Interdisciplinary Public Finance, Business and Economics Studies—Volume VI

1. Introduction

Keynesianism is based on the assumption that an increase in public spending will lead to an increase in aggregate demand through a multiplier effect. Government investments will increase aggregate demand and this will stimulate the economy. This Keynesian idea is widely said to have emerged in the 1930s. Following the 1929 Great Depression, governments resorted to public spending to combat rising unemployment and macroeconomic problems. In this period, infrastructure investments that would create public jobs and public expenditures with strong social aspects such as education and health expenditures were predominantly used. Later, military expenditures were used in the 1940s due to World War II. During this period, unemployment in the United States of America (USA) fell to the lowest levels in history thanks to the production of military equipment and products. These experiences in the 1930s and 1940s led to the identification of Keynesianism as social Keynesianism and military Keynesianism. John Maynard Keynes was aware of the impact of military spending, a component of public spending, on employment. However, Keynes argued that employment should be increased through social expenditures such as infrastructure investments, not military expenditures. Keynes was also aware that international financial policies would lead to violence and war. This is why he argued for a more balanced international economic structure to avoid radical ideas and wars in his various works.

Today, it can be said that the share of military expenditures in gross domestic product (GDP) is on a downward trend compared to World War II. Nevertheless, military expenditures still constitute a significant share of public expenditures. On the other hand, public expenditures on education and health have declined more rapidly since the 1980s. In today’s world of fundamental problems such as the climate crisis and income inequalities, there is a need to re-evaluate military and social expenditures in line with Keynes’s ideas. Military expenditures lead to lower allocations for education, health and other social expenditures and prevent the allocation of sufficient resources to combat environmental problems. Therefore, some authors argue that resources can be allocated to tackling these problems through transfers from military expenditures. This study discusses how public expenditures should be evaluated in combating today’s problems, taking into account the distinction between military and social Keynesianism.

2. A Brief Assessment of Military Expenditures

There are many economic and strategic reasons for resorting to military expenditures as an element of public expenditures. According to the Keynesian approach, keeping public expenditures high will ensure that unused resources in the economy are drawn into economic production and increase total output (Elveren, 2019: 42). Military expenditures are also a part of public expenditures made by the government and help to increase aggregate demand and thus have a positive impact on the economy² (Dunne, 2013: 113). Wray (2000) divides these positive effects of military expenditures on the economy into two categories: supply-side and demand-side. An increase in military expenditures will increase the number of recruits. This will lead to a reduction in unemployment (the military expenditure-employment relationship has changed due to the absence of frontline wars, the transition to professional military service, and the change in security threats). Another effect is the contribution of technology³ developed through military expenditures to civilian production. Military expenditures will also have the effect of increasing aggregate demand. Aggregate demand⁴ will stimulate consumer demand as well as the demand for goods and services generated by government spending. Kalecki, on the other hand, considers military spending more efficient than civilian spending. Military expenditures are more advantageous because military expenditures do not take place in business lines where the private sector operates, they redirect unused resources to the private sector and create more employment. In addition, governments can more easily obtain spending authorization for military expenditures and the resulting budget deficits are more bearable (Toporowski, 2016: 439).

After World War II, military expenditures played an important role in increasing aggregate supply and demand and had a positive impact on economic growth. However, this effect will not be observed in the long run due to some limitations. Some technologies developed in the past thanks to military expenditures have also been used in civilian sectors. However, these technological opportunities are limited. The military-industrial complex absorbs well-educated workers and hampers production and technological development in the civilian sector. There is also a distorting effect on the labor market, not only for highly skilled workers but also for low-skilled military personnel (military personnel engaged in hot conflict struggle with various psychological illnesses) (Wray, 2000: 1–2). Criticisms of military spending are not limited to these. Contrary to Kaleckian view, military expenditures are also counted among non-productive public expenditures in some studies. Armament is often understood as a threat of war, which triggers new wars. In addition, the obsolescence of military ammunition leads to new costs in the public budget. Military expenditures also have less social impact. In the short term, the efforts made to prepare for war provide a temporary stimulus for the economy but lead to an increase in the debt burden on the budget (Coulomb & Alcouffe, 2018). Marxist economists have also made important contributions and criticisms on military spending. Terry Caslin (1993) argues that although public expenditures appear to be a pro-labor policy tool, in reality they are used by the authorities for capital accumulation. Especially in times of crisis, public expenditures are used to ensure that capital emerges from the crisis with minimal damage and to harmonize capital with the new economic structure that emerges after the crisis. According to authors such as Luxemburg, Baran and Sweezy, Caslin’s view on public expenditures is more explicit in military expenditures. Military expenditures were seen by these authors as a means of postponing crises, overcoming the problem of low consumption (a perspective close to Keynesians), and ensuring capital accumulation (Dunne, 2013: 119).

4. Military Spending and Keynes

Keynes was a writer who emphasized diplomacy, peace and international balance. As a pro-peace diplomat, he also participated in the Treaty of Versailles negotiations in 1919. In these negotiations, Keynes advocated the idea that in order to end violence, the economy should be built on solid foundations and employment and income balance should be ensured (Pattifor, 2019). After World War I, he stated that the economic policies implemented for the rehabilitation of Europe were wrong. He predicted that these policies would lead Europe to totalitarian systems and violence. The outbreak of World War II justified Keynes’s view (Baca, 2021: 6). Keynes’s pro-peace stance was also reflected in his ideas on economics. Keynes’s fiscal policy emphasizes civilian expenditures, not military expenditures. Therefore, he states that large-scale infrastructure investments should be made through public policy and low-interest rates. Keynes has a negative attitude toward military expenditures. Military spending would be a burden on the economy by causing an increase in government debt (Coulomb & Alcouffe, 2018: 12).

Keynes’s opinion on wars is also seen in his open letter to Roosevelt. In this letter, Keynes states that wars always cause intense industrial activity and that the conventional financial establishment sees war as the only legitimate way to create jobs through government spending. Keynes suggested to Roosevelt that public military spending, which until then had only been allowed to serve the purposes of war and destruction, should be replaced by public civilian spending for peace and prosperity (Keynes, 1933). As can be seen in this open letter, Keynes is nevertheless aware of the economic impact of military spending. In other speeches, he stated that war would provide the necessary convenience for governments to engage in large expenditures (Stancl & Hynkova, 2014: 133). Although Keynes did not support government spending on war and armaments, he considered the approach of World War II as an important experiment to see the correctness of his thesis on increasing aggregate demand. If military spending reduced unemployment, Keynes’s ideas would have been vindicated. Preparation for war, according to Keynes, would bring higher living standards and consumption than the New Deal (Barker, 2019: 14). As a result, World War II was an important turning point in terms of the impact of public spending. After the war, there were positive results in terms of economic growth and employment (Stancl & Hynkova, 2014: 134). Military expenditures facilitated the recognition and implementation of Keynesianism (even though Keynes did not approve of it). After World War II, Western states, especially the US, resorted to Keynesian policies in the 1950s and 60s (it was not even called Keynesianism until the 1960s) to prevent financial fluctuations in business life. Keynesianism was also institutionalized in these years, especially in military terms. World War II and the Korean War that followed ensured the purchase of the equipment and systems needed by the American military and stimulated aggregate demand (Custers, 2010a: 175).

In 1965, The Times magazine ran a portrait of Keynes on its cover with the headline “The Economy: We Are All Keynesians Now”, Keynesianism became very popular. By 1971, US President Richard Nixon identified himself as an economic Keynesian (White, 2012: 127). Paul Samuelson, a Nobel Prize winner in Economics, who has made many contributions to the economic literature, wrote an article for a newspaper in 1973, stating that military spending would no longer be necessary for economic growth and employment. Because according to Samuelson, Keynesian economists now know how to deal with these problems (Toporowski, 2016: 439). However, the rise of Keynesianism, which was on the rise in the post-war period and gained a respectable place academically, economically and politically, did not last much longer. In 1973, there was a contraction in oil production and as a result, crude oil prices rose. In a short period of time, the level of employment was also affected by this contraction. Another important result was the emergence of stagflation, which affected the US in a short time and reduced productivity (Krugman, 2016: 121). The Keynesian understanding of economics was seen as responsible⁶ for this crisis in 1973 and was subjected to serious criticism, especially from monetarists (Veggeland, 2018).

5. Climate Crisis, Inequalities and Military Spending

The problem of climate change is becoming more and more evident as a major threat to the world. The solution to this problem requires global cooperation of all countries. Governments should reprioritize their resources to combat climate change. In recent years, countries have taken this problem more seriously and started to take various steps. However, the onset of the Covid-19 pandemic and the ensuing Ukraine-Russia War have caused this problem to take a back seat again. In particular, the Ukraine-Russia War caused military expenditures to increase again⁷, especially in Western countries, and the war replaced diplomacy in a way that Keynes would not approve of (Toporowski, 2023). Military spending is not only inefficient, as noted earlier, but also highly harmful to the climate due to the military industry’s dependence on fossil fuels (Pereira et al., 2022: 3). As Nakano (2021) points out, it is also doubtful that military spending in a neoliberal economy will lead to a more egalitarian and democratic society as it did in World War II. Military spending is therefore a form of public spending that is considered problematic in green new deal (GND) plans. In order to tackle climate change, among other challenges, they argue that military spending should be cut in addition to other resources. However, how much this cut should be is relative and varies depending on the plan. Pollin and Chomsky’s Climate Crisis and the Global Green New Deal states that at least 6 % of global military spending should be allocated to combating climate change (Chomsky & Pollin, 2020). Jeremy Rifkin (2019), in his GND plan for the US, states that the US military budget is excessively large compared to other countries. According to Rifkin, the US is investing in weapons that it may never use. For this reason, Rifkin argues that according to 2019 figures, 30 billion dollars from the US military budget should be transferred to the GND.

There are also those who argue that the above-mentioned approaches are not radical enough and that there should be a more radical cut in military spending. For example, according to the approach advocated by Max Ajl (2022), military expenditures cause developed countries to establish hegemony over less developed countries. On the other hand, military expenditures cause massive carbon emissions and pollution, which is another problematic situation. Therefore, military spending should be completely halted in developed countries such as the United States, and the resources that saved should be used to reduce climate change and global inequalities. Another radical proposal is made by Peter Custers (2010b). Custers argues that there should be a transition from military spending to ecology-oriented public investments. However, this transition will not be sufficient for humanity and ecology. Thus, there should be a simultaneous transition from non-productive to productive investments. Although these ideas may seem plausible in the current climate crisis, it is also predicted that governments will not easily give up these expenditures, given the risks in the geopolitical arena and the interests of the military-industrial complex (Goldstein & Tyfield, 2018: 86). Many empirical studies also show that resources that should be used in sectors such as education and health are used for military expenditures and that there is a trade-off between security and social expenditures (Elveren, 2019). Military expenditures may be beneficial in terms of employment, social solidarity and equality in the short run. However, in today’s neoliberal economic conditions, it erodes social solidarity and equality (Nakano, 2021). From a social Keynesian perspective, it is necessary to invest in civilian expenditures instead of military expenditures, as suggested by Keynes. Since one of the main objectives of the GNDs is to reduce inequalities and achieve full employment, these expenditures would be compatible with the GND (Harris, 2013).

6. Conclusion

Military expenditures are a component of public expenditures and, just like other public expenditures, they increase aggregate demand and generate the multiplier effect. Military expenditures are considered to have many positive aspects as they bring waste resources into production, increase employment and contribute to the development of new technologies. On the other hand, military expenditures are also subject to serious criticism. These criticisms include the fact that public expenditures lead to consequences such as war and violence, the transfer of resources and skilled labor to the military sphere that could be used in the civilian sphere, the fact that military expenditures lose their ability to increase aggregate demand in the long run and that they do not provide the necessary technological benefits in the long run. Military spending is called military Keynesianism because it increases aggregate demand and provides new employment opportunities. Although military spending resembles Keynesianism in terms of its outcomes, Keynesianism is about more than increasing aggregate demand and employment. Keynesianism is pro-labor, democratic and egalitarian. This means that the New Deal, which has Keynesian elements and consists almost entirely of civilian spending, is actually more in line with the Keynesian definition. The Keynesian definition of military spending, which causes war and violence, would not be in line with Keynesian thinking. As an economist who emphasized peace and diplomacy, Keynes also emphasized civilian expenditures rather than military expenditures in increasing aggregate demand. According to Keynes, war and violence are phenomena that endanger civilization. Indeed, the human tragedies and ecological destruction caused by wars today vindicate Keynes. Therefore, in order to solve climate change, income inequality and other problems, global military expenditures should be reduced and used in areas such as the environment, education and health. Such civilian expenditures would be more aligned with Keynes’s vision as they would generate positive results in terms of aggregate demand and employment.

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