 This weekend we feature part of a talk that the great Dr. Robert Higgs recently gave here at the Mises Institute during our Mises University week. I'm sure Bob needs little introduction to most of you. He's a longtime Libertarian stalwart and of course the author of The Great Crisis in Leviathan. He's been a longtime senior fellow here at the Mises Institute. His talk was entitled War and the Growth of Government. We're going to excerpt it here. It's really a poignant speech about how war creates a ratchet effect and how all crises, whether manufactured by government or otherwise, create a ratcheting effect that causes growth in the size and the scope and the power of the state. Now this talk is actually a little bit bittersweet because Bob and his wife have decided and who can blame them that they're going to be leaving the United States and it may well be the last talk that Bob gives here at the Mises Institute. So if you like Bob Higgs and if you're interested in the topic of how war causes the federal government to become larger and more powerful, be sure to tune into this poignant speech by Dr. Bob Higgs. Have a great weekend. We could say, as some statisticians have, well it's just a correlation. Yeah, war and the growth of the government have tended to go together, but it's just a correlation. So what? Maybe it's an accident. Maybe it's a coincidence. Where's your statistical test? Well, what I want to do today mainly is show you the logic of why it's not just a coincidence. It's not just an accident. There's a logic built in to the way the government responds to national emergency. And I'm going to focus today particularly on the most important national emergency which is war. When the government undertakes to prosecute a large-scale war, and that's important. If it attacks some tropical island, this kind of analysis is beside the point. Or if it already has a gigantic military apparatus in place and it decides to attack Serbia, you're looking at a different case there. It'll just conduct that war out of inventory as it were. But if we're looking at a war that requires substantial diversion of resources as the world wars did for all their belligerent powers, and certainly did for the United States because it had hardly any military to speak of when these wars began, then the government needs to divert many resources away from their current uses, the civilian uses, into uses that will assist the government in prosecuting the war effectively. So how can the government engineer that reallocation of resources? Well, the first thing the government could do was explain to the people, so we've got a situation here ladies and gentlemen, we're at war, we're at war for good reason, the wolf is at the door, we must ward him off, and so in order to do that we have to have your assistance. So we need you to donate resources sufficient to allow us to defend the country in the way that we've decided is best defended. If the Treasury's door is open, please leave your donations. Now, that's not what it does because even the densest politician knows that nobody will come and drop off money at the Treasury. But there is one way in which the government gets a little bit of response to this sort of appeal, and that is it always appeals to men and nowadays to women as well, join the armed forces. It always says, you know, that we need to recruit a much larger number of people for the Army and the Navy. So come down and sign up, become a soldier or sailor. And sometimes adventurous and ignorant young men will respond to those appeals and they'll go down thinking they're going to prove their manhood or do something else to satisfy their friends and relatives. And they'll go down and enlist, and that happened during all the wars to some extent. But it was never nearly enough to provide the government with the size army it needed to be effective in the war it wanted to prosecute. Just a trickle of men came down after the United States declared war in World War I. In World War II, the government actually started drafting men long before the Japanese attack on Pearl Harbor, so it didn't even wait to see that opening the door to the forts would elicit enough men to come in and volunteer their services. So this whole idea of people's unwillingness to donate their resources to the government's prosecution of the war is completely typical. Now, I want you to pause here right now. This seems like such an obvious point that you're probably saying, why is this guy going on belaboring this obvious point? And I'm doing it because there's a deeper point at play here. Suppose you lived in a town or a village that came under attack from some enemy. Your family members were being killed, your friends. Shells were exploding here and there. Would you go to the defense of the community? Well, some people might not, but many people would. Many people would. You don't have to tell people to defend themselves against marauders. You don't need to concoct a big story about the threat to national security. When people are under attack, they defend themselves as best they can. And sometimes they do a pretty damn good job. There are historians who argue, for example, that in the Revolutionary War, the only effective military action the North American colonists mounted was basically guerrilla action. Washington's pathetic army, which was always in retreat, did practically nothing except run away and run away again. But some of these guerrilla forces were pretty good. They would run out and attack the British, and then they'd just disappear into the forest. But the point was you didn't have to draft these guys. They were militiamen. They were people who belonged to their communities and defending their communities was what ordinary people expected to do and did. When the government has to undertake a lot of coercive measures to prosecute a war, what you're seeing is evidence that it's not just going to war against the alleged enemy. It's going to war against the people themselves, the people the government purports to be protecting. Because the very first thing it's doing to provide this alleged protection is violating their rights. Drafting them as military slaves, taking their money in new taxes, taking land away from the military facilities. These are attacks on the people's rights. If the people wanted to provide these resources to the government for war, it would hand them over. You wouldn't have to coerce them. So the point is governments go to war both on the military front and on the home front. They go together. And it's the government's attack on the home front that creates such a hazard. Because that's where the people lose their liberties during the war. And because the ratchet effects never get all of them back when the war is over. That's why war over time is the health of the state. It keeps providing the state with more and more power and the people with less and less liberty. Okay, donations aren't working. So how's the government going to fight the war? Well, it's going to have to pay for resources. Where does it get the money? It raises taxes. It puts taxes up to higher rates. It imposes new kinds of taxes. It taxes people who weren't being taxed before. Goods that weren't being taxed before. And when it does that, people don't just roll over and say, oh well, got to pay more taxes. That's life. They try to evade these taxes. They try to avoid them. They try to rearrange their affairs so they won't be subject to such great takings. And so the government's now got a problem. This, by the way, is an example of the Misesian theory of intervention. That's a theory that says when the government undertakes to do something by intervening in the private society or economy, it creates feedback effects. And as it were, our problems that the government must then solve in a second stage. And the same thing happens at the second stage. So then there's a third stage. And this was something James Madison actually wrote about in The Federalists when he said that each legislative interference is but the cause of succeeding ones, each one proceeding from the one that came before it. So this is not an Isaac Newton style observation. You don't have to have keen intelligence to see this. The Misesian theory of intervention is sort of obvious to anyone who's sort of followed the news or learned some history. That's how government operates. It intervenes, creates a problem, deals with the problem. So here it intervenes by taxing people more. It encounters tax avoidance and evasion. So it's got to deal with the avoidance and evasion. It's got to hire more tax collectors, more agents at the IRS, more FBI agents to go investigate people for criminal acts connected with tax evasion and avoidance and so on and on. And when it does that, it creates effects that it has to deal with and so forth. So it can't just simply raise taxes at any level it wants and get the resources it wants. In fact, in all the major wars, the government covered the bulk of its expenses by borrowing money. Now borrowing is easier because you're not really threatening the lenders. You're trying to induce the lenders. You're saying, give us your money and we'll pay you interest on your loan and at some dates in the future, which we stipulate, we'll repay your principal amount. So you'll get something out of this, just like any lender gets something out of lending money. So the government resorts to a lot of borrowing to pay for wars. And when it does that, it's flooding the bond market with a lot of new bonds, driving their prices down and therefore driving the effective yield on those securities up. You see if there's a bond with a face value of $100 and it promises every year to pay $5 interest, okay, that's a 5% yield. But if there's so many bonds floating around out there seeking buyers, these bonds will only fetch $50, then $5 a year in interest is a 10% yield. So the effective yield gets higher and higher as the government tries to borrow more and more and the higher it gets, the greater discouragement it is to the government's borrowing. It makes the borrowing more expensive, less effective in serving the government's purposes. So there's that kind of reaction. How can it deal with that reaction? Well, in the world wars, the government used the new central bank, the Federal Reserve System. And the Fed came right into the rescue by using monetary policies of lending or buying securities in the open market, which created very easy credit conditions, especially for commercial banks. And they in turn were able to make easier loans to their borrowers. And so the whole economy was getting pumped up thanks to the Fed with effusions of credit spreading out throughout the system. But one place it spread to was increasing the demand for government securities, which is the whole idea, the whole idea. Not just some pleasant side effect for the government, that's why this was done to finance the government's war. So the Fed rides to the rescue and besides pumping up credit right and left, it imposes interest rate controls and in some cases capital market controls because there are still other effects when you start intervening in the financial markets on a large scale. So we've got more intervention triggered by intervention. So the government gets money by taxing or borrowing. It goes out and makes purchases. But if this is a big war, it's making purchases of certain items on a large scale. And when it does that, the effect of increasing demand is to increase the prices of these items. And as they get more and more expensive, it puts the government in a bigger and bigger bind. How is it going to pay for all the stuff it wants when each unit is getting more expensive? So it's got to deal with that. So it deals with that by killing the messenger. The messenger is the rising prices. It's telling the government these items you want are getting dearer. Their opportunity cost is rising. And you can't have them voluntarily from sellers unless you pay a higher price to get them. But when the government imposes price controls, as it did on a selective scale in World War I and on a comprehensive scale in World War II, it kills the messenger. It says things aren't really dearer. They're not more expensive because we've got a law that says you can't make them more expensive. Well, if you think through what really goes on in the economy, that doesn't really change anything real. That's like saying if I rigged the thermometer, I'd change how hot it is in here. It wouldn't. It doesn't change the fact that the government is trying to snatch higher and higher-valued goods away from people who aren't willing to sell them except at higher prices. But they can't sell at higher prices because the government has made that unlawful. And in many cases in the World Wars, the government simply didn't even fool with price controls. It simply passed laws giving itself the power to take resources or to set priorities or make allocations of materials in such a way that it would be able to get what it wanted for the war mobilization, either for itself or for its private contractors. Now, when you do that, there are still compliance problems. Every time the government puts into effect a new regulation, a new control, a new allocation, there are people who find it in their interest to violate that regulation, to cheat on those controls, and so forth. And the government then has to deal with that with enforcement efforts. Now, notice every time it deals with one of these negative feedback effects, it's sending out coercive agents. It's trying to squash people who are reacting negatively to what it's doing. The final form of transferring resources is to just take them to, for example, draft men into the armed forces by conscription and send them a letter. It says, greetings. That's what they used to say. That's greetings. Your old Uncle Sam is sending you greetings. Greetings. You are to report, and they'd tell you where to report on a certain date. They might even give you a week or two to get there. And if you didn't report as ordered, you became what was popularly known as a draft dodger, and that meant that you had the option, the other option the government gave you. If you didn't want to report, you could actually go to prison. Since that was not a good option for most people, the great majority of people just showed up as ordered rather than go to prison. But not all of them. In World War I, the evasion rate was actually pretty high. It was about 11 percent of all the people ordered to submit to the draft. They just melted away somewhere. And of course, some of them were eventually tracked down, but in 1918, it was harder to track down people than it is now. There was no national security agency. But in World War II, there was much less draft evasion and avoidance, any of that. And the people who chose to go to prison instead of submitting to the draft were mostly members of the Jehovah's Witnesses, whose religion told them, don't put man ahead of God. All Christians, all Muslims, believe that, right? We should put God above man. But when you have to walk the walk, it's different. And very few Christians chose to walk the walk of peace. When the government sent them the notice that said report for war.