What Thrives and What Dies During War

0:00It's a pleasure to be with you here today, and let me assure you that while this event is advertised as a retreat, it has been and will continue to be an all-out offensive on the deplorable and irrational policies that govern this nation. My topic, as Lew said, is what thrives and what dies during war. This is a big subject, has many consequences, and it's a fortunate that I'm doing the timing here so I'll have plenty of time to discuss all of them. First, I want to talk about the very nature of war because that's where all of the consequences and the ill effects of war really can be understood.

0:47It has often been claimed that war is good because it brings out the human traits of courage and bravery and patriotism. War makes for exciting times and stretches our endurance and allows us to achieve our destiny. War can even get us out of economic depressions as some would claim. Nothing could be further from the truth. War is really what animals do to each other. It is deadly and it's destructive. It prevents us from building and achieving our goals and brings man down to the level of the brute animal. It destroys cooperation and trade, and substitutes force for peaceful, voluntary interaction. Personal and family bonds are broken, while property rights are ignored and trampled upon.

1:33Things like tasteful art, literature, music, and culture in general are pushed asunder or replaced with primitive and barbaric substitutes. Place Power, Economic Interventionism and Nationalism Thrive, and of course, one of the major themes of this retreat is that inflation makes war possible. War is the health of the state, not the well-being of the community. Now, can the United States be properly labeled a participant in this animalistic and barbaric behavior of total war? Well, no, not really. It would be more correct to say that the United States has been on the cutting edge in adopting the ideology of total war.

2:19We were one of its first practitioners and we are one of the leading developers of its methods. Let me bring your attention to General William DeCumseh Sherman and his fellow Union Generals who practiced intentional genocide of total war in the so-called Civil War during the 1860s. He originally developed and perfected his techniques during the Seminole War in Florida years before. His methods in Florida included destroying homes, crops, food stores, poisoning water supplies, killing women and children, all methods the Union Army would continue to use throughout the 19th century. World War I was certainly total war at its worst, and so was World War II.

3:07Hitler, Churchill, Roosevelt all condone continuous and indiscriminate bombing of civilians. Truman authorized the incineration of more than a quarter million civilians, mostly women and children. Now we can try to argue that these actions were efficient or effective or necessary, but we cannot deny that they were barbaric. Austrian economist Ludwig von Mises showed He said that the only policy consistent with humanity is peace. He showed that war is the result of interventionism, protectionism, and the welfare state. He further showed us that peace can only be achieved with a consistent ideology and a persistent policy of unlimited laissez-faire.

3:54No matter what the statistics say, a nation cannot achieve a higher standard of living while it is at war. I wanted to go down a list of general effects between peace and war that I was thinking about in preparation for this retreat. In peace, we see truth thriving while deceit thrives during war. In peace, we see individual privacy being a concern, a concern for the rights of people and not of government. Whereas in war, secrecy, particularly of the government and its right to know our private issues thrives. In peace, knowledge, education, science and technology thrive.

4:43During war, propaganda thrives and of course we have, in the current war, we have US radio in Afghanistan, putting in the U.S. propaganda into Afghanistan as well as here in the United States. The market thrives during peace. Government thrives during war. Liberty from government thrives during peace. Power of government over the individual thrives during war. In peace, freedom of the individual's right to do things thrives. In war, security thrives. In peace, we see entrepreneurs thriving and becoming important central characters in our society. In war, politicians and their status in society is elevated as we've seen in recent polling data on the popularity of the president.

5:41During peace, citizens thrive. Remember, before the war started, there was all talk about about tax cuts and lock boxes and that sort of thing in terms of government and now after the war it's all special interests. We're going to spend money developing new military technology, new government railroads, all for the benefit of special interest groups. During peace, savings thrive. During war, consumption does. When peace capital survives, during war depreciation is the key. I note that in the period between 1830 and 1860 when the United States was at an extended period of peace and isolation from Europe, capital accumulation in the United States was at its highest consistent level in our history.

6:39Of course, during the Civil War, there was a great depreciation. During peace, excellence thrives. During war, ersatz thrives, or trying to get by with poor substitutes. For example, in the Civil War, in the South, people used burnt seeds and leaves to brew Through a Substitute for Coffee, it wasn't very good, as you can well imagine. During peace, culture thrives, sound money thrives, where of course during war, inflation is the thing that thrives the most.

7:26During peace, the family thrives, during war it dies, you're more likely to see things Things like family breakups, divorce, as Joe mentioned earlier this morning, more orphans, more delayed marriages, prostitution and so on. During peace, it's babies that thrive and the birth rate rises. During war, bombs thrive and the birth rate falls and the death rate increases. During peace, our health is what is benefited. In the news reports about famine issues around the world, such as in Afghanistan, as we speak, famine is usually treated as a lack of rainfall or diseases or some sort of pestilence coming into play, but in actual fact, famine is always and everywhere the result of some sort of severe government intervention in the economy and it's typically war or civil war and then finally during peace life in general is what thrives and of course our life expectancy statistics improved during peacetime but during war death is what thrives more people die fewer people are born the death rate goes up infant

8:58mortality rates go up and life expectancy goes down. So the whole general picture for society is very cut and dry between war and peace.

9:13In terms of the economy itself, I've divided the economy into four different areas, some of which thrive and some of which die. The first branch of the economy I've labeled the Main Street Economy. This is our basic land, labor, and capital, and these are all harmed by war. So in our Main Street economy, we have the retail sector, for example, would be in the Main Street economy. Real estate would be in the Main Street economy. The insurance industry, the airline industry, and really all capital-intensive industries, as well as manufacturing and non-defense capital goods are harmed in general during wars.

10:13Wars. The second branch of the overall economy is the unregulated economy or the lightly regulated economy, and in this area of the overall economy I would put things like technology. Technology which has thrived so much in the 1990s during the peace of the 1990s is going to be harmed by war. One example of that would be, of course, the internet and all of the internet-related technologies, something that has thrived. More capital has been injected into this area of the economy. It's been relatively unregulated.

10:58They've even had bans on taxing the internet and so on. But now that's starting to change with war, as the government wants the right to be able to be able to snoop into the internet. Possibly to tax and regulate the internet. So that's something that entrepreneurs are going to be pulling back from. And even if we're continuing to grow as everyone expects, it's not going to grow as far or as fast as otherwise would occur. Other issues in the unregulated economy, banking privacy is going to continue to suffer and And then on the cutting edge of the economy, small businesses and new businesses are going to be hurt by war either this time or in general.

11:47During war there's a much diminished tendency to start new businesses. And small businesses tend to be hurt by government programs because they can't deal with government Programs as well as the large established corporations can. The Death Economy. The Death Economy benefits from war. The Death Economy benefits from the destruction of people, peace and privacy. The first group in the death economy, I would put the military industries, the companies who are making the bombs and the airplanes that are used in war, and of course we've seen since September 11th, this is no big surprise to anybody, that the stocks of all of the military companies have done extremely well and they've gotten new contracts, a lot A lot of the limitations that have been put on the development of new weapons and the construction of older weapons has now all been pushed aside and everything is basically an open floodgate as the money is pouring into the military industries.

13:13A question was asked this morning about where does the new money go? Well, the new money that's being created now is in large part going into the military and the companies that make weapons. Spies, all of the various spy agencies are thriving. Their budgets have been greatly enhanced and they're recruiting for new members and they're all doing extremely well. Well, as a matter of fact, I ran into somebody who worked for the FBI and was thinking about retiring, but after Bush was elected president, he decided to delay his retirement, he said, we're back in business.

14:00And so some of the people in the spy industry knew that the Bush administration was more pro-war. of course the government in general benefits and we also tend to see new taxes and finally the final member of the death economy is the news media because they of course are also major beneficiaries of of death their ratings go up and their advertising goes up they love that kind of thing now this is really the 911 disaster has really turned out to be a perfect war for government While the battle against Osama Bin Laden seems like a small war, it's actually the perfect war for government.

14:50It's in a very far away place, not easily accessible by the people or the news media. The opposition in this case is small and poorly equipped, so they don't represent much of a threat. And they are also spread out all over the world, so great quantities of resources can be used up, chasing them down in the many countries around the globe. The White House recently announced that they expect the war to last six years, so it's also going to be a long war, maybe never end. It's also perfect in the sense that the terrorists hit the American homeland and killed innocent citizens. This provides a perfect rationale for all sorts of government interventions and new New Powers while also producing the support and patriotism necessary to extract the resources and also to subvert a whole host of liberties and freedoms.

15:48To top it all off, the timing of the war was excellent because the economy had sunk so far into recession that even government statistics revealed the truth. Nothing trumps a recession like a good war, and the popularity ratings of President Bush are a testament to that and also the whole notion of belief in government, the polling date on that has also turned around. So the whole thing is really turned out to be a perfect war for government. Now unfortunately, war has a lasting effect, both in terms of what thrives and in terms of what dies. In terms of what thrives, government itself of course is the major beneficiary, and Robert Higgs has pointed out in his book, Crisis and Leviathan, exactly what happens during such a crisis.

16:48It can be either a war or a significant economic event like the Great Depression, but basically Dr. Higgs shows that crises create a ratchet effect on the size of government, so that as government is growing over time, it's growing very slowly, that's peacetime growth, and then a crisis will cause it to grow very significantly over a short period of time, remain stable for the rest of the crisis, and then after the crisis is over to retract The New York Times understands Higgs' connection between war and big government, and it makes them very happy.

17:45They ask, is it really guns versus butter? Do we really get fewer social programs when government spends more on defense? No, they say. We can have both when it comes to government and war. And then they go about explaining how war has actually increased military spending and social spending, and that spending has remained in place after the war was over. They are still concerned, however, that there are significant barriers to starting new domestic programs during this war, but they conclude with confidence because recent polling data shows that public trust in government has reversed itself from a 30-year slide, and that the airport security bill was already passed, which they dubbed, quote, a major public works program, and which also enlarged The New York Times concludes, almost drunk with joy, that given the nature of this war, it would be possible to start new programs for medical research, health care, food safety, computer technology, law enforcement, unemployment insurance, transportation, energy, education, the list goes on and on.

19:07and quote from New York Times, while the programs would have been launched under the banner of military effort, they could create a permanent government presence in areas unimaginable September 10th, 2001. Now some of the, there's already a lot of tangible increases in government, the Office of Homeland Security, which is is a new bureaucracy. Nobody in Washington questioned its establishment. It's small right now, but it's sure to grow over time. One estimate put it at $1.5 trillion over the next few years.

19:52And I'd also draw your attention to an article in the free market by Bob Higgs where he discusses this new Office of Homeland Security, and he asked poignantly, What about the massive Department of Defense? If it does not defend our homeland, what does it defend? Well, basically, the Defense Department has admitted its complete and utter inability to defend this nation. This admission, however, is only going to serve as a perfect setting for Bush's Missile Shield Program to get a high priority on the federal to-do list. A couple of specific things that go wrong in society as a result of war.

20:44The first one I wanna bring your attention to is social problems. War is the great fount of social problems. Countless people, both soldiers and civilians, are broken mentally, physically and financially as a result of war. After many of our wars, Civil War, World War I, II, Korea and Vietnam, many of the soldiers were left addicted to drugs and alcohol. Of course, they're put into veterans mental health facilities for the rest of their lives in many cases. In World War II and Korea War did the same, and we see all of these social problems of drug use and prostitutions and Broken Families. These all of course cost money, but the human cost is incalculable.

21:34And of course soldiers don't have to go to war to cause these social problems. Just go to any military base and you will see it surrounded by prostitutes, drug dealers, CD bars and hotels, not to mention a plethora of tattoo parlors and pawn shops. Technology. Very often if you The General Effective War is to stall technology in its tracks. In the book on the Civil War that I'm working on, I've investigated the improvement in technology that might have resulted in the United States because of the Civil War. All the experts agree that basically there was no improvement in technology during a five-year period.

22:26There was simply a halt to new technological developments in terms of research, labs, education, engineering and so forth. And there was also a sort of a lull in technology after the war because many of the best engineers and scientists were killed during the war itself. And finally, a third category that I wanted to add, and that is culture and the case of poetry. I just happened to be reviewing my paper here a couple days ago, and I saw on the shelf of my library the Oxford Book of American Verse. And I picked it up. It's a book of poetry, sort of a general collection of the great American poets, Most of whom were born in the late 18th and early 19th century.

23:20And I was just looking at the dates of when they were born and when they lived. There was no poet in the book that was born in the Civil War decade until 1869. I believe that the death and destruction of that war reduced the population in such a way that it simply did not provide the opportunity for that generation to contribute much and cultural areas like poetry. In fact, there is a large gap between the birth of Emily Dickinson in 1830 and Edgar Lee Masters in 1869, filled only by the birth of Sidney Lanier, who I don't know, in 1842. I believe that this large gap in time is explained in large part by the fact that so many people were killed during the Civil War and the spirits of so many more were killed in the process and left the remainder of society with a tremendous burden to carry.

24:17In fact, I also went on to consult a list of modern American poets born in the 19th and 20th century and after looking up the first 200 of them, I found that only seven were born during war years. All seven were female, and on average, if we had spread the 200 poets out over the entire period, there would have been approximately 25 to 30 poets born during the war. So the greatly reduced number and the fact that they were all female tells me that when war occurs and there's massive death and destruction, that that really creates a cultural hole in society, in time, not often noticed, but nonetheless tangible.

25:10To sum up, what thrives during war, its government, its inflation, and its kind of bad human behavior. What dies during war is our economy, our culture, and our standard of living. In terms of investment, it's hard to get a clear picture on what this war has for us on the Investment Horizon, especially given that the business cycle is being mixed in with this war. Gold is obviously something that would naturally be considered given history.

25:57And also, one of the things that I've seen on the news a lot, financial news a lot, last The last couple of weeks has been the January effect, where if in the first five days the stock market is up, then the chances of the stock market going up for the year are supposed to be extremely high. And those chances are enhanced even more if the stock market is up for the entire month of January. As a matter of fact, the January Effect is held in almost every year for the last 50 years. There were only four exceptions, and three of those four exceptions were war years.

26:43So war really does change things, even though it's separate and distinct from the business cycle. Ultimately, it does matter to the economy. Thank you very much. The Theory of Money and Credit