shanek
7th February 2004, 06:23 AM
A must-read, especially for those who insist that war is healthy for the economy:
http://www.mises.org/fullarticle.asp?control=1428
That war is not productive may seem self-evident to Misesians but it is not to the "educated" public who have been taught that World War II ended the Depression and that deficit spending (of whatever kind it doesn't matter) spurs economic growth. Americans show not the slightest awareness that every dollar spent on the ongoing Afghan and Iraqi wars, the continuing occupations, and the rebuilding of those failed societies is one less dollar that can be spent at home, and that the whole adventure represents a giant transfer of American capital to the sweltering deserts and sun-baked slums of the Middle East. If they were aware of these economic realities would they not be more skeptical about administration claims that the terror war is enhancing our security?
During war, capital is squandered building the implements of war and sustaining armies in the field. After the war, capital and labor must be expended in reconstruction and repair. War can give the appearance of prosperity (full employment, busy factories, high prices), but it is not real. During the War Between the States, "the mills, forges, and factories were active in working for the government, while the men who ate the grain and wore the clothing were active in destroying, and not in creating capital. This, to be sure, was war. It is what war means, but it cannot bring prosperity." So wrote Sumner.
When government resorts to taxation, it confiscates a portion of the capital and labor of the population. Except for government contractors and officials, everyone is immediately poorer, and they know it. This is why Jefferson insisted that a heavy redemption tax be laid to pay interest and principal of the war debt. He wanted the people to know how much the war was costing them, and he wanted to dampen the spirit of militarism and navalism with a heady dose of reality-enhancing taxation.
When the government borrows, the case is altogether different. Instead of confiscating resources, the government pays for them, but it does so belatedly. As a result, the sacrifice is deferred, but not for everyone. Capitalists lend their capital to the government for the promise of annual interest and eventual principal. They make no sacrifice at all. On the contrary, they have a secure, interest-bearing investment (that is, if the government is not overthrown or defeated). Those who can afford to buy bonds do so, knowing that it is as secure as the prospect of victory and the efficiency and potential lethality of the government's tax-collecting and enforcing apparatus. Those who cannot afford to buy bonds, or who prefer to invest in productive endeavors, must pay in future taxes for the reprieve of not being taxed in the present.
Inflationary finance combines the political and economic advantages of borrowing with the immediate rewards of confiscatory taxation. It is a disguised form of confiscation, redistributive, and allows government to command immediate resources. When governments finance a war by printing money and using it to buy supplies and pay troops, the resulting depreciation acts as a tax, the amount of which is exactly equivalent to the depreciation. It is taxation by the back door, but it is an unequal and largely regressive tax. The decline in the purchasing power of the money does not impoverish all equally. It plunders the wage-earner and soldier because their wages always lag behind the rise in prices resulting from monetary inflation. It harms the small producer or trader because they receive the new money after it has already circulated and depreciated in value. However, two groups usually benefit from the inflation. Government contractors receive orders that they would not in peacetime, and enjoy the first use of the newly printed money. Large capitalists can invest in government bonds, or they can speculate in stocks and commodities whose price is soaring due to the inflation.
There's also a good example laid out in the Civil War and how government finance methods resulted in great economic harm.
There's also one good point in particular:
When the catastrophe of the Continental dollar during the American Revolution or the assignats of the French Revolution was cited, Republicans responded by impugning the patriotism of the skeptics. Sumner wrote, "When the lessons of history were quoted they were answered by the flag and the eagle."
Sound familiar?
http://www.mises.org/fullarticle.asp?control=1428
That war is not productive may seem self-evident to Misesians but it is not to the "educated" public who have been taught that World War II ended the Depression and that deficit spending (of whatever kind it doesn't matter) spurs economic growth. Americans show not the slightest awareness that every dollar spent on the ongoing Afghan and Iraqi wars, the continuing occupations, and the rebuilding of those failed societies is one less dollar that can be spent at home, and that the whole adventure represents a giant transfer of American capital to the sweltering deserts and sun-baked slums of the Middle East. If they were aware of these economic realities would they not be more skeptical about administration claims that the terror war is enhancing our security?
During war, capital is squandered building the implements of war and sustaining armies in the field. After the war, capital and labor must be expended in reconstruction and repair. War can give the appearance of prosperity (full employment, busy factories, high prices), but it is not real. During the War Between the States, "the mills, forges, and factories were active in working for the government, while the men who ate the grain and wore the clothing were active in destroying, and not in creating capital. This, to be sure, was war. It is what war means, but it cannot bring prosperity." So wrote Sumner.
When government resorts to taxation, it confiscates a portion of the capital and labor of the population. Except for government contractors and officials, everyone is immediately poorer, and they know it. This is why Jefferson insisted that a heavy redemption tax be laid to pay interest and principal of the war debt. He wanted the people to know how much the war was costing them, and he wanted to dampen the spirit of militarism and navalism with a heady dose of reality-enhancing taxation.
When the government borrows, the case is altogether different. Instead of confiscating resources, the government pays for them, but it does so belatedly. As a result, the sacrifice is deferred, but not for everyone. Capitalists lend their capital to the government for the promise of annual interest and eventual principal. They make no sacrifice at all. On the contrary, they have a secure, interest-bearing investment (that is, if the government is not overthrown or defeated). Those who can afford to buy bonds do so, knowing that it is as secure as the prospect of victory and the efficiency and potential lethality of the government's tax-collecting and enforcing apparatus. Those who cannot afford to buy bonds, or who prefer to invest in productive endeavors, must pay in future taxes for the reprieve of not being taxed in the present.
Inflationary finance combines the political and economic advantages of borrowing with the immediate rewards of confiscatory taxation. It is a disguised form of confiscation, redistributive, and allows government to command immediate resources. When governments finance a war by printing money and using it to buy supplies and pay troops, the resulting depreciation acts as a tax, the amount of which is exactly equivalent to the depreciation. It is taxation by the back door, but it is an unequal and largely regressive tax. The decline in the purchasing power of the money does not impoverish all equally. It plunders the wage-earner and soldier because their wages always lag behind the rise in prices resulting from monetary inflation. It harms the small producer or trader because they receive the new money after it has already circulated and depreciated in value. However, two groups usually benefit from the inflation. Government contractors receive orders that they would not in peacetime, and enjoy the first use of the newly printed money. Large capitalists can invest in government bonds, or they can speculate in stocks and commodities whose price is soaring due to the inflation.
There's also a good example laid out in the Civil War and how government finance methods resulted in great economic harm.
There's also one good point in particular:
When the catastrophe of the Continental dollar during the American Revolution or the assignats of the French Revolution was cited, Republicans responded by impugning the patriotism of the skeptics. Sumner wrote, "When the lessons of history were quoted they were answered by the flag and the eagle."
Sound familiar?