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October 2000
Volume 18, Number 10

War Profits
Llewellyn H. Rockwell, Jr.

Both Ludwig von Mises and F.A. Hayek were called upon during wartime to weigh in on the question: what is the best economic policy in the conduct of war? Both were opposed to using war as a device for socializing the economy. If a war must be waged, they argued in their roles as value-free economists, better to contract-out the building of munitions to private companies rather than attempt to do it through nationalization and administrative edict. 

Contracting-out is not only more efficient; it limits the damage that war does to the economy in the long term. Nationalized industries, price controls, and all-round regimentation tend to stick around after the war. At least when manufacturing is contracted-out, the damage done can be reversed after the war by not reauthorizing a line in the national budget. 

The solution is far from perfect. The money to pay the contracts comes not from the consuming public but from taxes or debt that must be paid through taxes or inflation later. All this money represents resources drained from private production in service of consumer needs. The government that nationalizes also faces the problem of shifting labor resources, so all-round planning becomes the general tendency. 

Government money, moreover, always raises the prospect of corruption. Those getting the contracts are likely to have connections to the state, and they will tend to cultivate those connections after the war in order to shore up their profits. The managers of those companies will be in a better position to take state jobs and steer contracts back to their old firms, which can hire them after they leave their government posts. 

Consider the life and career of Richard Cheney. He may make a fine vice president, though this statement made about any politician represents that triumph of hope over experience. What's most interesting is his revolving-door career between the private sector and the warfare state. 

As Secretary of Defense in the Bush administration, he conducted an offensive war against Iraq. Plenty of contracts were available to both conduct and clean up the war. A main recipient was Brown & Root, a construction firm that merged with Halliburton, which supplies oil parts and machinery. 

After Cheney left government, he became the very highly paid CEO of Halliburton, even though he had no experience at all in the oil-machinery business. But the choice paid off for the company. When Clinton began his war on Serbia, Halliburton and Brown & Root were first in line to receive the contracts. Cheney may be in opposition mode now, but during the Clinton years, he profited handsomely from Clinton's murderous foreign policies. 

And now, of course, Cheney will likely be back in government again, this time as vice president. Is this a form of corruption? Well, let's just say it's the actual business of government: conducting policies that profit the well-connected at the expense of the mass of the population. It may be better than nationalizing industries, but it's still an ugly business that is corrupt at its very root. 

Mises was right that the only way to limit this corruption is to adopt a policy of peace and free trade. In a word, capitalism. The socialist left, however, claims that these "war profiteers" represent the essence of the capitalist economy. Actually, government-business partnerships are a form of socialized investment that take the risk out of entrepreneurship and leave only the reward. War production is not capitalism; it's a form of interventionism. 

Cheney is also on the record as favoring government policies that would stabilize (read: control) the price of oil to assure the oil industry a good return on its capital and investment. Why the oil business and not, for example, the computer industry needs this kind of protection was not explained. What this policy amounts to is the "producer policy" that Henry Hazlitt denounced in Economics In One Lesson: it demands that consumers pay artificially high prices just to keep particular companies producing what economic reality dictates they should not produce. 

Goodness knows that producers' policies didn't start with Cheney and the problem is hardly limited to him. But what I found disturbing in the days after he was picked as vice president was the unwillingness of so many Republicans to look at his relationship with the war machine and condemn it. As for his statements on stabilizing the oil price, Mises Institute adjunct scholar Thomas 

DiLorenzo was a voice in the wilderness. In Murray Rothbard's view, the job of an economist is to instruct people and policymakers in inconvenient truths. When Mises and Hayek demanded that the American and British governments not nationalize industry to conduct the war, they were considered outrageous critics of enlightened economic policy. And when Rothbard blasted the cozy relationship between business and government that characterizes the military- industrial complex, he was decried for breaking well-established taboos. 

We need more of this kind of intellectual independence today. What other kinds of compromises are Republicans willing to undertake, and what kinds of corruption are they willing to overlook, just to have their party in power? 

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Llewellyn H. Rockwell, Jr. heads the Mises Institute (rockwell@mises.org).

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