End of the line for the US military

Despite the guerilla fighting that continues in Iraq, the resistance in Fallujah and so forth, the US military will be defeated not by any foreign foe but by domestic economics.

All wars are financed by deficit. Ever since the Civil War, the US government has borrowed money to wage war. Ideally government would finance war through taxation, just as ideally as we would only spend from cash and not credit. However, the expense of war is so great that the tax burden would quickly become extremely heavy. When the public saw what war was costing them, all enthusiasm for it would quickly evaporate. Support for war is akin to the basic tenet of wealth redistribution, or “being generous with other people’s money”: I want to wage war, and you should pay for it. When ones own money is being spent, one expects a return, and war produces such a negligible return (if any) that nobody would think it worth the expense.

The alternative is to finance a war with debt. Basically, the government borrows money, by selling bonds (debts) and borrowing from banks. From the political perspective, this is ideal. The exorbitant cost of the war can be hidden in the future, like spending on a credit card when you won’t see your bill until the end of the month, and can carry a balance for years. Better yet, when the bill finally comes due, another will be in office. The current government can enjoy the fruits of righteous patriotism while a future government will pick up the tab.

A future government won’t want to pick up the tab, however. It poses a political disaster for them. They have to raise taxes to pay off this debt, and the public won’t see any increase in services. They have to tell the public, “we want more, and we’ll give less”, a message that no electorate wants to hear. The reason, of course, is that the ‘benefits’ of this taxation were spent years ago in warfare, but the public does not want to hear that, either. They were never told what the cost of war would be, and they aren’t interested in being given an invoice for vague goods sold at even vaguer prices (if they were even priced at all).

Of course, there is an alternative for the future government, too. They owe billions of dollars, but they control the mint that prints the dollars. The answer they turn to, then, is the answer that virtually every government since WWI has turned to. They print more banknotes, they inflate the currency.

Under the gold standard, money represents capital. The supply of money increases when the supply of capital increases, thus, prices only change because of market forces and not because the currency they are priced in is worth less. Money is a symbol of capital. You can, theoretically, exchange all of the money in circulation for capital. However, when a government inflates the money supply, it creates money that is not a symbol of anything. After this is done, if one exchanged all the capital in the economy for money, more money would remain. This remainder is worthless, it could not be exchanged for anything. This worthlessness is not restricted to this remainder, however (some banknotes are not worth less than others), but is spread amongst all the money printed. Consequently, all money is worth less, watered down if you will, both against other currencies (signified by a less favourable exchange) and against capital (prices rise as more money is required to buy a given amount of goods).

However, this is not the political disaster that increased taxes would be. Governments have for generations perpetuated the myth that inflation is beyond their control and “just happens.” Parties talk about their policy towards inflation, but do not reveal the truth: they cause inflation, and there would be no inflation without them. They can distance themselves from the results of their policy and preserve their political capital.

The result of inflation is a decreasing value of the currency. This makes it less valuable as compared to other currencies (which is happening), and causes prices to rise (which is also happening). There are two possible endgame scenarios.

Firstly, the government can continue to inflate the currency. As this continues, the dollar becomes increasingly worthless. The end result of this rampant inflation is the destruction of the currency. In 1923, the Weimar mark reached a nadir when it fell to one trillionth of its original value. The currency was abandoned and people reverted to barter, since money was worthless as a medium of exchange. Prices rose by the hour, paychecks had lost considerable value by the time the workers got them to the bank, and whenever people had currency they hurried to exchange it for any goods they could find. Of course, barter is wholly inadequate for an industrial economy. Economic collapse is assured, as in Weimar Germany, with massive unemployment, scarcity and even homelessness and starvation to follow.

The other alternative is the unpopular move of deflating the currency. The money that is not backed by capital is destroyed, which rids the economy of inflation. The problem is that inflation creates a boom, because the ready supply of money creates a lot of investment and growth. Destroying this money destroys the growth, creating an economic slump. The magnitude of this slump is directly proportionate to the boom that preceded it, but it is unavoidable, and so are the consequences of it: unemployment, wage cuts, scarcities and so forth.

To the US military, this is the end to overseas expeditions. Already, the deficit financing of war is having negative effects on the US economy. Either the US government must deflate the currency, producing a slump, or continue to inflate, producing a crash. There is no way to avoid a problem at this stage. Once one has jumped from an aircraft, one has to land on the ground one way or another. In any case, there will not be any cash for frivolities as the economy will be in too much difficulty to sustain anything as expensive as modern war.