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p The imperialist powers make huge investments in military work, mostly in pursuance of their military-political objectives. In addition, their ruling quarters use military expenditures as a major lever for state-monopoly regulation of economic development. "State-monopoly capitalism results in an unprecedented rise of militarism,” the CPSU Programme says.

p As far back as the nineteen-thirties, the USA began spending big government funds on various measures to curb economic crises. The use of government finance for state- monopoly measures in the overall strategic interests of the ruling classes assumed a particularly wide scope after the Second World War. The aggravation of the general crisis of capitalism, exacerbation of the antagonistic contradictions of capitalist reproduction, the high level of development and the degree of concentration of production, as well as the fear of a recurrence of the economic disasters of the thirties induced the US Administration to interfere widely in national economic affairs in the post-war period. The cornerstone of the post-war economic policy of the Administration is the theories of the British economist John Maynard Keynes and his followers.

p While in the thirties the economic and financial measures taken by the US Administration were mostly aimed at leading the national economy out of its critical condition, after the Second World War the main line of its economic policy 226 consisted in efforts to prevent economic crises, to maintain a stable market situation.

p The Economic Report of the President of January 1964 says, for example, that "the Federal Government must adjust its programs to complement private demand".  [226•1  The need to implement government measures to support economic development has been repeatedly emphasised in the President’s messages on the budget. For example, the message on the budget to Congress of January 24, 1966, says that the requisite increase in budgetary appropriations is financed in such a way as to maintain economic stability.

p The implementation on a wide scale of state-monopoly measures to preserve and strengthen the capitalist system is another reason for increased federal budget expenditures. What is more, government expenditures grow much more quickly than revenues, so the budget deficit has come to be almost chronic.

p Until the thirties, it was believed that large government expenditures and a budget deficit had an adverse effect on the country’s economic development. Later, however, bourgeois ideologists, to fit the new demands of the capitalists, evolved a new theory which maintains that government spending is not a burden, but on the contrary a vital element of the economy, which complements private business and is the chief remedy against grave depressions.

p Keynesians and Neo-Keynesians maintain that the traditional fiscal theory which states that a balanced budget is a prerequisite of economic and financial stability is outmoded. In their writings they propagate the idea that it is unnecessary to have a balanced annual budget. In their opinion, in years of depression deficit financing must be effected to stimulate economic development, while in years of high business activity it is necessary, on the contrary, to secure an excess of budget revenues over budget expenditures in order to have a well-balanced budget for the entire cycle of economic development. Advocates of the economic policy pursued by the US Administration over the past few years have taken further steps in this direction. They affirm that now the 227 budget may have a deficit as long as production is below the level attainable at an unemployment rate of not over 4 per cent. This depends allegedly neither on time nor on the stage of business activity.

p As a result, the US federal budget has a deficit both in years of crisis and in years of economic prosperity. Of the 27 post-war budgets 18 had a deficit. Over the past few years, the sum of budget deficits alone has often been larger than the total federal budget expenditures in the twenties and thirties. Moreover, account should be taken of the fact that the actual budget deficit exceeds, as a rule, the level envisaged in the draft budget. For example, under the draft budget for 1967/68 the federal budget was to have a deficit of 8,100 million dollars, whereas actually it amounted to 25,200 million dollars.  [227•1 

p In the thirties, government measures to curb the crisis consisted mostly of subsidies and various public works, whereas in the post-war years, state-monopoly measures were associated in the main with military development, which is one of the causes of the growth of US militarism.

p The well-known US economist John Kenneth Galbraith writes that it is precisely the expenditures on the arms race that "account for most of the expansion in the role of the Federal Government in the economy. In the decade of the thirties, expenditures for national defense (excluding those for veterans and interest) amounted to between 10 and 15 per cent of the administrative budget. In the first half of the sixties, they were between 55 and 60 per cent....

p “If a large public sector of the economy, supported by personal and corporate income taxation, is the fulcrum for the regulation of demand, plainly military expenditures are the pivot on which the fulcrum rests.”  [227•2 

p The military economy has become a sphere of the most manifest coalescence and interpenetration of the monopolies and the government machinery as is evidenced by the formation and operation of the military-industrial complex in 228 the USA and other imperialist states. This complex which is the product of a union between military-industry firms, the military and the government bureaucracy, is a system through which the capitalist states secure, above all, the material equipment of their armed forces; regulate the scale, structure and geographical distribution of the arms industry; stimulate the advancement of military technology and implement various measures preparatory to economic mobilisation in a war emergency. For these purposes, the government circles give the military-industrial complex financial and other assistance, various privileges and stimulate its activities.

p The military-industrial complex exerts growing influence on the economic, political and spiritual life of bourgeois society. The material foundation of the “complex” is provided by government military spending. Therefore, the militaryindustrial complexes existing in different imperialist countries go out of their way to step up the arms race, prevent international detente, encourage militarism.

p The military-industrial complex has developed to its utmost in the United States where it has become a veritable "state within a state”. The dangerous consequences of its activities are so evident as to cause growing concern among the public at large and even within the US Congress.

p An intimate union between arms-manufacturing companies, government officials and the military exists in several other NATO member states, Britain and the Federal Republic of Germany in particular. It is also being revived in Japan, which has stepped up its military activities in the past few years.

p There are tendencies towards the consolidation and expansion of specific alliances between arms-manufacturing companies of the capitalist states. This process assumes a variety of forms. Within the NATO framework, for example, it takes the form of inter-governmental agreements on joint development and production of arms and military equipment. Among such agreements is one for the production under American licences of the F-104G fighter in which West German, Italian, Belgian and Dutch monopolies have a share; the development and production of the Jaguar training and combat plane by aircraft-building firms of France and 229 Britain; the joint production of the US Hawk missile (under US licences) by companies of Belgium, France, the FRG, Italy and the Netherlands. This "arms integration" meets with many obstacles, in particular differences between NATO member states. However, since independent production of modern sophisticated and costly armaments is often too difficult and unprofitable for individual countries, their ruling circles finally prefer to “co-operate” in the arms race.

p Military production under capitalism is internationalised also as a result of the widening export of capital, the expansion of the activities of international monopolies. The US monopolies manufacturing armaments set up their subsidiaries in other countries. The super-monopoly International Telephone and Telegraph, which is one of the biggest suppliers of the Pentagon, owns Standard Telephone and Cables Company in Britain and Standard Electric Lorenz Company in the FRG which are also involved in the manufacture of military goods. Such large military-industrial corporations of the USA as General Electric, Lockheed Aircraft, Boeing, United Aircraft and many others have a large interest in the arms-manufacturing companies of Western Europe.  [229•1 

p In this way, the conversion of huge military expenditures into a major form of state-monopoly regulation of the capitalist economy and the basis for the military-industrial complex has become the mainspring of modern militarism.

p The role of military expenditures in state-monopoly regulation of the economy is evidenced by data on the share of military procurement in the total federal government purchases of goods and services presented below (see table on page 230).

p Thus, military purchases account for about four-fifths of federal purchases of goods and services.

p The US ruling circles and apologists of the bourgeoisie regard military expenditures as an effective means of stimulating economic development and preventing crises. In keeping with Keynes’s conceptions, they consider military expenditures the most important form of government regulation of the economy, the most effective instrument for stabilising
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230 Total federal procurement of Military procurement of goods and services Year goods and services, thous. mil. dollars Thous. mil. dollars Percentage to total federal procurement 1950 18.4 14.1 76.7 1955 44.1 38.6 87.5 1960 53.5 44.9 84.0 1965 66.9 50.1 75.0 1966 77.8 60.7 78.0 1967 90.7 72.4 75.1 1968 98.8 78.3 79.9 1969 98.8 78.4 79.3 1970 96.5 75.1 77.8 1971 97.8 71.4 73.0

Source: The Handbook of Basic Economic Statistics, October 1972, pp. 224-25.

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the market situation. Many US economists allege that it is possible to secure eternal “prosperity” with the aid of large military outlays. For example, Alvin H. Hansen writes that "growing military expenditures, sufficient to offset the eventual decline in private capital outlays, might, indeed, give us an almost indefinite period of high employment".  [230•1  Life itself and the development of the capitalist economy demonstrate the insolvency of these vulgar theories, disprove the idea that militarism ensures eternal prosperity and a stable economic situation.

p What is the actual impact of the arms race on economic development, the general course of capitalist reproduction? This can be revealed by a concrete analysis of the country’s economic development over a specified period.

p From the aspect of the impact military industrial activity has on the economic growth rates in the capitalist states, the following possible situations may be encountered:

p 1. If government military-economic work and the methods of financing and supporting it contribute in a given period to an increase in actual solvent demand, to the scope of using 231 existing and building new productive capacity, they may temporarily speed up the rates of economic growth.

p 2. If government military-economic work and the methods to finance it fail to contribute to an expansion of the market and functioning productive capacity, to an increase in the relative and absolute scale of military production, they are not, of course, a factor stepping up the rates of economic development, even if temporarily.

p 3. If government military-economic work does not contribute to an increase in solvent demand and is effected by slowing down or halting the growth rates of civilian production and consumption, let alone curtailing them, while the methods used to finance this work derange economic life and the normal course of social reproduction, then military demand, depending on its scale and specific conditions, may either retard economic growth rates or even reduce total production.

p Military expenditures have an obviously adverse effect on the economic development of advanced countries with no idle productive capacity and material resources to spare. For example, one of the main causes of the slow development rates of Britain’s economy and her grave economic and financial difficulties is precisely her military effort. As for highly developed capitalist countries with idle productive capacity, surplus capital and manpower reserves, there, within a definite period, in particular during a sharp increase in military activity, the arms race may be conducive to greater production and employment, and acceleration of economic growth rates, because at this time, an inflow of military contracts results in greater loads on existing military and related industries and in building new capacity. The USA provides an example in point.

In the thirties, the US economy was marking time, the total industrial output over all those years, barring 1937, being below that of 1929. The Second World War led the economy out of its stagnant condition and gave a spur to its development due to the tremendous military demand and the expansion of military production to cope with it. The role of military demand in the development of the US economy during the Second World War is illustrated by Table 41 which shows that in that period the rate of increase in 232 federal spending on military goods and services was far ahead of that in the country’s gross national product. From 1939 to 1944, the gross national product increased 80 per cent at a fixed price rate, whereas federal military purchases increased 51.1 times over. This fact and the resulting considerable increase in the share of military supplies in the gross national product (from 1.6 per cent in 1939 to 45.6 per cent in 1944) indicate that the growth of production in that period was mainly due to the increased output of military industry.

Table 41 Variations in GNP and Federal Military Expenditure (in 1963 prices) GNP Federal military expenditure Year Mil. dollars Increment from previous year, per cent Thous. mil. dollars Increment from previous year, per cent Percentage to GNP 1939 223.2 3.5 1.6 1940 242.0 108.4 6.2 177.1 2.6 1941 281.8 116.4 32.7 527.5 11.6 1942 323.2 114.7 105.4 322.3 32.6 1943 364.4 112.7 159.5 151.3 43.8 1944 391.1 107.3 178.4 111.8 45.6

p Source: Economic Report of the President Transmitted to the Congress, January 1964, pp. 208-09.

p The methods of financing used in the Second World War made for an increase in the nation’s total solvent demand. During the war, more than a half of the US military outlays were defrayed out of loans, which led to an unprecedented growth of government debt: from 48,500 million dollars late in 1940 to 259,100 million dollars at the end of 1945. This tremendous sum was distributed among banks, insurance companies, savings banks, individuals, etc.

p The floating of such huge loans was made possible by the specific conditions of reproduction during wartime. The harnessing of the economy to the war effort, the conversion of the government into the main customer for the greater part of industrial goods, the unprecedented growth of government 233 military demand all required government regulation of the economy, essential restrictions on freedom of business activity. Since the burden of financing the development of military production by corporations was shifted onto the federal budget, while business activity in the civilian industries was substantially restricted by government regulation of the use of productive capacities, raw materials, manpower and other production facilities, a good deal of surplus loan capital awaiting investment accumulated within the country. Under these conditions, it was not difficult for the government to distribute loans to meet budget deficits, the more so as investment of surplus loan capital in government loans was a form of military financing advantageous for the financial oligarchy, since the monopolists recover after a time not only the sums loaned to the government but interest as well.

p Therefore, in wartime, when the specific features of the circulation of public capital, in particular, the government financing of a sizable share of production and the inadequate taxation of capitalist profits, result in intensive accumulation of surplus loan capital, the latter flows into government loans. During the Second World War this utilisation of
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Table 42 Structure of Monetary Income in the USA During World War II Income 1940 1941 1942 1943 1944 1945 ( thous. mil. Total dollars 15.4 23.0 41.1 47.6 56.9 48.7 . per cent . . 100 100 100 100 100 100 Funds to meet feder- al deficit f thous. mil. dollars per cent . . 0.7 5 3.8 17 31.4 76 44.2 93 51.9 91 39.7 81 Other income at home and abroad thous. mil. dollars per cent . . 14.7 95 19.2 83 9.7 24 3.4 7 5.0 9 9.0 19

Source: National Income. 1954, Supplement to Survey of Current Business, Washington, 1954, pp. 1964-65.

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surplus loan capital became the principal form of current accumulation of monetary capital.

p The table indicates that during the war, the overwhelming share of current accumulation was used to finance budget deficits, compared to a mere 5 per cent in 1940. Funds accumulated thereby were spent by the government to meet the war requirements, which was attended by an increase in the total solvent demand, because a considerable proportion of these funds would have otherwise remained idle in conditions of wartime.

p Military expenditures stimulated the growth of the US economy in the first half of the fifties as well, in particular, during the US war of aggression in Korea, when military appropriations were drastically increased, and a modern arms industry was, in effect, built up anew. In those years, the increase in the absolute total of military expenditures and the growing use of the methods of military and, in particular, deficit financing (accompanied by acquiring a share of the savings of capitalists and other segments of the population through an increase in government debt and excessive currency emission) really widened the limits of general demand in the country, providing thereby one of the boosters of economic growth. The volume of government military procurement of goods and services (in 1963 prices) grew from 20,700 million dollars in 1950 to 65,100 million in 1953, i.e., by 210 per cent, whereas the gross national product increased only 20 per cent over the same period. In 1950, the share of military supplies in the gross national product was 5.6 per cent, whereas the figure for 1953 was 14.8 per cent.  [234•1 

p These measures to stimulate the economy, however, were of a transient nature because for socio-economic and political reasons, military expenditures could not be increased at such rates without end. In addition, the methods of financing military-industrial activity posed the danger of economic difficulties, inflation in particular.

p After the Korean war ended the US military expenditures dropped notably, remaining within 40,000-45,000 million dollars a year until 1960. In that period, the absolute output 235 of military goods continued at a relatively stable level, and their share in the gross national product was diminishing. Federal purchases of goods and services for military purposes consumed 14.8 per cent of the gross national product in 1953, 10.5 per cent in 1955, 10.2 per cent in 1958 and 9 per cent in I960.  [235•1  It goes without saying that with military supplies having a diminishing share in the gross national product and their absolute volume remaining stable, military production could not stimulate the development of the US economy.

p As noted above, in the sixties, particularly in connection with the escalation of the Vietnam war, the US Administration sharply increased the volume of its military procurement. In 1965/66, 5.1 million tons of military supplies were shipped from the USA to South Vietnam, which comes out roughly to 16 tons per US soldier stationed there, much more than in all previous wars.  [235•2  The Vietnam war cost the United States 77 million dollars a day, of which 24 million was spent on purchases of petrol, communication equipment and other operational needs, 18 million on the pay to and upkeep of US servicemen, 18 million on ammunition and high explosives, 10 million on the replacement of equipment and spare parts, 5 million on the replacement of aircraft, one million on military construction in Vietnam, and one million on the development of new weaponry to meet the needs of the Vietnam war.  [235•3 

p The substantial increase in military spending and the
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Fiscal year Thous. mil. dollars Rate of Increment from previous year, per cent Fiscal year Thous. mil. dollars Rate of increment from previous year, per cent 1964 51.0 1967 73.4 10.8 1965 50.9 —0.2 1968 75 2 2.4 1966 66.2 30.0 1969 82.4 9.5

Source: Aviation Week and Space Technology, February 5, 1968, p. 15.

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growth of solvent demand involved stepped up business activity and the rates of economic growth. The impact of the Vietnam war on the US economy was particularly notable in the initial period of its escalation, i.e., in 1965/66. It was precisely in that period that the Defence Department’s financial obligations for the supply of military goods and services rose steeply, as is illustrated by the table on the previous page.

p The steep rise in military contracts awards in 1965/66 was attended by a widening of the absolute and relative scale of war production. As was noted above, the expansion of military procurement caused by the Vietnam war contributed to an increase in employment and to a still greater militarisation of the US economy. In 1966/67, the national average employment rate grew 5.6 per cent from 1964/65, whereas the labour force involved in military production increased 34.4 per cent. Over the period, the total number of employees at government and private arms-industry enterprises increased by 1,045 thousand, which accounted for about 23 per cent of the total size in civilian employment.  [236•1  These data evidence that the growth rates of employment in war industry were much faster than those of total employment in the initial period of the escalation of the Vietnam war. This, naturally, had its analogy in the output of goods, too. Consequently, military contracts in that period became an important stimulus for widening the scope of production. In 1966, the US industrial output was 9 per cent above that in 1965, which was appreciably higher than the growth rates of industrial output in previous years.  [236•2  According to evaluation by the Federal Reserve Bank of New York, the rapid growth of defence requirements was the largest factor shaping the course of economic activity in 1966.  [236•3 

p However, the sharp decline in the rates of increase in military contracts awards in later years resulted in the loss of their stimulating effect on the economic growth rates. But they evidently retarded somewhat the incipient decline of business activity in the country. In 1967, industrial output 237 grew only one per cent from 1966, i.e., its growth rates fell sharply.  [237•1  In 1969, another crisis of overproduction set in, leading to a curtailment of production, an increase in unemployment, bankruptcies, a decline in share prices, etc.

p The degree of influence a nation’s military industrial activities have on economic development depends on their share in total industrial output, the relation between changes in the scope of these activities and changes in the national economy as a whole. If the share of war production in a country’s total output is big enough, the impact of military expenditures on the economy will be great, and vice versa.

p When the rates of economic growth are accelerating on the whole, while military-industrial activity is growing faster than the total civilian production, military expenditures contribute to a temporary acceleration of the economic growth rates, as was the case in World War II, the Korean war, and the Vietnam war. With the reverse correlation between the rates of economic growth, let alone cases where war production fails to compensate for a decline in civilian industry, the military sector holds back the rates of economic growth, as was the case after the end of the Korean war until the early sixties, and may sometimes result in an absolute decline of production, as in Germany at the end of the Second World War.

p The Impact of Militarism on the Cyclic Course of Capitalist Reproduction. In an effort to whitewash militarism, apologists of imperialism maintain that the arms race is a remedy against crises and extoll in every way the indirect economic benefits to be derived from it. For example, Charles J. Hitch and Roland N. McKean write in this connection: "When government spends such an amount for national security it tends to buoy up total spending. The existence of this demand makes a deficiency of total demand less probable. Moreover, it facilitates the application of other antideflationary measures, like the injection of additional money into the economy... . The defense effort is a component of total demand that will not melt away even if people decide to reduce their personal spending... . We do not have to have defense programs in order to avoid unemployment (or to 238 have inflation). Nevertheless, given the existing situation, a large security budget is an anti-deflationary force. This is one of the indirect effects [of military spending on the economy—Author] that should be recognized.”  [238•1 

p Experience indicates that military-industrial activity does not change the general economic laws of capitalism, in particular, the cyclic character of social reproduction. It shows at the same time that where the absolute and relative scope of military-industrial activity widens considerably and war production becomes a permanent component of the economy, military expenditures may have a notable impact on the capitalist cycle.

p In order that the impact of military-industrial activity on this cycle may be examined, one should study above all the regularities of military production itself. In its development, the following basic characteristics differing from those of civilian production are to be found:

p 1. In contrast to the civilian industries whose products are marketed upon manufacture, private companies embark on the manufacture of specific military commodities (missiles, airplanes, ships, tanks, etc.) after their sale, i.e., after winning a government contract for the delivery of armaments of a specified quantity and quality. Lenin wrote: "When capitalists work for defence, i.e., for the state, it is obviously no longer ‘pure’ capitalism but a special form of national economy. Pure capitalism means commodity production. And commodity production means work for an unknown and free market. But the capitalist ‘working’ for defence does not ‘work’ for the market at all—he works on government orders, very often with money loaned by the state.”  [238•2 

p 2. The government is the sole buyer of military goods. Although military purchases are made by numerous procurement agencies, while a share of military supplies, under a system of subcontracts, is handled only by individual private companies, the government is the final purchaser of manufactured military goods (excluding a certain part of arms exports). This fact leaves its imprint on military production in 239 the sense that it is precisely government demand that determines its scale, structure and trends.

p 3. The structure and volume of government demand for military goods change much more quickly than market demand for products of any civilian industry due to the more rapid development of military technology and a considerable speed-up in its obsolescence, changes in military policy and strategy, in the international situation, and other factors. Therefore, military production is distinguished by relatively greater uncertainty of development prospects, as well as by quick and notable changes both in its volume and structure.

p 4. With the increased claims on the quality of military goods and the invention of incgsasingly sophisticated weapons systems, the’competitive power of firms involved in military production depends mostly on their capacity to manufacture technologically intricate products, the availability of highly qualified personnel, their experience in the performance of military contracts, and progress in military research and development, as well as the strings they have in the Pentagon and Congress.

p 5. Prices of military commodities are not conventional free market prices, but are mostly negotiated between the government and the monopolies. The absence of an open arms market resulting as a rule in non-competitive price formation is used by military suppliers to inflate prices.

p 6. The US Administration plans military production with a view to the strategic objectives of US imperialism and armed forces development programmes. The Defence Department conducts private orientation conferences with leading military-industrial firms to inform them of contemplated amendments in the range and volume of government military purchases. As far back as 1950, Congress passed the Defence Production Act which gave the President and his Administration broad powers to widen and stimulate military production development, establish priorities in strategic raw materials and equipment distribution, and make stockpiles, control prices, etc. In this way, the USA maintain its military-economic potential prepared for mobilisation.

p Thus, the development of military production, its scale and variations are governed by its own specific laws rather than by general cyclic reproduction or private market demand.

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p The impact of military production with its developmental distinctions on general cyclic reproduction varies primarily in proportion to its share in the national economy. For example, during the Second World War, when the government’s war economic activity reached a tremendous scale with almost a half of the gross national product being used for military purposes, war production influenced the cycle to a decisive degree. War production regulated and directed by the government, the gearing of the entire economy to the war effort led to a situation where the economic development was governed on the whole mostly by the specific laws of war production rather than the basic laws of cyclic reproduction. The dominating role of war .production during the Second World War resulted in a derangement and repeated disruption of the normal production cycle.

p As noted above, in the post-war period roughly 10 per cent of the gross national product was consumed by the military establishment. It need not be argued that military procurement on this scale cannot produce the decisive effect on the production cycle. In peacetime, military expenditures fail to provide an alternative to the cyclic character of economic development, as is evidenced by the overproduction crises which hit the USA in 1948-49, 1953-54, and 1957-58. After mid-1969, the US economy was in the throes of a regular cyclic crisis of overproduction although the USA was continuing its war in Indochina and its military spending soared. The government, however, may stave off or abate the severity of an incipient crisis by manipulating its military outlays.

p In order that the impact of military spending on the phases of the production cycle may be defined more accurately, one should find criteria that would more accurately indicate the moment it has the greatest and most immediate impact on business activity. As is known, the scope of military-industrial work finds its concentrated expression in the spending half of the federal budget, specifically in various budget items. To determine which of these items conforms most to the above-mentioned objectives, it is necessary to refer to the main items of the US federal budget.

p New obligational authority—the sum of appropriations annually endorsed by Congress both for the budget as a whole and for individual departments and agencies, within 241 the limits of which new financial obligations may be incurred and discharged, either directly or under a special legislative permit. As a rule, these obligations must be incurred within a given fiscal year, but in certain cases, particularly when financing construction, research and procurement programmes, they may be incurred for longer periods.

p New obligational authority is usually granted in the form of appropriations enabling concrete financial obligations to be incurred and discharged. A part of new obligational authority takes the form of contract authority but payments thereunder are subject to special congressional approval. Any part of new obligational authority not used within a specified period is cancelled. New obligational authority can be used in the future only if renewed by Congress.

p New obligational authority is granted annually when endorsing the budget. New autherity and that which is a backlog from past years make up the total obligational authority for a given fiscal year. This is sometimes termed Direct Budget Plan in US publications.

p Obligational authority is a title to incur financial obligations for the purchase of various goods and services needed by a given department or agency for discharging its functions. Invested with the right to incur obligations, government departments and agencies, the Department of Defence in particular, undertake to pay their suppliers specified sums for the delivery of specified goods and services. The actually signed obligations are known as obligations incurred. They may take the form of short-term obligations to pay civilian and military personnel, of contracts for military equipment deliveries, the construction of military projects, etc. Obligations incurred are considered discharged after suppliers have been paid in cash or in cheques. Actual payments under obligations incurred within a given fiscal year are made both in that year and in later years on progress in the performance of a specific contract. Actual payments for goods and services supplied come under the “expenditure” item of the budget. At the same time, a part of expenditures is defrayed under obligations incurred in previous years, another part, under those incurred within a given fiscal year.

p When discussing the budget, Congress annually approves separately the volumes of new obligational authority and 242 new spending authority. Though not identical in size, as a rule, they are very closely interconnected. New obligational authority determines in the main the volume of obligations to be incurred by departments and agencies with suppliers of goods and services. In their turn, obligations actually incurred are potential expenditures which vary in size with the volume of the former.

p There is a definite lag between changes in the volume of budget items discussed. For example, changes in the volume of new obligational authority for a given fiscal year do not necessarily result in a corresponding change in the volume of obligations incurred and the total of actual expenditures in that year. The point is that changes in the volume of new obligational authority in a given fiscal year may affect the incurrence of obligations in the subsequent two years or more, while actual spending may be affected even for a longer period. This is attributable to the fact that, as was pointed out above, there is a lag on the one hand between the granting of new obligational authority and the actual incurrence of obligations and, on the other hand, between the latter and the spending of sums to discharge them.

p The actual scope of federal military procurement in the past may be assessed on the basis of expenditures alone but one must be in possession of data for all of the above listed budget items to analyse the current, let alone future, military work. Of these, data on total obligational authority or, more specifically, data on obligations incurred, more accurately show when military work has the greatest impact on the economy.

p It is precisely after government obligations are incurred with military suppliers under contracts or otherwise that military-industry work affects the economy most. In this period, industrial firms committed under military contracts provide themselves with requisite production facilities, raw materials and stores, manpower, etc. The incurrence of a financial obligation affects the activity not only of prime contractors but also of subcontractors involved directly or indirectly in the performance of the contract in question.

p There is a lag between the time a government financial obligation is incurred by the Department of Defence or another government agency with the supplier of military goods 243 and services and the time it is discharged, which varies with the term of the contract involving the obligation. This lag ranges from short periods (for pay to servicemen, wages and salaries of civilian personnel) to long (orders for military equipment, military construction, etc.).

p During the Korean war, it was estimated that the lag between ordering and delivering typical military items varied from six months for uniforms to 15 months for tanks and to over two years for combat aircraft. The lead time for procurement of aircraft for the Vietnam war was estimated by the Department of Defence at 18 months. The estimate for ammunition was six months.  [243•1  The US economists Harvey Galper and Edward Gramlich, using a modelling technique to estimate the lag between ordering and paying for military equipment, established that on the whole about 8 per cent of all Defence Department orders were repayed, i.e., listed under “expenditure” items within a quarter-year of being awarded; up to 20 per cent within 6 months; up to 35 per cent within 9 months; up to 49 per cent within one year; and up to 81 per cent within two years.  [243•2 

p As evidenced by the data adduced, the lag between the incurrence of a financial obligation with military suppliers and its actual discharge is quite considerable. Therefore, the US budget has a discrepancy (sometimes considerable) between the quantitative expression of military work under the item "obligations incurred" and under the “expenditures” item.

p Obligations incurred illustrate the scale of prospective military-industry work, indicating more accurately the time of its performance and greatest impact on the economy, whereas expenditures show the scale of accomplished work in the production of military goods and services. Therefore, data on expenditure used for an analysis of the impact of military procurement on the economy in a given period of spending may be misleading. This is particularly true of periods of drastic fluctuations in the rate of military contracts awards, which are not immediately mirrored in budgetary data on military outlays. For example, in 1965/66, the Defence Department incurred financial obligations totalling 244 some 67,000 million dollars, 30 per cent more than in 1964/65. Over the period, however, expenditures increased only 17 per cent, totalling 54,400 million dollars, i.e., 12,600 million dollars less than the sum of all obligations incurred. In 1966/67, obligations incurred grew by 6,000 million dollars to total 73,000 million, while expenditures increased by 13,100 million dollars to total 67,500 million. As pointed out above, federal military activities reached the peak of stimulating effect in 1966, when the rate of government contracts awards was at its height, whereas 1967, a year of record spending, saw the onset of an economic depression. A roughly similar situation was in evidence during the Korean war. It may be inferred from the above-said that the impact of federal military activities on the capitalist cycle should be assessed from data on financial obligations incurred in corresponding cycle phases.

p In view of the stimulating effect military contracts have on the economy, the US Administration takes steps to increase their volume in periods of critical slumps in production. For example, the amount of military orders was increased in an effort to curb the crises in 1948-49, 1957-58, etc. This slowed down, of course, the rates of critical decline in business activity in those years.

p When the rate of military contract awards notably increases in the upward phase of the cycle this may be a factor sustaining this rise for a longer period. For example, this rate sharply increased in 1965/66 when the US economy was on the upgrade. The claims of the Vietnam war might have made for a definite lengthening of this upward trend. Once the hectic rise in military contracts and the stimulus it gave to business activity were no longer there, military contracts could do no more than slightly offset an incipient cutback in economic growth rates and an increase in laid-up capacity: in 1967, the US manufacturing industry ran at 85 per cent of capacity on average as against 90.5 per cent in 1966 and 88.5 per cent in 1965.  [244•1 

p Fluctuations in military production may either precipitate an impending overproduction crisis or aggravate it when it 245 is already there. Discussing the characteristics of military production, we made a point of noting its greater susceptibility to variations in scale and structure compared with civilian industry owing to changing military policy and strategy, rapid advances in military technology and the resultant "rearmament cycles”, the outbreaks and ending of wars, etc. Curtailment of military production after the Korean war, to take but one example, might have added severity to the overproduction crisis of 1953-54.

p Thus, military production governed, as it is, by its intrinsic laws fails to amend cyclic capitalist reproduction in peacetime. Yet military production, which is linked and interacts with civilian industry, has a varied impact on the capitalist cycle, staving off or quickening the onset of a crisis, mitigating or enhancing its insidious symptoms.

p The impact of military expenditures on a nation’s economic potential. Karl Marx stated that war in its immediate economic effect is the same as for a nation to throw a part of its capital overboard.  [245•1  Viewed from the economic aspect, military disbursements mean annihilation of material and manpower resources, as they create nothing of use to producer or private consumer. They are in fact a deduction from social product. Militarism diverts to destructive purposes what might have served mankind’s progress, destroys the fruits of the labour of millions. Military economic activities in general are a stumbling block in the way of economic progress.

p In the contradictory conditions of capitalist reproduction, military outlays may, it is true, step up the rates of economic growth. An increment in a nation’s GNP attributable to military expenditures, however, is unhealthy economic growth. It is due, first, to an increased share of military goods in the gross national product, i.e., goods which cannot be used for further production and which are not part of the level of living but are deadly weapons; second, this growth is transient, because no country, however rich, may afford to boost its military spending without end; third, if the resources consumed in military work had been used for peaceful purposes, they would have produced a much greater economic effect.

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p The unending arms race and the use of technological achievements primarily for military purposes have an adverse effect on the US economy. The incessantly increased military spending may undermine its economic potential, the material basis for the giant US military machine. Therefore, extravagant military spending may in the long run prove ineffectual even from the aspect of building up military power whose material foundation may become undermined.

p Military expenditures are unpardonable extravagance. The lavishing of enormous funds on unproductive military projects depletes the potentialities of the economy. This holds true even of situations where military spending increases current output.

p For example, in the Second World War, the USA pushed up industrial output mainly by more intensive use of pre-war capacity geared to the war effort, reactivation of idle capacity and greater employment. In that period, new capital investments were insignificant, which deranged even the process of sinking fund restoration and resulted in the shrinking of fixed capital.  [246•1 

p In the post-war period, military expenditures, great as they were relatively and absolutely, did not halt the growth of US economic potential. But even then they tended, as they do now, to reduce the country’s possibilities for a further economic potential growth, acting as a brake of its rates. Bourgeois economists admit that these expenditures are among the main causes responsible for the economic, particularly financial and monetary, difficulties experienced by the United States.

p The adverse effect produced by military work on the development of the US economy shows particularly strikingly in the following fields.

p First, this work annually diverts large material, financial and manpower resources from productive uses. The most up-to-date instruments of labour and the best-qualified section of the labour force are employed in the armaments industry. In 1967, of the total labour force employed in the private sector of US military production, first-class specialists 247 accounted for 15.6 per cent, skilled operatives for 21.1 per cent and semi-qualified workers for 24.3 per cent, whereas the proportion of these groups in the country’s total employment was 13.3, 13.4 and 18.5 per cent respectively, i.e., it was far below that in the military sector of industry. In 1967, 61 per cent of all aeronautic engineers, 40 per cent of air mechanics, 38 per cent of physicists, 22 per cent of electronic technicians, 18 per cent of all production engineers, etc., were employed in the manufacture of military goods for the Department of Defence alone.  [247•1 

p The US Administration has made it a law that productive capacities and raw materials be used first and foremost to meet the military needs. In connection with expanding production to meet the demands of the Vietnam war, the Administration introduced quotas for certain strategic materials, for example, steel and copper. The consumption of materials of prime importance for military production is regulated by the Office of Industrial Mobilisation in the Bureau of Domestic Commerce. Whenever necessary, this Office institutes, on a Defence Department request, quarter-year quotas for the manufacture of individual types of strategic raw materials for the Pentagon, i.e., prescribes the proportion of productive capacity or actual output to mee.t the military demand. Such quotas are naturally laid down primarily for raw materials in very short supply, which has a negative impact on the civilian economy.

p The arms race, the utilisation of material and manpower resources and technological progress above all for military purposes are increasingly handicapping the development of productive forces. This is admitted even by many leading bourgeois economists and politicians. Professor Boulding "of the USA maintains that ”. . .the US Department of Defense does a great deal of economic damage to the United States: it reduces domestic consumption by about fifteen per cent, and, by diverting the growth resource into the rat hole of competitive weapons systems, or even space technology, it diminishes the annual rate of economic growth, probably by as much as two per cent".  [247•2 

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p Second, as noted above, over a half of all funds invested in research and development are used for military purposes in the United States. This obviously slows down technological progress in the civilian economy. Apologists of US imperialism often remark that scientific and technological innovations in the military field find their way into civilian industry. They cite examples of peaceful uses of new types of materials, technology and manufacturing processes which were developed and applied primarily for military purposes. However, there is a big gap between the theoretical possibility of using the results of military research and development in civilian production and their practical application. The development of modern sophisticated instruments of warfare involves the use of high-quality structural materials, technology and processes. The war industry uses, for instance, a wide range of metals, alloys, non-metallic and composition materials, many of which have not yet found a broad application in the civilian economy because they are costly or unavailable in quantity. In view of the widening gap between military requirements (advancement of modern weaponry which is extremely sophisticated and expensive as it is, space exploration, etc.) for which military research and development is carried out and the existing civilian demand, the possibility of direct use of military products for peaceful purposes is limited.

p Even John Foster, Jr., DDR&E, had to admit that in 1969, for example, of the 981 million dollars spent on military aircraft research and development 843 million (86 per cent) went into programmes that were of no use to civilian industry.  [248•1 

p According to US publications, new fundamental scientific discoveries, as well as new technology and processes of a general character which come into being as a result of military research and development, rather than specific endproducts, are of increasing importance for the civilian economy.

p Apologists of imperialism are usually silent about the fact that militarisation of science, employment of the greater and 249 most productive part of scientific personnel in military work, handicap technological progress in the civilian economy. The US aerospace industries alone employ more scientists and engineers than the machine-building, chemical, rubber and pharmaceutical industries combined. More than a half of all scientists and engineers involved in research and development in US industry work under contracts on Department of Defence and NASA orders.

p The US Professor Boulding writes: "There is much evidence to suggest that civilian industry is deprived of able research scientists and engineers because of the ’internal brain drain’ into the war industry.... Because of the obsessive expansion of the war industry, many vital sectors of - the civilian economy are failing to solve their technical problems. We see this in transportation, in building, even in many areas of general manufacturing.”  [249•1  The American scientist Richard S. Morse estimates that if capital investments in the US space programme had yielded as much as every dollar spent on research and development in civilian industry, the economy would have received additionally almost 100,000 million dollars a year.  [249•2 

p Third, great military expenditures are the main cause of a chronic deficit in the federal budget and, consequently, of all the economic and social ill-effects of this phenomenon: the growth of public debt, of inflation, of loan interest rate, etc.

p Fourth, the enormous military expenditures overseas are a major cause of the chronic deficit in the US balance of payments, resulting in a steady depletion of the US gold reserves and a crisis of the monetary system of modern capitalism. In 1953, the USA had 21,800 million dollars in gold reserves, whereas towards the end of 1967 the figure had decreased to 11,500 million and by January 1969_ to 10,300 million.  [249•3  The steep and steady decline in gold reserves has undermined the prestige of the US dollar as a world currency, posing a formidable problem for the USA. In the 250 past few years, its government has taken a series of measures to reduce the balance of payments deficit by restricting the export of American capital, slashing bank loans to foreigners and tourist expenses, curtailing federal expenditures overseas, etc. Since the early sixties, the US Defence Department has also taken austerity measures to cut military expenditures overseas and mitigate their negative impact on the balance of payments. As a result, the excess of currency spending for military purposes over revenues from the export of armaments and other military items has been reduced from 2,800 million dollars in 1960/61 to 1,700 million in 1962/63 and to 1,500 million in 1964/65.  [250•1  However, the escalation of the Vietnam war led to a considerable increase in pure currency spending for military purposes. In 1967, this war alone demanded currency spending of at least 1,500 million dollars as against 200 million in 1965. The substantial growth of military spending overseas contributed to the balance of payments deficit growing to 3,600 million dollars in 1967, a 150 per cent increase from 1966.  [250•2 

p The further increase in the balance of payments deficit is accompanied by growing monetary and financial difficulties in the USA, which reached a peak of acuity in 1971. The US Administration took "emergency measures" to save the dollar: it forbade the exchange of dollars for gold, imposed a 10-per cent import surcharge, a wage and price “freeze”.

p These emergency measures exacerbated the contradictions between the imperialist powers and aggravated the crisis of the entire monetary system of modern capitalism to a point where the USA, under pressure from its trading partners, was compelled to devaluate the dollar and repeal the 10-per cent import surcharge.

p The dollar devaluation implemented in 1971 and in 1973, however, failed to resolve monetary and financial contradictions between the USA and other capitalist states. The efforts of the USA to preserve, cost what it may, the special role of the US dollar in the .monetary system of capitalism are causing a further exacerbation of its crisis.

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p The US ruling quarters are attempting to strengthen the country’s economic position not by curtailing its extravagant military expenditures, which are the root cause of its economic and financial difficulties, but by shifting the burden of growing military spending onto the shoulders of the working masses, as well as its partners in military-political blocs.

p US militarism has a negative impact not only on US economic development but also on the economies of its allies as well as on the economic development of states keenly sensitive to the market situation and fluctuations in US military production. This refers, above all, to the Latin American countries and Canada. As is known, the US monopolies hold the key positions in the economies of these countries. The huge direct capital investments of US monopolies in Canada and Latin America enable the USA to control in its selfish interests the course and trends of their economic development as suppliers of strategic raw materials for US imperialism An example in point is the development of the uranium- mining industry in Canada. In view of the great military-strategic importance of uranium and US growing demand for it, the USA stimulated the development of the Canadian uraniummining industry in the fifties (by setting high purchase prices of uranium, and granting tax, customs and other privileges to monopolies). Almost until the end of the fifties, the US Atomic Energy Commission, under an agreement signed as far back as 1948, had been importing all the uranium produced by Canada. This guaranteed demand stimulated a rapid growth of uranium extraction in Canada in those years. However, in view of the growing uranium production and the accumulation of large uranium reserves within the United States itself, the AEG in November 1959 notified the Canadian Government of its unwillingness on expiration of the contracts to take advantage of its priority right to purchase of Canadian uranium. The AEG refusal to resume contracts for uranium imports led to a severe crisis in the Canadian uranium industry in 1960-66.

p The blame for the steady increase in military spending throughout the world rests with the imperialist states, trie USA first and foremost. According to UN data, the arms race bearing heavily on mankind cost it roughly 120,000 million dollars in 1962. This sum accounted for 8-9 per cent of 252 the gross national product or a half of the annual capital investments in all the countries of the world. It was little short of the world’s total annual exports and equivalent to at least two-thirds and, by other estimates, to the whole of the aggregate national income of the developing countries. According to UN statistics, the total personnel of the armed forces and the labour force involved in military production ran into over 50 million by the same year.  [252•1  Since then, however, the arms race has been greatly intensified. The world’s total annual military spending grew to 138,000 million dollars in 1965. The Vietnam war and the developments in the Middle East unquestionably led to a notable increase in military spending, which was expressed in astronomical figures as it was, reaching an estimated total of 180,000 million dollars in 1967. This world-wide military spending was comparable to the total annual income of the 1,000-million population of Latin America, South Asia and the Middle East. It is 40 per cent bigger than the world’s expenditures on education and more than three times the world’s annual spending for public health.  [252•2  By 1971, world military expenditures had reached an estimated total of 216,000 million dollars.

p The burden of military spending is rapidly growing in the economically less developed countries. Between 1958 and 1968, its share in the gross national product of the African countries grew from 1.8 to 5 per cent; in the Middle East countries, from 5.6 to 7 per cent.  [252•3 

p To size up military spending in individual countries, it is not enough to know its share in the gross national product or the national income. Account must also be taken of the general level of the productive forces, the total output and particularly the per capita national income. For example, in the USA, per capita military spending in 1963 was 10.8 per cent of the per capita national income, while in South Korea, the figure was 11.7 per cent. Compared on their face value, these data show no staggering difference in the burden of military outlays between these two countries. In the United States, however, the per capita total available for 253 civilian needs after deduction of military spending was 2,221 dollars in 1963, whereas in South Korea it was 39 dollars, i. e., l/56th of the former.  [253•1  The difference speaks for itself.

p For all the obvious negative impact militarism has on economic development, apologists of US imperialism extoll military spending as a stimulus for economic development and high employment, alleging that disarmament will lead to economic chaos and an unemployment rise comparable to that during the economic crisis of the thirties. In a report to the annual session of the American Economic Association, Harry Magdoff maintained, among other things, that if military employment were abolished, the unemployment rate in the USA might increase to 12 million, i.e., 14.3 per cent of the total labour force (1937 level). He went on to say that in view of the indirect influence military spending has on the economy, the absence of a military budget would raise the unemployment rate to 24.3 per cent of the labour force, i.e., almost to the level of 24.9 per cent where the economic crisis of 1929-33 was at its worst.  [253•2 

Special studies carried out in the United States and other countries  [253•3  indicate that the ending of the arms race, the implementation of a comprehensive disarmament programme, even if connected with certain difficulties involved in regearing the national economy, will cause neither economic depression nor unemployment, contrary to the assertions current in the Western military circles. Disarmament would relieve the world of the arms race burden. It would contribute to a considerable acceleration in the rates of world economic development. A reduction in military spending would provide favourable conditions for increasing economic aid from the industrially advanced countries to the developing countries. This would mean a long step along the path of economic and social progress and would make it possible to improve the welfare of all people of the earth in the historically brief space of time.