How the U.S. Military Protects and Enriches Multinational Speculators

By Polly Cleveland

At a 1972 economics conference, at the height of the Vietnam war, Mason Gaffney presented an invited paper blandly entitled “The Benefits of Military Spending.” The paper so shocked the conference organizer that he refused to include it in the conference volume. Gaffney couldn’t find another publisher willing to touch it. Now, only 46 years later, here’s that paper (draft version), updated by Cliff Cobb, and published in the American Journal of Economics and Sociology (March 2018). What so offended the economics establishment?

In dry economese laced with even drier humor, Gaffney laid out the fundamental land economics underlying U.S. military spending. The logic resembles that of urban sprawl: For a few bucks, John Bigshot buys Old MacDonald’s farm way out in the boonies. Then he visits his pals on the city council of Anytown. They in turn vote to incorporate MacDonald Luxury Estates into greater Anytown, which means the town improves the road, extends water and sewer, police and fire protection, and other benefits to the property. With little personal investment (maybe a suitcase of cash), Mr. Bigshot has acquired a multimillion dollar parcel at the expense of Anytown taxpayers.

In similar fashion, multinational corporations go to third world countries where they acquire concessions for a song—mineral rights, broadcast rights, bank licenses, timber rights, harbor and airport rights, rights of way, or large tracts of agricultural land. Often they have bribed the local ruler, or “cacique” as Gaffney calls him. When angry locals threaten to overthrow the cacique, the multinationals can call in the U.S. government to protect their sacred property rights. The United States may provide guns and aircraft to the cacique, or establish a military base, or finance infrastructure like dams and ports and highways. Alternatively, the United States can support an opponent who promises to uphold those concessions. A small initial overseas investment can yield decades of lucrative return flows to the multinationals.

Documenting dozens of such arrangements, including the original deals for oil in Saudi Arabia and Iran, Gaffney takes a sly poke at the conventional economic treatment of “defense” spending as a benign “public good” equally benefitting all citizens of the homeland. The real-life benefits go to a small wealthy international minority with no particular loyalty to the United States, while ordinary U.S. citizens pay—as consumers, taxpayers, and especially as soldiers.

When I first read an unpublished version of the paper in 1992, 20 years after Gaffney wrote it, I felt a jolt of recognition. I was a Foreign Service brat. My dad served as Economics Officer; what was he doing? Arranging deals for U.S. investors. Everywhere we were posted or traveled there were U.S. military bases. What were they doing? (We FS types looked down on the military, because they didn’t try to learn the local language or culture, and shopped only at the PX.)

I felt the same jolt years later reading John Perkins’ Confessions of an Economic Hit Man. Perkins’ employers sent him out to convince local third world rulers to undertake wildly overambitious, environmentally destructive infrastructure projects to be built by multinational engineering companies like Bechtel and Haliburton. These projects usually failed to deliver the promised economic benefits, leaving the locals in hock to U.S. and European banks and subject to U.S. control. The original excuse for U.S. intervention on behalf of such caciques was that they provided us with a bulwark against “Communism.” Today they provide us with a bulwark against “Terrorism,” but it’s the same pattern.

The United States has dominated this game since World War II, taking over from Great Britain. The Chinese are now bent on doing us one better with military bases in the China Sea, rail and road systems across Eurasia, seaports around the world, and vast soy plantations in Latin America, Southeast Asia, and Africa. It’s the same pattern.

Looking back to 1972, I think Gaffney’s analysis so shocked conventional economists precisely because his method was so conventional. No hint of Marxism. Just good old-fashioned marginal analysis applied deadpan to an array of undisputed historical facts. Even worse, Gaffney poked subtle fun at received economic wisdom. No way could such subversion see the light of print—until now.

The Dissing of Henry George

By Polly Cleveland

 

My father, born in 1910, told me that when he was young every educated person read Progress and Poverty.

Henry George (1839–1897) was a journalist, self-educated economist and philosopher, and eventually prominent politician. In 1879 he published Progress and Poverty, which soon became a worldwide bestseller. George argued, in very brief, that the cause of growing inequality with growing wealth was unequal ownership of land (including all natural resources). His “remedy” was to shift all taxes onto land. George did not invent his analysis or remedy. Rather, he simply lifted ideas from the classical economists including Adam Smith, David Ricardo and John Stuart Mill. But unlike them, George passionately and successfully promoted the land value tax remedy—later known as “the single tax.”

George’s followers played a major role in the early 20th Century Progressive movement. Starting even before George’s death in 1897, in the midst of his second campaign for mayor of New York City, mayors and governors around the US began implementing land taxation. They did this mostly by raising the land component of the ordinary property tax while lowering the building component. In downtown Cleveland, a bronze statue of Tom L. Johnson, Mayor from 1901 to 1909, depicts him holding a copy of Progress and Poverty. California irrigation districts were financed by plain land taxes. Under Governor Al Smith, New York City buildings were exempt from tax from 1920 to 1932. Following the 1913 amendment to the Constitution to allow a national income tax, the tax itself was designed in 1916 by a Georgist Congressman, Warren Worth Bailey, to fall strictly on the very wealthy.

The robber barons were not amused. Holders of vast undeveloped lands, they resented the bull’s-eye painted on their backs. As Mason Gaffney has documented in “Neoclassical Economics As a Stratagem against Henry George”, John D. Rockefeller, Ezra Cornell and others funded departments of economics to refute George. Gaffney quotes Simon Patten, “Nothing pleases a…single taxer better than….to use the well-known economic theories…[therefore] economic doctrine must be recast.” (1908). John Bates Clark (1847-1938) at Columbia University, led the recasting effort. Clark claimed that inequality was justified, because “the share of wealth that falls to any producing agent tends, under natural law, to equal the amount that he creates. A man’s pay tends to equal the value of the product or fraction of a product that can be specifically imputed to him.” (1898). Here began a tradition, alive to this day, of treating George and his supporters as crackpots.

On the right, there were economists like Willford I. King (1880-1962), the founder of national income statistics, and a fanatic for U.S. racial purity. In a 1924 Journal of Political Economy article entitled “The Single-Tax Complex Analyzed”, King writes: “the single taxers are not merely advocates of an economic policy but … they are a religious cult and that their intense devotion to their creed has little connection with logic or reasoning.”

On the left, Marxists whistled the same tune, for a different reason: George after all had proposed to save capitalism by tax reform, making revolution impossible. Thus we find Robert Heilbroner devoting eight snarky pages of The Worldly Philosophers to George. He deems George “messianic” and “naïve” and calls his analysis “superficial and faulty”. (1986)

In the middle, there are serious economic historians like Mark Blaug. In Economic Theory in Retrospect (1996) he presents a jumble of mutually contradictory assertions in a two-page treatment, concluding with a snide run of alternative facts:

Be that as it may, Progress and Poverty, a wonderful example of old-style classical economics, was thirty years out of date the day it was published and the idea of confiscating the income of a leading social class was deeply shocking to a generation bred on Victorian pieties. In consequence, the concept of site value taxation was never seriously discussed, and to this day the only examples of it are to be found among local governments in the United States, Australia and New Zealand.

After he was invited to lecture in Australia, where George is still popular, Blaug published a kinder view of George in an obscure European journal. When I interviewed him in 2002 at his home in Leiden, he commented that “George is threatening to the powers that be,” making it “extremely tempting to put him down.” Also, “Economists don’t want to waste time looking at threatening ideas!” And finally, “There’s an aura of quackiness about George. It is a reputation that is extremely difficult to reverse.” (See my book chapter on Blaug, and my response to the commonest criticisms of George.)

But why the quackiness? Why not attack George the way opponents attacked Marx, as an alien threat? A colleague suggests it’s the hyper enthusiasm of George’s followers. I doubt it. Every intellectual leader has his or her groupies. Look at the followers of Ayn Rand! Rather, George was as American as apple pie. He appealed to the American sense of justice, he supported a reformed and fair capitalism, his remedy was easy to understand and apply, and he was immensely popular. You can’t dismiss a leader like that as an alien threat. But you can liken him to another familiar American figure: the snake oil salesman.

The latest attack on George happens right here in the January/February 2017 issue of Dollars & Sense. In a review of James Galbraith’s new book, Inequality, Steven Pressman condescendingly puts down the author’s case for land value taxation. Bob Heilbroner must be smiling up there.