Big in Germany

A short interview on military Keynesianism

A few weeks ago I had the privilege of talking about my dissertation research with Philip Blees, who is an editor of a German magazine called OXI (if you followed Eurozone politics in 2015, you will recognize the reference). The interview will appear in the March issue, out tomorrow. I am posting here the English version.

»Control of the economy is ultimately a class issue«

In the US military agenda and ideas of demand management merged to a military Keynesianism in the cold War

Mr. Barker, you did your PhD on military Keynesianism. Could you explain your definition of Keynesianism and how it contrasts with other economic theories?

The term Keynesianism refers to the British economist John Maynard Keynes. However, I use a broader definition of Keynesianism, which includes both an understanding of how the economy works and a political idea about how to address economic problems. According to Keynesianism, the big macroeconomic variables such as employment, output, and economic growth are related to aggregate demand. This is in contrast to the older, still prevalent idea in conservative economics that supply and demand are automatically balanced in the long run. Keynesianism starts from the premise that there can be a problem of insufficient demand to consume all that is produced or could be produced. In response to this demand problem, Keynesianism advocates for political demand management, where the state can either directly provide demand through state investment or consumption and incentivize investment by private industry.

What is the relationship to full employment?

Keynesianism can only be understood as a response to the 1930s global crisis of capitalism which saw persistent mass unemployment. This unemployment could just not be explained by existing economic theory. The crisis led to new politics centered around the need to guarantee full employment by political means if necessary. In 1946, the US government officially took responsibility for maximum employment through the Employment Act and this marked the starting point of the government's responsibility for managing the economy as a whole through demand management. This moment was also significant as it coincided with the start of the Cold War, with the Truman Doctrine for Greece and Turkey, the Marshall Plan, NATO formation, and the Korean War all having a major impact on the economy. This historical intertwining of Keynesian demand management and the Cold War was the starting point of my research project.

I was impressed by a quote from a US Air Force general who said, “As long as we are below full employment, a deficit can have positive effects.”¹ I was surprised to hear a military member speaking that openly about economic policies.

I love that quote, too! Generals have always wanted more money throughout history, but this quote is a specific theoretical reference to Keynesian ideas. I wondered how it was that an Air Force general was not only asking for more money but was using this specific Keynesian form of argumentation to argue for it. I think it came to be that at the time around the late 1940s, which was when the US created an independent Air Force, the people who founded the Air Force were very conscious of the need to have a large base of supporters for air power. At that moment, the Air Force made alliances with the aircraft industry. Within the government, economists who wanted a big military buildup were using this Keynesian argument that as long as there were unused resources, the US could afford and even benefit from a military buildup. So, different groups seeking their own ends found common ground in this argument.

So, is military Keynesianism just the connection between a military agenda and Keynesian ideas? Or are both merging in a whole entity?

That is the tricky question. It is not a straightforward conspiracy like some radical leftist think. Nobody sat down in a room and planned all that together. Nor is it pure coincidence, as in the liberal view where all this spending happened solely because of uncontrollable international events. The Cold War was not started to create jobs in the US, but its effects were recognized as a strong argument in favor of it. The NSC 68 document (Editor’s note: A secret US strategy paper from 1950) is an example of how military Keynesian arguments were explicitly made and used to build support for the Cold War. This shows that the Cold War had economic dimensions and the people involved were conscious of this.

You are a historian. Give me some dates!

The history of military Keynesianism can be traced back to the late 1930s, when the concept of military spending as an economic stimulus started to take shape. John Maynard Keynes wrote an essay in 1940, in which he stated that there is no way that a capitalist democracy will ever do what he is talking about except in war conditions. The total mobilization during World War II proved his theories to be true on a grand scale. After the war, there was a desire to return to peacetime conditions, so it was not until 1950 that there was a consensus around a big Cold War rearmament, making military Keynesianism a permanent aspect of the U.S. economy. From 1950 to 1970, military spending was the dominant macroeconomic influence. After the Vietnam War and the economic turbulence of the 1970s, there was a cutback in military spending. However, even today the US military budget measured in various ways remains higher than it was in 1948. It never really went back to that pre-1950 level.

But the implementation of Keynesian ideas was not without friction. The Bretton-Woods-System was not really in his mind.

I agree with you. The idea that there was a wide consensus during the Bretton Woods period about Keynesian policies is a misconception. Keynes' own ideas were not fully adopted and the international monetary system that emerged was more US-led than what he had envisioned. Additionally, Keynes believed in a more significant role for public investment, while the form of Keynesianism that emerged gave more power to private investment. The use of military spending to support private corporations and the labor market was one way to inject government money into the private sector, but it was still controversial due to its potential impacts on the economy, such as low unemployment, inflation, and government bureaucracy. Despite being the most privatized version of Keynesianism, it still met opposition from both Republicans and some Democrats, leading to recurrent attempts to reduce the military budget. Capitalist business men were often behind these efforts as they feared the size of the state.

Is Keynesianism today still connected to military spending?

I think in the US context and globally, there is a resurgence of interest in industrial policy. Industrial policy has a big overlap with Keynesianism, but they are not exactly the same thing. Keynesianism is about recovering from a recession or restoring full employment, whereas industrial policy is more guided by a strategy about what kind of economy you want to have. However, they complement each other as industrial policy is a form of public or private investment that will have macro effects. This revival of industrial policy has been occasioned by rising tensions with China and reinforced by the Russian invasion of Ukraine. In the US, ideas which would be completely unacceptable in the context of a Green New Deal for example became more acceptable if presented in terms of military competition. There is a sense in the US that the government should not shape the economy for any other goal than global military supremacy.

Do you think a left Keynesianism without the connection to military spending is possible?

I am always trying to navigate the space between Marxist and Keynesian ideas. In theory, it is possible to have a civilian and social Keynesianism. However, there are powerful obstacles which are not just political in a generic sense, but rooted in class politics. A permanent civilian Keynesianism would require transferring significant power away from those who are used to controlling the economy through private investment. This would require not just an ideological battle or political maneuvering, but a struggle over who controls the economy, which is ultimately a class issue.

1. For this quote, and more of my thinking about military Keynesianism, see my chapter in this collection edited by Jennifer Mittelstadt and Mark Wilson.