WEBVTT NOTE XXXIV. The Economics of War 1 00:00:00.000 --> 00:00:05.000 Chapter 34 The Economics of War 2 00:00:05.000 --> 00:00:09.000 1. Total War 3 00:00:09.000 --> 00:00:13.000 The market economy involves peaceful cooperation. 4 00:00:13.000 --> 00:00:17.000 It bursts asunder when the citizens turn into warriors and, 5 00:00:17.000 --> 00:00:23.000 instead of exchanging commodities and services, fight one another. 6 00:00:23.000 --> 00:00:29.000 The wars fought by primitive tribes did not affect cooperation under the Division of Labor. 7 00:00:29.000 --> 00:00:37.000 Such cooperation, by and large, did not exist between the warring parties before the outbreak of hostilities. 8 00:00:37.000 --> 00:00:45.000 These wars were unlimited, or total, wars. They aimed at total victory and total defeat. 9 00:00:45.000 --> 00:00:52.000 The defeated were either exterminated or expelled from their dwelling places, or enslaved. 10 00:00:52.000 --> 00:01:04.000 The idea that a treaty could settle the conflict and make it possible for both parties to live in peaceful neighborly conditions was not present in the minds of the fighters. 11 00:01:04.000 --> 00:01:13.000 The spirit of conquest does not acknowledge restraints other than those imposed by a power which resists successfully. 12 00:01:13.000 --> 00:01:20.000 The principle of empire building is to expand the sphere of supremacy as far as possible. 13 00:01:20.000 --> 00:01:28.000 The great Asiatic conquerors and the Roman imperators were stopped only when they could not march farther. 14 00:01:28.000 --> 00:01:32.000 Then they postponed aggression for later days. 15 00:01:32.000 --> 00:01:42.000 They did not abandon their ambitious plans and did not consider independent foreign states as anything else than targets for later onslaughts. 16 00:01:42.000 --> 00:01:48.000 This philosophy of boundless conquest also animated the rulers of medieval Europe. 17 00:01:48.000 --> 00:01:49.000 Europe. 18 00:01:49.000 --> 00:01:55.600 They, too, aimed first of all at the utmost expansion of the size of their realms. 19 00:01:55.600 --> 00:02:02.420 But the institutions of feudalism provided them with only scanty means for warfare. 20 00:02:02.420 --> 00:02:07.240 Vassals were not obliged to fight for their lord more than a limited time. 21 00:02:07.240 --> 00:02:13.720 The selfishness of the vassals who insisted on their rights checked the king's aggressiveness. 22 00:02:13.720 --> 00:02:19.100 Since the peaceful coexistence of a number of sovereign states originated. 23 00:02:19.100 --> 00:02:26.040 In the 16th century, a Frenchman, Baudin, developed the theory of national sovereignty. 24 00:02:26.040 --> 00:02:32.500 In the 17th century, a Dutchman, Grotius, added to it a theory of international relations 25 00:02:32.500 --> 00:02:35.480 in war and peace. 26 00:02:35.480 --> 00:02:42.120 With the disintegration of feudalism, sovereigns could no longer rely upon summoned vassals. 27 00:02:42.120 --> 00:02:45.920 They nationalized the country's armed forces. 28 00:02:45.920 --> 00:02:50.020 Henceforth the warriors were the king's mercenaries. 29 00:02:50.020 --> 00:02:55.760 The organization, equipment and support of such troops were rather costly and a heavy 30 00:02:55.760 --> 00:02:58.480 burden on the ruler's revenues. 31 00:02:58.480 --> 00:03:03.860 The ambitions of the princes were unbounded, but financial considerations forced them to 32 00:03:03.860 --> 00:03:06.180 moderate their designs. 33 00:03:06.180 --> 00:03:10.000 They no longer planned to conquer a whole country. 34 00:03:10.000 --> 00:03:15.200 All they aimed at was the conquest of a few cities or of a province. 35 00:03:15.200 --> 00:03:21.280 To attain more would also have been unwise politically, for the European powers were 36 00:03:21.280 --> 00:03:27.960 anxious not to let any one of them become too powerful and a menace to their own safety. 37 00:03:27.960 --> 00:03:34.460 A too impetuous conqueror must always fear a coalition of all those whom his bigness 38 00:03:34.460 --> 00:03:36.800 has frightened. 39 00:03:36.800 --> 00:03:42.880 The combined effect of military, financial and political circumstances produced the limited 40 00:03:42.880 --> 00:03:50.000 warfare which prevailed in Europe in the 300 years preceding the French Revolution. 41 00:03:50.000 --> 00:03:55.620 Wars were fought by comparatively small armies of professional soldiers. 42 00:03:55.620 --> 00:04:00.920 War was not an affair of the peoples, it concerned the rulers only. 43 00:04:00.920 --> 00:04:06.520 The citizens detested war, which brought mischief to them and burdened them with taxes and 44 00:04:06.520 --> 00:04:08.360 contributions. 45 00:04:08.360 --> 00:04:14.760 But they considered themselves victims of events in which they did not participate actively. 46 00:04:14.760 --> 00:04:19.760 Even the belligerent armies respected the neutrality of the civilians. 47 00:04:19.760 --> 00:04:25.560 As they saw it, they were fighting the supreme warlord of the hostile forces, but not the 48 00:04:25.560 --> 00:04:29.200 non-combatant subjects of the enemy. 49 00:04:29.200 --> 00:04:36.120 In the wars fought on the European continent, the property of civilians was considered inviolable. 50 00:04:36.120 --> 00:04:44.020 In 1856, the Congress of Paris made an attempt to extend this principle to naval warfare. 51 00:04:44.020 --> 00:04:51.560 More and more, eminent minds began to discuss the possibility of abolishing war altogether. 52 00:04:51.560 --> 00:04:56.860 Looking at conditions as they had developed under the system of limited warfare, philosophers 53 00:04:56.860 --> 00:04:59.460 found wars useless. 54 00:04:59.460 --> 00:05:01.820 Men are killed or maimed. 55 00:05:01.820 --> 00:05:03.840 Wealth is destroyed. 56 00:05:03.840 --> 00:05:09.680 Autocracies are devastated for the sole benefit of kings and ruling oligarchies. 57 00:05:09.680 --> 00:05:13.960 The peoples themselves do not derive any gain from victory. 58 00:05:13.960 --> 00:05:19.320 The individual citizens are not enriched if their rulers expand the size of their realm 59 00:05:19.320 --> 00:05:21.760 by annexing a province. 60 00:05:21.760 --> 00:05:24.700 For the people, wars do not pay. 61 00:05:24.700 --> 00:05:29.740 The only cause of armed conflict is the greed of autocrats. 62 00:05:29.740 --> 00:05:36.740 The substitution of representative government for royal despotism will abolish war altogether. 63 00:05:36.740 --> 00:05:39.100 Democracies are peaceful. 64 00:05:39.100 --> 00:05:44.900 It is no concern of theirs whether their nation's sovereignty stretches over a larger or smaller 65 00:05:44.900 --> 00:05:46.260 territory. 66 00:05:46.260 --> 00:05:50.780 They will treat territorial problems without bias and passion. 67 00:05:50.780 --> 00:05:53.180 They will settle them peacefully. 68 00:05:53.180 --> 00:05:58.740 What is needed to make peace durable is to dethrone the despots. 69 00:05:58.740 --> 00:06:02.300 This of course cannot be achieved peacefully. 70 00:06:02.300 --> 00:06:06.340 It is necessary to crush the mercenaries of the kings. 71 00:06:06.340 --> 00:06:11.960 But this revolutionary war of the peoples against the tyrants will be the last war, 72 00:06:11.960 --> 00:06:15.660 the war to abolish war forever. 73 00:06:15.660 --> 00:06:20.820 This idea was already dimly present in the minds of the French revolutionary leaders 74 00:06:20.820 --> 00:06:27.260 when, after having repelled the invading armies of Prussia and Austria, they embarked upon 75 00:06:27.260 --> 00:06:30.020 on a Campaign of Aggression. 76 00:06:30.020 --> 00:06:35.620 Of course, under the leadership of Napoleon, they themselves very soon adopted the most 77 00:06:35.620 --> 00:06:42.360 ruthless methods of boundless expansion and annexation, until a coalition of all European 78 00:06:42.360 --> 00:06:45.980 powers frustrated their ambitions. 79 00:06:45.980 --> 00:06:50.220 But the idea of a durable peace was soon resurrected. 80 00:06:50.220 --> 00:06:55.780 It was one of the main points in the body of 19th century liberalism, as consistently 81 00:06:55.780 --> 00:07:16.780 These British liberals and their continental friends were keen enough to realize that what can safeguard durable peace is not simply government by the people, but government by the people under unlimited laissez-faire. 82 00:07:16.780 --> 00:07:27.780 In their eyes, free trade, both in domestic affairs and in international relations, was the necessary prerequisite of the preservation of peace. 83 00:07:27.780 --> 00:07:35.780 In such a world without trade and migration barriers, no incentives for war and conquest are left. 84 00:07:35.780 --> 00:07:45.780 Fully convinced of the irrefutable persuasiveness of the liberal ideas, they dropped the notion of the last war to abolish all wars. 85 00:07:45.780 --> 00:07:53.500 All peoples will of their own accord recognize the blessings of free trade and peace and 86 00:07:53.500 --> 00:07:59.020 will curb their domestic despots without any aid from abroad. 87 00:07:59.020 --> 00:08:04.980 Most historians entirely fail to recognize the factors which replaced the limited war 88 00:08:04.980 --> 00:08:10.880 of the Ancien Régime by the unlimited war of our age. 89 00:08:10.880 --> 00:08:16.440 As they see it, the change came with the shift from the dynastic to the national form of 90 00:08:16.440 --> 00:08:20.980 state and was a consequence of the French Revolution. 91 00:08:20.980 --> 00:08:27.520 They look only upon attending phenomena and confuse causes and effects. 92 00:08:27.520 --> 00:08:33.900 They speak of the composition of the armies, of strategic and tactical principles, of weapons 93 00:08:33.900 --> 00:08:40.300 and transportation facilities, and of many other matters of military art and administrative 94 00:08:40.300 --> 00:08:48.100 of Technicalities. However, all these things do not explain why modern nations prefer aggression 95 00:08:48.100 --> 00:08:50.100 to peace. 96 00:08:50.100 --> 00:08:55.200 There is perfect agreement with regard to the fact that total war is an offshoot of 97 00:08:55.200 --> 00:09:02.500 aggressive nationalism. But this is merely circular reasoning. We call aggressive nationalism 98 00:09:02.500 --> 00:09:09.520 that ideology which makes for modern total war. Aggressive nationalism is the necessary 99 00:09:09.520 --> 00:09:15.200 is a key derivative of the policies of interventionism and national planning. 100 00:09:15.200 --> 00:09:21.240 While laissez-faire eliminates the causes of international conflict, government interference 101 00:09:21.240 --> 00:09:29.000 with business and socialism create conflicts for which no peaceful solution can be found. 102 00:09:29.000 --> 00:09:35.360 While under free trade and freedom of migration, no individual is concerned about the territorial 103 00:09:35.360 --> 00:10:02.360 The Enlargement of the Territory, subject to the sovereignty of his own government, means material improvement for him, or, at least, relief from restrictions which a foreign government has imposed upon his well-being. 104 00:10:02.360 --> 00:10:09.320 What has transformed the limited war between royal armies into total war, the clash between 105 00:10:09.320 --> 00:10:16.480 peoples, is not technicalities of military art, but the substitution of the welfare state 106 00:10:16.480 --> 00:10:19.480 for the laissez-faire state. 107 00:10:19.480 --> 00:10:25.280 If Napoleon I had reached his goal, the French Empire would have stretched far beyond the 108 00:10:25.280 --> 00:10:27.920 limits of 1815. 109 00:10:27.920 --> 00:10:33.840 Spain and Naples would have been ruled by kings of the house of Bonaparte Murat instead 110 00:10:33.840 --> 00:10:37.880 of kings of another French family, the Bourbons. 111 00:10:37.880 --> 00:10:43.360 The Palace of Kassel would have been occupied by a French playboy instead of one of the 112 00:10:43.360 --> 00:10:47.120 egregious electors of the Hesse family. 113 00:10:47.120 --> 00:10:52.280 All these things would not have made the citizens of France more prosperous. 114 00:10:52.280 --> 00:10:59.380 Neither did the citizens of Prussia win anything from the fact that their king in 1866 evicted 115 00:10:59.380 --> 00:11:06.640 his cousins of Hanover, Hesse-Cassel and Nassau from their luxurious residences. 116 00:11:06.640 --> 00:11:12.520 But if Hitler had realized his plans, the Germans expected to enjoy a higher standard 117 00:11:12.520 --> 00:11:13.920 of living. 118 00:11:13.920 --> 00:11:19.160 They were confident that the annihilation of the French, the Poles and the Czechs would 119 00:11:19.160 --> 00:11:34.760 Under laissez-faire, peaceful coexistence of a multitude of sovereign nations is possible. 120 00:11:34.760 --> 00:11:38.940 Under government control of business, it is impossible. 121 00:11:38.940 --> 00:11:45.300 The tragic error of President Wilson was that he ignored this essential point. 122 00:11:45.300 --> 00:11:51.380 One total war has nothing in common with the limited war of the old dynasties. 123 00:11:51.380 --> 00:11:59.260 It is a war against trade and migration barriers, a war of the comparatively overpopulated countries 124 00:11:59.260 --> 00:12:02.800 against the comparatively underpopulated. 125 00:12:02.800 --> 00:12:08.200 It is a war to abolish those institutions which prevent the emergence of a tendency 126 00:12:08.200 --> 00:12:13.100 toward an equalization of wage rates all over the world. 127 00:12:13.100 --> 00:12:19.180 It is a war of the farmers tilling poor soil against those governments which bar them from 128 00:12:19.180 --> 00:12:23.840 access to much more fertile soil lying fallow. 129 00:12:23.840 --> 00:12:30.820 It is, in short, a war of wage earners and farmers who describe themselves as underprivileged 130 00:12:30.820 --> 00:12:37.700 have-nots against the wage earners and farmers of other nations whom they consider privileged 131 00:12:37.700 --> 00:12:39.820 haves. 132 00:12:39.820 --> 00:12:45.300 The acknowledgement of this fact does not suggest that victorious wars would really 133 00:12:45.300 --> 00:12:50.460 do away with those evils about which the aggressors complain. 134 00:12:50.460 --> 00:12:55.820 Neither does it mean that there can be any question of appeasing the aggressors by removing 135 00:12:55.820 --> 00:12:58.180 migration barriers. 136 00:12:58.180 --> 00:13:04.660 As conditions are today, the Americas and Australia, in admitting German, Italian and 137 00:13:04.660 --> 00:13:11.500 and Japanese immigrants would merely open their doors to the vanguards of hostile armies. 138 00:13:11.500 --> 00:13:17.480 It is futile to place confidence in treaties, conferences and such bureaucratic outfits 139 00:13:17.480 --> 00:13:21.020 as the League of Nations and the United Nations. 140 00:13:21.020 --> 00:13:28.420 Plenipotentiaries, office clerks and experts make a poor show in fighting ideologies. 141 00:13:28.420 --> 00:13:33.260 The spirit of conquest cannot be smothered by red tape. 142 00:13:33.260 --> 00:13:40.100 What is needed is a radical change in ideologies and economic policies. 143 00:13:40.100 --> 00:13:45.320 2. War and the Market Economy 144 00:13:45.320 --> 00:13:50.700 The market economy, say the socialists and the interventionists, is at best a system 145 00:13:50.700 --> 00:13:54.120 that may be tolerated in peacetime. 146 00:13:54.120 --> 00:13:58.180 But when war comes, such indulgence is impermissible. 147 00:13:58.180 --> 00:14:03.300 would jeopardize the vital interests of the nation for the sole benefit of the selfish 148 00:14:03.300 --> 00:14:12.300 concerns of capitalists and entrepreneurs. War, and in any case modern total war, peremptorily 149 00:14:12.300 --> 00:14:18.780 requires government control of business. Hardly anybody has been bold enough to challenge 150 00:14:18.780 --> 00:14:25.720 this dogma. It served in both world wars as a convenient pretext for innumerable measures 151 00:14:25.720 --> 00:14:31.600 of Government Interference with Business, which in many countries, step by step, led 152 00:14:31.600 --> 00:14:34.640 to full war socialism. 153 00:14:34.640 --> 00:14:38.440 When the hostilities ceased, a new slogan was launched. 154 00:14:38.440 --> 00:14:45.520 The period of transition from war to peace and of reconversion, people contended, requires 155 00:14:45.520 --> 00:14:49.640 even more government control than the period of war. 156 00:14:49.640 --> 00:14:59.140 Besides, why should one ever return to a social system, which can work, if at all, only in the interval between two wars? 157 00:14:59.140 --> 00:15:09.140 The most appropriate thing would be to cling permanently to government control in order to be duly prepared for any possible emergency. 158 00:15:09.140 --> 00:15:19.140 An examination of the problems which the United States had to face in the Second World War will clearly show how fallacious this reasoning is. 159 00:15:19.140 --> 00:15:27.140 What America needed in order to win the war was a radical conversion of all its production activities. 160 00:15:27.140 --> 00:15:33.140 All not absolutely indispensable civilian consumption was to be eliminated. 161 00:15:33.140 --> 00:15:41.140 The plants and farms were henceforth to turn out only a minimum of goods for non-military use. 162 00:15:41.140 --> 00:15:48.140 For the rest, they were to devote themselves completely to the task of supplying the armed forces. 163 00:15:48.140 --> 00:15:55.140 The realization of this program did not require the establishment of controls and priorities. 164 00:15:55.140 --> 00:16:04.140 If the government had raised all the funds needed for the conduct of war by taxing the citizens and by borrowing from them, 165 00:16:04.140 --> 00:16:09.140 everybody would have been forced to cut down his consumption drastically. 166 00:16:09.140 --> 00:16:14.140 The entrepreneurs and farmers would have turned toward production for the government 167 00:16:14.140 --> 00:16:30.140 The Government, now by virtue of the inflow of taxes and borrowed money, the biggest buyer on the market, would have been in a position to obtain all it wanted. 168 00:16:30.140 --> 00:16:43.140 Even the fact that the Government chose to finance a considerable part of the war expenditure by increasing the quantity of money in circulation and by borrowing from the commercial banks 169 00:16:43.140 --> 00:16:49.420 would not have altered this state of affairs. The inflation must, of course, bring about 170 00:16:49.420 --> 00:16:55.380 a marked tendency toward a rise in the prices of all goods and services. The government 171 00:16:55.380 --> 00:17:01.540 would have had to pay higher nominal prices, but it would still have been the most solvent 172 00:17:01.540 --> 00:17:07.780 buyer on the market. It would have been possible for it to outbid the citizens who, on the 173 00:17:07.780 --> 00:17:23.460 The government deliberately adopted a policy which was bound to make it impossible for 174 00:17:23.460 --> 00:17:28.260 it to rely upon the operation of the unhampered market. 175 00:17:28.260 --> 00:17:34.260 It resorted to price control and made it illegal to raise commodity prices. 176 00:17:34.260 --> 00:17:40.880 Furthermore, it was very slow in taxing the income swollen by the inflation. 177 00:17:40.880 --> 00:17:46.140 It surrendered to the claim of the unions that the workers' real take-home wages should 178 00:17:46.140 --> 00:17:52.120 be kept at a height which would enable them to preserve in the war their pre-war standard 179 00:17:52.120 --> 00:17:53.120 of living. 180 00:17:53.120 --> 00:17:59.560 In fact, the most numerous class of the nation, the class which in peacetime consumed the 181 00:17:59.560 --> 00:18:06.400 The greatest part of the total amount of goods consumed had so much more money in their pockets 182 00:18:06.400 --> 00:18:12.240 that their power to buy and to consume was greater than in peacetime. 183 00:18:12.240 --> 00:18:18.000 The wage earners, and to some extent also the farmers and the owners of plants producing 184 00:18:18.000 --> 00:18:23.560 for the government, would have frustrated the government's endeavors to direct industries 185 00:18:23.560 --> 00:18:26.600 toward the production of war materials. 186 00:18:26.600 --> 00:18:32.760 They would have induced business to produce more, not less, of those goods which in wartime 187 00:18:32.760 --> 00:18:36.080 are considered superfluous luxuries. 188 00:18:36.080 --> 00:18:42.440 It was this circumstance that forced the administration to resort to the systems of priorities and 189 00:18:42.440 --> 00:18:44.440 of rationing. 190 00:18:44.440 --> 00:18:50.040 The shortcomings of the methods adopted for financing war expenditure made government 191 00:18:50.040 --> 00:18:53.220 control of business necessary. 192 00:18:53.220 --> 00:19:00.300 If no inflation had been made, and if taxation had cut down the income after taxes of all 193 00:19:00.300 --> 00:19:06.660 citizens, not only of those enjoying higher incomes, to a fraction of their peacetime 194 00:19:06.660 --> 00:19:11.500 revenues, these controls would have been supererogatory. 195 00:19:11.500 --> 00:19:17.620 The endorsement of the doctrine that the wage earner's real income must in wartime be even 196 00:19:17.620 --> 00:19:22.460 higher than in peacetime made them unavoidable. 197 00:19:22.460 --> 00:19:28.400 Not government decrees and the paperwork of hosts of people on the government's payroll, 198 00:19:28.400 --> 00:19:34.380 but the efforts of private enterprise produced those goods which enabled the American armed 199 00:19:34.380 --> 00:19:40.940 forces to win the war, and to provide all the material equipment its allies needed for 200 00:19:40.940 --> 00:19:43.180 their cooperation. 201 00:19:43.180 --> 00:19:49.780 The economist does not infer anything from these historical facts, but it is expedient 202 00:19:49.780 --> 00:19:55.500 to mention them as the interventionists would have us believe that a decree prohibiting 203 00:19:55.500 --> 00:20:01.760 the employment of steel for the construction of apartment houses automatically produces 204 00:20:01.760 --> 00:20:04.900 airplanes and battleships. 205 00:20:04.900 --> 00:20:10.720 The adjustment of production activities to a change in the demand of consumers is the 206 00:20:10.720 --> 00:20:13.020 source of profits. 207 00:20:13.020 --> 00:20:19.180 The greater the discrepancy between the previous state of production activities and that agreeing 208 00:20:19.180 --> 00:20:25.720 with the new structure of demand, the greater adjustments are required and the greater profits 209 00:20:25.720 --> 00:20:31.480 are earned by those who succeed best in accomplishing these adjustments. 210 00:20:31.480 --> 00:20:38.480 The sudden transition from peace to war revolutionizes the structure of the market, makes radical 211 00:20:38.480 --> 00:20:45.420 readjustments indispensable and thus becomes for many a source of high profits. 212 00:20:45.420 --> 00:20:50.380 The planners and interventionists regard such profits as a scandal. 213 00:20:50.380 --> 00:20:56.140 As they see it, the first duty of government in time of war is to prevent the emergence 214 00:20:56.140 --> 00:20:58.180 of new millionaires. 215 00:20:58.180 --> 00:21:04.300 It is, they say, unfair to let some people become richer while other people are killed 216 00:21:04.300 --> 00:21:06.820 or maimed. 217 00:21:06.820 --> 00:21:09.200 Nothing is fair in war. 218 00:21:09.200 --> 00:21:15.260 It is not just that God is for the big battalions and that those who are better equipped defeat 219 00:21:15.260 --> 00:21:31.260 It is not just that those in the front line shed their life blood in obscurity while the commanders, comfortably located in headquarters hundreds of miles behind the trenches, gain glory and fame. 220 00:21:31.260 --> 00:21:43.260 It is not just that John is killed and Mark crippled for the rest of his life while Paul returns home safe and sound and enjoys all the privileges accorded to veterans. 221 00:21:43.260 --> 00:21:51.060 It may be admitted that it is not fair that war enhances the profits of those entrepreneurs 222 00:21:51.060 --> 00:21:55.180 who contribute best to the equipment of the fighting forces. 223 00:21:55.180 --> 00:22:01.060 But it would be foolish to deny that the profit system produces the best weapons. 224 00:22:01.060 --> 00:22:06.700 It was not socialist Russia that aided capitalist America with land lease. 225 00:22:06.700 --> 00:22:13.100 The Russians were lamentably defeated before American-made bombs fell on Germany and before 226 00:22:13.100 --> 00:22:17.660 Before they got the arms manufactured by American big business. 227 00:22:17.660 --> 00:22:23.620 The most important thing in war is not to avoid the emergence of high profits, but to 228 00:22:23.620 --> 00:22:29.240 give the best equipment to one's own country's soldiers and sailors. 229 00:22:29.240 --> 00:22:35.380 The worst enemies of a nation are those malicious demagogues who would give their envy precedents 230 00:22:35.380 --> 00:22:39.620 over the vital interests of their nation's cause. 231 00:22:39.620 --> 00:22:47.300 Of course, in the long run, war and the preservation of the market economy are incompatible. Capitalism 232 00:22:47.300 --> 00:22:53.380 is essentially a scheme for peaceful Nations. But this does not mean that a nation which 233 00:22:53.380 --> 00:22:59.540 is forced to repel foreign aggressors must substitute government control for private 234 00:22:59.540 --> 00:23:05.700 enterprise. If it were to do this, it would deprive itself of the most efficient means 235 00:23:05.700 --> 00:23:13.380 There is no record of a socialist nation which defeated a capitalist nation. 236 00:23:13.380 --> 00:23:21.180 In spite of their much glorified war socialism, the Germans were defeated in both world wars. 237 00:23:21.180 --> 00:23:28.400 What the incompatibility of war and capitalism really means is that war and high civilization 238 00:23:28.400 --> 00:23:30.740 are incompatible. 239 00:23:30.740 --> 00:23:35.980 If the efficiency of capitalism is directed by governments toward the output of instruments 240 00:23:35.980 --> 00:23:42.340 of destruction, the ingenuity of private business turns out weapons which are powerful enough 241 00:23:42.340 --> 00:23:44.780 to destroy everything. 242 00:23:44.780 --> 00:23:51.160 What makes war and capitalism incompatible with one another is precisely the unparalleled 243 00:23:51.160 --> 00:23:55.760 efficiency of the capitalist mode of production. 244 00:23:55.760 --> 00:24:02.280 The market economy, subject to the sovereignty of the individual consumers, turns out products 245 00:24:02.280 --> 00:24:06.160 which make the individual's life more agreeable. 246 00:24:06.160 --> 00:24:10.000 It caters to the individual's demand for more comfort. 247 00:24:10.000 --> 00:24:16.240 It is this that made capitalism despicable in the eyes of the apostles of violence. 248 00:24:16.240 --> 00:24:22.640 They worshipped the hero, the destroyer and killer, and despised the bourgeois and his 249 00:24:22.640 --> 00:24:25.020 peddler mentality. 250 00:24:25.020 --> 00:24:32.660 Now mankind is reaping the fruits which ripened from the seeds sown by these men. 251 00:24:32.660 --> 00:24:37.540 3. War and Autarky 252 00:24:37.540 --> 00:24:44.660 If an economically self-sufficient man starts a feud against another autarkic man, no specific 253 00:24:44.660 --> 00:24:48.300 problems of war economy arise. 254 00:24:48.300 --> 00:24:54.020 But if the tailor goes to war against the baker, he must henceforth produce his bread 255 00:24:54.020 --> 00:24:55.840 for Himself. 256 00:24:55.840 --> 00:25:02.220 If he neglects to do this, he will be in distress sooner than his adversary, the baker. 257 00:25:02.220 --> 00:25:08.460 For the baker can wait longer for a new suit than the tailor can for fresh bread. 258 00:25:08.460 --> 00:25:15.580 The economic problem of making war is therefore different for the baker and for the tailor. 259 00:25:15.580 --> 00:25:20.660 The International Division of Labor was developed under the assumption that there would no longer 260 00:25:20.660 --> 00:25:22.980 be wars. 261 00:25:22.980 --> 00:25:28.660 In the philosophy of the Manchester School, free trade and peace were seen as mutually 262 00:25:28.660 --> 00:25:30.980 conditioning one another. 263 00:25:30.980 --> 00:25:38.780 The businessmen who made trade international did not consider the possibility of new wars. 264 00:25:38.780 --> 00:25:44.500 Nor did general staffs and students of the art of warfare pay any attention to the change 265 00:25:44.500 --> 00:25:49.700 in conditions which international division of labor brought about. 266 00:25:49.700 --> 00:25:55.340 The method of military science consists in examining the experience of wars fought in 267 00:25:55.340 --> 00:26:00.500 the past and in abstracting general rules from it. 268 00:26:00.500 --> 00:26:06.940 Even the most scrupulous occupation with the campaigns of Turan and Napoleon I could not 269 00:26:06.940 --> 00:26:13.540 suggest the existence of a problem which was not present in ages in which there was practically 270 00:26:13.540 --> 00:26:17.180 no international division of labor. 271 00:26:17.180 --> 00:26:22.920 The European military experts slighted the study of the American Civil War. 272 00:26:22.920 --> 00:26:26.220 In their eyes, this war was not instructive. 273 00:26:26.220 --> 00:26:32.600 It was fought by armies of irregulars led by non-professional commanders. 274 00:26:32.600 --> 00:26:36.700 Civilians like Lincoln interfered with the conduct of the operations. 275 00:26:36.700 --> 00:26:41.600 Little, they believed, could be learned from this experience. 276 00:26:41.600 --> 00:26:47.560 But it was in the Civil War that, for the first time, problems of the inter-regional 277 00:26:47.560 --> 00:26:51.780 division of labor played the decisive role. 278 00:26:51.780 --> 00:26:55.020 The South was predominantly agricultural. 279 00:26:55.020 --> 00:26:58.160 Its processing industries were negligible. 280 00:26:58.160 --> 00:27:03.140 The Confederates depended on the supply of manufacturers from Europe. 281 00:27:03.140 --> 00:27:08.140 As the naval forces of the Union were strong enough to blockade their coast, they soon 282 00:27:08.140 --> 00:27:11.940 One began to lack needed equipment. 283 00:27:11.940 --> 00:27:16.940 The Germans in both world wars had to face the same situation. 284 00:27:16.940 --> 00:27:22.660 They depended on the supply of foodstuffs and raw materials from overseas. 285 00:27:22.660 --> 00:27:26.140 But they could not run the British blockade. 286 00:27:26.140 --> 00:27:30.940 In both wars the outcome was decided by the battles of the Atlantic. 287 00:27:30.940 --> 00:27:36.540 The Germans lost because they failed in their efforts to cut off the British Isles from 288 00:27:36.540 --> 00:28:04.540 The German war mongers were intent upon adopting policies which, as they hoped, could make it possible for Germany to wage a war in spite of the handicap of the foreign trade situation. 289 00:28:04.540 --> 00:28:09.780 Their panacea was ersatz, the substitute. 290 00:28:09.780 --> 00:28:16.980 A substitute is a good which is either less suitable or more expensive or both less suitable 291 00:28:16.980 --> 00:28:23.140 and more expensive than the proper good which it is designed to replace. 292 00:28:23.140 --> 00:28:29.020 Whenever technology succeeds in manufacturing or discovering something which is either more 293 00:28:29.020 --> 00:28:33.020 are suitable or cheaper than the thing previously used. 294 00:28:33.020 --> 00:28:37.020 This new thing represents a technological innovation. 295 00:28:37.020 --> 00:28:41.020 It is improvement and not ersatz. 296 00:28:41.020 --> 00:28:45.020 The essential feature of ersatz as this term is employed 297 00:28:45.020 --> 00:28:49.020 in the economico-military doctrine is inferior 298 00:28:49.020 --> 00:28:53.020 quality or higher costs or both together. 299 00:28:53.020 --> 00:28:57.020 In this sense wheat produced under the protection 300 00:28:57.020 --> 00:29:02.780 The collection of an import duty within the Reich's territory is ersatz 2. 301 00:29:02.780 --> 00:29:07.100 It is produced at higher costs than foreign wheat. 302 00:29:07.100 --> 00:29:13.820 The notion of ersatz is a catallactic notion and must not be defined with regard to technological 303 00:29:13.820 --> 00:29:17.740 and physical properties of the articles. 304 00:29:17.740 --> 00:29:24.020 The Wehrwirtschaftslehre, the German doctrine of the economics of war, contends that neither 305 00:29:24.020 --> 00:29:30.680 Neither cost of production nor quality are important in matters of warfare. 306 00:29:30.680 --> 00:29:35.740 Profit-seeking business is concerned with costs of production and with the quality of 307 00:29:35.740 --> 00:29:37.340 the products. 308 00:29:37.340 --> 00:29:43.860 But the heroic spirit of a superior race does not care about such specters of the acquisitive 309 00:29:43.860 --> 00:29:44.860 mind. 310 00:29:44.860 --> 00:29:48.340 What counts alone is war-preparedness. 311 00:29:48.340 --> 00:29:54.980 A warlike nation must aim at autarky in order to be independent of foreign trade. 312 00:29:54.980 --> 00:30:01.380 It must foster the production of substitutes irrespective of mammonist considerations. 313 00:30:01.380 --> 00:30:07.300 It cannot do without full government control of production because the selfishness of the 314 00:30:07.300 --> 00:30:12.260 individual citizens would thwart the plans of the leader. 315 00:30:12.260 --> 00:30:19.580 Even in peacetime, the commander-in-chief must be entrusted with economic dictatorship. 316 00:30:19.580 --> 00:30:23.380 Both theorems of the ersatz doctrine are fallacious. 317 00:30:23.380 --> 00:30:30.940 First, it is not true that the quality and suitability of the substitute are of no importance. 318 00:30:30.940 --> 00:30:36.420 If soldiers are sent into battle badly nourished and equipped with weapons made of inferior 319 00:30:36.420 --> 00:30:40.940 material, the chances for victory are impaired. 320 00:30:40.940 --> 00:30:46.440 Their action will be less successful and they will suffer heavier casualties. 321 00:30:46.440 --> 00:30:51.460 The awareness of their technical inferiority will weigh on their minds. 322 00:30:51.460 --> 00:30:58.400 Erzots jeopardizes both the material strength and the morale of an army. 323 00:30:58.400 --> 00:31:03.620 No less incorrect is the theorem that the higher costs of production of the substitutes 324 00:31:03.620 --> 00:31:05.720 do not count. 325 00:31:05.720 --> 00:31:12.120 Fair costs of production mean that more labor and more material factors of production must 326 00:31:12.120 --> 00:31:19.400 be expended in order to achieve the same effect which the adversary producing the proper product 327 00:31:19.400 --> 00:31:22.340 attains with a lower expenditure. 328 00:31:22.340 --> 00:31:29.400 It is tantamount to squandering scarce factors of production, material and manpower. 329 00:31:29.400 --> 00:31:35.160 Such waste under conditions of peace results in lowering the standard of living, and under 330 00:31:35.160 --> 00:31:40.340 and other conditions of war in cutting down the supply of goods needed for the conduct 331 00:31:40.340 --> 00:31:42.420 of operations. 332 00:31:42.420 --> 00:31:48.260 In the present state of technological knowledge, it is only a slight exaggeration to say that 333 00:31:48.260 --> 00:31:52.020 everything can be produced out of anything. 334 00:31:52.020 --> 00:31:58.700 But what matters is to pick out from the great multitude of possible methods those with which 335 00:31:58.700 --> 00:32:02.640 output is highest per unit of input. 336 00:32:02.640 --> 00:32:07.480 Any deviation from this principle penalizes itself. 337 00:32:07.480 --> 00:32:12.360 The consequences in war are as bad as they are in peace. 338 00:32:12.360 --> 00:32:17.420 In a country like the United States, which depends only to a comparatively negligible 339 00:32:17.420 --> 00:32:23.940 extent on the importation of raw materials from abroad, it is possible to improve the 340 00:32:23.940 --> 00:32:30.160 state of war preparedness by resorting to the production of substitutes such as synthetic 341 00:32:30.160 --> 00:32:31.800 rubber. 342 00:32:31.800 --> 00:32:37.960 The disadvantageous effects would be small when weighed against the beneficial effects. 343 00:32:37.960 --> 00:32:43.280 But a country like Germany was badly mistaken in the assumption that it could conquer with 344 00:32:43.280 --> 00:32:50.320 synthetic gasoline, synthetic rubber, ersatz textiles and ersatz fats. 345 00:32:50.320 --> 00:32:55.880 In both world wars, Germany was in the position of the tailor fighting against the man who 346 00:32:55.880 --> 00:32:58.600 supplies him with bread. 347 00:32:58.600 --> 00:33:04.600 With all their brutality, the Nazis could not alter this fact. 348 00:33:04.600 --> 00:33:06.640 4. 349 00:33:06.640 --> 00:33:09.920 The Futility of War 350 00:33:09.920 --> 00:33:15.520 What distinguishes man from animals is the insight into the advantages that can be derived 351 00:33:15.520 --> 00:33:19.640 from cooperation under the division of labor. 352 00:33:19.640 --> 00:33:26.240 Man curbs his innate instinct of aggression in order to cooperate with other human beings. 353 00:33:26.240 --> 00:33:32.200 The more he wants to improve his material well-being, the more he must expand the system of the 354 00:33:32.200 --> 00:33:34.120 division of labor. 355 00:33:34.120 --> 00:33:40.560 Concomitantly, he must more and more restrict the sphere in which he resorts to military 356 00:33:40.560 --> 00:33:41.840 action. 357 00:33:41.840 --> 00:33:48.960 The emergence of the international division of labor requires the total abolition of war. 358 00:33:48.960 --> 00:33:53.640 Such is the essence of the laissez-faire philosophy of Manchester. 359 00:33:53.640 --> 00:33:58.720 This philosophy is, of course, incompatible with statolatry. 360 00:33:58.720 --> 00:34:05.000 In its context, the state, the social apparatus of violent oppression, is entrusted with the 361 00:34:05.000 --> 00:34:11.480 protection of the smooth operation of the market economy against the onslaughts of anti-social 362 00:34:11.480 --> 00:34:14.420 individuals and gangs. 363 00:34:14.420 --> 00:34:21.280 Its function is indispensable and beneficial, but it is an ancillary function only. 364 00:34:21.280 --> 00:34:28.080 There is no reason to idolize the police power and ascribe to it omnipotence and omniscience. 365 00:34:28.080 --> 00:34:32.280 There are things which it can certainly not accomplish. 366 00:34:32.280 --> 00:34:36.960 It cannot conjure away the scarcity of the factors of production. 367 00:34:36.960 --> 00:34:39.700 It cannot make people more prosperous. 368 00:34:39.700 --> 00:34:43.240 It cannot raise the productivity of labor. 369 00:34:43.240 --> 00:34:48.880 All it can achieve is to prevent gangsters from frustrating the efforts of those people 370 00:34:48.880 --> 00:34:54.080 who are intent upon promoting material well-being. 371 00:34:54.080 --> 00:35:00.000 The liberal philosophy of Bentham and Bastiat had not yet completed its work of removing 372 00:35:00.000 --> 00:35:05.560 trade barriers and government meddling with business when the counterfeit theology of 373 00:35:05.560 --> 00:35:09.360 the Divine State began to take effect. 374 00:35:09.360 --> 00:35:15.920 Endeavors to improve the conditions of wage earners and small farmers by government decree 375 00:35:15.920 --> 00:35:22.280 made it necessary to loosen more and more the ties which connected each country's domestic 376 00:35:22.280 --> 00:35:26.640 economy with those of other countries. 377 00:35:26.640 --> 00:35:32.800 Economic nationalism, the necessary complement of domestic interventionism, hurts the interests 378 00:35:32.800 --> 00:35:37.880 of foreign peoples and thus creates international conflict. 379 00:35:37.880 --> 00:35:44.660 It suggests the idea of amending this unsatisfactory state of affairs by war. 380 00:35:44.660 --> 00:35:49.740 Why should a powerful nation tolerate the challenge of a less powerful nation? 381 00:35:49.740 --> 00:35:56.700 Is it not insolence on the part of small Lapputania to injure the citizens of big Ruritania by 382 00:35:56.700 --> 00:36:03.500 customs, migration barriers, foreign exchange control, quantitative trade restrictions and 383 00:36:03.500 --> 00:36:08.420 expropriation of Ruritanian investments in Lapputania? 384 00:36:08.420 --> 00:36:16.180 Would it not be easy for the army of Ruritania to crush Lapputania's contemptible forces? 385 00:36:16.180 --> 00:36:21.740 Such was the ideology of the German, Italian and Japanese war-mongers. 386 00:36:21.740 --> 00:36:27.140 It must be admitted that they were consistent from the point of view of the new unorthodox 387 00:36:27.140 --> 00:36:29.460 teachings. 388 00:36:29.460 --> 00:36:36.020 Interventionism generates economic nationalism, and economic nationalism generates bellicosity. 389 00:36:36.020 --> 00:36:41.140 If men and commodities are prevented from crossing the borderlines, why should not the 390 00:36:41.140 --> 00:36:45.200 armies try to pave the way for them? 391 00:36:45.200 --> 00:36:51.480 From the day when Italy in 1911 fell upon Turkey fighting was continual. 392 00:36:51.480 --> 00:36:55.660 There was almost always shooting somewhere in the world. 393 00:36:55.660 --> 00:37:00.420 The peace treaties concluded were virtually merely armistice agreements. 394 00:37:00.420 --> 00:37:05.760 Moreover, they had to do only with the armies of the great powers. 395 00:37:05.760 --> 00:37:11.580 Some of the smaller nations were always at war. In addition, there were no less pernicious 396 00:37:11.580 --> 00:37:14.600 civil wars and revolutions. 397 00:37:14.600 --> 00:37:22.080 How far we are today from the rules of international law developed in the age of limited warfare. 398 00:37:22.080 --> 00:37:27.740 Modern war is merciless. It does not spare pregnant women or infants. It is indiscriminate 399 00:37:27.740 --> 00:37:34.440 killing and destroying. It does not respect the rights of neutrals. Millions are killed, 400 00:37:34.440 --> 00:37:49.900 This has nothing to do with the atomic bomb. 401 00:37:49.900 --> 00:37:55.080 The root of the evil is not the construction of new, more dreadful weapons. 402 00:37:55.080 --> 00:37:57.800 It is the spirit of conquest. 403 00:37:57.800 --> 00:38:03.160 It is probable that scientists will discover some methods of defense against the atomic 404 00:38:03.160 --> 00:38:04.440 like Bob. 405 00:38:04.440 --> 00:38:06.540 But this will not alter things. 406 00:38:06.540 --> 00:38:14.840 It will merely prolong for a short time the process of the complete destruction of civilization. 407 00:38:14.840 --> 00:38:19.600 Modern civilization is a product of the philosophy of laissez-faire. 408 00:38:19.600 --> 00:38:25.840 It cannot be preserved under the ideology of government omnipotence. 409 00:38:25.840 --> 00:38:28.720 State-olatry owes much to the doctrines of Hegel. 410 00:38:28.720 --> 00:38:35.400 However, one may pass over many of Hegel's inexcusable faults, for Hegel also coined the 411 00:38:35.400 --> 00:38:39.400 phrase the futility of victory. 412 00:38:39.400 --> 00:38:44.240 To defeat the aggressors is not enough to make peace durable. 413 00:38:44.240 --> 00:38:49.040 The main thing is to discard the ideology that generates war.