Source: http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=275&chapter=35211&layout=html&Itemid=27
Timestamp: 2013-05-22 13:11:03
Document Index: 485841515

Matched Legal Cases: ['§ 1', '§ 2', '§ 3', '§ 4', '§ 6', '§ 8', '§ 9', '§ 1', '§ 119', '§ 2', '§ 390']

Online Library of Liberty - CHAPTER II: the cost of defence - Public Finance
Front Page Titles (by Subject) CHAPTER II: the cost of defence - Public Finance	Return to Title Page for Public FinanceThe Online Library of LibertyA project of Liberty Fund, Inc.
Search this Title:Also in the Library:Subject Area: EconomicsCHAPTER II: the cost of defence - Charles F. Bastable, Public Finance [1892]Edition used:Public Finance. Third Edition, Revised and Enlarged (London: Macmillan, 1903).
§ 1. Adam Smith commences his examination of the cost of defence by the statement that ‘it is very different in the different states of society,’ and adds, as the result of his inquiry, that it ‘grows gradually more and more expensive as the society advances in civilisation.’1 A reference to the statistics of military and naval expenditure will show that the tendency to increased outlay has continued during the century that has elapsed since the above passage was written.2 There is, moreover, no sign of change in this respect. It is as certain as any prediction in social matters can be, that no reduction in the military budgets of Europe will soon be made; on the contrary, there is every probability that this form of expenditure will go on increasing in the future as it has done in the past.3
§ 2. The expenses of defence and aggression have, it must be noticed, to be divided into two distinct parts. The former, which may be regarded as the normal and regular part—the peace establishment—meets the preparation for war. It is so well recognised a feature of the modern budget, that it passes without comment. The other part of state outlay in this respect is that devoted to actual warfare; it is evidently irregular in amount, and may so far be called ‘abnormal,’ though it is almost certain to recur at indefinite intervals.1
§ 3. Preparation for war, as it appears in the successive stages of society, conforms to the general principle declared by Adam Smith. In a savage or barbarous community the cost of warlike preparation is insignificant. The ordinary course of life is of itself a training for times of conflict; the hunter or shepherd is ready at the shortest notice to transfer his exertions to a fresh and more exciting employment. Such rude societies are (with some rare exceptions) organised on a basis of militancy, all the adult males being available as warriors. Similar conditions prevail with respect to commodities. Bows, spears, staves, &c., are useful either in peace or war; they are eminently non-specialised capital, and more elaborate contrivances are as yet unthought of. The introduction of agriculture has a modifying effect, in so far as it tends to reduce the mobility of labour and commodities; but even in this stage the same general features recur. The ordinary husbandman easily becomes a soldier, and there is a recognised interchange between swords and ploughshares. An invasion is still carried out or opposed by a levée en masse, and usually takes place in the ‘off season’ of agricultural work. The cost of preparation for such wars obviously cannot be very heavy.
In the section of the Wealth of Nations devoted to this topic the adoption of either of the alternatives just mentioned is regarded as a cardinal point in the evolution of the military system. The former method—that of training the whole effective population—is described as the creation of a militia, the latter as the formation of a standing army, and a very strong judgment is pronounced in favour of the latter expedient. Admitting fully the truth of some of the views set forth on this point by Adam Smith, it is nevertheless desirable to remember that they by no means exhaust the subject and the considerations relevant to it. His appeal to history more particularly strikes the reader as superficial. To support his contention that standing armies are always superior to militias—an idea evidently derived from his belief in the advantages of increased division of labour1 —he brings forward the examples of the Macedonian army that overthrew the forces of the Hellenic commonwealths and the Persian Empire; the early successes of Hannibal and the ultimate triumph of the Romans; and finally the fall of the Western Empire before the barbarian invaders. The cases quoted, however, fail to establish the doctrine asserted. It is surely contrary to fact to speak of the army of imperial Rome as a ‘militia’; if ever there were a ‘standing army’ it was one. The whole discussion, in short, amounts simply to this: that the better disciplined and trained force will generally defeat its opponents, and that it ought to be called a ‘standing army.’ The historical summary is accurate, if somewhat trite, but the interpretation results in a truism.
We have therefore to replace Adam Smith's account by one more consonant with facts, while preserving those parts of his exposition that are substantially correct. It is certainly beyond dispute that the course of development tends to replace the rude levies described as ‘militias’ by the better trained forces known as ‘standing armies.’ In addition to the instances given above, we may mention the introduction of permanent armies in every European State, so that the tendency towards specialisation is very generally operative. An opposing tendency, however, comes into play. It is equally a principle of evolution that all organised bodies tend to lose their original plasticity; they become, as it were, crystallised into a rigid form, and from this condition armies are not exempted. But warfare is the struggle for existence in its intensest shape, and in that struggle, mobility and power of adjustment are important advantages. The natural result is that the most efficient military machine or organisation of one period proves to be unsuitable for the changed requirements of another and later one. The history of war is, in fact, a series of illustrations of this truth. As convincing and well-known examples we need only note the Phalanx, the Legion, the man-at-arms of mediæval times, the army system of Frederick the Great, and the French system of the 19th century. And it may well happen that a future European war will afford a further instance in the fate of the present German army. The essential condition of military efficiency is constant readjustment—incessant striving towards improvement in discipline, training and equipment. Such efforts, necessary as they are, demand continuous intellectual strain on the part of the organisers, and heavy demands on the public purse.
§ 4. If, as we believe, Adam Smith failed to correctly interpret the past, he certainly did not succeed in forecasting the future. Up to his time there had been a steady movement towards the establishment and increase of permanent forces maintained at great cost. The effect produced on thoughtful persons by the growing European armaments is instructively shown in the statement of Montesquieu. A remarkable chapter of the Spirit of Laws1 describes the position and its dangers to the future of Europe in the following terms:—
This vigorous account has been largely justified by the actual course of events. The wars that resulted from the French Revolution proved the power of national sentiment to raise and maintain enormous forces during a period of protracted conflict, and the reform of the Prussian army under Scharnhorst's guidance, after the disaster at Jena, carried the tendency towards the enrolment of the nation into periods of peace. The wars of the third quarter of the 19th century, and especially the Austro-Prussian war of 1866, and the Franco-German one of 1870–1, have greatly increased the popularity of the national army system, which has been adopted by nearly all Continental States,1 and has been approved by many English writers. The change of opinion in recent years is perhaps most clearly shown in a remarkable essay of Cairnes, in which the respective merits of the older French, the English, and Prussian systems are estimated, with a conclusion strongly in favour of the ‘national army.’2
We may seem, for the moment, to have lost sight of economic and financial considerations, but they really underlie the whole military movement of modern times. The increase of permanent forces had reached its limit before the opening of the French Revolution, when about one per cent. of the population was available for actual service. The prolonged conflicts which arose out of that event led to the addition (as Montesquieu apprehended) of a militia to the regular forces. The modern national army in its full force is the old ‘standing army,’ plus a levée en masse, the latter, it is true, being suitably organised and equipped. This system, though produced at first by a particular set of circumstances, was obviously necessitated by economic conditions. Military power had to be increased, and as the state revenues did not allow of an enlarged permanent force, the only alternative was that actually adopted, by which the whole effective male population became a reserve, and was yet enabled, in times of peace, to carry on its ordinary industrial pursuits.
The question of cost is in the last resort decisive, and it is by it that the merits of the several military systems must be judged. One of the conditions to be included in our measurement of net cost is efficiency. National defence is too important, even from a purely economic standpoint, to be placed in jeopardy through narrow ideas of economy. An ineffective and badly organised army is dear on any terms, though, on the other hand, large outlay will not of itself secure efficiency, and so far weakens the economic resources of the nation. The problem is, indeed, as remarked before,1 one of extreme difficulty, and only allows of an approximate solution. As regards the cost or sacrifice involved in the various methods of defence, the national army presents two great advantages: (1) it requires less direct outlay, and (2) its real pressure is not so acutely felt. It is plain that services obtained through legal compulsion will be cheaper than those that are hired in the labour market at the current rate. Moreover, when the duty of military service is general, and enforced without favouritism, the sacrifice entailed by it will probably be less felt than if the large amount of additional funds needed under voluntary enlistment had to be levied through taxation. Granting, however, both these positions, it yet remains doubtful whether the indirect losses may not be more than the gains just mentioned. The real cost of an army formed on the German type is hard to measure. Mere comparison of army estimates will not establish its superiority over a freely enrolled force. Thus an able writer2 compares the English and German outlay for 1883–4. The former was £16,600,000 for 199,273 men, the latter £18,325,000 for 445,392 men, i.e. an army much more than twice that of England was maintained by Germany at an increased cost of only 10 per cent. This estimate is supported by additional calculations, which make the cost per soldier in England £86, in Germany only £44, or little over half. Such calculations err in the omission of several material circumstances. The rates of wages and salaries in the two countries are not on the same level. Under any system a given number of German soldiers would cost less than an equal number of English ones. Next, though the compulsory service in the former country reduces considerably the amount of direct outlay by the State, it inflicts a tax on those compelled to serve, whose amount could be measured only by what they would pay in order to escape it. A third influencing condition is the indirect effect on the productive powers of the country.
‘The military service,’ says a favourable critic of the German army, ‘postpones to a relatively very late period the productive use of the productive power of the country ... The waste of skilled labour ... is enormous. The future artisan or mechanic has not learned his business when he enters the army, nor can he practise it until he leaves the regiment.... Half the lifetime of the flower of the population is thus unproductively spent. Even in the case of unskilled labourers or peasants, who can go to work from the day they leave barracks, a considerable loss is sustained.’1
The difficulties in the way of any estimate of the financial merits of different army systems, already evident enough, are enhanced by the special circumstances with which each country has to deal, and which render the complete adoption of a foreign system almost impossible. Thus England has to provide garrisons for many places very distant from her own territory, and service of this kind in India or the Crown Colonies could not be made compulsory. Separation of the home and foreign (or Indian and Colonial) armies appears a retrograde step,1 and in any case the supposed home force might, in time of pressure, be required for service abroad. A great power whose foreign possessions are insignificant has not this problem to face.
§ 6. The navies of the various powers do not present so much difficulty, for they are less costly so far as the supply of their personal service is concerned, and that supply is taken from a special class already trained to a life of hardship, and accustomed to constant supervision and control, though here, too, the question of obtaining the necessary force without undue outlay is a serious one.1
Against the undoubted evil of the great increase of outlay on armaments, it is satisfactory to be able to point to some compensation, or at least alleviation. One result is to favour the wealthier, and therefore the most industrious nations. A rich State can obtain the best ships, rifles, and cannon, and so gains the same advantage over its poorer rivals that civilised peoples generally gained over barbarians by the invention of firearms. Then, as Sir R. Giffen has suggested, the increased cost of warlike equipment is accompanied by an immense expansion of industrial production; if the burden be heavier the bearer is stronger, and is not so much oppressed as we might at first suppose; and finally, though this is problematical, the skill developed in aiding the work of destruction is also of service for industry.1 The best method of securing arms and supplies is also a doubtful matter. The usual alternatives are: purchase in the open market, or state manufacture; and in the former case the contracts may be given privately, or by public tender; but the advisability of state manufacture may be reserved for a more suitable place.2
§ 8. The cost of actual warfare presents problems very similar to those already considered. The national army, when in the field, is a very expensive agency. ‘An army composed of such materials as the Prussian, cannot be employed in war without immense loss and suffering both to the soldiers and the whole nation.’3 The ordinary standing army, on the other hand, is often unfavourably criticised as being composed of the refuse of the population.1 Were this true it would be rather an advantage in the event of war, except in so far as it detracted from military efficiency. In any case it is difficult to measure the cost incurred in war apart from the direct outlay and the loss of men and material in the conflict. There is, besides, the disturbance in the economic system which is a necessary result, and which may injuriously affect, not merely the national well-being, but the state revenues. Such consequences are hard to foresee, and vary widely in different nations. With regard to England, for example, the outbreak of war would materially injure her shipping trade, which forms so important a part of her industry; the diminished profits in that trade, and the innumerable dependent and connected occupations, would soon be shown in the reduced income-tax returns under Schedule D and would so far affect the state receipts at a time of extra pressure. It is needless to add that the revenue would almost certainly be acted on by other results of war, and not beneficially. A Continental State would probably suffer in a different way. Some of its territory might be occupied by the enemy, and its contributions suspended, or under the most favourable circumstances the productive powers of the community would be reduced by the withdrawal of so many men from their usual employments with the natural result of diminishing the yield from taxation.2 All such elements form part of the financial considerations appropriate to the subject.
To make the estimate a fair one, it is further desirable to take into account the possible advantages so forcibly stated by Wagner3 and others. They are: the ennobling effect of warfare on men, and even its value as an economic discipline; its tendency to bring about a better grouping of nations (as in the recent cases of Germany and Italy); and finally the fact that successful warfare may allow of the cost being placed on the vanquished. It might be added that some periods of war have been seasons of high profits, as was the case in England during the French wars of 1793–1815. But these supposed gains are, after all, no adequate set-off against the certain losses. There is no evidence that war promotes higher social or economic training, and it decidedly deadens the higher moral feelings.1 Under given conditions, capitalists may gain by it, but only at the expense of other classes. The power of placing all the expense on the conquered party is not a diminution but simply a shifting of the burden, as happened in the Franco-German war of 1870–1.2 And the redistribution is not always purely beneficial to the winning side, while it intensifies the sufferings of the defeated State.
§ 9. In conclusion, it may be said that war and preparation for war are by far the heaviest charges on the resources of modern States.3 An enormous sacrifice of labour-power and of commodities is inevitably caused by its persistence as a usage among modern nations. The uncertainty and indefiniteness of the requirements of states for this end is a perturbing element in financial arrangements. War has been the principal cause of the great state indebtedness so general in Europe, and of the severe pressure of taxation. It is consequently beyond reasonable doubt that peaceful methods of settling disputes, or limitations on the present rigour of belligerent rights,4 are not merely social, moral, or even economic reforms: they are further of the greatest financial importance. Arrangements for disarmament, if possible, would belong to the same class. But while strongly insisting on the great advantages that are certain to result from the maintenance of peace, and the reduction of military and naval expenditure, it is quite as essential to assert that so long as present conditions last, a well-organised and effective system of defence is a necessary part of state expenditure, and one that amply repays its cost by the security that it affords for the political independence as well as the economic interests of the nation. To maintain a due balance between the excessive demands of alarmists and military officials, and the undue reductions in outlay sought by the advocates of economy, is one of the difficult tasks of the statesman. In endeavouring to attain the proper mean, many specially financial considerations have to be noticed. Among these are: the relation of state to national revenues; the risks to which unsuccessful war would expose the country; and the comparative urgency of the other claims on the State. The application of the amount judged necessary is also difficult to determine. It has to be distributed between services (Personalbedarf) and commodities (Realbedarf), so as to secure the maximum advantage, but this latter question lies, strictly speaking, outside the limits of finance, and belongs to military administration.
Table I Expenditure of England and France on Army and Navy at different periods.1 Besides home expenditure the military force of the British Empire costs India about 230,000,000 rupees, or 15,333,000.England.1Year.Amount.1775... ... ...£3,8101823... ... ...14,3501847... ... ...18,5001857–8... ... ...23,5001868–9... ... ...26,8911878–9... ... ...30,2521889–90... ... ...32,7811893–4... ... ...33,5661895–6... ... ...37,4071900–1 (war) ... ...121,230France.Year.Amount.1774... ... ...£4,8801830... ... ...12,9601847... ... ...19,3201858... ... ...19,9601868... ... ...26,3201878... ... ...29,2401890... ... ...37,6401900... ... ...38,8801902... ... ...41,151
Table II Military and Naval expenditure of—(a) The German Empire.Year.Amount.1873... ... ...£19,2001876... ... ...21,9001883–4... ... ...22,7501888–9... ... ...41,9001900–1... ... ...39,0901902–3... ... ...39,946(b) Italy.Year.Amount.1862... ... ...£8,5001869... ... ...6,8001875... ... ...8,7601880... ... ...10,1201886... ... ...13,1201890... ... ...14,5001900–1... ... ...15,377
Table III Total Military and Naval Expenditure of the Six Great Powers.11Austria, England, France, Germany, Italy, and Russia.2Probably £70,000,000 should be deducted for the abnormal outlay by England in South Africa, but this expenditure is likely to continue in part for some time.Year.Amount.1868... ... ...£104,2501873... ... ...124,4501882... ... ...146,4601888... ... ...180,20019002... ... ...275,000
[1]Wealth of Nations, 289, cp. 296.
[2]See tables at end of this chapter.
[3]This statement is amply confirmed by the growth of expenditure in the past ten years. But cf. the view of Adams, Finance, 56–7.
[1]See infra, Bk. i. ch. 8, § 1. Cp. Wagner, i. 417, sq. Roscher, § 119.
[1]In some cases Adam Smith saw clearly enough that division of labour was not always desirable. Cp. Wealth of Nations, 217 with 327.
[1]Bk. xiii. ch. 17.
[1]See Wagner, i. 427, for a full list.
[2]Cairnes, Political Essays, 199–255. On this point his judgment is for once supported by the agreement of Cliffe Leslie [Essays (1st ed.), 128–47], whose opinion is the more valuable, as it was formed after personal study of the Prussian system, and was in opposition to his earlier belief.
[1]Supra, ch. i. § 2.
[2]Geffcken in Schönberg, 53.
[1]Leslie, Essays (1st ed.), 143. See Wagner, i. 426, for a directly opposite view.
[1]This plan has been advocated by Sir C. Dilke, Problems of Greater Britain, 380.
[1]Though naval expenditure is usually much less than that required for military purposes, yet the English naval estimates for each of the five years, 1895–1900, exceeded those for the army, as the subjoined table shows. This was of course due to the peculiar situation of the British Empire, with its territories spread over the various regions of the globe. The South African War has for the time removed this anomaly, but the return of peace may recreate it.Year.Army Estimates.Navy Estimates.1895–6£17,983,800£18,701,0001896–718,042,10021,823,0001897–818,340,50022,238,0001898–919,220,50023,778,4001899–190020,617,20026,594,5001900–188,999,40028,791,9001901–287,915,00030,875,5001902–369,310,00031,255,500
[1]Giffen, Growth of Capital, 145. Cp. ‘Wie die produktive Technik des Jahrhunderts ihre Kehrseite hat in der Technik der Zerstörung, so wird die erstere tributär gemacht für die letztere, und je ergiebiger sie ist um so mehr muss sic abgeben..... Die hiermit gebotene Aussicht ist nicht erfreulich; sie ist aber auch nicht so trostlos, wie sie meist dargestellt wird,—unter der Voraussetzung nicht, das bei jeder betheiligten Nation der Fortschritt des Militärausgaben von der fortschreitenden Productivität der Volkswirthschaft begleitet ist wie bisher.’ Cohn, § 390. For the supposed stimulus to industry, see Sir F. Abel's presidential address to the British Association at Leeds, Report (1890), 25.
[2]Bk. ii. ch. 3, ‘The Industrial Domain.’
[3]Leslie, 140, who adds some striking instances.
[1]Cairnes, ut sup. 223.
[2]Leslie, 141.
[3]i. 416 sq.
[1]For an admirable statement of the evils of war see the essay on ‘The Evolution of Peace,’ in Lawrence, Essays on International Law, 234 sq.
[2]Giffen, Essays in Finance (1st Series), 1–55, gives an estimate of the cost of that war.
[3]See Note at end of Chapter.
[4]The exemption of private property at sea from capture is the most obvious and desirable reform in this direction.