Led astray by Marxist and Keynesian dogma, the literature on the origins of the permanent war economy has overlooked a leading cause of the elevated levels of U.S. military spending since the end of World War II: the economic rents created by the federal government’s monopoly on national defense, and the pursuit of those rents by the labor, industry, and military lobbies. Although the permanent war economy benefits powerful special interest groups, it generates a significant negative externality by diverting resources from other, private uses.