on immediately to cite a more compelling reason why the Russians are most anxious for disarmament:

“Washington suspects Russia is almost forced to end the present arms race because it needs to tap the reservoir of military manpower to aid its faltering agriculture.”

Sulzberger elaborates this point and also indicates an economic motivation for the capitalist leaders to drag their feet on the disarmament issue. He writes:

“No doubt disarmament on any major scale would convenience the Soviet economy. It would provide more men to expand food production, Russia’s Achilles heel. It would afford new capital for investment in consumer goods and political exports to under-developed countries.

“Conversely, massive disarmament might for a time worry the US economy at an awkward moment. We are in the throes of adjusting ourselves to competition with the dynamic European Common Market and we have not yet solved the gold leakage. During the last dozen years our bullion holdings dropped by $7.5 billion.”

To Sulzberger’s inventory of international economic tribulations comprising an “awkward moment” for US disarmament, he would have been able to add two months later the worst stock market crash since 1929 plus signs of an approaching recession marked by industrial overcapacity, persistent mass unemployment and slackening capital investment.

But, Sulzberger nevertheless assures us, “Our immense armaments effort could be shifted with surprising ease and ultimate convenience to new, non-military endeavors ...”

Since “disarmament on any major scale would convenience the Soviet economy” and also provide “ultimate convenience to new, non-military endeavors” in this country, what prevents our achieving that “diversion to peaceful purposes of the resources now in military use” which, the UN study says, “could be accomplished to the benefit of all countries and lead to the improvement of world economic and social conditions”?

NONE of these studies, reports and commentaries offers a rational explanation of why the Soviet Union would want to obstruct disarmament. Indeed, they all concede or at least imply that the Soviet Union and its leaders yearn for disarmament and visualize enormous economic benefits from it.

Benoit, furthermore, on page 236 of The Liberal Papers, ascribes to “Marxian fantasies” the belief that a capitalist economy requires military expenditures to “keep going.” Sulzberger, as cited above, claims that “Moscow is convinced the United States cannot afford to disarm because this would wreck our capitalist economy.” Isn’t this all the more reason why the Soviet Union would earnestly and urgently desire immediate, full and unconditional disarmament?

But the alleged belief of the Soviet leaders that disarmament would wreck the capitalist economy is not really involved. US capitalism could quickly disprove such a belief by a disarmament agreement and a shift “with surprising ease” to “new, non-military endeavors,” if Sulzberger is correct.

There is some evidence, however, that US strategists are weighing the competitive advantage, in the economic sense, enjoyed by the United States over the Soviet Union in a continuation and intensification of the arms race. This line of thought is reflected in Military Defense: Free World Strategy in the 60s, by Dr. Robert Strausz-Hupe and Dr. William Kintner, political science professors at the University of Pennsylvania, director and deputy director respectively of the Foreign Policy Research Institute with close ties in the Pentagon. Their joint article, published in the January-March 1962 issue of General Electric Forum, says:

“Contrary to general belief, the [arms] race need not work against world stability and peace. It could serve as the most effective means to bring the Communist rulers to reasonable terms. For the Free World can better afford such a competition than the Communist bloc.” (Original emphasis)

THIS, of course, is only the opposite side of the coin tossed by Sulzberger when he states that Washington “suspects” the Soviet leaders want to end the arms race because it “would convenience the Soviet economy” by providing “more men to expand food production” and “new capital” for investment to produce more consumer goods and for exports to the poorer lands.

The Strausz-Hupe-Kintner thesis, however, does not answer the question whether capitalist United States can substantially reduce its military establishment and expenditures without grave consequences for the economy. It simply argues that forcing the Soviet Union into an arms race would put an intolerable economic squeeze on the USSR’s non-capitalist, planned economy. This argument does carry the implication that armaments spending is economically more supportable and more advantageous for the private profit economy than for the nationalized economy.

In its own way, therefore, this line affirms what is stated or implied in both the UN and the US Arms Control and Disarmament Agency studies: There is every economic and material reason for the Soviet Union to desire and seek speedy and total disarmament.

The whole issue of disarmament narrows down to the economic consequences of disarmament – of a non-militaristic program – for the United States. In other words, can Wall Street, the symbol of US finance monopoly capitalism, afford peace?

It must be clearly understood that no real Marxist (Stalinists or Khrushchevites are excluded from this category) has ever contended that a capitalist economy can be kept going only by armaments spending. That is a crude and vulgar distortion of Marxism by the Benoits and Sulzbergers. The basic Marxist analysis of modern capitalism and war was made in the spring of 1916 in a pamphlet, Imperialism – The Highest Stage of Capitalism. It was written by Lenin who less than two years later, with his co-worker Leon Trotsky, was to lead the first successful socialist revolution.

Lenin pointed out, with supporting statistical data, that World War I was being fought between competing gangs of monopoly capitalists for the redivision of the world, all of whose important areas had been gobbled up by 1914 and turned into colonies or “spheres of influence” by the largest and the richest capitalist powers. He called this the “imperialist” stage of capitalism, which he defined as follows:

“Imperialism is capitalism in that stage of development in which the dominance of monopolies and finance capital has established itself; in which the export of capital has acquired pronounced importance; in which the division of the world among the international trusts has begun; in which the division of all territories of the globe among the great capitalist powers has been completed.”

Lenin pointed out that great financial oligarchies, able to dispose of immense concentrations of finance capital, were fighting for international control of markets, sources of raw materials and, above all, spheres for the profitable investment of rapidly accumulating capital lying idle at home.

Lenin subsequently described the whole epoch of the ascendancy of finance capital as the period of imperialist wars, colonial uprisings and proletarian revolutions. This historical record since 1914 gives overwhelming verification to this succinct formulation of the explosive character of the most advanced stage of capitalism. Within the brief historic span of less than half a century, living mankind has experienced two world wars among the dominant capitalist powers, including the United States; a series of successful colonial uprisings in Asia, Africa and Latin America which have wrested huge chunks of the globe from the direct rule of the capitalist imperialist powers or their indirect rule through economic domination; and several proletarian revolutions which have destroyed the capitalist state structures in the Soviet Union and Eastern Europe, East Germany, Yugoslavia, China, North Korea, North Vietnam and now, for the first time in the Western Hemisphere, in Cuba.

THESE shattering events have had their roots in the observable and measurable laws of development of world capitalism. These laws have manifested themselves in intolerable economic contradictions. The foremost of these has been the tendency of the productive forces to outstrip the available markets, resulting in what has been called “overproduction” or the production of unmarketable surpluses of commodities and the accumulation of capital at a faster rate than can be profitably invested.

Capitalism has no peaceful, non-violent, socially beneficial way of resolving this basic contradiction because it has an automatic, built-in limitation: it may not overstep the profit interests of the dominant finance capitalists. Therefore, capitalism must seek to resolve the contradiction of the “overproduction” of commodities and capital by periodic destruction or liquidation of the “surpluses.” The stronger capitalists seek to achieve a new level of economic stability – that is, an increase in the rate of profits – by wiping out the weaker competing capitalists and obtaining a monopoly of both the productive forces and the markets. This is attempted in both depressions and wars.

The world-wide capitalist depression of the Thirties, however, proved incapable of solution through purely economic measures and maneuvers, even with the massive intervention of the capitalist state. The elimination of “surplus” capital and commodities by liquidation through bankruptcies and failures, plus the direct use of government power to create scarcity through physical curtailment of production, such as the slaughter of live stock and the plowing under of a fixed percentage of crops, momentarily caused a revival of the capitalist economy in the middle Thirties. But by the end of the decade a new decline had set in.

The attempt in the United States, for instance, to restore the economy primarily through internal measures proved unsuccessful. By 1938, in fact, unemployment had again passed the 10 million mark and industrial production had fallen in one year by 25 per cent. More and more, all the major capitalist powers turned toward external measures, seeking economic rehabilitation at the expense of international competitors and rivals.

The world war that ensued solved nothing. Momentarily, the United States emerged from the war economically dominant and able to dictate terms to its imperialist rivals. At the same time it had to rehabilitate them and together with its former enemies it sought to prepare for a military accounting with its wartime ally, the Soviet Union. Meanwhile, the war had shaken loose revolutionary forces all over the world – India, China, Korea, Indo-China, Indonesia, North Africa, East Europe, Cuba. The whole colonial and semi-colonial world, comprising four-fifths of the world’s population and two-thirds of its land mass, was smashing the imperialist yoke. A large sector broke away from the capitalist economy toward nationalized economy; another sector – and a growing one – has sought to limit its economic and political dependency on the capitalist powers.

IT IS within this larger world historic framework that the question of the economic role of armaments in the United States must be viewed. The armaments program was not designed as an internal economic measure to bolster the economy. It was and is intended ultimately to resolve the intolerable contradictions of monopoly capitalism through the obliteration of the non-capitalist third of the earth and through the subjection of the rest of the world to the profit interests of US finance capital.

We can arrive at a correct answer to the question posed at the start – “Can American capitalism afford to disarm?” – only within this larger and more decisive context. We must understand that the military program, initiated and intended for conquest, is the consequence of impelling forces in the very structure of capitalism.

Let us now turn to our delayed examination of what the UN and US economics experts have to say about the effect of disarmament on the United States economy.

To begin with, neither group is talking about rapid and total disarmament. At best, they are discussing the economic consequences of a gradual slackening of the arms race. The UN study is much more vague on this – as well as several other points – than the study made for the United States Arms Control and Disarmament Agency. The UN report, without setting any specific time limit or degree of disarmament, simply notes that “hypothetical studies,” based on the “assumption” that military expenditures will be replaced “wholly” by increased government expenditures for non-military purposes, “suggest” that “some 6 or 7 per cent (including the armed forces) of the total labor force in the United States ... would have to find civilian instead of military employment or change their employment from one industry to another.

“These shifts would be small if spread out over a number of years ... The higher the rate of the growth of the economy, the easier the adaptation.”

This estimate leaves out two things:

  1. the number of unemployed in this country in June was already 4,463,000, or 5.5 per cent of the civilian labor force, so that the total of those for whom jobs would have to be supplied would be more than ten million in the event of “rapid disarmament”;
  2. the rate of growth of the economy would have to be faster than at any time since World War II, even to keep the number of unemployed from rising above the 10 million level, according to estimates of almost all US economists.

But we will leave these matters aside – for the moment. What is meant by the UN report’s phrase, “a number of years” for the shift to disarmament? The Benoit panel report tells us more explicity. As described by Max Frankel in his New York Times analysis, one of the major points of the Benoit report is:

“Assuming that disarmament will be accomplished in stages over ten to twelve years, and that it will be accompanied by greater outlays for international inspection and police forces, as well as civilian space and nuclear energy programs, it is unlikely to result in immediate depression of the United States economy.”

We will ignore the qualifying “immediate” before the word “depression” – for the time being. Certainly, no “immediate” is placed before the word “disarmament.” It is to take “ten to twelve years.” But wait, the panel is not speaking of ten to twelve years from now. Further on, Frankel explains:

“For the convenience of planning, therefore, it is assumed that disarmament is not likely to begin before 1965 and that at best it would take effect in four periods of three years, and be completed about 1977.”

In short, disarmament is envisaged “at best” within 15 years. But pause some more.

THE Benoit report doesn’t really base itself on “total” disarmament. As a matter of fact, it expects armaments spending to rise to $60 billion in 1965 with “more than 7,000,000 persons employed in civilian or Government defense work.” Then it will start to taper off. One thing the study is sure of: arms spending is going to grow bigger before it grows smaller.

When it starts to grow smaller, just how much smaller will it grow? Well, by 1969 it will be down to a mere $43 billion a year – about what it was just before Kennedy took office, or the highest in US peacetime history up to 1961. By 1972, ten years from now, the reduction would be to $31 billion annually. By 1977, “defense spending by the Government is expected to drop from about $60,000,000,000 to $28,000,000,000.” In other words, war spending will continue to be at a pace more than double the average annual military spending from 1946 through 1950, which in turn was thirteen times greater than in pre-war 1939. From now, until 1977, 15 years hence, the US will have “disarmed” to a total of about $600 billion of additional military spending.

Since we have had two major – that is, world – wars within the past half century, it is natural to seek in historical experience some guide to the problem of disarmament as faced by the great capitalist powers, particularly the United States where the military expenditures comprise about 45 per cent of the world’s total arms spending and four times that of the Soviet Union.

Curiously, neither the UN nor the US Arms Control Agency study investigates the economic experience following World War I. In the United States, at least, the decade following World War I was known as the “Golden Twenties.” The index of industrial production (1957=100) rose from 26 in 1920 to 38 in 1929, a 46 per cent growth. It is true that an economic decline in 1921 reduced the industrial production index to 20, down 23 per cent from the year before. But by 1923, the index stood at 30, rising almost steadily with no serious reversal until 1930. This was accomplished with an almost continuous decline in both federal spending and federal debt. Total federal spending dropped more than half between 1920 and 1925, from $6.4 billion annually to $3.06 billion, while military spending fell from $4.6 billion to $600 million. The federal debt fell from a 1919 post-war high of $25.5 billion to $16.9 billion in 1929. In short, in that period the US economy was able to advance despite a sharp decline in federal spending and with a drastic slash in military expenditures.

But both the UN and US agency reports quite correctly see no precedent in the post-World War I experience and do not bother to mention it. For by 1929, even the United States, banker to the world, could not maintain a stable and advancing economy strictly through “free enterprise.” As a matter of fact, even massive federal spending and ten straight years of federal budget deficits could not restore the US economy to the 1929 level. The job was done by war spending, piling up the federal debt from $45.9 billion in 1939 to $269.9 billion in 1946.

WHAT happened at the end of World War II is examined by both reports to see if it contains some guide for disarmament today. Here we find a wide difference of opinion.

The UN report emphasizes:

“The post-war conversion was a much larger one and involved a more rapid transfer of resources than total disarmament would require today. Nevertheless, huge armies were quickly demobilized without a significant rise in unemployment in most countries.”

Only as a quite casual afterthought, does the UN study add:

“During the post-war conversion, however, the major concern of economic policy was to restrain, rather than maintain, over-all demand.”

The Benoit panel report, as described by Max Frankel, dismisses as totally inapplicable to the present situation the post-World War II experience.

“Demobilizations after World War II and the Korean War are not comparable, the experts maintain, because consumer saving and demand has not been pent up, as it was then. The employment problem now, they note, is much more serious than it was after Korea with both the labor force and the productivity of each worker growing rapidly in the Nineteen Sixties.”

One simple fact, which neither report mentions, underscores the difference between disarming today and after World War II. During World War II it was necessary to drastically limit and curtail civilian production to provide enough labor, plants and resources for war production. Today, with military spending within a billion dollars of the Korean War peak in 1953, we are having the beginnings of an economic crisis of overproduction in civilian commodities and uninvested private capital.

What is the weight of militarism in the US economy today? An extensive review of “the pattern of defense spending” in the Sunday Business Section of the April 29 New York Times, begins:

“There’s no business like big business and the biggest of all is defense business ... the biggest single economic activity, not only in the United States but in the world.”

In the United States, according to Frankel’s review of the Benoit panel study, the military business involves

“... nearly one in ten of every dollar produced in goods and services ... nearly one in ten of all workers ... 86 per cent of all federal government purchases of goods and services ... 95 per cent of all jobs in the aircraft and missile industries, 60 per cent of jobs in ship and boat-loading industries and 40 per cent of the jobs in radio and communications equipment manufacturing.”

Now keep in mind that the “defense business” has not replaced normal civilian production but has been incorporated into the regular economic machinery as the “biggest of all” the big businesses. How can this be eliminated, or even reduced about 50 per cent, as the Benoit study really envisages “disarmament,” without a serious economic convulsion?

It can be done, say the various official reports from the UN and US agencies, with a couple of mammoth-sized “ifs.” If “total effective demand can be maintained” (UN study). If “military expenditures were fully replaced by public and private non-military spending ...” (UN study). If the government “could strike the proper balance between immediate tax reductions to spur civilian demands, and increased Government spending on longer-range needs ... school construction, teacher training, roads, urban renewal, area redevelopment, public health and social services.” (US Arms Control and Disarmament Agency study).

Unfortunately, Frankel observes in his summary of the Benoit panel report,

“... the experts also note that under present laws, without vigorous Government action of the kind the country has never before been required to take, a drop of $5,000,000,000 in defense spending could cause a serious slowdown.”

But that wouldn’t be the half of it, Frankel indicated back last March 5, if another development took place:

“Pessimism and a break in the stock market, the experts say, might make matters very bad.”

Matters have become “very bad,” because the worst break in the stock market since 1929 occurred in May and June, little more than two months after Frankel’s report.

The Benoit panel concluded, “education, welfare and public works projects are the most attractive aspects of disarmament.” But, these same experts concede, “it remains a problem how these can be achieved in a way that will maintain and spur economic growth in the absence of defense spending.

“Students of the economics of disarmament have begun to explore these areas,” we are informed. “But they are not certain that a tradition-oriented Congress would accept such Government activity in time.”

A Congress which would vote down a Medicare bill to provide a little medical assistance to aged sick through funds levied by a payroll tax is certainly going to need a lot of persuading to vote for thirty or forty billions of federal spending for socially beneficial purposes to replace the decline in arms spending some fifteen years from now.

IT IS in the light of such political considerations, if nothing else, that we must evaluate the Kremlin’s line on disarmament as expressed by Professor Oskar Lange once Poland’s representative in the UN Security Council, in the April 16 issue of a leading Moscow newspaper, Izvestia. Lange wrote that in many capitalist countries “there are fears that disarmament would provoke mass unemployment and economic crisis” and that “reactionary imperialist circles as well as the monopolies that have profited from military contracts make use of these fears in their struggle against disarmament.” But, Lange assures the ruling US Monopoly capitalists,

“... this does not mean that it would be impossible to bring about disarmament in the capitalist countries without economic shocks. Such shocks could be avoided by application of certain measures of economic policy directed toward the replacement of military contracts by orders connected with peaceful aims ...”

Let us assume that the reactionary US Congress, the political agency of the monopolists who benefit from military contracts, agrees to disarmament and a titanic increase in social and welfare spending. Let us assume that the private real estate interests are unable to block new low-rent housing, that the giant industrial corporations permit the government to invade the fields of industrial production, that the Church hierarchs and the Southern segregationists cease to obstruct federal spending for public education. Let us assume all this and a great deal more and we still have not answered the question about armaments and the economy. Can Wall Street afford to disarm? But this is not really the decisive question. In fact, it’s the wrong question.

The question that must be answered is this: if more than a trillion dollars of military spending since 1946, if the accumulation of a $300 billion federal debt now maturing at a dizzying rate of nearly $100 billion a year, if the withholding of millions of youth from the labor force by their sequestration in the armed forces – if all these have failed to stabilize the US capitalist economy, how will the same amount or less of federal spending for peaceful purposes in place of militarism fundamentally solve the basic contradictions of capitalism? If the monstrous armaments spending won’t do the trick, how will welfare spending?

This contradiction can be resolved in just one way, as Socialist Workers Party Chairman James P. Cannon once put it, by “one small, but good, social revolution” to replace capitalist anarchy with socialist planning.

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