The narrative that arose during the Great Depression and World War II was that capitalism was in its final stages and failing. The economic arguments of the time combined strands of Keynesianism and Marxism to construct a link between military spending and unemployment, suggesting that the capitalist economy of the U.S. must become militarized to be sustained. This paper contends that such link is not a necessary one. Rather than being an inherent tendency of capitalism, the permanent war economy arose due to the combined efforts of an array of interest groups (unions, industry, military, and politicians) who leveraged an activist government engaged in massive interventionism in the midst of the dual crises of the Great Depression and World War II. The permanent war economy is a problem of weak constraints on government and not a problem with capitalism.
Read the full paper at SSRN.