After the Soviet Union fell, just about everybody — except some humanities professors at Harvard — agreed that full-blown central planning was a bad way to produce food, cars, and television sets. However, people still seem to have a soft spot for planning when it comes to a “war economy.”
Even many who claim to support laissez-faire will make exceptions for such an “emergency,” going so far as to embrace price controls, rationing, and even conscription of labor. President George W. Bush, for example, claimed in 2008 that he had “abandoned free market principles to save the free market system” — and many conservatives supported him.
However, if the country’s security is at stake, this is precisely when we need the superior efficiency of markets the most. If we can agree that capitalism produces more food and better computers than socialism, we should trust it to produce more bombs and better tanks, too.
Who Plans for Victory?
In his classic treatise Human Action, Ludwig von Mises — who had served in an artillery unit in World War I and was no stranger to the Nazis’ military might — explained the flaws in the popular notion that government economic planning is needed in a major war:
What America needed in order to win [World War II] was a radical conversion of all its production activities. All not absolutely indispensable civilian consumption was to be eliminated. The plants and farms were henceforth to turn out only a minimum of goods for nonmilitary use. For the rest, they were to devote themselves completely to the task of supplying the armed forces. (Human Action, Scholar’s Edition, pp. 821–22)
But did the government need direct control of industry in order to manage the war economy? Mises says no:
The realization of this program did not require the establishment of controls and priorities. If the government had raised all the funds needed for the conduct of war by taxing the citizens and by borrowing from them, everybody would have been forced to cut down his consumption drastically. The entrepreneurs and farmers would have turned toward production for the government because the sale of goods to private citizens would have dropped. The government, now by virtue of the inflow of taxes and borrowed money the biggest buyer on the market, would have been in a position to obtain all it wanted.
Indeed, if it were true that the Roosevelt administration needed to establish controls on steel, rubber, oil, and so forth to ensure an adequate supply for the war effort, then it is hard to see why such controls shouldn’t be maintained in peacetime for equally important tasks — such as providing adequate food and shelter to Americans.
On the other hand, if we can agree that a decentralized market economy, in which individual entrepreneurs strive to earn profits, is the best way to “leverage” our available resources when it comes to cars, radios, and sweaters, then likewise it would be foolish to impose top-down bureaucratic controls when fighting Hitler.
Political officials take their people into unnecessary conflicts all the time.
The logic of voluntary market arrangements holds in the case of conscription as well. Suppose a foreign nation has amassed millions of soldiers on the border, and is preparing to invade. Wouldn’t even a classical-liberal government have to hold its nose and impose a draft on its citizens, just to deal with this emergency?
The answer is no. To see why, change the example: If a foreign nation drafted millions of its people into working on collectivized farms, would the United States need to do the same, if it wanted to grow more food? Of course not. The way to maximize food production (especially if we care about quality) would be to get the federal government out of agriculture as much as possible.
A similar pattern holds in military struggles. A free society could easily defend itself from, say, two million poorly equipped conscripts with little training, by using only, let’s say, 100,000 elite, volunteer troops supplied with advanced weaponry and vehicles from 400,000 civilians working in factories cranking out helicopters, body armor, tanks, and artillery. Foreign dictators’ reliance on a large labor-to-capital ratio for their military hardly means that is an efficient practice for a freer nation to emulate.
We must always remember that government edicts do not create real resources. All they can do is divert resources into different channels from what the voluntary market process would have produced. Besides being morally abhorrent, slave labor is also incredibly inefficient. A nation relying on involuntary servitude (that is, military conscripts) to fight its wars will not be nearly as effective, other things equal, as a nation relying on free labor — where anyone can accept or reject the terms of employment, or negotiate for a better deal.
Give Peace a Chance
There is a final consideration in favor of reliance on the market and rejection of “emergency” wartime powers for the government. So far, I have been conceding for the sake of argument that the nation ought to be at war; the question was merely how best to wage it. But in reality, political officials take their people into unnecessary conflicts all the time.
One way they get away with it is by hiding the costs of war through monetary inflation while imposing the more visible costs on those with the least political influence. But when a government has to pay for its wars by entering the market and bidding away resources — including labor — from other possible uses, and then presents its citizens with the explicit tax bill, people realize just how expensive the conflict really is. Furthermore, the costs of war fall more evenly on the population, rather than being concentrated on young, able-bodied men (as occurs under a draft).
When it comes to conventional consumer goods, the free-market economy makes the best use of resources by relying on the ingenuity of millions of entrepreneurs rather than the rigid blueprint of a few central planners. The same principles carry over to waging military conflicts. Beyond narrow measures of efficiency, however, a respect for property rights would also force government officials to be more judicious in their use of resources during a war, especially the lives of volunteers, rather than squandering conscripts as cannon fodder.