Chapter Three

Teach-In: Evening

1. For discussion in the U.S. business literature of the need for continued military spending and the danger posed by alternatives to it, see footnotes 9 and 10 of this chapter.

On the general role that military spending plays in the U.S. economy, see the text following this footnote in U.P., and footnotes 3, 4, 7, 8, 9 and 10 of this chapter.

2. On the similar economic effects of civilian and military spending, see for example, Paul Samuelson, Economics (Seventh Edition), New York: McGraw, 1967. An excerpt (p. 767; emphasis in original):

Before leaving the problem of achieving and keeping full employment, we should examine what would happen if the cold war were to give way to relaxed international tension. If America could cut down drastically on her defense expenditures, would that confront her with a depression problem that has merely been suppressed by reliance on armament production? The answer here is much like that given in Chapter 18 to the problem of some future acceleration of automation. If there is a political will, our mixed economy can rather easily keep C + I + G [C = consumption, I = investment, G = government spending] spending up to the level needed for full employment without armament spending. There is nothing special about G spending on jet bombers and intercontinental missiles that leads to a larger multiplier support of the economy than would other kinds of G expenditure.

John Kenneth Galbraith, The New Industrial State, Boston: Houghton Mifflin, 1967, pp. 230-231 (adding that, to have the same effect, the civilian spending "would have to have somewhat of the same relation to technology as the military spending it replaces").

3. Public funding of the development of computers and other advanced industries -- and the role of the Pentagon system in the U.S. economy more generally -- is an extremely important topic, which also is discussed at length in chapters 7 and 10 of U.P.

For sources on the Defense Department's role in fostering high-technology industries, see for example, Kenneth Flamm, Targeting the Computer: Government Support and International Competition, Washington: Brookings Institution, 1987, especially ch. 3 (on the crucial role of the Pentagon in the computer industry); Laura D'Andrea Tyson, Who's Bashing Whom?: Trade Conflict in High-Technology Industries, Washington: Institute for International Economics, 1992. An excerpt (pp. 88-90):

In its early years, up to 100 percent of the [semiconductor] industry's output was purchased by the military, and even as late as 1968 the military claimed nearly 40 percent. In addition, there was a derived defense demand for semiconductor output from the military's large procurement of computer output throughout the 1960s. Direct and indirect defense purchases reduced the risk of investment in both R&D and equipment for semiconductor producers, who were assured that a significant part of their output would be sold to the military. The willingness and ability of the U.S. government to purchase chips in quantity at premium prices allowed a growing number of companies to refine their production skills and develop elaborate manufacturing facilities. . . .

The government continued to pay for a large share of R&D through the early 1970s, providing roughly one-half of the total between 1958 and 1970. As late as 1958, federal funding covered an estimated 85 percent of overall American R&D in electronics. . . . [T]he military, which remained the largest single consumer of leading-edge components throughout the 1960s, was willing to buy very expensive products from brand-new firms that offered the ultimate in performance in lieu of an established track record.

Winfried Ruigrock and Rob Van Tulder, The Logic of International Restructuring, New York: Routledge, 1995. An excerpt (pp. 220-221):

[O]ver the 1950s and 1960s, the Pentagon paid more than one-third of I.B.M.'s R&D budget. The Pentagon moreover acted as a "lead user" to I.B.M., providing the company with scale economies and vital feedback on how to improve its computers. In the 1950s, the Pentagon took care of half of I.B.M.'s revenues, enabling it to move abroad and flood foreign markets with competitively priced mainframe computers. Thus, I.B.M.'s defense contracts cross-subsidised its civilian activities at home and abroad, and helped it to establish a near monopoly position throughout most of the 1950s, 1960s and 1970s. Along similar lines, all formerly and/or currently leading U.S. computers, semiconductors and electronics makers in the 1993 Fortune 100 have benefited tremendously from preferential defense contracts. . . . In this manner, Pentagon cost-plus contracts functioned as a de facto industrial policy.

The same mechanism can be observed in the aerospace industry. In the 1950s, for instance, Boeing could make use of government-owned B-52 construction facilities to produce its B-707 model, providing the basis of its market dominance in large civilian aircraft. The National Aeronautics and Space Administration (N.A.S.A.) has often played a role comparable to the Pentagon. . . . [G]overnment policies, in particular defence programmes, have been an overwhelming force in shaping the strategies and competitiveness of the world's largest firms. Even in 1994, without any major actual or imminent wars, ten to fourteen firms ranked in the 1993 Fortune 100 still [conducted] at least 10 per cent of their business in closed defence markets.

David F. Noble, Forces of Production: A Social History of Industrial Automation, New York: Knopf, 1984. An excerpt (pp. 5, 7-8):

[B]etween 1945 and 1968, the Department of Defense industrial system had supplied $44 billion of goods and services, exceeding the combined net sales of General Motors, General Electric, Du Pont, and U.S. Steel. . . . By 1964, 90 percent of the research and development for the aircraft industry was being underwritten by the government, particularly the Air Force. . . . In 1964, two-thirds of the research and development costs in the electrical equipment industry (e.g., those of G.E., Westinghouse, R.C.A., Raytheon, A.T.&T., Philco, I.B.M., Sperry Rand) were still paid for by the government.

On the important government-funding organization DARPA (the Defense Advanced Research Projects Agency), see for example, Elizabeth Corcoran, "Computing's controversial patron," Science, April 2, 1993, p. 20. An excerpt:

Lean by Washington standards, the 100-person corps [of the Defense Advanced Research Projects Agency (DARPA)] spurs researchers at universities and private companies to build the stuff of future defense technologies by handing out research grants -- a total of $1.5 billion in fiscal 1992 and more this year. Among their achievements, DARPA managers can count such key technologies as high-speed networking, advances in integrated circuits, and the emergence of massively parallel supercomputers. . . .

That track record has encouraged the new administration to drop the "Defense" from DARPA's name, renaming it ARPA and anointing it a lead agency in a new effort to help fledgling technologies gain a hold in commercial markets. But this role for DARPA isn't altogether new: Throughout the Reagan and much of the Bush Administrations, Congress pumped hundreds of millions of dollars into DARPA, enabling the agency to work hand in hand with industry on technologies that would be critical not just to defense but to U.S. competitiveness in civilian markets as well.

Andrew Pollack, "America's Answer to Japan's MITI," New York Times, March 5, 1989, section 3, p. 1. An excerpt:

At a time when more industries are seeking Government help to hold their own against Asian and European competitors, Darpa [the Defense Advanced Research Projects Agency] is stepping into the void, becoming the closest thing this nation has to Japan's Ministry of International Trade and Industry, the agency that organizes the industrial programs that are credited with making Japan so competitive. . . . [U]nder the rubric of national security, the Pentagon can undertake programs like Sematech [a research consortium to help the U.S. semiconductor industry compete] that would arouse opposition if done by another agency in the name of industrial policy. . . .

Many fundamental computer technologies in use today can be traced to its backing, including the basic graphics techniques that make the Apple Macintosh computer easy to use; time-sharing, which allows several people to share a computer, and packet-switching for routing data over comptuer networks. . . . C. Gordon Bell, head of research at the Ardent Computer Corporation and one of the nation's leading computer designers [states,] "They are the sole drive of computer technology. That's it. Period." Darpa does no research on its own, only finances work.

See also, Frank Kofsky, Harry S. Truman and the War Scare of 1948: A Successful Campaign to Deceive the Nation, New York: St. Martin's, 1993 (on the origins of the system of government subsidies to high-tech industry). And see chapter 2 of U.P. and its footnotes 4 and 5; footnotes 4, 7, 9 and 10 of this chapter; the text of chapter 7 of U.P.; and chapter 10 of U.P. and its footnotes 22 and 23.

4. On the real function of "Star Wars," see for example, Dave Griffiths, Evert Clark, and Alan Hall, "Why Star Wars Is A Shot In The Arm For Corporate R&D," Business Week, April 8, 1985, p. 77. An excerpt:

Not surprisingly, the goings-on at the Star Wars office are closely watched from corporate boardrooms. Says Army Colonel Robert W. Parker, director of resource management at S.D.I.'s office: "One way or another, 80% of our money is going to the private sector." On any given day, representatives of dozens of companies and universities visit the headquarters. . . . [Star Wars head James Abrahamson] has given the private sector an unprecedented role in shaping a defense project. . . .

S.D.I. will need much more than existing technology if it is ever to fly. To get all the necessary advances, it will pump 3% to 4% of its projected budget [$26 billion] over the next five years into pushing innovations in technologies ranging from advanced computers to optics. . . . Almost no cutting-edge technology will go without a shot of new research funds. . . . Whether or not Star Wars comes to fruition, Abrahamson and Ionson [head of S.D.I.'s Innovative Science and Technology Office] are convinced that it will produce a wealth of new technology. "Star Wars will create an industrial revolution," insists Ionson.

Malcolme W. Browne, "The Star Wars Spinoff" (cover story), New York Times Magazine, August 24, 1986, p. 18. The subtitles on the cover and in the story read:

For better or worse, the controversial Strategic Defense Initiative is already yielding new technologies that seem destined to change the world. . . . It is estimated that adapted Star Wars technology will eventually yield private-sector sales of $5 trillion to $20 trillion. . . . Experts say the computers and programs S.D.I. is helping to bring into being are powerful tools whose civilian counterparts will have incalculable civilian value.

"Will star wars reward or retard science?," Economist (London), September 7, 1985, p. 93. An excerpt:

[T]he share of American government R&D funds going for defence . . . rose from 47% in 1980 to 70% this year. Japan, in contrast, gives less than 1% of its government R&D funds to defence. . . . Yet the differences in research priorities between, say, America with its defence bias and Japan with its market bias are less stark than the raw statistics suggest. The makers of science policy in most industrial countries are investing in the same group of core technologies -- computers, materials and biotechnology. A review of science and technology policy by the OECD [Organization for Economic Cooperation and Development] notes that, biotechnology apart, the Pentagon and Japan's ministry of international trade and industry (Miti) are putting their money into very similar kinds of R&D.

In computer science, for example, both are trying to build a "fifth-generation" computer that can give a rudimentary imitation of human thinking. Miti has underwritten about a third of the development costs of very-large-scale-integrated (VLSI) circuits; the Pentagon has a $300m development programme in the same area. Miti has a $30m R&D programme on fibre optics; the Pentagon is spending $40m a year on similar research. Both are also investing heavily in research on new materials such as polymers and metal-matrix composites. Both are spending about $200m on manufacturing technology, including robots and factory automation. Does it matter whether the research sails under a military banner or a civilian one? Many scientists who oppose star wars say that its objectives are technically impossible. Enthusiasts counter that its ambitious aims make the SDI a perfect catalyst for the sort of innovative research that industry cannot afford but that will pay big dividends in the long run. . . . The search for a beam weapon to knock out missiles will spur research on lasers that operate at short wavelengths. Spin-offs could range from X-ray microscopes to excimer lasers that unclog blocked arteries.

See also, William J. Broad, "Star Wars Is Coming, But Where Is It Going?," New York Times Magazine, December 6, 1987, p. 80. An excerpt:

The best evidence indicates that . . . a space-based defense has no chance of working as envisioned by President Reagan. . . . The American Physical Society, in an exhaustive 424-page report, found that so many breakthroughs were needed for overall Star Wars development that no deployment decision should even be considered for another decade or more. The physicists, Nobel laureates among them, said that the survival of any space-based antimissile system against enemy attack was "highly questionable."

Nick Cook, "S&T: fuel for the economic engine," Jane's Defence Weekly, January 28, 1995, pp. 19f; Robert Reich, "High Tech, A Subsidiary Of Pentagon Inc.," Op-Ed, New York Times, May 29, 1985, p. A23. And see footnote 3 of this chapter.

5. On the Pentagon budget being higher in real terms in 1995 than it was under the Nixon administration at the end of the Vietnam War in 1975, see footnote 75 of chapter 8 of U.P.

On real wages for college-educated workers declining in 1987 after the Pentagon budget declined in 1986, see footnote 42 of chapter 9 of U.P.

6. For a Depression-era economist making the point about fascisms, see for example, Robert A. Brady, Business As A System of Power, New York: Columbia University Press, 1943, especially pp. 5-7, 16-17, 295.

7. On the failure of the New Deal but success of military spending in ending the Depression, see for example, Richard B. DuBoff, Accumulation and Power: An Economic History of the United States, Armonk, NY: M.E. Sharpe, 1989, ch. 6. An excerpt (pp. 91, 98):

Despite the efforts of Franklin Roosevelt's New Deal, real G.N.P. [Gross National Product] did not regain its 1929 volume until 1939, when per capita income was still 7 percent below its 1929 level. Unemployment, reaching an estimated 25 percent of the labor force in 1933, averaged nearly 19 percent from 1931 through 1940 and never dipped below 10 percent until late 1941. The anemic nature of the recovery during the 1930s was a direct result of the inadequate increases in government support for the economy. . . .

Only the Second World War ended the Great Depression. "Rearmament" commenced in June 1940 and over the next year, before the Japanese attack on Pearl Harbor, military spending jumped more than six-fold, to 11 percent of the G.N.P. It rose to 42 percent of G.N.P. in 1943-44. Under this mighty stimulus, real national product increased 65 percent from 1940 through 1944, industrial production by 90 percent. . . . What had really happened between 1929 and 1933 is that the institutions of nineteenth-century free market growth broke down, beyond repair. . . . The tumultuous passage from the depression of the 1930s to the total economic mobilization of the 1940s was the watershed in twentieth century capitalism. After that, nothing in the macroeconomy would ever be the same; there was no going back to the days of a pure, practically unregulated capitalist economic order.

Richard Barnet, The Economy of Death, New York: Atheneum, 1969, at p. 116 (summarizing the evolution of the military spending system, and quoting General Electric President Charles E. Wilson on the need to develop a "permanent war economy").

On corporate executives running the U.S. economy during World War II, see for example, Alfred D. Chandler, Jr., "The Role of Business in the United States: A Historical Survey," Daedalus, Winter 1969, pp. 23-40 at p. 36. See also chapter 2 of U.P. and its footnote 5; footnote 9 of this chapter; and chapter 10 of U.P. and its footnote 94.

8. For warnings about the necessity for government intervention in the economy after the war, see for example, Paul A. Samuelson, "Unemployment Ahead: (I.) A Warning to the Washington Expert," New Republic, September 11, 1944, pp. 297-299; Paul A. Samuelson, "Unemployment Ahead: (II.) The Coming Economic Crisis," New Republic, September 18, 1944, pp. 333-335. An excerpt:

Every month, every day, every hour the federal government is pumping millions and billions of dollars into the bloodstream of the American economy. It is as if we were building a T.V.A. [Tennessee Valley Authority, a massive New Deal public works project] every Tuesday. Did I say every Tuesday? Two T.V.A.'s every Tuesday would be nearer the truth. We have reached the present high levels of output and employment only by means of $100 billion of government expenditures, of which $50 billion represent deficits. In the usual sense of the word, the present prosperity is "artificial," although no criticism is thereby implied. Any simple statistical calculation will show that the automobile, aircraft, ship-building and electronics industries combined, comprising the fields with rosiest postwar prospects, cannot possibly maintain their present level of employment, or one-half, or one-third of it. . . .

[I]t is demonstrable that the immediate demobilization period presents a grave challenge to our economy. . . . Our economic system is living on a rich diet of government spending. It will be found cheaper in the long run, and infinitely preferable in human terms, to wean it gradually. . . . For better or worse, the government under any party will have to undertake extensive action in the years ahead.

"Shall we have Airplanes?," Fortune, January 1948, pp. 77f. An excerpt (emphasis in original):

[The U.S. aircraft industry] is today producing at a rate that is less than 3 per cent of its wartime peak. . . . [Its spokesmen] speak frequently of "free enterprise," but they speak just as frequently of "long-range planning." It is crystal clear to them that they cannot live without one kind or another of governmental support -- yet "subsidy" is a shocking word to them. . . . Its respected heads . . . freely play the game of nagging and chiding the government, but it then transpires that their reproaches are made because the government has not gone far enough toward stating "clearly and frankly" its "obligation to help develop new and improved air transports and efficient networks of air transportation," as well as fostering new programs for military planes. . . .

Every one of these proposals acknowledges the inability of unaided "private" capital to venture any deeper into the technological terra incognita of the aircraft industry. Every one acknowledges that only the credit resources of the U.S.A. are sufficient to keep the aircraft industry going: to enable it to hire its engineers, buy its materials, pay wages to its labor force, compensate its executives -- and pay dividends to its stockholders. The fact seems to remain, then, that the aircraft industry today cannot satisfactorily exist in a pure, competitive, unsubsidized, "free-enterprise" economy. It never has been able to. Its huge customer has always been the United States Government, whether in war or in peace.

"Aviation RFC (Reconstruction Finance Corporation)?," Business Week, January 31, 1948, p. 28 ("the aircraft builders, even with tax carrybacks, are near disaster. . . . Right now the government is their only possible savior -- with orders, subsidies, or loans"). See also, Frank Kofsky, Harry S. Truman and the War Scare of 1948: A Successful Campaign to Deceive the Nation, New York: St. Martin's, 1993, at p. 2 (arguing with substantial documentation that the Truman administration manipulated "war scares" for the purpose of sustaining and expanding U.S. industry through the military system; citing business magazines and newspapers of the period that "made it quite unmistakable that the aircraft industry would have collapsed had it not been for the big procurement orders that came in the wake of the war scare of 1948").

In the following years, the business press routinely recognized that continued high levels of military spending were essential to the U.S. economy. See for example, Ward Gates, "Approaching Recession in American Business?," Magazine of Wall Street, May 31, 1952, p. 252. An excerpt:

[R]earmament has played a large part in the increase in world trade directly after Korea and remains one of the basic elements in the future of world business. No better illustration could be had than the effects of the U.S. withdrawal from the primary markets when it had about completed its stock-piling program. When this occurred the primary markets practically fell apart. It is obvious that foreign economies as well as our own are now mainly dependent on the scope of continued arms spending in this country. . . . Basic to continued high activity in industry is the government program of defense expenditures, actual and projected.

Ward Gates, "Major Economic Adjustment -- If Shooting War Stops?," Magazine of Wall Street, July 28, 1951, p. 436. An excerpt:

Cynics both here and abroad have claimed, and not without some justification, that American business interests "fear peace." The moral aspect of this dilemma need not concern us but, on a realistic basis, there is no question that the prospect of peace is altering the thinking of economists, business men and investors. For that reason, it is imperative that a new view be taken of the over-all situation and to see whether the prospective ending of hostilities will produce marked changes in the industrial, business and financial picture. . . .

While the prospect of peace in Korea has exerted an unsettling act and probably will continue to do so during the next few months, we must consider whether these comparatively adverse conditions will not disappear as the enormous armaments program acquires momentum. . . . [T]he very high continued rate of arms production will greatly tend to support the economy and as long as this feature remains it is difficult to see the possibility for a genuine recession generally in the period ahead, although individual industries will have to contend with the uncertainties presented by the cessation of hostilities.

See also, "Newsgram From the Nation's Capital," U.S. News and World Report, May 26, 1950, pp. 7-8. An excerpt (emphasis in original):

Money Supply will continue to be abundant, rising. Population will go on rising. Households will grow proportionately faster than population. "Cold war," at the same time, will go on, uninterrupted. It's in that little combination of facts that Government planners figure they have found the magic formula for almost endless good times. They now are beginning to wonder if there may not be something in perpetual motion after all.

The formula, as the planners figure it, can work this way:

Rising money supply, rising population are ingredients of good times. Cold war is the catalyst. Cold war is an automatic pump primer. Turn a spigot, and the public clamors for more arms spending. Turn another, the clamor ceases.

A little deflation, unemployment, signs of harder times, and the spigot is turned to the left. Money flows out, money supply rises, activity revives. High activity encourages people to have bigger families. . . . Good times come back, boom signs appear, prices start to rise.

A little inflation, signs of shortages, speculation, and the spigot is turned to the right. Cold-war talk is eased. Economy is proposed. Money is tightened a little by tighter rein on Government-guaranteed credit, by use of devices in other fields. Things tend to calm down, to stabilize.

That's the formula in use. It's been working fairly well to date. . . . Truman confidence, cockiness, is based on this "Truman formula." Truman era of good times, President is told, can run much beyond 1952. Cold-war demands, if fully exploited, are almost limitless.

And see chapter 2 of U.P. and its footnotes 4 and 5; footnotes 3, 4, 7, 9 and 10 of this chapter; and chapter 10 of U.P. and its footnotes 22 and 23.

9. For an articulation in the business press of the problems with domestic public works and social welfare spending, see "From Cold War to Cold Peace," Business Week, February 12, 1949, p. 19. An excerpt:

But there's a tremendous difference between welfare pump-priming and military pump-priming. . . . Military spending doesn't really alter the structure of the economy. It goes through the regular channels. As far as business is concerned, a munitions order from the government is much like an order from a private customer. But the kind of welfare and public works spending that Truman plans does alter the economy. It makes new channels of its own. It creates new institutions. It redistributes income. It shifts demand from one industry to another. It changes the whole economic pattern.

Similarly, business leaders also feared that the public would demand ownership of publicly-subsidized industries if they became involved in or informed about industrial policy-making. See for example, Frank Kofsky, Harry S. Truman and the War Scare of 1948: A Successful Campaign to Deceive the Nation, New York: St. Martin's, 1993. An excerpt (p. 37):

Although the aircraft companies could not have been more eager to tap the U.S. treasury, their executives were also enormously concerned that any federal funds they might receive not even resemble -- much less be called -- a subsidy. Their reasoning was the same that impelled William Allen, the president of the Boeing Airplane Company, to insist that any computation of the airplane makers' wartime profits be on the basis of sales, not investments. If the taxpayers were ever to realize how much the creation, expansion and current well-being of the aircraft industry depended on money they had provided, Allen and his counterparts feared, their outrage might result in a demand for nationalization. Advocates of such a measure might plausibly argue that as long as the public was expected to continue footing the bill to keep the airplane builders in operation, it might as well own that for which it was being forced to pay. . . . The trick, therefore, was for the industry to achieve the beneficial effect of a subsidy without the appearance of having taken one.

Earlier, the same considerations applied with respect to the government's foreign-spending programs -- which ultimately became military-spending programs, as discussed in footnotes 4 and 5 of chapter 2 of U.P. -- namely, business leaders saw them as an economic stimulus that avoided the dangers of increased domestic social-welfare spending. See for example, David W. Eakins, "Business Planners and America's Postwar Expansion," in David Horowitz, ed., Corporations and the Cold War, New York: Monthly Review, 1969, pp. 143-171. An excerpt (pp. 150, 156, 167-168):

Corporate liberal businessmen were generally agreed that the government should continue to help sustain full production and employment, but most of them were opposed to more internal planning -- that is, to an expanded New Deal at home. . . . In 1944, the National Planning Association offered a foreign economic policy plan on the scale of that proposed by Secretary of State George C. Marshall three years later. It called for a great expansion of government-supported foreign investment, and it did so strictly on the basis of American domestic needs, using, of course, none of the later justifications that were to be based on a Cold War with Russia. . . . The corporate liberal planners who began to work out the system during World War II [in groups such as the National Planning Association, the Twentieth Century Fund, and the Committee for Economic Development] were aware of the political potential of foreign aid -- in the sense that it would help create "the kind of economic and political world that the United States would like to see prevail." But their scheme had broader implications. It stemmed, first of all, from a well-learned lesson of the New Deal, that it was the duty of government to prevent the stagnation of the capitalist economy by large-scale compensatory spending. But that spending, if "free enterprise" at home was to be saved, had to be largely directed abroad. . . .

[The Marshall Plan's program of massive] foreign aid emerged to provide an elegantly symmetrical answer to several dilemmas. It was a form of government compensatory spending that avoided revived New Deal spending at home. . . . To have turned inward to solve American problems -- to allow foreigners to choose their own course -- might very well have meant, as [senior State Department and World Bank official] Will Clayton put it, "radical readjustments in our entire economic structure . . . changes which could hardly be made under our democratic free enterprise system." These men were fearful of the expanded New Deal solution to continued economic growth precisely because they felt that such a program would be compelled to move far beyond the most radical projections of New Deal planners.

For a more detailed description of the origins of the post-war military economy, and of military spending's general role as a "floor under the economy" to prevent the return to depression conditions, see Fred Block, The Origins of International Economic Disorder: A Study of United States International Monetary Policy from World War II to the Present, Berkeley: University of California Press, 1977, especially pp. 102-108.

For other articulations of these themes, see for example, Bernard Nossiter, "Arms Firms See Postwar Spurt," Washington Post, December 8, 1968, pp. A1, A18. This article quotes Samuel F. Downer, Financial Vice-President of the L.T.V. Aerospace Corporation, explaining why "the post-[Vietnam] war world must be bolstered with military orders":

"It's basic," he says. "Its selling appeal is defense of the home. This is one of the greatest appeals the politicians have to adjusting the system. If you're the President and you need a control factor in the economy, and you need to sell this factor, you can't sell Harlem and Watts but you can sell self-preservation, a new environment. We're going to increase defense budgets as long as those bastards in Russia are ahead of us. The American people understand this."

Robert Reich, "High Tech, A Subsidiary Of Pentagon Inc.," Op-Ed, New York Times, May 29, 1985, p. A23 ("national defense has served as a convenient pretext for the kind of planning that would be ideologically suspect if undertaken on its own behalf"); John Kenneth Galbraith, The New Industrial State, Boston: Houghton Mifflin, 1967. An excerpt (pp. 228-229):

In 1929, Federal expenditures for all goods and services amounted to $3.5 billion; by 1939 they were $12.5 billion; in 1965 they were approximately $57 billion. In relation to Gross National Product they increased from 1.7 per cent in 1929 to 8.4 per cent in 1965 and earlier in the same decade they had been substantially in excess of 10 per cent. Although the cliché is to the contrary, this increase has been with strong approval of the industrial system. There is also every reason to regard it, and the social attitudes and beliefs by which it is sustained, as reflecting substantial adaptation to the goals of the mature corporation and its technostructure. For the cliché has noticed only the ritual objection of business to government expenditure. Much of this objection comes from small businessmen outside the industrial system or it reflects entrepreneurial attitudes rather than those of the technostructure. And it is directed at only a small part of public expenditure.

All business objection to public expenditure automatically exempts expenditures for defense or those, as for space exploration, which are held to serve equivalent goals of international policy. It is these expenditures which account for by far the largest part of the increase in Federal expenditure over the past thirty years. . . . Legislators who most conscientiously reflect the views of the business community regularly warn that insufficient funds are being spent on particular weapons. No more than any other social institution does the industrial system disapprove of what is important for its success. Those who have thought it suspicious of Keynesian fiscal policy have failed to see how precisely it has identified and supported what is essential for that policy.

See also, Richard B. DuBoff, Accumulation and Power: An Economic History of the United States, Armonk, NY: M.E. Sharpe, 1989, ch. 6, especially pp. 98-100; Gabriel Kolko, Main Currents in American History, New York: Harper and Row, 1976, pp. 316-330. And see chapter 1 of U.P. and its footnote 1; chapter 2 of U.P. and its footnotes 4 and 5; and footnotes 7, 8, 10 and 11 of this chapter.

10. On the importance of military spending as a cushion under the economy, see for example, Frank Kofsky, Harry S. Truman and the War Scare of 1948: A Successful Campaign to Deceive the Nation, New York: St. Martin's, 1993. An excerpt (pp. 258-260):

In supporting bigger armaments budgets, business journals repeatedly returned to the idea that military procurement could prevent or overcome recessions by keeping overall levels of spending high. Even as early as the spring of 1948, The Magazine of Wall Street was beginning to cast the matter in exactly those terms: "In fact, the contemplated scale of spending . . . may be just enough, together with tax reduction and other outlays such as foreign aid, to act as a cushion against a business decline" [see E.A. Krauss, "The Effect on Our Economy," Magazine of Wall Street, April 24, 1948, pp. 60, 100]. . . . "In a broad manner, the enlarged Government spending will inject new strength into the entire economy" [see Frederick K. Dodge, "Which Securities under Preparedness?," Magazine of Wall Street, April 24, 1948, p. 98]. . . .

Later in the year, Business Week gave this idea its official imprimatur [see "Where's That War Boom," Business Week, October 30, 1948, p. 23]. . . . "Industrialists generally are in accord with the military's program of preparedness," Steel noted as early as April of 1948, specifically citing "C.E. Wilson, president of General Electric Co.," as a case in point [see "Industry Sizing Up New Military Program, Steel, April 5, 1948, p. 46]. . . . "The country is now geared to a $13-billion military budget," [Business Week] noted . . . "a big -- and reliable -- prop under business. For the country as a whole," a Pentagon budget of this size guaranteed "a high level of federal spending," while for "individual suppliers, it means a solid backlog of orders" [see "Defense Buying Hits Stride," Business Week, March 18, 1950, pp. 19-20]. The following month, the editors again drew the connection between fueling the arms race and maintaining a stable capitalist order: "Pressure for more government spending is mounting. And the prospect is that Congress will give in. . . . The reason is a combination of concern over tense Russian relations, and growing fear of a rising level of unemployment here at home" [see "Washington Outlook," Business Week, April 15, 1950, p. 15].

This important function of military spending in the economy continues to the present. For one study of its influence, see Maryellen R. Kelley and Todd A. Watkins, "The myth of the specialized military contractor," Technology Review, April 1, 1995, pp. 52f. An excerpt:

[O]ur research indicates that the image of a few highly specialized defense contractors occupying an enclave walled off from commercial manufacturing is largely a myth. . . . [T]he vast majority of defense contractors serve both military and civilian customers. What's more, strengths developed under the umbrella of national security are being tapped to benefit firms' commercial work, and vice versa. . . . Far from being responsible for most of the nation's military manufacturing, [the] major defense contractors stand at the top of diverse and deep supply structures. . . . This supplier base encompasses a significant percentage of all U.S. manufacturing companies. In a 1991 survey of firms in 21 durable goods industries, as well as an analysis of 1988 data gathered by the Census Bureau, we found that fully half of all plants make parts, components, or materials for military equipment.

See also, Maryellen Kelley and Todd A. Watkins, "In from the cold: prospects for the conversion of the defense industrial base," Science, April 28, 1995, pp. 525f; Karen Pennar, "Pentagon Spending Is the Economy's Biggest Gun," Business Week, October 21, 1985, pp. 60, 64 ("Big [armaments] contractors like Lockheed and McDonnell Douglas like to use defense spending as a cushion for times when other business gets weak"). And see footnotes 3, 4, 7 and 9 of this chapter; and chapter 10 of U.P. and its footnotes 22 and 23.

Chomsky points out that military-Keynesian initiatives have not been limited to the U.S. defense budget: a substantial proportion of the U.S. foreign aid budget is devoted to direct grants or loans to foreign governments for the purchase of U.S. military equipment, and there are many other programs shaped to serve the same ends. On U.S. armaments exports and the scale of U.S. military spending, see chapter 8 of U.P. and its footnote 75.

11. Air Force Secretary Symington's exact words were: "The word to talk was not 'subsidy'; the word to talk was 'security.'" He made the remark in a discussion following an Air Force presentation to the Combat Aviation Subcommittee of the Congressional Aviation Policy Board, on January 21, 1948. See Frank Kofsky, Harry S. Truman and the War Scare of 1948: A Successful Campaign to Deceive the Nation, New York: St. Martin's, 1993, pp. 48, 81, 319 n.7.

12. On the Reagan administration's immediate selection of Libya as its target, see for example, "Excerpts from Haig's Remarks at First News Conference as Secretary of State," New York Times, January 29, 1981, p. A10 (announcing that, under the new Reagan administration, "international terrorism will take the place of human rights in our concern because it is the ultimate abuse of human rights"). See generally, Edward S. Herman, The Real Terror Network: Terrorism in Fact and Propaganda, Boston: South End, 1982; Edward S. Herman and Gerry O'Sullivan, The "Terrorism" Industry: The Experts and Institutions That Shape Our View of Terror, New York: Pantheon, 1990; Alexander George, ed., Western State Terrorism, New York: Routledge, 1991.

13. On Qaddafi's record of terrorism at the time, see for example, William D. Perdue, Terrorism and the State: A Critique of Domination Through Fear, New York: Praeger, 1989, chs. 3 and 6, especially p. 114 ("Amnesty International attributed 14 killings of political opponents (4 abroad) to Libya through 1985"). In contrast, torture victims and people killed in the U.S.-client state of El Salvador alone numbered 50,000. For comparison with victims of government terrorism in most-favored U.S. ally states such as El Salvador, Indonesia, Israel, and Colombia, see the text of U.P. and sources in these notes, throughout.

14. Chomsky notes that the U.S. government's Operation MONGOOSE terrorism campaign against Cuba -- launched primarily from Miami -- alone dwarfs terrorism coming from the Arab world. On MONGOOSE, see chapter 1 of U.P. and its footnotes 21 and 22. On the international terrorism coming from Washington, see examples throughout the text of U.P. and sources in these notes.

Chomsky explains his point about the main centers of international terrorism (The Washington Connection and Third World Fascism -- The Political Economy of Human Rights: Volume I, Boston: South End, 1979, pp. 85-87):

The words "terror" and "terrorism" have become semantic tools of the powerful in the Western world. In their dictionary meaning, these words refer to "intimidation" by the "systematic use of violence" as a means of both governing and opposing existing governments. But current Western usage has restricted the sense, on purely ideological grounds, to the retail violence of those who oppose the established order. . . .

In the Third World, the United States set itself firmly against revolutionary change after World War II, and has struggled to maintain the disintegrating post-colonial societies within the "Free World," often in conflict with the main drift of social and political forces within those countries. This conservative and counter-revolutionary political objective has defined the spectrum of acceptable and unacceptable violence and bloodshed. From this perspective, killings associated with revolution represent a resort to violence which is both reprehensible, and improper as a means for bringing about social change. Such atrocities are carried out by "terrorists. . . ." The same Orwellian usage was standard on the home front during the Vietnam War. Students, war protesters, Black Panthers, and associated other dissidents were effectively branded as violent and terroristic by a government that dropped more than five million tons of bombs over a dozen year period on a small peasant country with no means of self-defense. Beating of demonstrators, infiltration of dissident organizations, extensive use of agent provocateur tactics, even F.B.I. complicity in political assassination were not designated by any such terms [on these tactics by the U.S. government, see chapter 4 of U.P. and its footnote 33].

Elsewhere, Chomsky comments about his use of the word "terrorism" (Pirates and Emperors: International Terrorism in the Real World, Boston: South End, 1991, pp. 9-10):

The term "terrorism" came into use at the end of the eighteenth century, primarily referring to violent acts of governments designed to ensure popular submission. That concept is plainly of little benefit to the practitioners of state terrorism, who, holding power, are in a position to control the system of thought and expression. The original sense has therefore been abandoned, and the term "terrorism" has come to be applied mainly to "retail terrorism" by individuals or groups. Whereas the term was once applied to emperors who molest their own subjects and the world, it is now restricted to thieves who molest the powerful [this reference to "emperors" and "thieves" refers to a story told by Saint Augustine, in which a pirate was asked by Alexander the Great, "How dare you molest the seas?" -- to which the pirate replied: "How dare you molest the whole world? Because I do it with a little ship only, I am called a thief; you, doing it with a great navy, are called an emperor"].

Extracting ourselves from the system of indoctrination, we will use the term "terrorism" to refer to the threat or the use of violence to intimidate or coerce (generally for political ends), whether it is the wholesale terrorism of the emperor or the retail terrorism of the thief. The pirate's maxim explains the recently-evolved concept of "international terrorism" only in part. It is necessary to add a second feature: an act of terrorism enters the canon only if it is committed by "their side," not ours.

15. For one of the major texts in the propaganda campaign about "Kremlin-directed" terrorism, see Claire Sterling, The Terror Network: The Secret War of International Terrorism, New York: Holt, Rinehart, and Reader's Digest Press, 1981, especially pp. 1-24, ch. 16, and Epilogue, at pp. 291-293. This book's unifying theme is that all international terrorism has been part of a single, carefully-designed "Soviet enterprise" whose "primary value to the Kremlin lay in [its] resolute efforts to weaken, demoralize, confuse, humiliate, frighten, paralyze, and if possible, dismantle the West's democratic societies." Particularly noteworthy is Sterling's criticism of Western European governments for failing, out of timidity, to acknowledge this "Soviet design" even though their intelligence services "may have had pieces of the puzzle in hand for years."

The New York Times and Washington Post both published condensed versions and excerpts from the book in their Sunday Magazine sections. See Claire Sterling, "Terrorism: Tracing the International Network," New York Times, March 1, 1981, section 6, p. 16 ("There is massive proof that the Soviet Union and its surrogates, over the last decade, have provided the weapons, training and sanctuary for a worldwide terror network aimed at the destabilization of Western democratic society"); Claire Sterling, "The Strange Case of Henri Curiel," Washington Post, March 15, 1981, Magazine section, p. 26. For samples of the mainstream reception of Sterling's book, see for example, Daniel Schorr, "Tracing the Thread of Terrorism," New York Times, May 17, 1981, section 7, p. 13 (an "important study of terrorism," though flawed); Ronald Taggiasco, "The case for a global conspiracy of terrorism," Business Week, April 27, 1981, p. 9 ("although Sterling's evidence is circumstantial, it is overwhelmingly compelling in its logic").

For instant exposure of Sterling's book as a fraud and extensive discussion, see Edward S. Herman, The Real Terror Network: Terrorism in Fact and Propaganda, Boston: South End, 1982, ch. 2.

16. Chomsky wrote in the 1981 introduction to Towards A New Cold War: Essays on the Current Crisis and How We Got There, New York: Pantheon, 1982 (p. 17):

The Reagan Administration also experimented with another device: "International terrorism," organized by the Soviet Union, is the key problem of the modern world and the mechanism by which the Soviet Union aims at global conquest. . . . [T]he Reagan Administration is seeking to raise the level of international terrorism and to create a mood of crisis at home and abroad, seizing whatever opportunities present themselves. . . . [T]he reasons are not difficult to discern. They are implicit in the domestic policies that constitute the core of the Reagan Administration program: transfer of resources from the poor to the rich by slashing social welfare programs and by regressive tax policies, and a vast increase in the state sector of the economy in the familiar mode: by subsidizing and providing a guaranteed market for high-technology production, namely, military production

17. For Newsweek's reference to the disinformation campaign, see "A Plan to Overthrow Kaddafi," Newsweek, August 3, 1981, p. 19. An excerpt:

The details of the plan were sketchy, but it seemed to be a classic C.I.A. destabilization campaign. One element was a "disinformation" program designed to embarrass Kaddafi and his government. Another was the creation of a "counter government" to challenge his claim to national leadership. A third -- potentially the most risky -- was an escalating paramilitary campaign, probably by disaffected Libyan nationals, to blow up bridges, conduct small-scale guerrilla operations and demonstrate that Kaddafi was opposed by an indigenous political force.

On other Reagan administration press manipulations, see footnote 38 of this chapter.

18. For some of the lunatic disinformation stories about Libya -- keeping only to a single journal's coverage -- see for example, Michael Reese, "Uniting Against Libya," Newsweek, October 19, 1981, p. 43. An excerpt:

NEWSWEEK has also learned that Kaddafi . . . [is] ordering the assassination of the U.S. ambassador to Italy. . . . U.S. intelligence also picked up evidence that Kaddafi had hatched yet another assassination plot -- this time against President Reagan.

Fay Willey, "Kaddafi's Latest Plot," Newsweek, November 9, 1981, p. 29. An excerpt: