The Finance of War (1959)

From the September 1959 issue of the Socialist Standard

Who Pays for Wars?

In the middle of the first World War the Socialist Standard published an article which brought us into sharp disagreement with both wings of the Labour Party, those who were all for war and the minority who wanted to stop it : on this one issue they were in complete agreement and held that we were wrong. The issue related, not to the deaths and destruction of war, but to the finance of war. The article was called “Who Pays for the War?" (Socialist Standard, Nov, 1916) and the answer given to the question was in line with what the Socialist Party had been saying about Capitalism before the war broke out. The Socialist argument was (and is) that the workers live by selling their mental and physical energies to the employing class. They then go to work and produce wealth for the employers of value far larger than that represented by their wages. It is out of this “surplus value” that the employing class came to be the owners of all but a small part of the accumulated wealth of the country. Broadly speaking, the employing class, in peace and in war, have squeezed out of their workers in factories, fields, mines and offices, all that can be squeezed out of them in the existing circumstances. This is a very fortunate situation for the propertied class, but it has its corresponding disadvantage in that the civil and military costs of running the State, its administration, its police, its armaments and its wars, are in the last resort a burden on their profits and property. In short, it is the propertied class who pay for wars.

The article published in 1916 pointed this out, and pointed out, too, what would be the likely position of the workers of the victorious and defeated nations after the war. It foresaw that in the event of the defeat of Germany the victors would levy war damages on the property owners of Germany, but that this would not alter the position of wage-earners there. The anticipation was in fact confirmed many years later, when it was shown that in 1929 the purchasing power of the wages of German workers had kept in line with that of British workers despite the yearly payment to the British Government of many millions of pounds of “Reparations” by the German government. (Socialist Standard, August. 1929). Indeed, at one period it was a common complaint that while German workers were busily employed producing the "Reparations” goods for delivery to Britain, thousands of British workers were unemployed in the trades that would otherwise have been producing those goods here.

The Keynes' Scheme in the Second World War

But if it is broadly true that the employing class at all times get all they can out of the workers, they are always willing to try to get something more if they can. And a big war has a double disadvantage for them/ On the one hand they are paying for the war, and on the other hand, under the influence of “full employment,” the workers are likely to press for higher wages. For the employing class this is a very difficult problem. They need maximum production of armaments to win the war and consequently need minimum consumption of civilian products by the workers; but this is at a time when, because of labour shortage, the workers are in a favourable position to press for a higher standard of living. The late Lord Keynes in his How to Pay for the War (Macmillan & Co., 1940), came forward to help. His solution of the problem of how to get the workers in war-time to produce more and consume less was to introduce compulsory saving and refund it after the war.

He was a realist and he recognised that workers with less than 75s a week could not go lower: indeed, he proposed that their standard of living should be raised. (It is one of the ironies of war that quite a sizeable part of the population are better fed and clothed in war-time.) Those with between 75s. and 100s. a week were to continue on their existing standard, but the group with over £5 a week were to be compelled to save, in the aggregate, about a third of their income. Refundment, after the war, was to be achieved through a capital levy. Keynes put forward his suggestions as a way to avoid inflation and as a way to transfer wealth from the propertied class to the workers. Looking back to the first world war which left the National Debt owned by the capitalist class, Keynes thought that his scheme would have the result that at the end of the second world war ownership of the National Debt “will be widely distributed among all those who are foregoing immediate consumption, instead of being mainly concentrated . . . . in the hands of the capitalist class.” (Pages 10 and 11.)

In view of what happened, and particularly in view of the fraudulent “Post-War Credits” scheme, it may be thought that Keynes, in his book, was guilty of promoting the fraud. The truth seems to be that Keynes was guilty of no more than muddle-headedness, over-optimism, and a certain array of political innocence. Under the influence of war-time emotion he had convinced himself that things really were going to be differently ordered when the war was over.

Post War Credits

Borrowing part of the Keynes idea the Government put over the Post-War Credit plan. It allowed the workers to have the higher wages they asked for (and came on strike for, often against the law), but took back some of the wages for repayment after the war. Keynes wrote in 1940 about the workers “deferring” consumption of goods till a later date: the government combined it with a steady inflation and rise of prices so that when the workers got their Post-War Credits, the money (held all these years without interest) would buy only a half or a third of what it would have bought at the time it was stopped from wages. The same applied to all the other savings the workers were induced to invest in war bonds and other government stocks.

But the government got what it wanted. The workers worked longer and harder, by day and by night, and were joined in the factories and services by their wives, grandparents (and even by the schoolchildren, who helped with the harvest). Yet the destruction of war was so great that the increased output of the workers fell far short of making good the losses suffered by the propertied class, an estimate of which put the figure at £7,000 million in pre-war values. The national debt, which in 1939 was about £7,000 million, was three times as large by the end of the war.

In a period of continued inflation and rising prices all items expressed in terms of money appear to be getting larger and larger—an appearance which is quite illusory as the worker knows when he discovers that his higher wages have to buy goods with higher prices. Nevertheless. if wages and profits aye both related to the upward movement' of prices it will be seen that the destruction during the war left its mark on the profits of the propertied class. Whereas wage rates on average have just about kept pace with the rise of the cost of living since 1939, and the total wages of the working class have risen appreciably more (one reason being the larger numbers employed) the total amount of profit, rent and interest of the propertied class in the years after the war had failed to increase in line with the rise of prices.

One other interesting confirmation of the Socialist argument is the way wages have moved before and since the great re-armament which started in 1951. In the years 1947-1951 armament expenditure was about £750 million a year, but wage-rates (due partly to the success of Government “wage freeze” propaganda) were falling behind the rise of prices. Since 1951 armament expenditure has doubled, yet the workers' wages, aided by a greater determination to press their claims, have been rising rather faster than the rise of prices, thus recovering ground lost in the earlier period.

The moral of this is that war in the modern world not only has its cause in capitalism, but it is waged financially in the only possible way, one designed to fit the economic laws of capitalism. The workers, in war and peace, do better to trust to their own determined struggle against the employers than to trust in the promises of governments, economists and politicians, about the rewards they will get later on.

Edgar Hardcastle