The Fiscal Limits of the Warfare-Welfare State: Defense and Welfare Spending in the United States Since 1900

• Author: James L. Clayton
• Published date: 01 September 1976
• Date: 01 September 1976
• DOI: http://doi.org/10.1177/106591297602900304
• Subject Matter: Articles

THE FISCAL LIMITS OF THE WARFARE-WELFARE
STATE: DEFENSE AND WELFARE SPENDING IN
THE UNITED STATES SINCE 1900
JAMES L. CLAYTON
University of Utah
T
is widely believed among scholars that defense spending in America is ex-
t cessively high and has gained an undue influence in setting national priorities
m which adversely affect our welfare programs. Some writers maintain defense
expenditures are excessive because our defense effort has required a reduction in
more desirable social welfare programs.’ Others argue that in recent years our
military system has become &dquo;economically non-productive&dquo; and causes stagnation
and therefore rising welfare costs in the civilian sector.2
2
Still others believe that
excessive and &dquo;wasteful&dquo; defense expenditures are deliberately planned and neces-
sary for a capitalist svstem to survived Finally, a substantial number of analysts
simply believe that the fear of an external threat upon which defense budgets are
based is grossly exaggerated, and, conversely, that welfare needs have been under-
estimated. Both our pacifistic and Judaeo-Christian traditions support this position.
Those who argue for these propositions usually do so on the basis of a single
and quite broad definition of defense spending and a fairly narrow definition of
welfare spending. Moreover, the basis of funding is almost always limited to the
federal budget. This method, of course, includes virtually all defense-related ex-
penditures, but excludes much of the thrust of state and local welfare-related pro-
grams which have been rising almost as fast as federal outlays. These studies also
focus on recent years and do not examine long-term trends in either defense or
welfare spending.
This essay will attempt to expand the number of working definitions of both
defense and welfare spending, and compare the spending patterns derived by those
different methods since these data first became available. In addition, a method
of measurement common to both welfare and defense spending will be developed
for purposes of better comparison. It is hoped that, by using a variety of definitions
and methods of measurement and a more extensive longitudinal focus, the reader
may gain a much more comprehensive picture of the interrelationship between
defense spending and welfare spending in the United States and thereby be better
able to determined whether either or both are excessive. Finally, I shall argue that
our rapidly rising social welfare expenditure trends are far more unsettling than
our shrinking defense commitments.
I
There is no agreement on the method of measuring America’s war or war-
related costs and much controversy surrounds this subject. Most writers prefer to
use the &dquo;national defense&dquo; expenditures account in the United States budget pre-
pared each year by the President. This includes Department of Defense military
expenditures and retirement pay, military assistance expenditures from the Inter-
1
Two studies that argue this point are: Jong Ryool Lee, "Changing National Priorities of
the United States ... 1945-1971," in Bruce M. Russett and Alfred Stepan, eds.,
Military Force and American Society (New York: Harper and Row, 1973), p. 61; and
Richard C. Edwards, et al., The Capitalist System, A Radical Analysis of American
Society ( Englewood Cliffs: Prentice-Hall, 1972), p. 244.
’ See Seymour Melman. "Twelve Propositions on Productivity and War Economy," Armed
Forces and Society 1 (Summer 1975) : 490.
3
The most scholarly discussion of this proposition — both pro and con — is Steven Rosen,
ed., Testing the Theory of the Military-Industrial Complex (Lexington: Heath, 1973).

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national Affairs account, all Atomic Energy Commission expenditures whether
military or civilian, stockpiling, selective service, and other minor defense-related
expenditures, minus offsetting receipts which include the sale of w-eapons abroad.
In at least two ways this approach includes too much. Atomic Energy Commission
expenditures for civilian purposes are included, as are funds for educating .-Bmere-
cans stationed overseas, which should be charged to the Health, Education and Wel-
fare Department. But the chief failing of the presidential budget concept, according
to critics of the DoD, is that is includes too little. One of these critics, the Joint
Economic Committee of the Congress (JEC), has proposed a &dquo;national security
budget&dquo; which includes all of the DoD items plus all veterans’ benefits, 75 percent
of interest costs, all expenditures for space and space research, considerably more
of the international affairs account, and a number of minor items lil;e ocean ship-
ping, U.S. Arms Control and Disarmament Agency, National Security Council, and
impacted area school aid 4 The difference between these two approaches is large.
The 1973 national defense budget was $76.4 billion; the national security budget
was $110.1 billion (see Table 1). These two approaches are perhaps the best
known and represent the narrowest and the broadest definitions of war spending
available.
In addition to the &dquo;national defense&dquo; and the &dquo;national security&dquo; approaches,
the Bureau of the Census has offered a war spending concept which includes the
&dquo;national defense&dquo; account and all of the &dquo;international affairs and finance&dquo; classi-
fication in the federal budget, but nothing else. The Census Bureau has placed
these figures on a per capita basis back to 1902 5 Individual authors have also
suggested variants of all of the above.6
Each of these methods has its strengths and weaknesses. The major short-
comings of the &dquo;national defense&dquo; concept are that some net interest on war loans
and service-connected veterans’ benefits should be included. The main problems
with the JEC’s method are that the JEC budget is not in constant dollars, that
non-service connected veterans’ benefits are more properly defined as welfare ex-
penditures, and that impacted school aid is really an educational and not a war
expense. There are also problems with including 75 percent of the interest account
in recent years, for most of the increase in debt since the Great Society began is
owing to increased civilian spending, not war spending. In addition, most careful
students of this subject would include no more than half of our space-related ex-
penditures as war-related. The Census Bureau’s concept is also too inclusive be-
cause not all foreign affairs expenditures are even indirectly war-related.
II
To measure costs over long periods of time one must convert expenditures to
dollars of constant purchasing power in order to eliminate inflation or deflation.
This process of converting current dollars to constant dollars is generally called
&dquo;deflating.&dquo; There is no perfect way of producing a constant price series and
consequently there are several different kinds of deflators. Perhaps the best known
4
For a lengthy discussion of both methods of measurement see Robert C. Moot, The Eco-
nomics of Defense Spending, A Look at the Realities (Department of Defense, Wash-
ington, D.C., 1972), especially Chs. 1, 10, and 11. For the JEC’s approach see The
1973 Joint Economic Committee Report ... on the January 1973 Economic Report of
the President, 93rd Cong., 1st Sess., 1973, pp. 72-73.
5
See Bureau of the Census, Historical Statistics on Governmental Finances and Employ-
ment (Vol. 6, No. 5, of the 1967 Census of Governments), pp. 25-31.
6
For an extended analysis of war costs relating to the cold war see James L. Clayton, "The
Fiscal Cost of the Cold War to the United States: The First 25 Years. 1947—1971,"
Western Political Quarterly 25 (September 1972) : 375. For a somewhat different
methodology for the World War I era see John M. Clark, The Costs of the World
War to the American People (New Haven: Yale University Press, 1927).

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366
is the U.S. Department of Commerce’s implicit price deflator, which roughly
measures the general price level of the whole economy and is used to &dquo;deflate&dquo; the
GNP to constant dollars. Another is the &dquo;federal purchases deflator&dquo; derived by
that same agency to put federal purchases of goods and services into dollars of
constant purchasing power.
There are no deflators of economic activity for defense purchases as there are
for federal purchases. The DoD has made estimates based on the noncompensation
component of the deflator for federal purchases of goods and services, but the JEC
is rightly critical of this approach. Until the Commerce Department devises de-
fense deflators to account for inflation and increased productivity, the only reason-
able approach would seem to be to use a variety of concepts as to what to include
as defense costs and to use more than one deflator -
all to the purpose of measur-
ing trends over time. This I have tried to do in Table 1.
TABLE 1. SIX METHODS OF MEASURING DEFENSE SPENDING, VARIOUS YEARS, 1929-1974
($ billions, 1958 Prices)
* DoD method = &dquo;Outlays for DoD military functions plus military assistance, plus AEC, stockpiling,
selective service, and other defense-related activities,&dquo; [Robert C. Moot, The Economics of Defense Spending,
a Look at the Realities (Washington, D.C.: Department of Defense, 1972), P 1], (DoD deflator), DoD
Method Including Retirement Pay = national defense outlays plus retirement [ibid.. p. 145], (DoD deflator) ;
Census Bureau Method = expenditures for national defense and international affairs [Bureau of the...