The economics of "war"

Submitted by AWL on 7 April, 2020 - 8:08 Author: Martin Thomas
RAAF World War 2

Schools were shut down and requisitioned for other purposes. 140,000 patients were sent home from hospitals to “clear the decks” for a dramatic new influx.

Millions of people were taken out of their ordinary jobs and sustained meagrely at government expense while not contributing to production.

Alongside them, large numbers were unemployed, about 9% of the workforce. For the first six months unemployment rose because of the closing-down of many small businesses and the disruption of trade patterns.

Other industries and services were run at emergency speed. The usual criteria of market signals were overridden in favour of publicly-decided priorities such as mitigation of death rates and provision for those suddenly made destitute.

The government introduced drastic emergency powers, but in the tumult lacked the means or the will to exercise them widely. Many short and local strikes won gains. Often bosses, caught off balance, conceded that they now had no choice but to give unions a good hearing.

Much of the fabric of social life, in emergency conditions, came to depend on an army of up to two million volunteers and part-timers.

That is how it was in World War 2, at least in London and in the early period of the war.

Much was different from the current “war” against Covid-19. By May 1941 one-sixth of the population of London was homeless, and with only improvised and patchy provision for emergency shelter.

The character of the shift in economic life was similar. In ordinary times capitalist economic life is governed by “market signals”.

Production is pushed up and down, or sideways, by those who have cash to spend. Investment is governed by calculations of future market signals.

Result of “market signals” The result: production is systematically biased towards the output of luxuries for the rich and the relatively welloff; the worse-off suffer; often production as a whole slumps, because markets signal to the wealthy that they will do best to hold on to their cash for the time being, and credit implodes.

And advance provision for emergencies which generate no advance “market signals”, like the pandemic (or climate change), is inadequate.

A war or the pandemic forces even a capitalist government to adjust: the capitalists will not be able to make profits in future unless they act to safeguard life now.

In 1939-41, as now, Britain had been under Tory or Tory-led rule for a decade. These were Tories as callous and as caste-minded as the current ones, or more so.

Their provision for air raid shelters in London, for example (even though they had predicted higher casualties from air raids than actually happened), were inept and class-biased. They were pushed into better provision only late and by such action as people unilaterally taking over Tube stations as shelters.

The terms “bullshit” and “under the counter” (well-off people getting round rationing) became widespread in that period. The “Excess Profits Tax” was easily evaded.

It was a variety of state capitalism. Yet the Tories lacked the apparatus and the will to impose a full wartime police state as Hitler or Stalin did. They had to deal with a labour movement which had suffered many retreats since the defeat of the 1926 General Strike, but had survived. So it became a semi-social state capitalism.

Public criticism of Winston Churchill was scant after he became prime minister in May 1940. Even the previous Tory prime minister, Neville Chamberlain, had a 70% approval rating in November 1939.

Under the surface left-wing dissent and criticism grew, and would explode into plain sight with the landslide Labour election victory of July 1945.

At first the war brought increased unemployment and rapid inflation. The Tories had to shift in the May 1941 Budget. Although delivered by a conventional Tory, Kingsley Wood, it was largely shaped by the left-liberal economist John Maynard Keynes.

Keynes proposed drastically increased taxation of the best-off and even the comparatively well-off, but exemption for the worst-off. A part of taxation was to be “deferred wages”, put into blocked savings accounts to be released after the war. (In the event, those “post-war credits” were released only in dribs and drabs, mostly as recipients reached retirement age, and a large chunk of them had still not been released by the early 1970s).

That regime, coupled with a “points” system of rationing (you had a fixed number of “points”, but could choose what to use them on), limited inflation. It even brought an improvement in average standards of nutrition (and a fall in infant mortality and tuberculosis rates) during the war. After World War 1, with a weaker labour movement and a hard-faced Tory-dominated government elected in December 1918, unemployment and poverty rose fast to a peak in 1921, and remained high through the 1920s.

The record after World War 2 shows that, even short of the socialist revolution which our comrades advocated then, a strong and active labour movement could win a transition from war economy with relatively low unemployment and with an expansion of many of the elements of social provision won when the ruling class was thrown off balance during the war.

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