• World War II wrought a drastic and permanent increase in the size of the United States military establishment. From 1948 to 1986, real military purchases of goods and services cumulated to $6.316 trillion (1982 dollars), averaging $162 billion per year, or 7.6 percent of GNP. That compares with only 1.4 percent of GNP in 1939, prior to World War II.
  • During the most recent military buildup of the 1980s, real defense spending increased by about 60 percent. Yet U.S. military forces did not grow, and no other dimension of military capability increased in proportion to spending.
  • The presumption that the military necessarily protects the lives, liberties, and property of U.S. citizens is open to question. Especially with conscription, confiscatory taxation, economic regulation, and suppression of dissent, some analysts argue that the military may primarily serve the government’ s interests at the expense of citizens’ rights.
  • Defense is the most regulated sector of the American economy, even more regulated than public utilities. Thus, the U.S. Department of Defense represents the third largest planned economy in the world, exceeded only by the Soviet Union and China.
  • Although members of Congress cannot easily dictate the Department of Defense’s choice of prime contractors, they exert much influence on the choice of subcontractors. And subcontracting amounts to about half of the total military business.
  • Neither Jimmy Carter, who wished to restrain U.S. arms exports, nor Ronald Reagan, who wished to promote them, had much affect on policy. Domestic politics and international events dominated the quantity of U.S. arms exports.
  • Donations to political action committees (PACs) influence the share of government contracts that a weapons firm receives. The returns are highest for firms doing business with the government on a sole-source basis.
  • Between 1977 and 1987, Congress brought the closure of major military bases to a complete halt, despite the protests of the Department of Defense. Congressional parochialism affects legislators’ decisions on military bases even more than it affects their decisions on weapons programs.
  • Although defense procurement has been the subject of three major Blue Ribbon Commissions in the postwar era, the system remains unreformed.


    Public-choice economists so far have made enormous strides comparing the government and the market on domestic issues. And the government’ s performance usually comes out dismal. Now the new Independent Institute book, Arms, Politics, and the Economy: Historical and Contemporary Perspectives, applies the same hard-headed realism to military policy.

    The editor of this unique volume is economic historian Robert Higgs. A senior research fellow at the Independent Institute and editor of its acclaimed quarterly journal, The Independent Review, Higgs is building upon his previous book, Crisis and Leviathan, a pathbreaking exploration of the intimate relationship between warfare and the growth of the United States government.

    William Niskanen, former Chairman of the Council of Economic Advisers and former Director of Special Studies in the Office of the Secretary of Defense, unveils in his foreword the book’ s searching skepticism toward the military establishment. “The Department of Defense is the third largest planned economy in the world” he points out, “led only by the total economies of the Soviet Union and the Peoples Republic of China. All planned economies are grossly inefficient, and Americans have no special advantage in managing theirs.”

    Higgs’s introductory chapter, “Fifty Years of Arms, Politics, and the Economy,” provides a historical review of the political economy of U.S. military mobilization. He identifies World War II as the great divide. Previously the U.S. maintained insignificant military forces during peace. But “henceforth there would be no distinct peacetime and wartime.... American policy thereafter would be premised on the permanent maintenance of large military forces.”

    Military Spending: Too Low or High?

    The critical question about this unprecedented military-industrial-congressional complex is, as Higgs poses it: “Are our political institutions constructed so as to create the maximum achievable correspondence between private interests and the public’ s interest in national security?” The two theoretical chapters in the first section of Arms, Politics, and the Economy offer intriguingly contrasting answers to Higgs’ s question. Dwight Lee (Professor of Economics, University of Georgia) writes the first of the two, entitled “Public Goods, Politics, and Two Cheers for the Military-Industrial Complex,” while Jeffrey Rogers Hummel (Professor of Economics, Golden Gate University) and Don Lavoie (late Professor of Economics, George Mason University) collaborate on the second, “National Defense and the Public Goods Problem.”

    Both chapters start with the same insight. National defense is a quintessential public good. From the perspective of public choice, this means that the incentive to free ride makes the provision of defense not only unprofitable on the free market but also politically problematic through government. Since the country’ s defense is a widely dispersed benefit that all receive whether they support it or not, people do not have sufficient incentive to engage in the kind of political action necessary to induce their government to provide defense of an optimal level or kind.

    But Lee parts company from Hummel and Lavoie at the next step in the analysis. He straightforwardly concludes that this political failure theoretically will yield a defense budget that is too low. Fortunately, the military-industrial complex unites special interests that receive concentrated and direct benefits from defense expenditures. It therefore has an incentive to lobby. Although it will not secure military expenditures that are in all respects optimal, people are still better off with this self-serving set of institutions than without. “The military-industrial complex may not deserve three cheers,” concludes Lee, “but surely it deserves two.”

    Hummel and Lavoie, in contrast, make a distinction between types of national defense. The type that government will under-produce is genuine protection of people’s lives, liberty, and property. This is conceptually distinct from protection of the government itself and its territorial integrity. Indeed, governments often violate their subjects’ liberty in the name of “national defense.” “Such universal war measures as conscription, confiscatory taxation, rigid economic regulation, and suppression of dissent” write the co-authors, “aggress against the very citizens whom the State is presumably protecting. People believe the State defends their liberty; in fact, many end up surrendering much of their liberty to defend the State.”

    This leads Hummel and Lavoie to a conclusion the exact opposite of Lee’s. The dynamics of public choice tend to burden people with defense spending that is too high rather than too low, because the benefits from that spending are concentrated on the government and its military-industrial complex, whereas the taxing and other costs are dispersed too broadly throughout the population to arouse optimal political resistance. But Hummel and Lavoie do not stop at this pessimistic impasse. Rather they use it as a springboard for a provocative rethinking of the entire public-goods analysis, which they contend pays insufficient heed to “ideological altruism.” “History is littered,” they argue, “with drastic changes in State power and policy that resulted from successful ideological surmountings of the free-rider obstacle.”

    Whether or not overall military spending is too high or too low, the procurement system has remained impervious to reform, just as public choice predicts. That at least is the lesson drawn by William Kovacic (Professor of Law, George Mason University) from the assorted post-World War II blue-ribbon panels that have evaluated procurement. Kovacic’ s sobering recounting of failed recommendations belongs to the second section of Arms, Politics, and the Economy, which is composed of concrete institutional overviews of America’ s military-industrial complex.

    The book’s second section also includes another chapter by Kovacic, looking at regulation of the weapons industry. Congress’s confusing array of acquisition rules and procedures, designed to prevent fraud and waste, actually short circuits any procurement of weapons in a truly competitive and efficient fashion. Kovacic finds that the modern weapons industry inhabits an ill-defined twilight zone between genuine private enterprise and complete government planning.

    This ambiguity between private and public similarly shows up in the chapter by Jordan Schwarz (Professor of History, Northern Illinois University) on the crucial part played by such private financiers and industrialists as Bernard Baruch in the development of the military-industrial complex. Ilan Peleg (Professor of Government and Law, Lafayette College), in his chapter on United States sales of arms abroad, demonstrates again the structural resilience of the military-industrial complex. Even the emphatic ideological intentions of Presidents Carter and Reagan, in the former case to dampen the defense bureaucracy’ s foreign arms sales and in the latter to unleash them, could not budge these sales from their own inner-directed course.

    Congressional Self-Interest

    Following these overviews, the four chapters in the final section of Arms, Politics, and the Economy zero in on Congress’s role within the military-industrial complex. Previous quantitative research has absolved the national legislature of charges of logrolling. Political scientists have been unable to substantiate that Congressional voting on weapons systems is systematically influenced by which districts get the contracts. The book’s contributors, however, uncover some serious gaps in this past work.

    Frank Lichtenberg (Professor of Economics, Columbia University, Graduate School of Business), for instance, approaches Congressional motivation from a fresh angle. Doing an econometric analysis of contributions to federal election campaigns, he finds that the data are entirely consistent with the hypothesis that donations to political action committees (PACs) influence the share of government contracts that a weapons firm receives. “Both the number of candidates supported by a PAC and the average contribution per candidate are substantially higher,” writes Lichtenberg, “the more government-oriented the PAC sponsor is.”

    Charlotte Twight (Professor of Economics, Boise State University) documents even stronger evidence of self-serving Congressional behavior with respect to military bases. “Enormous waste plagues defense operations as a result of parochial efforts by members of Congress to retain inefficient domestic bases that the Department of Defense wants to close.” The chapter by Kenneth Mayer (Professor of Political Science, University of Wisconsin) not only confirms Twight’s findings but discovers Congressional influence clearly at work beneath the major weapons contracts at the subcontractor level. Thus, “contracting is politicized to a degree consistent with the popular view.” James Lindsay (Professor of Political Science, University of Iowa), in his contribution to this section, offers a public-choice explanation for why Congressmen might vote parochially on military bases but ideologically on weapons systems.

    Arms, Politics, and the Economy does not leave us with simple solutions. Depoliticizing defense spending or eliminating military mismanagement will not be easy. Indeed, after posing the problem, the book hints that such goals may be beyond our reach—so long as the United States feels the need for a massive peacetime military establishment. Perhaps the only solution is a drastic reduction in America’ s far flung military commitments. But as Higgs remarks, “if better institutions are to be created, they must be built on a solid foundation of knowledge and understanding. The essays in this volume are offered in the hope that they will help to lay that foundation.”

    About the Editors

    Robert Higgs is Senior Fellow in Political Economy and Editor of The Independent Review at The Independent Institute in Oakland, California. In addition to Arms, Politics, and the Economy, his books include Crisis and Leviathan, The Transformation of the American Economy 1865-1914; Competition and Coercion; Hazardous to Our Health?; and Emergence of the Modern Political Economy.