The concept of permanent war economy originated in 1944 with an article by Ed Sard (alias Frank Demby), Walter S. Oakes and T.N. Vance, a Third Camp Socialist, who predicted a post-war arms race. He argued at the time that the USA would retain the character of a war economy; even in peacetime, US military expenditure would remain large, reducing the percentage of unemployed compared to the 1930s. He extended this analysis in 1950 and 1951.<1>
The CEO of General Electric and vice-chairman of the War Production Board, Charles Edward Wilson ("Electric Charlie," not to be confused with "Engine Charlie," Charles Erwin Wilson of General Motors) had already argued for the continuation of large scale military spending in a speech at the Twenty-Fifth Anniversary Dinner of the Army Ordnance Association on January 19, 1944. Although he did not use the term "Permanent War Economy" he did argue for an institutionalized war economy —ie. a semi-command economy to be directed by corporation executives, based on military industry, and funded by government. Wilson argued for this system for purely military reasons. He did not make any argument for a "military Keynesianism". The term refers to the economic component within the military-industrial complex (MIC) (aka. "the Iron Triangle") whereby the collusion between militarism and war profiteering are manifest as a permanently subsidised industry. Wilson warned at the close of World War II that the US must not return to a civilian economy, but must keep to a "permanent war economy."<2>
Marxist theory
The term has also been used to refer to a Marxist theory which seeks to explain the sustained economic growth which occurred in the decades following World War II, especially amongst developed countries. Marxists developed the theory when the anticipated stagnation of capitalism which had previously followed World War I did not recur. When post-WWII economic growth came to an end with the 1973 oil crisis and gave way to a new period of deepening stagnation, Marxists viewed this as a typical development of late capitalism.
The theory of the permanent arms economy (as it is called in order to be distinguished from other not necessarily Marxist war economic theories) commences with a difference between the period after the First and the period after the Second World War. Whereas after the First World War state expenditures for arms were soon cut back to peace levels, after the Second World War state expenditures on arms remained very high due to the developing Cold War and the arms race. These continuing strong expenditures on arms are according to the theory of the permanent arms economy the reason for the long boom up to the early 70s. Military spending was around 16% of gross domestic product (GDP) in the 50s in the USA after 38% in 1944 during World War II. This spending rate has been in a slow decline since then and finally in the mid-90s it was only at about 2%. During the Vietnam War in 1968 it was 9% and in 2003 it was 4%.<3> This strong decline in military spending during the 60s and 70s meant the end of the permanent arms economy and the return of capitalist crisis.
The different versions of the theory differ in the way to explain the exact mechanism how armaments expenditures did stabilise the capitalist economy. A more “Keynesian” version is to be distinguished from an approach, which is based on the law of the tendency of the rate of profit to fall....
http://en.wikipedia.org/wiki/Permanent_war_economy
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