"Big profits are either already being made by several sectors or are promised for the future (including armaments, oil and construction) out of America's occupation of Iraq and Afghanistan"

"...But this morning at 8.20 we heard a boat torpedoed in the bay, about a mile out, they say who saw it. I think only ten lives were saved. I wish the Boche would have the pluck to come right in and make a clean sweep of the pleasure boats, and the promenaders on the Spa, and all the ... Leeds and Bradford war profiteers now reading John Bull on Scarborough sands." [1]

That war is devastating is self-evident. We know it in many ways.

However - and this is only self-evident for some - it is also highly and extensively profitable and must play some role in the way society develops - e.g. the rise of the State in the 20th century. This essay seeks only to confirm the first of these affirmations - war is profitable. The author believes that this fact is absolutely necessary if we are to develop our understanding of war in particular and history in general. This knowledge has not been absolutely lost, but obscured, while it seems likely that a merely moral stance against war may shield us from a more probing appreciation of it. Meanwhile, war-mongering and unscrupulous profiteers put out their terrible lies like tentacles into the future.

My paper also recognizes, in an end-note, that profits have formed an ascending and descending arc in times of war. What causes profits first to rise and then to fall?

Only by recognizing and analyzing the economic role of war can we see what is happening today in a larger and more historical context -at a popular level, at least, this work has been largely neglected until recent times.

I am not going to attempt to deal here exhaustively with war's impact on the economy. The fact that war is destructive is self-evident, although this destruction is not entirely arbitrary, being launched for tactical and strategic purposes. Joshua Goldstein tells us in the Oxford Encyclopedia of Economic History that:

Recurring war has drained wealth, disrupted markets, and depressed economic growth... war generally impedes economic development and undermines prosperity..."

These points may also look self-evident, and could lead us to see war as a political or social (even a psychological) phenomenon that intrudes on the economy. But we should be careful about making generalizations. Let's briefly consider each of these items. I have no intention of justifying war, but want to take a slightly closer look at some of war's economic aspects:

Disrupting markets: Certainly, markets are disrupted by war, whether incidentally or deliberately. In World War I, for instance, the British government used the Royal Navy to blockade the Atlantic to stop Germany and the Americas from trading with each other, and took actions as far as it was possible during both world wars to prevent Germany trading with other countries in Europe and with what were then its colonies.

Depressing economic growth: Economic growth is interrupted in many places, but looking at the United States in the 1930s, we see that GDP actually started growing fast as a result of its entry into World War II (first via war supplies to the Allies; only later with its armed forces). In purely historical terms, it is clear that the interval between the depressed 1930s and the worldwide boom that began in the late 1940s was filled by the destruction of World War II, but in economic terms we see growth occurring even during the war years.

Draining wealth and undermining prosperity: They are really the same thing, but although general prosperity might be undermined, this still begs the question: whose wealth, whose prosperity? It is obvious that many people lose their wealth in wartime, either because it is destroyed, left behind when they are killed or when they quit their homes, or is stolen from them directly. But a proportion of it is goes into the hands of the conquerors - while total wealth may be drained, fortunes are also transferred - some get rich. There is another side to this, though: war itself is able to boost the incomes of many more people than just those who earn wages and salaries in the armaments business. As graph 1 shows, the economy grew during World War II, and with it people's incomes generally (unemployment fell significantly as well). Moreover, there is the more specific question of the profits of war, and I would propose here that economic history, and indeed history in general would be grasped more concretely if its movements were given more attention.

Although the graph below is in current dollars, when adjusted for inflation we see the same story - U.S. GDP during World War II grew significantly. This may not have been the case for all the belligerent countries, although it seems likely to have been during both world wars, though not immediately afterwards. The post-war boom took off some years later.

Graph 1

Impeding economic development: Economic development, or simply development, is a biased process anyway. As the military economy is a part of this development, even in periods of relative peace, and as wealth and income are highly polarized, the welfare of the majority can never be fully realized. What is called economic development (usually as applied to the countries of the capitalist periphery in Africa, Asia and Latin America) has gone hand-in-hand with obese governing classes, corruption, illicit drug production, a significant growth of the security forces and enormous waste. War certainly worsens the situation - technological development is increasingly aimed at weaponry - but the kind of development that has been pursued by the United States for decades, exemplified by the Monsanto food production model, [2] is actually a war against the rest of the world, and particularly against the developing countries.

Of course, war intrudes upon society. It breaks up functioning economies and forces people to adopt other strategies for survival. But war can also be seen as a continuity of much that was there before (we shall look at this later). It is absurd to treat war as if it is totally external to the kind of society we live in, as these graphs from a book on economic cycles suggest: [3]

Graph 2

Note that the two periods (which are somewhat longer than the two world wars, 1914-1918 and 1939-1945) are drawn as thin lines for all four countries. In the cases of France and Germany it looks as if industrial production fell throughout the two world wars (a better guess would be that industrial output grew significantly and then crashed mercilessly), whereas the picture for Britain and the United States suggests growth - followed by a decline for World War I and probably for World War II as well. However, what actually happened is blotted out, and the book itself has nothing to say about the economic situation in each of the two world wars.

It seems quite likely that the authors are not to blame for this, although I find it strange that they make no comment on this discontinuity. The concealment of facts about the war-time economy is as commonplace as the concealment of so much else in this secretive society we inhabit. I have shown that not all economic features Joshua Goldstein refers to are necessarily negative attributes of war, but one essential question remains: is war profitable?

In 1935, General Smedley Butler [4] gave examples of how U.S. corporate profits were boosted by World War I. For example, Du Pont's (chemicals) average annual profits were US$ 6 million between 1910 and 1914, jumping to US$ 58 million in 1914-18. Bethlehem Steel's shot from US$ 6 million to US$ 49 million.

It wasn't only companies that directly supplied armaments or the materials for them. Data from the US National Bureau for Economic Research show overall US profits climbing from 1914 right through to 1917, with the largest jump between 1915 and 1916. After 1917, they fell, but were still absolutely higher in 1918 and 1919 than in 1914.

Source: Based on National Bureau for Economic Research data

Fred Rogers Fairchild, reviewing "Les Finances de Guerre de l'Allemagne" by Charles Rist (1921), states:

War profits were a well-known phenomenon in every belligerent nation, but nowhere so conspicuous as in Germany. Professor Rist gives some examples in the automobile industry. The Benz company distributed dividends of 12 per cent in the first year of the war and 20 per cent each year thereafter... The Daimler company broke the record. With a capital of 8 million marks it made profits of 12 million marks in 1916, as compared with 3½ million in 1913. [5] (my emphasis)

Rogers lists six different groups of enterprises showing that dividends were high across the German economy in 1917. Further evidence of the profitability of the World War I is seen in the huge sums that flowed into Germany's banks and the stock market after 1914.

The Second World War was basically the same. The US Bureau for Economic Analysis provides proof of this. Overall U.S. profits grew during World War II, just as they had done in World War I. In 1939, American business supported Britain's war effort, and U.S. iron and steel profits grew by 1,245% in nominal terms and continued to grow until 1943, when they reached a peak, after which they declined before recovering in 1947. US auto profits which had collapsed in 1938 grew significantly during the first three years of the War. Chemical profits had also collapsed in 1938, but grew steadily until 1943. Profits for the food industry also grew during the same period (1939-43) of World War II.

Out of World War II and the 1930s experience (among many other things, of course) came George Orwell's 1984 and T.N. Vance's theory of the Permanent War/Arms economy . [6] War (and the military-industrial complex) became a permanent fixture of the now-U.S.-dominated world economy. But rather than world war, the Cold War between the U.S. and Soviet blocs seems to have been tied into America's generalized post-war policy of "containment" , [7] i.e. the ability of the powerful to keep wars going in peacetime without them spilling over into other places, combined with the arms build-up in the powerful States.

It is probably too much to expect that a localized war (as opposed to a total war, i.e. world war) would boost profits across the entire economy. Hence, in such conflicts as the Korean War and the Vietnam War, while certain sectors were benefited, the economy's overall profits were probably not. On the other hand, that period of relative world peace known as the "Cold War" was associated with massive economic growth around the world accompanied by unprecedented profits, while arms sales by the most powerful States to the rest of the world (especially American and Russian) grew. World military spending between 1989 (when it began to fall during Bush Senior's final years as U.S. President) and 2000 (at the end of Clinton's presidency) never fell below US$ 800 billion (2005 constant US dollars) . [8] Since then, it has risen continuously, reaching a figure of some US$ 1.2 trillion in 2007, equivalent in real terms to its 1988 level . [9]

The present build-up of tensions in Central Asia and the Middle East (starting with Afghanistan in October, 2001, although things were already heating up under Clinton, with NATO's bombing of Yugoslavia in 1999) moves beyond the post-1945 "contained" wars, and is occurring in greatly changed economic circumstances (the declining economic power of America). But the orientation of America's conflict had begun to change many years before George W. Bush came to power. The following statements from 1977 point to this change in military orientation:

[D]efense analysts believe that the greatest danger to the United States in the closing years of the [20th] century will come from poorer, less industrialized nations, and most likely in the form of terrorism, rather than conventional warfare. ... "Between now and the year 2000, I think there is a major opportunity for a shift from East-West confrontation", an Air Force strategist says. We've already seen the first evidence of this - in plane hijackings, kidnappings, and mail bombs.¨... Revolutionaries from abroad, attracted by soft targets, may strike at what they see as the soft center of the imperialist-capitalist-racist conspiracy. [10]

As has been noted elsewhere, big profits are either already being made by several sectors or are promised for the future (including armaments, oil and construction) out of America's occupation of Iraq and Afghanistan , [11] and these contributed to the movement out of recession after 2001 - alongside the massive credit-instigated rebound, which is now clearly in pieces.

When we are told that there is a greater potential for war - as the U.S. Director of National Intelligence Mike McConnell has recently warned [12] - we should bear in mind that while war always sells itself on a story (true or false, but more likely both), it is also profitable. War is profitable.

ENDNOTE: Why do wars become unprofitable? Once we have accepted the fact that war is profitable, the question arises: Why do profits fall in war? More concretely, why did profits fall in the two World Wars? Looking at the graphs for profits (and GDP) in World Wars I and II, we see that they rise and then fall. Somehow, profits grow from the outbreak of war, but at some point (about midway during each of the two world wars) they begin to fall. America did not send its armed forces into the two world wars until that turnaround. And after the first two years of World War I, increasing numbers of soldiers at the front perceived the war to be dragging on meaninglessly, so fingers were pointed at the arms companies as the culprits behind this. At the same time, the end of World War I has been said to have rested heavily upon popular uprisings in Germany, aroused especially over food price inflation. [13] I have no simple answers for why profits turned around in the two world wars. Several paths are worth considering. To begin with, the trajectory of the war itself - determined by its objectives, its "story", will surely have a determinate effect on the length of time it lasts. Also to be considered are the relative strengths of the forces on all of the sides, and the degree to which the objectives (the story of war) influence its participants. And there are also many other political factors, most of which will be unpredictable, influencing the "fortunes" of war. It could also be that an economy oriented to war production soon begins to suffer problems of overproduction, i.e., war consumes things rapidly, but production steams ahead even faster, so much of what is produced never gets sold to the government. What had saved companies from bankruptcy now threatens to become the cause of bankruptcy . [14]

This also raises the question of the central role played in wartime by the State. Forced by general collapse, the corporate sector took shelter under the State during World Wars I and II, and the State's economic power swelled. It is well known that tax rates grew throughout the 20th century, and accelerated especially during those periods of war; high war profits were shared with the State via higher profit taxes. It is also the case that decision-making became more concentrated at the same time. The move away from State economic intervention characterized by Mrs. Thatcher's government in Britain and the world trend against State-controlled companies and towards privatization has, it seems, been superseded, thanks to the financial crisis of 2007/8 that grew out of the strategy used to escape from the overproduction crisis of 2001.

The war-strategy stimulated by 9/11 is now in question - its significant contribution to America's public deficit is under attack. Meanwhile, the sounds of war continue to buzz loudly in our ears, but I must leave these questions unanswered for now.

Rod Allison is an independent researcher. Born in London in 1946, in 1985 he emigrated to Mexico, to live in Mexico City. He is currently a translator from Spanish to English, specializing in economics and finance since 1993. He has worked for several institutions in Mexico and was head of financial reporting for the "English Wire" at the State-run news agency Notimex from 1992 to 1993.

Endnotes

1. Letter dated 1917 from poet Wilfred Owen (killed in World War I) to Osbert Sitwell, from Sitwell's autobiography Left Hand, Right Hand!, part 5, 'Noble Essences', 1950.

2. See the video, The World According to Monsanto, for a commentary on how that company is dominating world food production and dependence on its brands.

3. Maurice Flamant and Jeanne Singer-Kèrel, in Modern Economic Crises and Recessions (1970).

4. In: War is a Racket!, Chapter 2: 'Who Makes the War Profits?'.

5. See: American Economic Review, 1922.

6. The idea of a permanent arms or permanent war economy was voiced by various people from the 1940s onwards, not all of them from the left.

7. U.S. diplomat George Kennan first articulated the strategy in 1946.

8. SIPRI graph: World Military Expenditure, 2008.

9. SIPRI graph: World Military Expenditure, 2008.

10. 'America Tomorrow', ed. by Donald Moffitt, Wall Street Journal, 1977.

11. Where opium-growing was resumed soon after America's take-over from the Taliban.

12. "What I'm suggesting - there's an increased potential for conflict," McConnell said in a speech Thursday to intelligence professionals in Nashville, Tennessee. "During the period of this assessment, out to 2025, the probability for conflict between nations and within nation-state entities will be greater," he said. ('World faces growing risk of war: US intelligence chief', AFP, October 31, 2008). He is not the first to do so.

13. See Fred Rogers Fairchild's Review of Charles Rist's book in the 1922 American Economic Review.

14. Of course, capital had been accumulated from war profits and was invested in more peaceful ventures after the war leading to the prosperous 1920s after World War I and the post-war boom after World War II.