As much as people like to believe that their versions of central planning are different from the previous failed attempts, history always has a way of repeating itself. An excellent comparison to the current way the United States funds its war machine is the example of Germany just prior to the rise of the Nazis as explained in John T. Flynn’s 1944 book As We Go Marching. Following an economic crisis after World War I, Germany saw tremendous growth during the mid-1920s that ended in a huge economic bubble bursting in 1929.
A new economic philosophy had become popular that claimed that domestically held debt is not harmful to a country like foreign debt is. This helped spur on a policy whereby debt was undertaken not only for financing government programs but also for generating income for the government. The military became the key industry for the government to target as the catalyst for economic growth. While the short-term gains looked impressive to the rest of the world, it soon resulted in economic ruin.
Several selections from Flynn (p. 103-106) catalog the actions taken by the German government and the political climate surrounding these decisions. It paints a picture that should appear all too familiar to any American paying attention to the actions of the government today:
As time wore on and a great industry grew up around it, the relation of this institution to the economic life of the country became obvious. We have noticed the growing demand upon the government from the indigent and the unemployed the institution of social welfare and the spending of money on all sorts of enterprises enable the government, by borrowing money, to create income. This income, infused into the blood stream of the nation, vivified industry generally and acted as a stimulant and support of the economic system.
In 1907 there were 600,000 men in the German Army and 33,000 in the Navy. In addition to these there were about 800,000 men in the materials industries, such as mining and metals and forestry and in commerce and trade, whose employment was dependent wholly on the army and naval orders of the German Government. This leaves out of account the number of employed in agriculture to feed such persons and the number of employed to clothe and house them. Instead of being a burden, therefore, militarism was a great Public Works Administration and Work Projects Administration rolled into one which, with public funds, provided work for a vast army of military men and industrial workers.
Military men, when confronted with the mutterings of disaffected taxpayers, always pointed out how good these government military expenditures were for business. Stumm could imagine no expenditure more productive for the community than those for armies. Schlieffen said, when military economics were discussed: “The national economy, the machine with its thousand wheels, through which millions find a living, cannot stand still for long.” One of the German delegates to the 1989 Peace Conference, Colonel Schwarzhoff, declared that “armies were not impoverishing the peoples and the military service is not a burden.” He said his country owed its prosperity to military service. The German people believed this. Professor Snyder observes that: “In spite of the fact that millions in taxes were required in order to maintain this rapidly increasing naval power, the public in general was pleased with the new navalism. People associated prosperity and ‘good times’ with monarchy and its militaristic props, the army and navy, and they seemed to be convinced that this prosperity would continue if the fighting forces of the nation were continually modernized.”
It follows that the increase in debt was necessitated wholly by the armament outlays. Increase in debt could have been eliminated by paring armament payments by the amount of the new debt. In some years as much as half of all military outlays were provided for by borrowing. During the war, of course, the entire military budget was borrowed. These fundings are corroborated by Dr. Adolph Wagner, professor of political science in the University of Berlin, who said in 1902 that the loans of the government were due chiefly to the extra outlays for the army and navy and strategic subsidies for the states for the same purpose. Mr. Alfred Vagts makes a very pregnant observation on this point. “The people,” he says, “became inclined to believe in a superior kind of planning which the crisis-beset capitalism did not know how to provide, but which seemed to be inherent in successful military institutions.” In order words militarism, without being designed to do so, came to provide Germany with that instrument which the later-day planners have been demanding—a means of increasing national income by public expenditures through borrowed funds. In truth militarism had become the great accepted and universally tolerated Public Works Administration of Europe. Had it been a mere burden to the peoples by reason of its tax exactions it would never have survived. It was because the tax burden was at least temporarily offset by the increase in national income provided through maintaining with public funds Germany’s biggest industry that it was permitted to continue.
The point is not to say that the United States is on a path to Nazism. It should instead be obvious that the United States is inflating an economic bubble that will burst just as the Germans suffered in the late 1920s. Government programs and expenditures are serviced through an increasingly large debt since taxation and other government revenue generating avenues are insufficient. And since so much debt is difficult for the public to swallow, it should be no surprise that the government often conveniently refers to spending as “investments.” This lessens the sting and creates the expectation of a return at some point in the future. But the resources to sustain the growth simply do not exist and so collapse is inevitable.
The rules of economics do not change for time periods or countries. The same fallacious arguments used by the Germans early in the 20th century are the same arguments being used to justify the constantly expanding American war machine. Even though it may have some apparent short-term benefits to related industries, military and debt spending are both poisons to an economy.