Welcome to Finance and Fury, The Furious Friday Edition.

War is a racket –

Something that always catches my attention is when politicians get on

  1. What is one thing they seem to get on about? Police enforcement, regulations on industries
  2. On a more global scale – Going to war – see it in the USA right now, after 9/11, more often than not in history
    1. Pushed by media for Views, companies who stand to make a profit
    2. Pushed by Politicians – higher budgets and to keep their donors (Raytheon, Halliburton, etc. happy)
  3. Just finished getting through War is a Racket – book from 1935 – Very quick read/listen – got me thinking

 

Today – and probably a few more episodes – War and the Economics of it – How it all works

  1. The Futility of War – why it is important – as I hope to illustrate – fought on behalf of the few at the expense of the many
    1. One of the oldest and most profitable rackets in history –
    2. Racket – not what it seems to the majority of people – conducted for the benefit for the very few, at the expense of millions
  2. First – History of war – Medieval to modern
    1. Wars are fought for a reason – to get something out of it – but this changes – helps to give context over time

 

Stages of war – Brief history of economy and wars

  1. Tribal Warfare – total war – a direct conflict between small bands of people – normally hunter-gatherer
    1. Very minimal trading between tribes – wars often territorial and either in constant warfare (constant raiding for resources off the other) or had treaties to at least not go on the others land (killing on sight)
    2. Warfare among primitive tribes did not create much economic loss or gain – because the warring parties had not been engaged in trade before the hostilities – instead of trading, theft in raids
    3. They engaged in total war – constant state of war – as it was a way of building your tribe
  2. Moving into early Medieval times – Wars were generally waged by small armies of professional soldiers on behalf of lords
    1. But wars, here again, were fought for territory – physical resources of gold, land, food, people
    2. War was profitable for the victor – but only if the war was short – go to war and have one or two battles
    3. Kings/rulers couldn’t afford to go to war for extended periods – run out of money and make the war pointless as cant recoup the losses
    4. Tax network wasn’t sophisticated – tax collectors had a harder time and were much slower collecting off the people – hence why the crown’s resources were used – and the kings kept the loot – but so did soldiers
    5. ‘The spoils of war’ mean that the people fighting would also become enriched – through looting – especially in cultures like the Hun/Mongols/tribes of Gaul, Germania etc.
      1. Generally did not involve non-combatants or their property – were some exemptions in the Viking age
    6. We would call them minor skirmishes – picked up in the late medieval period
  3. Late medieval period – the 30 years war – 1618 to 1648 – this is where the scale started to increase – civilian casualties
    1. Things were different in Europe (before the French Revolution) when military, financial, and political circumstances produced limited warfare – few neighbours to fight or limited ability in resources
    2. This is around the time when civilians really did start to suffer under war – creating famine and states with no money left to fix the problems – so created civil unrest –
  4. Revolution – 1790s – and Napoleonic Wars – 1803 – 1815
    1. Napoleon seized power in 1799, creating a de facto military dictatorship
    2. Here wars were still fought over territory – but the economic landscape was changing slowly
    3. The cost of the war in lives and coin – which could now be funded through debt and bonds from the Rothschild banking system – so the scale increased
    4. But due to the scale increasing – so did the destruction of the resources being fought over – fertile lands and people to work on them – plus you end the war massively in debt to the banks rather than in a positive position like medieval periods
  5. Rise of self-sufficient Monarchy – entering WW1 period –
    1. War and Autarky – Autarky is the characteristic of self-sufficiency for political states or their economic systems.
    2. Exists whenever an entity can survive or continue its activities without external assistance or international trade
    3. Germany was an example of this – scare the major powers of Russia, Brittan, and French
    4. The German militarists were aware of their vulnerability and so stressed the need for centrally planned autarky.
    5. The three cousins ended up going to war due to treaties
    6. In this context, philosophers concluded that, because the citizens only suffered from warfare, the way to eliminate war was to dethrone the despots. The spread of democracy, many thoughts, would coincide with everlasting peace.
  6. But the rise of democratically elected individuals – Churchill, Hitler – didn’t put an end to the war
    1. Thanks to central banks, war bonds, charging citizens Income Tax for the first time – war could rage on
  7. Nationalism of late 19th century has been blamed for WW1, and subsequent wars –
  8. Back then – War shifted the Market Economy – or Centrally planned economy –
    1. Capitalist – Entrepreneurs can most efficiently effect this switch if they are allowed to earn profits and cater to the new demand, emanating from the government as it spends funds on military items. Whether the government raises its revenues from higher taxes, increased borrowing, or even inflation, in the end the citizens will have less purchasing power, and their reduced consumption frees up the real resources to produce items for the war effort
      1. Gov did further intervene in the market though, by imposing rationing schemes and other controls, designed to ensure an adequate flow of resources into the war industries – but compensated with tax funds
    2. Not like Socialist — the government seize control of production. During war, resources that normally go into consumer goods must be diverted into products for the military; private consumption must fall
  9. Modern wars are won with who has the greatest access to resources – like all of history – so Capitalist countries defeat socialist countries – look at the cold war – markets produce entrepreneurs who are more efficient in churning out products and the economy having the money to buy it off them at a profit
    1. Better weapons – Entrepreneurs are more efficient than central planners in the production of tanks as well as the production of television sets
    2. Populations to tax – war is an excuse to charge you more tax –

History of Income Tax

  1. Pre-WW1 – Taxes were state by state – 1884 a general tax on income was introduced in South Australia, 1895 income tax was introduced in NSW at 2.5%
    1. Federal income tax was first introduced in 1915, in order to help fund Australia’s war effort in the First World War.
    2. Company taxes – 1915 issued at 7.4% –
  2. The Second World War saw fundamental changes to Australia’s taxation system. 
    1. Increased its income taxation in the early years of the Second World War to meet the costs of the war effort.
    2. The federal government introduced payroll tax in 1941 – 2.5%
    3. Company tax also increased from 7.4% to 45%
    4. In 1942 the federal government introduced legislation that increased the federal government income tax rates to raise more revenue.
  3. The Pay-As-You-Earn (PAYE) system, where employers deduct tax from employees’ pay in 1942
    1. Between 1938-39 and 1941-42, federal government income tax revenue grew from 16percent to 44per cent of total federal revenue.
    2. Post War – Land taxes were first introduced by state administrations
  4. Then by 1950s – Top marginal tax rate was 75% to pay back
  5. 5. At the time of Federation, Australia’s tax to GDP ratio was around 5 per cent. This ratio remained reasonably constant until the introduction of the federal income tax in 1915, which was used to fund Australia’s war effort. Between the two World Wars, government expenditure and tax revenues grew significantly and by the beginning of the Second World War, Australia’s tax take was over 11per cent of GDP – today the totals at 30% of GDP
    1. So these taxes were introduced for funding the war – but did they go away once the war debts were paid off?
  1. How economies grow today – market economy involves peaceful cooperation
    1. Globalisation creates a division of tasks – therefore cannot function effectively amidst a war – trading ceases – in a world reliant on one another finds it hard to go to war

War evolved

– like most things it changes based around the incentives and options at the time

  1. Evolved back to total war – but by proxy – Went through this in Neo-Con episodes – why conservatives aren’t conserving anything
  2. War in Afghanistan, code named Operation Enduring Freedom – started 2001 – going on to this day – Estimated costs (depending on what is included) – $2.4trn – Then Iraq war – since 2003 – Estimated cost of around $1trn as well –

Where the money goes

  1. 2017, weapons sales from the top 100 companies totalled $398.2 billion,
    1. Lockheed Martin – $45bn p.a. USA, Boeing – $27bn p.a. USA, Raytheon – $24bn USA, BAE Systems – $23bn UK, Northrop Grumman – $22bn USA, General Dynamics – $20bn USA = 5 out of the top 6 – USA
  2. The USA is dominant in weapons – same in political parties – Note that these organization itself did not donate, rather the money came from the organization’s PACs (Political Action Committees) but money flows from subsidiaries and affiliates
    1. Combined top 5 stats – Combined Lobbyist employees – 421 – 352 or 84% are ex-politicians – Spent $122m in 2015-16 in lobbying activities – Clinton for $620k in donations from individuals in the company, Sanders $227k, Trump $182k
    2. Donations to both sides – as you need all of congress to support military spending
  3. Lots of money in it – 2019, the United States federal government has spent or obligated $5.9 trillion dollars on the wars in Afghanistan, Pakistan, and Iraq
    1. Things like the Pentagon base budget; veterans care and disability; increases in the homeland security budget; interest payments on direct war borrowing; foreign assistance spending – or purchase of weapons
    2. The current wars have been paid for almost entirely by borrowing. This borrowing has raised the US budget deficit, increased the national debt, and had other macroeconomic effects, such as raising consumer interest rates.
    3. Unless the US immediately repays the money borrowed for war, there will also be future interest payments – estimate that interest payments could total over $8 trillion by the 2050s.
  4. Doesn’t account for other costs – macroeconomic costs to the US economy; the opportunity costs of not investing war dollars in alternative sectors; future interest on war borrowing; and local government and private war costs
    1. More importantly – the cost to the local population – in lives and economic output – can’t start a business if someone with a gun might take it from you Interventionism generates economic nationalism, which in turn generates bellicosity. This tendency is internally consistent; only laissez-faire policies are consistent with durable peace.

 

The modern market economy relies on Globalisation – which requires peaceful cooperation –

  1. The rise of total war in the modern age is due to the rise of “statolatry” and interventionism – Have the previous eps in notes
  2. War evolved – like most things it changes based around the incentives and options at the time
    1. Only person against war are one individual from each side – Tulsi Gabbard and Donald Trump – Russian agents/assets
    2. If you don’t want to go to war – you must be an inside agent – Like him or not – kept the USA out of three wars so far – 2016 with Syria and NK, now in Turkey
    3. War is a justification of taking more off the people – higher taxes and getting into debts

 

Next part – run through the modern war era – explain how direct all out world wars and now proxy wars work and who it benefits –

 

Thanks for listening, if you want to get in contact you can here: https://financeandfury.com.au/contact/

 

Links

http://www.daviddfriedman.com/Academic/economic_of_war/the_economics_of_war.htm

https://en.wikipedia.org/wiki/War_Is_a_Racket

https://mises.org/library/economics-war

 

https://en.wikipedia.org/wiki/Smedley_Butler#Death

https://watson.brown.edu/costsofwar/costs/economic

 

https://www.opensecrets.org/orgs/summary.php?id=d000000104&cycle=2020

https://treasury.gov.au/publication/economic-roundup-winter-2006/a-brief-history-of-australias-tax-system

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