Mises Wire

The US Navy: A History of Waste and Corruption

The growth of US military power has rarely, if ever, been the result of legitimate concerns about defensive strategy, let alone about the national welfare. Instead, it’s more often a consequence of a waste, corruption, and imperial ambition that together have produced the modern military-industrial complex. This history receives some well-deserved attention in Paul Pedisich’s book Congress Buys a Navy: Politics, Economics, and the Rise of American Naval Power, 1881-1921, which offers an in-depth look at the history of Congressional involvement with the US Navy. I’ve written a more general review of the book for those interested (here), but in this post I want to focus on some of the economic implications of US naval history over these four decades.

The main emphasis of the book is on a series of Congressional battles over appropriations for the Navy, and how these disputes influenced its growth and change. This process, Pedisich argues, was not driven by strategic questions of national security, but by a wide range of political interests. Pedisich provides a wealth of information about Congressional voting blocs and committees, as well and the personal and professional ties between politicians, the Navy, and the war industries. These consisted most often of conventional rent-seeking: members of Congress wanted appropriations channelled to their own constituencies, and the Navy’s budget provided an excellent opportunity for those states that stood to gain from the Congressional spoils system (pp. 28-29, and throughout).

Shockingly, the Navy consistently recommended its own expansion, and eventually focused on becoming the dominant seagoing force in the world. For a long time, however, this goal remained out of reach. Typically, its suggested appropriations far outstripped what Congress was willing to allow, and competing factions in the Legislative Branch fought viciously for control over funding decisions. Coastal states lobbied for shipyards and other naval installations, while landlocked states tended to favor other public spending programs that would benefit them more directly.

However, political ambitions for the Navy were not limited to narrow pork politics: they also had global implications. Throughout the decades leading up to the First World War, the US began to cast its eye on numerous foreign territories with a view to building an empire. Naval experts theorized that this required a strong fleet (p. 77), but the concept of a more powerful Navy was a tough sell for the public. It was especially difficult in peacetime, when there were no obvious threats to US commercial or political interests to justify building a Navy with an international reach. To get the Navy it wanted, Congress opted for deception: for years it concealed its true intentions by funding the construction of long-range armored battleships while referring to them in official reports as “coastline” vessels, implying defensive uses even though they were offensive vessels (pp. 80, 131).

Eventually this trick became unnecessary, and the Navy grew more rapidly during the Progressive Era. This was especially the case during periods of crisis and war, when government power increased significantly across many margins through what Robert Higgs refers to as the “ratchet effect.” The Navy’s growth was justified to the public on grounds of national security and the need to protect international commerce. Yet the real goal of expansion was to keep up with the (British and French) Joneses and thereby establish the US as a global, imperial naval power (pp. 75-76, 79).

Pedisich shows in some detail that Congressional politics was responsible for the organization, composition, and growth of the Navy more than any strategic considerations. But the message we should draw is not that an inept Congress disrupted rational strategic planning by the Navy. The underlying problem is that both Congress and the Navy lacked the ability to allocate resources to their most socially valuable ends because political and military organizations suffer from the same economic calculation problems that socialist governments do (see here, here, and here).

The title of the book notwithstanding, Pedisich doesn’t devote much space to discussing economics. But many of the examples he studies do hint at the calculation problems that faced Congress and the Navy. Basically, the same story played out year after year from 1881 to 1921. Each year, the Navy would request funding specific numbers of specific types of ships, and Congress would authorize a different, smaller number of ships of other classes. It’s clear from Pedisich’s narrative that both sides adjusted their recommendations to suit their momentary political needs.

This can be seen most clearly in the frequent debates over funding for steel plate. Rather than pay a market price for steel, Congress insisted on setting the price it was willing to pay. At the same time, monopolist steel contractors tried to hold prices at artificially high levels. Without genuine market prices to rely on, neither side was able to determine a price for steel that actually reflected its value in alternative uses. The result was years of bickering about what the price of steel should be and attempts to determine the “actual cost” of its production (pp. 100-101, 103, 126-127). But of course, such costs are revealed only through economic calculation, not political negotiations.

In an effort to make its operations more efficient, the Navy even introduced “scientific management” to its shipyards (pp. 190, 193). Basically, this involved studies of the technological efficiency of different workers and production methods in order to find which ones were most useful. This method too ended in failure. The reason is that management and technical efficiency are not substitutes for market entrepreneurship. They are merely, in Mises’s words, “playing market.”

Whenever economists explain military decision-making with reference to economic calculation, someone is sure to object that this criticism is too harsh. Instead, good military strategists, unhampered by an inefficient legislature, can make wise decisions about the resources they need to complete their objectives. The trouble with this objection is that it misses the point of the calculation problem, which is not about logistics or battlefield tactics, but about production.

Underlying the practical decisions of the military are an enormous array of economic questions: where should naval shipyards be located? How many ships should be built? What should their capabilities be? Should they be made of steel alloy or some other material? Which combinations of raw materials should be used? How much is too much to spend on a new warship? There’s no way to answer these questions without understanding the true cost of each decision. And the only way to do that is to make the different choices commensurable by establishing a money price for them.

The conclusion we can draw from this is simple, but it can’t be emphasized enough: when entrepreneurs risk their own necks in the market, they help to create a flourishing commercial society. But when politicians and bureaucrats play market without bearing the consequences, they create a bloated and destructive network of economic privilege that begins with bribes and ends with bombs.

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