Posted May 7, 2018 by Martin Armstrong
Of course, nobody comes close to the United States on military spending. Nonetheless, India has now surpassed France bumping it from the list of the big five military spenders. Many believe this is the policy because of the rise of China. But it is also because of Pakistan. War has changed, but countries are still arming themselves for a type of war that nobody is interested in anymore – empire building. Empire Building was created by, believe it or not, the DEFINITION OF MONEY!!!!!!!!!
For you see, why did Adam Smith (1723-1790) write the An Inquiry into the Nature and Causes of Wealth of Nations? Smith visited Paris where the prevailing definition of money or the wealth of a nation was its Agriculture. These were the Physiocrats inspired by Francois Quesnay (1694-1774). It is true, before the Industrial Revolution, at least 70% of the GDP of a nation was agriculture. Even when the Great Depression hit in 1930, unemployment was very high because 40% of the population was still employed in Agriculture. If Agriculture was the bulk of a nation’s wealth, then it made common sense that the more LAND you possessed the richer the nation would be. That inspired Empire Building.
Then comes along in 1776 Adam Smith who disagrees and sees that a person who makes a carriage and exports it to another country returns with money the same as a farmer. Smith adopts what many hold is as the Merchantile Wealth Model. This gives way to the idea that the Wealth of a Nation is not its agriculture, but gold since gold is used as money among nations because they had not yet embarked on issuing debt that spread among nations.
As the Industrial Revolution begins and people begin to move from farms to work in the manufacture, Karl Marx (1818-1883) enters the arena. Now Marx sees that labor is employed by someone with money and he then makes a profit by selling what his workers produce. Marx then sees the wealth as labor and advocates taking the profits away from the capitalists and hand it to the people administered by the government.
With the end of World War II, what has been proven is that gold is no longer MONEY that constitutes the Wealth of a Nation, it is, in fact, the total productive capacity of the people. Proof of this statement is the rise of Germany, Japan, and China have all accomplished the rise in economic stature not because of their possession of gold or even natural resources, but the TOTAL capacity of its people to produce what it has as a comparative advantage in the world of commerce. Now the UAE and Saudi Arabia have woken up. They realize that what has made their nations wealthy was selling oil to everyone else who used it to enhance their production of whatever that was their comparative advantage to produce and export. It was David Ricardo (1772-1823) who advanced that understanding of comparative advantage where Saudi Arabia should not try to grow lettuce in the desert at a cost of $10 per head when it can buy it from Span at 25 cents. Every nation should pursue its own comparative advantage.
Therefore, the only rational explanation becomes clear. War has become obsolete. The days of Empire Building are no longer viable because we realize today that land does not equal wealth. We can even grow food indoors in warehouses of cities. Agriculture has itself gone through a cycle of evolution. So the USA has no interest in invading China or Russia and occupying their land. Nobody wants the management problem. It appears that war has devolved from economic gain to just two drunks in a bar who want to fight for no particular reason that one looked at the other the wrong way and did not even say a word.
If the wealth of a nation is the total capacity of its people to produce its comparative advantage, then why send your boys off to war when there is no longer any economic gain? The Iraq war was a classic example. By reducing your population, you actually reduce the wealth of a nation. Interesting how things have evolved over the centuries.