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Barker Maco Consequenecs of Peace

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Tim Barker
This chapter is a contribution to the intellectual history of the anxiety
that full employment in the modern United States depended somehow on
military spending. This discourse (conveniently abbreviated as “military
Keynesianism”) is vaguely familiar, but its contours and transit still await a
full study. The chapter shows the origins of the idea in the left-Keynesian
milieu centered around Harvard’s Alvin Hansen in the late 1930s, with a particular focus on the diverse group that cowrote the 1938 stagnationist manifesto An Economic Program for American Democracy. After a discussion
of how these young economists participated in the World War II mobilization, the chapter considers how questions of stagnation and military stimulus
were marginalized during the years of the high Cold War, only to be revived
by younger radicals. At the same time, it demonstrates the existence of a
community of discourse that directly links the Old Left of the 1930s and
1940s with the New Left of the 1960s and 1970s, and cuts across the division
between left-wing social critique and liberal statecraft.
Keywords: Keynesian economics; military Keynesianism; secular
stagnation; military-industrial complex; Paul Sweezy; permanent arms
Including a Symposium on 50 Years of the Union for Radical Political Economics
Research in the History of Economic Thought and Methodology, Volume 37A, 1129
Copyright r 2019 by Emerald Publishing Limited
All rights of reproduction in any form reserved
ISSN: 0743-4154/doi:10.1108/S0743-41542019000037A004
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“Some weeks ago,” wrote Herbert Gintis in 1970, “a bright young Marxist economist, lecturing at Harvard University, was asked by a member of his audience
the probable effects of a drastic cut in ‘defense’ spending on the American economy. Perennial question!” The bright young Marxist gave the “perennial
Marxist answer,” denying that “the American economy could, either in the short
run or the long, adjust to an economic atmosphere of peace.” Gintis, then a
recent PhD employed at Harvard as a lecturer, initially doubted the speaker’s
claim, but upon reflection agreed that “the success of Keynesian economics itself
in the United States has been predicated upon the growth of the war machine
since the Second World War” (Gintis, 1970, p. 245).
Gintis was right that the question and the answer were old. But they were not
quite perennial. As his own reference to the situation “since the Second World
War” suggests, the argument had its origins in the late 1930s and 1940s, the conjuncture that brought together the Keynesian revolution with unprecedented
levels of spending on hot and cold wars. Back in 1947, another untenured
Harvard economist, Paul Sweezy, had asked a capacity crowd in Littauer
Auditorium, “What chance is there, looking at our depressions, that the
American capital economy can passively recover its post-depression equilibrium
without the outside shot in the arm of war?” (Schumpeter Sees, 1947).
This chapter is a contribution to the intellectual history of the anxiety that
full employment depended somehow on military spending. This discourse (conveniently shorthanded as “military Keynesianism”) is vaguely familiar, but its
contours and transit still await a full study.1 Here, I show the origins of the idea
in Sweezy’s left-Keynesian milieu, with a particular focus on the diverse group
that cowrote the 1938 stagnationist manifesto An Economic Program for
American Democracy. I discuss how questions of stagnation and military stimulus were marginalized during the years of the high Cold War, only to be revived
by younger radicals like Gintis. At the same time, I demonstrate the existence of
a community of discourse that directly links the Old Left of the 1930s and 1940s
with the New Left of the 1960s and 1970s, and cuts across the division between
left-wing social critique and liberal statecraft.
For military Keynesianism to be understood as a solution, economists first had
to diagnose capitalism with a chronic savings glut and suggest permanent public
investment as the cure.2 In the United States, this line of thinking was developed
by Alvin H. Hansen and his circle, largely at Harvard University, in the late
1930s.3 Hansen’s 1938 AEA presidential lecture, “Economic Progress and
Declining Population Growth,” is the best remembered articulation of the secular stagnation thesis. But just as politically influential was a short book published by Hansen’s followers the same year, entitled An Economic Program for
American Democracy. The book was presented as the product of collective
discussion and composition by “seven Harvard and Tufts economists,” including
names both familiar and obscure: Richard V. Gilbert, Lorie Tarshis,
Paul M. Sweezy, Maxine Y. Sweezy, John D. Wilson, Arthur W. Stuart, and
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Macroeconomic Consequences of Peace
George H. Hildebrand, Jr. Emile Despres, Alan R. Sweezy (Paul’s elder
brother), Walter S. Salant, and perhaps others participated but withheld their
names because they were working for the government at the time.4
According to Herbert Stein, the Economic Program pamphlet was
“Keynesian in analysis, stagnationist in diagnosis, and all-out in prescription,
going beyond deficit spending to drastic measures of income redistribution for
the purpose of stimulating consumption” (Stein, 1969, p. 165). A surprise best
seller, by early 1939 the book “began to assume a relationship with the New
Deal that was later pre-empted by Keynes’ General Theory of Employment,
Interest, and Money itself” (May, 1981, pp. 149150). Franklin Roosevelt himself, who had recently embraced deficit stimulus for the first time, recommended
the book to his son (Stein, 1969, p. 487 n.70). This primal version of American
Keynesianism struck one business economist as “not greatly distant from neoMarxian thinking” and pushed corporate organizations like the Committee for
Economic Development to developing their own, more constrained, approaches
to fiscal policy (Collins, 1981, p. 97).
The fearful businessmen were perhaps not far off the mark. Paul Sweezy
would later recall that “it was hard to draw the line in those days between the left
New Dealers and the beginnings of the Marxist movement” (Phelps, 1999, p. 38).
Classes on socialist and Marxian economics were regularly offered by Harvard
instructors including Joseph Schumpeter. Paul Sweezy (1942b) presented in
English for the first time many of the debates about underconsumption, imperialism, and crisis tendencies that had long exercised European Marxists, while also
demonstrating through reproduction schema how Marx and Keynes might begin
to be reconciled. Drawing on Keynes, a Marxist could conclude that:
socialists should […] take the lead in organizing mass support behind a policy of large-scale
government spending, since at the present time this is the only policy which can save democratic institutions and thus keep the way clear for eventually winning the masses to a socialist
position. (P. Sweezy, 1938)
From Marx, and his inheritors such as Rosa Luxemburg, a Keynesian could
learn the role of income distribution in determining output, as well as the importance of secular, evolutionary patterns of accumulation, stagnation, and crisis.
The latter perspective was somewhat at odds with the General Theory’s assumption of “a given state of technique, resources and costs,” though it could
draw on stray suggestions that “the richer the community, the wider will tend to
be the gap between its actual and its potential production” (Keynes, 1936,
pp. 21, 28).
James Tobin (a Harvard undergraduate and precocious Keynesian in 1938)
remembered that while the Economic Program authors included both
“Marxists” and “just Keynesians,” the resulting text saw “Marxism […]
crowded out, and the result was liberal Keynesianism rather than socialism”
(Tobin, 1988, p. 37). But the book’s conclusion bore a distinct left-wing impress.
If the depression was not ended by “conscious social endeavor,” the authors
warned, businessmen might replace democracy with dictatorship. Then, “like
the sorcerer who could no longer control the forces of the netherworld which he
had called up by his spell, business would be overwhelmed by its own creature.”
If this sentence clearly recalls the sorcery metaphors of the Communist
Manifesto, what follows anticipates the postwar discourse of military
Such a dictatorship would revive economic activity but it would be activity devoted increasingly to producing weapons of death and destruction which sooner or later plunge the country
into a holocaust of slaughter and bloodshed. (Gilbert et al., 1938, pp. 9091)
The image of Nazi Germany clearly stood behind such rhetoric. In fall 1940,
Paul Sweezy worried that:
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Our armament program has just begun; as it expands there will be an end to economic stagnation just as there was in Germany. Our own ruling class will, if it can, seize the opportunity to
impose upon us a regime indistinguishable in principle from that which has been imposed
upon the German people. (P. Sweezy, 1940)
Paul’s wife, Maxine Y. Sweezy, another avowedly Marxist Economic Program
contributor, wrote a dissertation on the Nazi economy (Woolston, 1941).5 The
German experience also informed the work of Michał Kalecki, the Polish-born
socialist whose work on business cycles anticipated Keynes and profoundly
inspired figures such as Paul Sweezy and Joan Robinson (Toporowski, 2016). In
a celebrated essay, Kalecki suggested that “armaments are the backbone of the
policy of fascist full employment.” Even in peacetime capitalist democracies, he
warned, business resistance to nonmilitary public investment would still seriously constrain the possibility of full employment (Kalecki, 1943, p. 327).
Even those less radical than Paul Sweezy feared that a rearmament-driven
recovery could mean American fascism. In 1939, prominent New Deal agricultural advisor Mordecai Ezekiel warned that the absence of peacetime planning
would inevitably bring war planning:
If once we engage in war, there will be no hesitancy to plan […] democracy shall have little
place in such planning […] If the war lasts long enough, we may expect to see here too concentration camps, federal penitentiaries, and near the front lines, firing squads, to welcome all
those who as “labor agitators” “subversive journalists,” or “enemy sympathizers,” dare expose
the propaganda of our own wartime Fascism. (Ezekiel, 1939, p. 5)
But as Germany declared war on the United States and the Soviet Union, the
economists of the New Deal and the Popular Front came to see wartime planning not as the road to fascism but as the only alternative to it. No one had
sought war as a Keynesian measure, but the implications were hard to mistake.
Keynes himself told BBC listeners that “The grand experiment has begun. If it
works, if expenditure on armaments really does cure unemployment, I predict
that we shall never go back all the way to the old state of affairs” (Keynes,
1939, p. 1143). The next year, writing for an American audience, he worried
that it seemed “politically impossible for a capitalistic democracy to organize
expenditure on the scale necessary to make the grand experiments which would
prove my case, except in war conditions,” but mused that “good might come
out of evil.” While British rearmament would require austerity, in the United
Macroeconomic Consequences of Peace
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war preparation, so far from requiring a sacrifice, will be the stimulus, which neither the victory nor the defeat of the New Deal could give you, to greater individual consumption and a
higher standard of life. (Keynes, 1940, p. 158)
The war brought the first generation of American Keynesians close to power.
Members of the Harvard-Tufts group served in the Office of Price
Administration, the Office of Strategic Services (OSS), the War Production
Board, the Federal Reserve, the State and Treasury Departments, and the
Federal Reserve, among other wartime organizations. Perhaps, the most consequential was Richard V. Gilbert, the lead (and oldest) author of the Economic
Program, later referred to as “the outstanding, unsung hero of American wartime
economic policy” (Salant, 1980, p. 1062). On the strength of the 1938 Economic
Program book, Gilbert had been hired away from Harvard by Commerce
Secretary Harry Hopkins (Stein, 1969, p. 168). He brought with him Walter
Salant, another member of the Harvard-Tufts group, who would later suggest
that one of their 1939 reports represented “the first statement in an official document of what is now called the ‘new economics’” (Salant, 1970). Work quickly
turned toward mobilization: by September 1940, Gilbert was predicting that rearmament “would undoubtedly be the most important influence in the business situation and a powerful source of expansion” (Mitra-Kahn, 2011, p. 255).
Gilbert’s participation in the wartime mobilization permanently transformed
national income accounting. As chief economist of the Office of Price
Administration, he helped replace Simon Kuznets’s original national income
methodology with a distinctively martial Keynesian framework. For Kuznets,
defense spending was an intermediate good which provided society with security,
rather than a contribution to the pool of final goods and services. Such spending
should be counted as a deduction from national income, not a contribution
(Higgs, 1992; Mitra-Kahn, 2011, pp. 237247). Gilbert and his bureaucratic
allies “struggled to get the US to invest in war capacity” because “the administration worried that such investment would be bad for the economy on the basis
of Simon Kuznets’s definition of the economy” (Mitra-Kahn, 2011, p. 273).
Drawing on the latest work by Keynes, Gilbert sought to recast gross national
product so that it would include the “military requirement plus the normal civilian requirement” (Mitra-Kahn, 2011, p. 259). Ultimately successful, this redefinition allowed government military spending to enter directly into gross
national product figures, providing the statistical foundation for countless postwar debates about the relation between defense spending and economic
Under the sign of anti-fascist military imperatives, leftist and liberal economists continued to work closely together. Gilbert collaborated on early national
income figures with Victor Perlo, an economist close to the Communist Party
(Gilbert & Perlo, 1942). Sometimes, Marxist and liberal convictions mingled in
the same mind, as in the case of Economic Program contributor Alan Sweezy.
Remembered today, if at all, as Paul’s “less radical” brother, the elder Sweezy
had been something of a cause celebre when, in 1937, his teaching contract at
Harvard was not renewed a decision some saw as motivated by Sweezy’s
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support for the newly formed Congress of Industrial Organizations (Mason &
Lamont, 1982, pp. 426429). During the war, Sweezy taught at Williams,
worked for the Federal Reserve Board, and published both in professional journals and in the radical press. In the Marxist theoretical journal Science and
Society, he praised New Dealer Mordecai Ezekiel as well as Lenin (A. Sweezy,
1942a). He pondered whether “Soviets of workers, soldiers and peasants will
spring up to fill the void and will proceed immediately to the abolition of capitalist society” while analyzing “The Government’s Responsibility for Full
Employment” in the American Economic Review (A. Sweezy, 1942b, 1943a).
In the course of a New Masses review of a book by American Communist leader
Earl Browder, Sweezy declared:
As an economist, I am convinced not only that the capitalist economy can be made to work
but also that the only way it can be done is through the further development of progressive
policies of the New Deal type. (A. Sweezy, 1944, p. 13)
Sweezy’s contributions to the debate on secular stagnation also reflected his
mix of Marxist and Keynesian inclinations. Sweezy argued that while modern
economists had “much to learn from Marx,” it was also the case that:
some of Marx’s most important insights, ideas he was struggling to express with the inadequate analytical apparatus then available, become thoroughly clear for the first time in terms
of the modern [Keynesian] analysis. (A. Sweezy, 1942, p. 136)
For Sweezy, unlike Hansen, the true problem of stagnation was not to be found
in objective factors like population, closed frontiers, or technological enervation.
Rather, the crisis of oversavings was really the crisis of a particular social order,
in which investment opportunities had to be profitable to be attractive. In a society directed toward human need, on the other hand, there could never be a
shortfall of socially beneficial uses for the growing product of an advanced
industrial economy (A. Sweezy, 1940, 1943, 1947).
The war effort, while it lasted, had created a capitalist society where high
levels of investment were guaranteed by the state, in the name of anti-fascist
combat a situation in which both radicals and liberals could see the economic
effects of mobilization in a positive light.6 This consensus would not survive the
war’s end, leaving a splintered political reality for the Harvard-Tufts group and their students to interpret in the decades to come.
Events after 1945 eroded the conditions that had made the Economic Program
collaboration possible, leaving them on opposite sides of the question of
military-fiscal economics. The splits within the labor-left-liberal world, embodied in Henry Wallace’s 1948 third party challenge to Harry Truman and the
expulsion of leftists from the CIO in 19491950, ran directly through the group.
The Sweezy brothers were involved with the Wallace campaign, though Alan
had misgivings and would move toward the center after the 1948 election (PMS,
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Macroeconomic Consequences of Peace
A. Sweezy to B. Laub, November 5, 1948, copy in Box 1, file: AZ,
19471948; PMS, A. Sweezy to P. Sweezy, November 29, 1958, Box 1, file:
AZ, 1963 or earlier). Arthur W. Stuart, forced out of the Treasury
Department in 1953 because of his connections with Harry Dexter White,
worked as a rug salesman before landing a job at one of the unions that had
been kicked out of the CIO in 1950 (Williams, 1993, pp. 80103). Even the less
radical Economic Program contributors had to be careful. Lorie Tarshis wrote
the first Keynesian textbook, only to see it buried by a coordinated right-wing
campaign (Colander & Landreth, 1996, pp. 6670). Emile Despres was blocked
from a job on George Kennan’s State Department Policy Planning Staff because
of vague security concerns, perhaps related to his support of Carl Marzani, an
alleged Communist spy who had worked with Despres and Paul Sweezy in the
OSS (Hixson, 1989, pp. 156157; Dutkin, 1947, p. 1).
Despite these anti-communist attacks, Keynesian economics saw something
of a victory in politics with the passage of the 1946 Employment Act, which
committed the government to maximizing employment and purchasing power
and created the Council of Economic Advisors. But the version of the
Employment Act that passed was less forceful than the originally proposed Full
Employment Act a sign that the businessmen gathered in the Committee for
Economic Development had succeeded in steering a course between preKeynesian fiscal reticence and the left-wing excesses of the stagnationists
(Collins, 1981, pp. 99109).
Besides the end of the Popular Front and the rise of commercial
Keynesianism, the postwar years posed another challenge to the followers of
Alvin Hansen. The end of the war was followed by a sustained boom rather
than the depression many had feared. But the stagnation question was far from
settled. Early in the war, coauthor of Economic Program George Hildebrand
had imagined the possibility of a temporary postwar boom, stimulated by
deferred consumption and investment (Hildebrand, 1942). Hansen himself had
departed from many economists in not forecasting a postwar depression, on the
basis that demand backlogs could be enough to generate “a vigorous private
investment boom” (Hansen, 1943). After all, the core stagnationist claim was
not that stagnation was inevitable but that it could only be avoided by robust
fiscal policy. As it turned out, “military spending rather than public
investment fueled expansion and the new frontier that opened was in the
defense-related industries of electronics and automation” (Mehrling, 1997,
p. 137). This development allowed stagnationists to continue to press their
claim, and to worry about what would happen if peace were ever to break out.
As Hansen put it in 1947, before the Korean War and the formation of NATO:
That we should be enjoying a period of postwar prosperity is not surprising to anyone. A
world situation so threatening as to require very large and growing military expenditures,
sufficient to offset the eventual decline in private capital outlays, might, indeed, give us an
almost indefinite period of high employment. But this is a solution which would point to
and probably eventuate in a world calamity. Apart from such a consideration there are
few, if any, who doubt that a severe depression is, sooner or later, in store. (Hansen,
1947, p. 61)
Seven years later, Hansen judged the contribution of military stimulus even
more significant:
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In the kind of world now in prospect, the problem of stagnation assumes a quite different
aspect from that of 1949. Indeed even in 1949, with a federal budget of about $40 billion, half
of which was for national security, the situation was obviously not at all like the peacetime
conditions prevailing in the ’thirties before the Second World War. It is amazing how many
economists have been able to close their eyes and blandly announce that events since 1940
have disproved the stagnation thesis! (Hansen, 1954, p. 409)
Hansen’s concerns found a place in postwar liberal cultural criticism.
Richard Hofstadter appears to have coined the term “military Keynesianism,”
and David Riesman helped to popularize the phrase (Hofstadter, 1950, p. 35;
Riesman 1958, p. 139). But the problem found its most assiduous students farther left. The idea that “the economy is dependent on military orders” echoes
constantly through the correspondence of Paul Sweezy and Paul A. Baran in the
1950s and early 1960s (Age of Monopoly Capital, 2017, p. 359). They saw this
thesis as what separated their collaborative efforts from both liberals and orthodox Marxists. “What argument will convince the liberal,” wondered Sweezy to
Baran in 1953:
who is determined not to be convinced, that public works cannot be turned on and off at will
to take the place of war spending? Either you see that this is a question of the class-structure
of society and the location of political power, or you don’t. (Age of Monopoly Capital, 2017,
p. 107)
Conversely, Sweezy had complained the previous year that “the most comprehensive contradiction of capitalism its continued existence depends entirely on
its preparing for total destruction, including self-destruction escapes the most
orthodox of Marxists” (Age of Monopoly Capital, 2017, p. 94).
The quarrel with liberals could be quite personal. “I wonder if our colleagues
like Tarshis and Despres, who at least once knew something learned from
Keynes and the 30’s, will be able to swallow this,” Sweezy wrote about two of
his Economic Program coauthors (PAB, P. Sweezy to Baran, February 1, 1962,
file: #23). He told Baran, who had aborted a manuscript collaboration with
Tarshis, “You are absolutely right to refuse to sign anything with the Keynesian
philistines” (PAB, P.M. Sweezy to P.A. Baran, September 21, 1952, file: #4).
But this invective shared space with a persistent sense of left-Keynesian identity.
Regarding his own work, Baran wrote, “Even where it smacks with Keynesian
notions, it is o.k. because I think that it is fully in keeping with Marx” (PAB,
Baran to P. Sweezy, May 15, 1952, file: #3).
Postwar correspondence between George H. Hildebrand and Paul Sweezy both contributors to the 1938 Economic Program for American Democracy illustrates the postwar breakdown of the left-Keynesian consensus as well as
continued dialogue on military-fiscal politics. Hildebrand completed his master’s
degree at Harvard, where he joined the group that wrote An Economic Program
for American Democracy. While serving as a principal economist for the
National War Labor Board, Hildebrand published an early paper applying
Keynesian national income analysis to the problem of “Depressionless
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Macroeconomic Consequences of Peace
Transition to a Post-war Economy.” Echoing the tones of the Economic
Program, this paper described the world war as “in large part a struggle over
systems of government and of social organization which is motivated by the
conflict between the promise of the machine process and the patent facts of poverty, insecurity, and inequality of economic opportunity as the customary lot of
the common citizen” and advocated “heavy injections of public expenditure, but
for peace rather than for war” as a solution to the reconversion puzzle
(Hildebrand, 1942, pp. 215, 223). In the AER the next year, Hildebrand cited
Hansen and Alan Sweezy on the likelihood that future levels of private investment demand “would continue to be too low to permit the economy to operate
at the high levels proved possible by the war” (Hildebrand, 1943, p. 600).
After the war, Hildebrand would become a successful labor economist and
arbitrator, and eventually Deputy Undersecretary of Labor for International
Affairs under Richard Nixon (Bernstein, 1970). His political evolution is illuminated in his replies to an invitation from Paul Sweezy to write something for his
new journal Monthly Review in 1949. Hildebrand, who was at the time teaching
a class on socialist thought at UCLA, took the occasion to alert Sweezy that he
now found “Soviet political morality” to be “the equal of Nazi Germany’s”
(PMS, G. Hildebrand to P.M. Sweezy, October 13, 1949, P.M. Sweezy Papers,
Box 1, file: AZ, 1963 or earlier). In a subsequent letter, Hildebrand conceded
that in the 1930s he “was aware of a certain seamy side to the USSR,” but “it
seemed to me that there was a real promise that a decent democratic society
could emerge there,” an orientation strengthened by his impression that the
Nazis “had emerged in a capitalist environment” and that “our economic system
was operating very badly.” Events since 1939, he wrote, had led him to change
his mind about socialism, a fact which he thought made it unlikely that he
would write for Monthly Review (PMS, G. Hildebrand to P.M. Sweezy, March
19, 1950. P.M. Box 1, file: AZ, 1963 or earlier).
But Hildebrand remained intrigued by the effect of military spending on
growth and stability. At the 1954 meeting of the AEA, Hildebrand gave a paper,
“Defense Expenditures and the Problem of Deflation,” on a panel called “The
Automaticity of Full Employment under the Assumption of Diminished
Defense Expenditures.” In 1957, he prepared an official report at the request of
Congressman Wilbur D. Mills on the influence of military spending on the
domestic economy. He and his coauthor declared themselves “certain that the
tasks of fiscal and monetary management with a greatly reduced level of security
spending would be harder, rather than easier, than they are now” and that military spending “does much to explain the brevity and shallowness of the three
postwar contractions and the absence of a major depression since 1941”
(Hildebrand & Breckner, 1957, pp. 539540).
Aware of their shared interest in fiscal-military dynamics, Hildebrand sent
Sweezy an advance copy of his congressional report. He drew Sweezy’s attention
to the fact that “we made good use of the Model, Rowland [sic], & Stone study,
which we cite with sincere approval.” The study in question was The ScientificIndustrial Revolution, a pamphlet published without a byline by the investment
bank Model, Roland, and Stone, and actually written by Paul Sweezy. Clearly,
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Hildebrand was aware of the authorship and promised Sweezy he would do his
best to get the study reviewed in the AER, which it deserved as a study “unique
in its perception of a vital new development” (Hildebrand to P.M. Sweezy,
October 7, 1957. Box 1, file: AZ, 1963 or earlier). One member of the
Harvard-Tufts Economic Program group was now citing another coauthor’s
work in testimony before Congress about the fiscal effects of the Cold War even though one was a fully paid-up member of the establishment and the other
was blacklisted.7
It is not surprising, then, that Baran and Sweezy still saw fleeting opportunities for a new popular front this time built around anti-militarism. Baran
noted that Republican Secretary of Defense (and erstwhile General Motors executive) Charles E. Wilson was “on the record with a few pretty good speeches
(one against too much armament, another warning of the creation of a permanent munitions industry with a vested interest in armament)” (PAB, P.A. Baran
to P.M. Sweezy, November 21, 1952, file: #5). Baran also helped to edit a special issue of the Nation on “Economic Hazards of Arms Reduction,” which
included contributions from Sweezy and Tarshis (PAB, P.M. Sweezy to P.A.
Baran, January 2, 1959, file #18). Bringing it all back home, he even wrote, “[I]
wonder whether it wouldn’t be very timely to produce a little pamphlet a la
Harvard-Tufts economists’ advancing a genuine program for ‘Peace and
Prosperity’” (PAB, P.A. Baran to P.M. Sweezy, March 4, 1959, file: #18).
In 1966, two years after Baran died, Baran and Sweezy’s Monopoly Capital was
published. The result of more than a decade of work by these veteran radicals
would prove to be one of the key influences on the revival of radical political
economy associated with the 1960s. Among its other gifts to the New Left,
Monopoly Capital offered a timely revival of left-Hansenian stagnation theory
as well as what would become the most-cited account of military Keynesianism.
To familiar arguments about armament-driven prosperity, Baran and Sweezy
added new empirical research (including an appendix which attempted to measure the magnitude of the surplus generated by underconsumption). They also
employed a broad, acerbic cultural criticism which reflected their discovery of
Thorstein Veblen as an intellectual ancestor, not least because of his SpanishAmerican War-era analysis of “the social function of militarism” (Baran and
Sweezy (207208). Even liberal critics conceded that Baran and Sweezy were
“economically literate radicals” offering a “sophisticated form” of the old claim
that capitalism requires war (Tobin, 1974, p. 41). For younger readers, it provided “the introduction to radical economic analysis for an entire generation of
university students and an important influence on the New Left” (Lebowitz,
The publication of Monopoly Capital in 1966 was well timed to appeal to the
cohort of that would succeed Baran (born 1909) and Sweezy (born 1910). It
argued that even a fully employed America was pathological, but unlike some
contemporary writings by Baran’s former Frankfurt School associates, the book
Macroeconomic Consequences of Peace
also argued that the seeming stability of postwar capitalism was still threatened
by economic contradictions. After suggesting that “the government could spend
enough to keep the system from sinking into the mire of stagnation” on “arms,
more arms, and ever more arms,” Baran and Sweezy insisted that even here
“obstacles and contradictions are in operation” (Baran & Sweezy, 1966, p. 213).
The knife’s edge on which the New Economics sat at the onset of the escalation
of the Vietnam War was suggestively recalled by macroeconomic pioneer
Lawrence Klein:
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I remember vividly a particular social party in Washington at which the thought of inflationary pressure in 1965 was not considered serious and recall the extent to which various government economists had conflicting information on the defense build-up. (Klein, 1982, p. 615)
A major complaint of the revived radical political economy was that mainstream economics didn’t talk about the war. In a paper he gave at the contentious 1969 AEA meeting, on a panel chaired by Paul Sweezy and featuring the
Union for Radical Political Economy’s Arthur McEwan as a respondent.
Monthly Review coeditor Harry Magdoff remarked that “Peace reigns supreme
in the realm of neoclassical economics” (Magdoff, 1970, p. 237). The editorial
note to an early issue of the Review of Radical Political Economy charged that:
By reading the principal economics journals, one would never know that the United States is
fighting a war (and has been fighting it for many years) which has had an enormous impact
on the economy. (Wachtel, 1970)
In his 1970 report to the mainstream, Martin Bronfenbrenner explained the new
radicalism in part as a reaction to the “failure to achieve full employment in
America without large military budgets for hot and cold wars” (Bronfenbrenner,
1970, p. 748).
The economics of militarism thus emerged as part of the expanded object
domain that radicals proposed to study as part of political economy. But like
other disciplinary insurgents of the Vietnam era, radical economists were also
interested in the moral responsibility of intellectuals, in particular the government Keynesians. Richard B. Du Boff and Edward S. Herman leveled such a
charge in RRPE: “To our knowledge, not one resigned or otherwise withdrew
his services from the government on moral or political grounds.” The title of
their piece, which labeled the New Economics “handmaiden of inspired truth,”
alluded directly to the complicity of German scientists with Nazism (DuBoff &
Herman, 1972, p. 63). At the 1971 AEA meeting, John Kenneth Galbraith
arranged for Joan Robinson, a protégé of Keynes and an increasingly radical
critic of American foreign policy and “bastard Keynesianism,” to give the
Richard T. Ely address. In New Orleans that year, she accused American
Keynesians of abetting the warfare state, thereby turning “Keynes’ pleasant
day-dream […] into a nightmare of terror” (Robinson, 1972, p. 7). The scene
was described by AEA secretary-treasurer Rendig Fels as “an overflow audience
with enthusiasm rarely seen at academic gatherings” (King, 2002, p. 124).
The shift from World War II when Marxists and liberals together worked
to mobilize the economy against Nazism was clear. Like the original authors
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of the Economic Program, the new radicals saw the fascist threat at home. At
the first national URPE conference, held in Philadelphia in December 1968,
Daniel R. Fusfeld gave a paper on “Fascist Democracy in the United States”
(Fusfeld, 1968; republished with alterations as Fusfeld, 1972). Fusfeld, born in
1922, exemplified the connections between the concerns of the Depression and
World War II generation and the concerns of the emerging New Left. He
remembered that reading erstwhile Trotskyist James Burnham made him see
“the possibility of American fascism dominated by big business in a reaction
against the New Deal and militant labor” (Fusfeld, 1997, p. 4). He worked as a
junior economist at the War Production Board before being drafted into the
army, an experience which he later wrote left him “an angry and hostile person,
obsessed with the killing I had participated in and the things I had seen”
(Fusfeld, 1997, p. 10). At the University of Michigan, he was an ally of the radical students who would found URPE, and wrote a successful heterodox
The fourth issue of RRPE (August 1970) was devoted to connections
between war and the economy. Most of the papers and several appendices
were contributed by an Ad-Hoc Committee of Students and Faculty on the
Economy and the War of the Department of Economics, Harvard University.
The next issue included a significant piece by Michael Reich and David
Finkelhor that sought to distinguish radical critiques of militarism from liberal
views of the militaryindustrial complex (Reich & Finkelhor,1970; cf. Reich,
1972). The arms economy, they wrote, was not a triumph of special interests
or a corruption of political virtue but “the only workable solution to the dangerous and profound crisis created by the Depression of the 1930’s.” Reich
and Finkelhor referred to recent research in input-output or interindustry analysis to suggest that the actual importance of defense spending was greater than
a simple focus on prime military contractors or defense spending as a share of
GDP would suggest. “The military sector is not an enclave,” they warned. “Its
tentacles are implanted deep in the heart of the capitalist economy, and it is
entirely fused with it.”
This way of seeing the warfare economy an octopus, not a leech was key
to New Left conceptions of military Keynesianism. It stood in direct contrast to
the idea of a military-industrial complex popularized in 1961 by outgoing
Republican president Dwight Eisenhower. Like Eisenhower, well-known critic
Seymour Melman saw “Pentagon capitalism” as a parasitic special interest
within American capitalism, rather than a functional response to a secular capitalist trend toward excess capacity (Melman, 1970). Before the escalation in
Vietnam made such dialogue impossible, Melman spent an hour discussing military spending policy with President Lyndon B. Johnson at the White House,
suggesting the potentially broad appeal of his arguments (Johnson, 1963). Even
Nikita Khruschev, in a January 1960 speech, came around to the idea that capitalism did not require war, arguing that while “some people in the West assert
that disarmament threatens grave consequences for the economy of the capitalist
countries,” such claims are “completely unsubstantiated.” Referring to his conversations with “the most reasonable” American businessmen, he suggested that
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Macroeconomic Consequences of Peace
a cut in defense spending could easily be translated by a capitalist economy into lower taxes and increased consumption, social spending, and foreign trade
(Khruschev, 1960 p. 9).
It was against this growing consensus that New Leftists stressed the
importance of military spending to the entire economy, rather than specific
regions and industries. James Cypher, the figure associated with URPE who
wrote most frequently about military Keynesianism, took aim at Seymour
Melman with ideas drawn from stagnationist theory: Melman, he charged,
“seems oblivious to the fact that American Capitalism was unable to generate adequate aggregate demand” between 1928 and the coming of war
(Cypher, 1972, p. 112).
If radical political economists were eager to differentiate themselves from liberals, liberals returned the favor. Liberal Keynesians could easily see that things
had gone awry with American foreign policy and domestic political economy,
and even concede that these things might be connected. They clearly preferred
the special interest, military-industrial interpretation over a more structural
account. “Of course, particular groups benefit from war,” wrote Paul Samuelson
in the New York Times. “The plowshare industry stands to gain from peace, just
as the sword industry gains from war” (Samuelson, 1973). Tobin suggested that
“Eisenhower’s ‘military-industrial complex’” a special interest group with
untoward lobbying power could explain a better explanation of excessive military spending “than Marxist-Keynesian grounds” (Tobin, 1974, p. 44).
These liberal responses to the revival of radical political economy were influenced by the opportunism of the Republican Party, which in 1968 had retaken
the White House for the first time since Eisenhower. Richard Nixon’s declaration that “I am now a Keynesian in economics” is well known (“Nixon
Reportedly,” 1971). But around the same time, he also espoused a version of
military Keynesianism that departed markedly from Eisenhower’s worries about
military-industrial interests. Obsessed with the relation of the business cycle to
his reelection, Nixon repeatedly invoked the end of the war in Vietnam as an
alibi for the existence of unemployment (Nixon, 1971).
Nixon’s remarks were seized upon by liberals seeking to fend off the New
Left charge that the welfare and warfare states were somehow connected.
Charles L. Schultze (who would become a lead economic advisor to Jimmy
Carter) lamented that as “the recent presidential campaign demonstrated, both
the Republican and Communist parties agree that large military spending is
needed in the United States to maintain full employment” (Schultze, 1973,
p. 522). Tobin struck an identical note, describing what he called the “MarxistNixon position”:
The Marxists and New Leftists have an unlikely ally in President Nixon, who has repeatedly
said that the U.S. has in the past not achieved full employment in peacetime […] Proponents
of the Marxist-Nixon position can point to the political barriers to expansion of civilian
spending in the first Kennedy-Johnson administration, and note that otherwise firm taboos on
deficit spending could be broken for the Berlin build-up in 1961 and the Vietnam escalation
later. (Tobin, 1974, p. 42)
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Tobin found this view “a dangerous error of economic theory and history, a
Marxist criticism of American society which is surprising to hear from a
President” (Tobin, 1971). Likewise, Schultze maintained that “the level and the
rate of growth of national income and employment are in no fundamental way
dependent on the maintenance of heavy military spending” (Schultze, 1973,
p. 523).
The ongoing economic troubles kept the question in circulation. Before the
recession of 19741975, and even before the oil shock of late 1973, the New
York Times ran a series of editorials titled “Capitalism, For Better or Worse,”
several of which linked the question of secular stagnation with military spending. Paul Samuelson, while dismissing the idea that “capitalism must break
down in depression if it does not find imperialistic ventures that spend money
and destroy surplus goods,” admitted that the questions “deserve hard-headed
and unflinching investigation.” Indicating the recent ubiquity of the debate, as
well as its complex intellectual provenance, Samuelson described the set of thinkers interested in the problem as including “Luxemburg and Lenin (and Hobson
and Alvin Hansen),” “Marx and Engels, Luxemburg and Lenin, Sweezy and
Baran, Jack Gurley and Sam Bowles, [and] your freshman brother at Yale”
(Samuelson, 1973).
Kenneth Arrow’s less glib entry in the series, modestly titled “Somehow, It
Has Overcome,” acknowledged that the problem of excess capacity was “by far
the most serious criticism of and threat to the capitalist economic system.” He
described Baran and Sweezy as:
sophisticated radical economists [who] quickly recognized that the Keynesian solution would
work but argued that in a capitalist system the government could spend enough to insure full
employment only on socially wasteful and even destructive ends, such as war and preparation
for war.
Arrow offered an empirical rebuttal: Japan, without a military budget, had
outstripped American capitalism in growth, employment, and efficiency (Arrow,
1973). Sweezy, struck by the frequent references to his work, asked for space in
the New York Times to respond and was refused. Leonard Silk, an economics
correspondent who would reintroduce the concept of secular stagnation to 1970s
New York Times readers, eventually published a volume which included
Sweezy’s response along with the original pieces by Arrow and Samuelson (Silk,
By the time of the global recession of 19741975, there were hints that military Keynesianism was receding into history. One was that by the early 1970s,
professional historians were starting to take interest in martial Keynesianism as
an academic topic. The same AEA meeting where Joan Robinson accused the
New Economics of enabling atrocities also saw a panel on “The Keynesian
Revolution and Its Pioneers.” Alan Sweezy gave a memoir of Keynesianism
within the New Deal, incidentally publicly claiming coauthorship of An
Economic Program for American Democracy for the first time (A. Sweezy, 1972).
Byrd L. Jones, a former student of Emile Despres, spoke on the Keynesian role
in mobilization for the world war, striking a disillusioned note in conclusion:
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Macroeconomic Consequences of Peace
“The economists’ defeat in the dispute over reconversion has foreshadowed the
long years of the Cold War when military expenditures would take precedence
over social welfare programs” (Jones, 1972). The declassification of NSC-68 the long-acknowledged but officially secret policy planning document for
America’s Cold War gave further impetus to retrospective, academic students,
who would outline the role played by growth-oriented New Dealers like Leon
Keyserling and the integration of Japan and West Germany into a complex,
interdependent “international military Keynesianism” (Block, 1977; Borden
The war in Vietnam ended and, for most of the next decade, defense spending
fell. By 1971, military spending had been surpassed by nondefense transfer payments in the federal budget (OMB, 2018, table 6.1). Keynesianism in general
famously fell on hard times. According to URPE’s James Cypher, who saw military spending as the principal means of economic planning in the postwar
United States, Nixon’s New Economic Policy raised the possibility of “a new
era of capitalist planning in the U.S.,” which would turn away from military
spending and its problematic tendency to “add to the current inflation” (Cypher,
1974, p. 15). Alan Wolfe, associated with neo-Marxist journal Kapitalistate, saw
military Keynesianism circa 1950 as an effective stratagem but suggested that
after Vietnam, “the overall results of military spending are now recognized to be
inflation, negative balances of payments, structural unemployment, and unproductive uses of capital” (Wolfe, 1981, p. 208).
With the close of the 1970s, a long-running conversation with its origins in
the late New Deal and World War II and which had been elaborated by successive generations of liberals and radicals now had the sense of an ending.
Increasingly, military Keynesianism was seen as a period in American history,
rather than a permanent condition. The discourse would not disappear entirely,
any more than would the Pentagon or the federal budget deficit. Indeed, it saw a
notable revival during the Reagan years, when critics were quick to charge that
the new military buildup gave the lie to neoliberal rhetoric about small government and free markets. But concerns about secular stagnation, once so common
across political divisions, were expressed less frequently, especially after the
record-breaking peacetime boom of the 1990s. Still, the recent revival of mainstream discussion of secular stagnation, along with the fundamental uncertainty
of international politics, means that there may still be more of a future for military Keynesianism than one would like to think.
1. Some of the more comprehensive extant studies are Cypher (2015), Turgeon (1996),
and Howard & King (1992).
2. On secular stagnation broadly, see Shaikh (1978) and Backhouse and Boianovsky
3. I focus here on the American case, at the expense of crucial European precedents in
Marxism and Continental business cycle theory. For thorough consideration of a
depression-era British contribution to the discourse of military Keynesianism, see King
4. Alan Sweezy identified himself, Salant, and Despres as the unnamed authors (A.
Sweezy, 1972, p. 122); Lorie Tarshis included those three plus Robert Bangs (Colander &
Landreth, 1996, p. 64); Salant included himself, Alan Sweezy, Despres, and Martin
Krost, but not Bangs, though he noted, “I can’t recall whether there was one other”
(WSS, W. Salant to H. Stein, April 5, 1967, p. 3, Box 6, Herbert Stein folder).
5. This work is notable for introducing the concept of “privatization” into Englishlanguage social science (Perelman, 2006).
6. In focusing on the popular front relationship between New Deal liberals and
Communist fellow travelers, this chapter neglects the Trotskyist and anarcho-pacifist currents which generated early critiques of the “permanent arms economy” while the war
was still ongoing (van der Linden, 2018).
7. The study was published as Scientific-industrial Revolution (1957). For Sweezy’s
authorship, see Age of Monopoly Capital (2017), p. 503.
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