War is Good for the Economy (and Other Myths)

April 10, 2017
April 10, 2017 Tim Preuss

War is Good for the Economy (and Other Myths)

In response to Halsey English

In an opinion piece published April 8th, I made the case that America was not on a sound enough footing, economically speaking, to launch a major conflict against a powerful nation such as Russia or China. Just two days later, Halsey English wrote a rebuttal. While we agree that the recent strike on Syria was a mistake, Halsey wrote that America’s economic outlook should not be a deciding factor of when we go to war.

He offered two main points. First, that if our economy is as shaky as I make it out to be, war would actually help. Second, that there is only one reason to go to war anyway – if it is necessary for the country’s survival – and that economics should not be a factor.

I now offer my rebuttal.

The world of economics is filled with myths, fallacies, and lies. Unfortunately, our schools do a poor job teaching the subject, and when they attempt, it is usually a garbled mess containing the lingering presence of John Maynard Keynes, father of modern economics. The theories he developed in the early 20th century are taught, but his debates and clashes with dissenting economists such as Ludwig von Mises and Friedrich Hayek are not.

Keynes believed that what drives an economy is aggregate demand. If overall demand is low, then our economy slows and unemployment shoots up. To solve this problem, government can artificially boost demand by putting more money in people’s pockets, which they in turn spend, increasing aggregate demand and getting the economy rolling again. Much of FDR’s New Deal programs were meant to do just that – boost the economy by increasing government spending. This is exactly what Ben Bernanke did during the Great Recession, coining the spending “quantitative easing”.

While the idea of government spending to boost an economy is welcomed in Washington and praised at the Federal Reserve, round after round of it through the past 100 years have resulted in the dollar losing 95% of its value, all while the economy continued to repeat its boom-bust cycle. “Stimulating” the economy does not work in the long term, and in the short term it tends to inflate bubbles in the market, which inevitably burst.

FDR’s attempt to put people back to work during the Great Depression in fact did not work either. Unemployment throughout the New Deal era remained high. Not just that, but unemployment was actually falling prior to FDR’s intervention. The New Deal made things worse. So, if it wasn’t the New Deal that got America out of the Great Depression, what did? Many people believe that entering WWII was the move that did the trick. They’re wrong.

“War prosperity is like the prosperity that an earthquake or a plague brings.” – Ludwig von Mises

Contrary to popular belief, American life in the WWII years was not good. Factories were forbidden from making new cars. Food, gas, and clothing were rationed. Taxes were high to pay for the war, and while everyone had a job, no one was able to spend their money due to shortages of basic necessities.

Prior to entering the war, unemployment was so high that upon declaring war, unemployment did fall. Obviously. The government pulled some 20% of the pre-war labor force into the armed forces through conscription. People were employed, but this did nothing to grow the economy. In fact, it hurt it in the long run. As historian Thomas E. Woods writes,

“Between 1943 and 1945, some two-fifths of the labor force – including the armed forces, civilian employees of the armed forces, people who worked in the military supply industries, and the unemployed – was producing neither consumer goods nor capital goods. That was not all, of course; the tax monies of the remaining 60 percent went to fund the activities of the 40 percent that were not producing things consumers needed. All of this amounted to a dramatic loss of material wealth.”

Halsey’s thinking that a war today would help give people jobs is accurate, but at what cost and for what gain. Wars of the past have not produced anything. Unlike what Keynes taught, that aggregate demand fuels the economy, Austrian economists, such as Mises and Hayek, teach that it is production that fuels an economy. WWII did not get the U.S. out of the Great Depression. It was only after FDR’s business killing policies were repealed and the business climate normalized that favorable overall economic conditions returned.

America, given its weakness in terms of national debt, gold reserves, and an economy held in place almost solely by maintaining the dollar as the world reserve currency, is not in a position to go to war, especially not one with another developed nation.

Halsey and I agree that America should only go to war if it is necessary for the country’s survival. Prior to any declaration of war is made, however, we should take a minute to understand what kind of impact a war would have on the U.S. economy, as it is the U.S. economy that provides the money needed for war. Perhaps we enter into a “damned if you do, damned if you don’t” scenario at that point. Hypothetically speaking, if America didn’t go to war, it wouldn’t survive. If it did go to war, it wouldn’t survive.

These are important conversations and debates to have. War is serious business, not just in terms of economic impact, but also in terms of the loss of human life on both sides of a conflict. The argument of “is it necessary to go to war” obviously has not worked given the multitude of conflicts we are currently engaged in. Hawks are pushing for another war, and it appears as though they’re winning. Any argument, including an economic one, to keep us out of war should be considered and used to combat those who refuse to acknowledge the failures of interventionism in the past.




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Tim Preuss

Tim Preuss is the founder and CEO of Preuss Media LLC. Along with writing for PreussPodcast.com, he hosts the Tim Preuss Podcast Monday through Friday, available on iTunes, and regularly interviews prominent personalities within the liberty community.
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