Military Keynesianism, Then and Now

The defining moment of 20th-century capitalism was its great crash, 1929–1941, also known as the Great Depression. Capitalism’s celebrants and advocates had prepared neither themselves nor their followers for the possibility of such a collapse. Likewise, their repression and ignorance of capitalism’s major critics, and especially the Marxists, only deepened that lack of preparedness. One crucial result was the sequence of ineffective governmental efforts to render the crash short and shallow. Despite inventing some useful government initiatives, government policies to overcome the crash failed across the 1930s. That failure only deepened the Depression’s lasting impression on everyone. Some registered that impression consciously and explicitly; most did not.

As is well known, only World War II finally pulled the capitalist system out of its collapse. Millions of workers, including many of the unemployed, were drafted into the military. Millions more of the unemployed got either new jobs producing weapons and supplies for the military or replaced workers who had been drafted. The fact that it took a war to finally overcome the Great Depression guaranteed that when World War II ended in 1945 and a beloved wartime president died, the desperate national fear was that the country would return to the Great Depression.

The Truman and subsequent administrations groped their way quickly to the only solution they could imagine or support. The boost to the economy provided by government spending on World War II was funded in large part by wartime borrowing. Running federal budget deficits to increase military spending was the historical moment’s solution. The inconvenient fact that, post-World War II, no actual war justified such spending provoked a substitute justification. It emerged from and reinforced the heavily advertised push toward consumerism of the immediate post-war years. Alliances of U.S. business leaders (including owners of media firms), their subservient politicians, and equally subservient academics rebranded the Soviet Union from a loyal wartime ally against fascism to a demonic, evil empire threatening to overthrow the United States. The same alliance rebranded U.S. communists, socialists, and unionists: instead of militant leaders of the New Deal coalition working with President Franklin D. Roosevelt they became traitorous “un-American” agents of the same evil, demonic empire.

Because policymakers feared capitalism’s regression back into depression, they adopted an aggressive military Keynesianism. That is, they deliberately spent more than total federal tax revenues, thereby running a government budget deficit to stimulate the economy. The politically easiest way to justify the borrowing to enable that excess of government expenditures above revenues was to argue that national security required the military. Paying for wars and defense via taxes risked provoking more domestic opposition than paying for them by government borrowing. (Adopting the kind of expansionary fiscal policy proposed by John Maynard Keynes, but embodying it in and rationalizing it by military spending, is what we mean by “military Keynesianism.”)

Spending extravagantly on the military—more than all other major nations by large margins—and increasing that spending significantly and regularly, the United States committed itself to military Keynesianism shortly after World War II ended. It has sustained that policy commitment ever since. The institutional foundation for that purpose was already taking shape clearly enough for President Dwight Eisenhower (1953–1961) to recognize and name it the “military-industrial complex” and warn against it in his farewell address. U.S. politicians would generously fund the military. Military contracts would bring profits to key basic industries across the United States. In turn, those industries’ donations would fund the appropriately pro-military politicians and remove dissenters. Military spending recast as Keynesian fiscal policy would function as a useful veneer, much as anti-communism did, to justify the perpetual war economy as a necessary protection against America’s enemies, foreign and domestic.

Of course, other contemporary influences—political, cultural, and economic—also played a role in overdetermining the U.S. fiscal policy of military Keynesianism. Other treatments of this period and these issues usually overstress the other influences and downplay the economic factors. That is why my stress here is precisely on what those other treatments ignore or underplay.

In the immediate post-World War II period government spending took other nonmilitary forms that are well known. These included the G.I. Bill, which funded college educations for returning soldiers, and the building of public housing and interstate highways. Because these and other programs lacked sufficiently widespread political support or well-developed industrial connections, and because of the anti-government ideology pushed by the Republicans, they failed to sustain themselves past the 1950s and 1970s, let alone grow.

Quite similarly, Europe had to process the trauma of capitalist collapse. However, it did so with a deeper and wider socialist and pro-labor tradition. It also had to absorb the costly final disintegration of what remained of its former empires. The United States took over those empires and operated an informal U.S. empire following the Bretton Woods Agreement in 1944. (The agreement established a new international monetary system and created the International Monetary Fund and the World Bank.) That fit well with the United States wanting to play the role of global policeman, offering up the U.S. military to defend Europe from communism and the Soviet Union. Europe accepted the offer in good part because it enabled European governments to meet the social democratic demands of its people. Those demands had become ever louder while the political prestige of socialists and communists making the demands had been sharply enhanced by their leading roles in Europe’s anti-fascist resistance during World War II. What they saved in defense spending European leaders added to Marshall Plan loans to swiftly rebuild after the war, meet some of the social service demands of their people, and avoid heavily taxing corporations and the rich.

Military Keynesianism Today

Today, European leaders are borrowing the old playbook from U.S. leaders after World War II. President Donald Trump is withdrawing military protection for Europe while demanding that European countries fund their own militaries and NATO. Europe must therefore reorganize its finances or risk worsening an already serious economic decline, which has been exacerbated by the Ukraine War’s effects and has provoked social conflict. Europe is now copying what the United States did after 1945. To justify a European military Keynesianism to boost and support capitalist industries, European leaders have revived and surpassed the post-1945 U.S. in demonizing Russia as an evil, demonic threat to Europe. On that basis, Germany’s Chancellor Friedrich Merz has led the way in massive deficit borrowing for military rearmament. British Prime Minister Keir Starmer is also moving the United Kingdom in that direction as President Emmanuel Macron will try to do in France as well. Given the already significant amount of European government debt, to fund NATO plus military Keynesianism and not tax their corporations and their rich, the government cannot only finance these efforts with still more debt. It requires gutting government social services. What the recently created so-called “Department of Government Efficiency” (DOGE) is doing in the United States requires an equal effort in Europe, a revival of European austerity. The modalities of those efforts will vary but their underlying logic and goals are the same.

The basic message of this brief history of U.S. and European military Keynesianism is that modern capitalism has increasingly generated wars. World War I and World War II have been the worst so far. However, capitalism’s cyclical depressions, never yet avoided, have provoked the building of systemic supports based on military Keynesianism, or, as Trump used to called it, “endless wars.” They follow from the endless arms production, upgrading of arsenals, and arms races among nations that provoke disputes and lead to wars. Wars accelerate contracts to replace used-up arms and thereby profit military-industrial complexes. The capital-intensive tendencies of modern warfare require ever larger governmental spending. The wars facilitate deficit spending as much as the reverse.

Trump’s campaign boasts that he could and would quickly stop those endless wars have already been undone. Half a year after taking office in 2025, he has not ended the wars he inherited (Ukraine and Gaza) and has actually started another (Iran). The historical linkage between capitalism and the military-industrial complex, which has served as its necessary fiscal support, has proved to be stronger than any president, despite Eisenhower’s warning and Trump’s boasting. Both World War I and World War II led to huge gains for socialists who won over many with anti-war feelings to join them in blaming war on capitalism.

Alongside provoking war, capitalism provokes civil conflict through its tendency to produce income and wealth inequality. Sooner or later, massive opposition arises among populations in capitalist societies: against war, or against inequality, or against both. Those opposed recognize capitalism’s contradictions. The system produces wealth and growth but also their opposites via war and civil conflict. Sometimes that recognition produces no more than yet another effort to find a solution that leaves the capitalist system intact. The human race has been there and done that repeatedly, yet the contradictions repeat and deepen. Eventually, we may at least hope, the lesson learned will be that the capitalist system itself is the problem and that changing to another system is the best solution. We can do better than capitalism just as slaves eventually did better than slavery and serfs better than feudalism. British Prime Minister Margaret Thatcher’s quip that “there is no alternative” was wrong. There are always alternatives.

Richard D. Wolff is professor of economics emeritus at the University of Massachusetts, Amherst where he taught economics from 1973 to 2008. He is currently a visiting professor in the graduate program in international affairs at the New School University in New York City and a founder of Democracy at Work (democracyatwork.info).