War is a Racket
The longer you can look back, the farther you can look forward.*
* Churchill, 1944
WAR is a racket. It always has been. It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives.
- Smedley Butler (1935)
So today’s post is about a recent conversation between Grant Williams and Dan Oliver, along with some other quotes that came to mind.
I have always found Dan to be one of the best financial (and general) historians around. So few people seem to recognize parallels between today and the past (since for many history began in March 2009, or March 2020.)
As for Grant Williams, I first noticed him years ago because he stood out as an excellent interviewer - he listens, he doesn’t interrupt, and he himself is a brilliant thinker able to hold his own and then some with any of his guests. He’s also been very kind to me over the years, and if I ever do venture out and do a podcast, he’s first in line (if he still wants me.)
[As an aside, Grant’s 2018 interview with Anthony Deden of Edelweiss Holdings is probably the best financial philosophy discussion I've heard.]
My excerpts below are with Grant’s gracious permission. The entire interview is considerably longer. Italics and boldness are mine.
Unless noted otherwise the below quotes are from Dan Oliver.
…there is always one kind of project left that breaks down resistance—which particularly breaks down resistance among the very conservative groups who are most vocal against government spending. That is national defense. The one sure and easiest way to command national assent from all groups for more spending is to ask it for national defense.
- John T. Flynn, Country Squire in the White House (1940)
I love [the above] quotation because I came across a quote by Mick Mulvaney, this is president Trump’s budget director in 2018. So this is, what, 78 years later, quote, he said, “We want money to defend the nation against things like threats for North Koreans, publicly the Democrats said they wanted to help fund the defense department privately though, what they said was they would not give us a single additional dollar for defense unless we give them a dollar for social programs. They held the defense department hostage and we had to pay that in ransom.”
And so Flynn’s point, and again, he was a student of history, he saw how Italy and Germany developed from the 1860s and ‘80s from the grand economy into the fascist industrial powerhouses they became through this tension between the left that always wants to spend money on everything and the right that doesn’t. But they said, okay, yeah, fine we’ll do it as long as we get our military. And here it is, I mean, this is what still happens.
- Dan Oliver
THE GRANT WILLIAMS PODCAST: Episode 36 with Dan Oliver of Myrmikan Capital, PUBLISHED: JULY 15, 2022
Dan Oliver:
…I go back to the idea that Churchill and many others have expressed that the further back in history we look the further forward you can see. All the things we’re seeing today, the war, the collapse of the asset market, stimulus, and everything has happened before…
…the biggest stimulus…is going to war. That’s a great stimulus. When you think of all those unemployed young men and you stick them in a battleship in some barracks and they’re happy because they’re being patriotic but you solved a major social problem along the way and you get to build things and again borrow money against the future to spend and create a war industry which employs lots of people.
If there is a general European war we will be brought in if propaganda (think of how the radio will be used for this), greed, and the desire to increase the impaired health of the state can swing us in. Every move that is made now to deprive the people of their decision on all matters through their elected representatives and to delegate those powers to the executive brings us that much nearer war.
It removes the only possible check. No one man nor group of men incapable of fighting or exempt from fighting should in any way be given the power, no matter how gradually it is given them, to put this country or any country into war.
The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.
- Ernest Hemingway, Notes on the Next War: A Serious Topical Letter (1935)
Fake news has a long history in America. Its most pernicious incarnation is never the work of small-time scam artists. The worst “fake news” almost always involves broad-scale deceptions foisted on the public by official (and often unnamed) sources, in conjunction with oligopolistic media companies, usually in service of rallying the public behind a dubious policy objective like a war or authoritarian crackdown.
According to secret and long-hidden documents obtained for Body of Secrets, the Joint Chiefs of Staff drew up and approved plans for what may be the most corrupt plan ever created by the U.S. government. In the name of anticommunism, they proposed launching a secret and bloody war of terrorism against their own country in order to trick the American public into supporting an ill-conceived war they intended to launch against Cuba.
Codenamed Operation Northwoods, the plan, which had the written approval of the Chairman and every member of the Joint Chiefs of Staff, called for innocent people to be shot on American streets; for boats carrying refugees fleeing Cuba to be sunk on the high seas; for a wave of violent terrorism to be launched in Washington, D.C., Miami, and elsewhere. People would be framed for bombings they did not commit; planes would be hijacked. Using phony evidence, all of it would be blamed on Castro, thus giving Lemnitzer and his cabal the excuse, as well as the public and international backing, they needed to launch their war.
The idea may actually have originated with President Eisenhower in the last days of his administration.
- James Banford, Body of Secrets
Dan Oliver:
…And then Flynn wrote, this in 1938, so here’s what he said, “You cannot have a war industry without a war scare, and having built it and made it the basis of work for seven million men, you cannot demobilize it and you will have to keep on inventing reasons for it.” And you read this and it’s mind boggling because he’s talking about, again, a very different situation that was happening in the ‘30s but it applies exactly today.
I mean, the whole idea was we had allowed military spending because of the cold war against Russian and the Cold War would add and then we have a peace dividend, remember the peace dividend? All that talk and all the money we’re spending on armies to go to social program just died, and it was like, great. Well, we have spent more per GDP on military since the end of the cold war than we did before it. And we keep finding monsters abroad to destroy the US because it’s so great. I mean, the military contractors are so influential and it’s a stimulus that the right likes and the left allows it because then they get their stimulus and then you become as Flynn talked about this war machine.
This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence-economic, political, even spiritual-is felt in every city, every state house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.
In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted only an alert and knowledgeable citizenry can compel the proper meshing of huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.
…The prospect of domination of the nation's scholars by Federal employment, project allocations, and the power of money is ever present and is gravely to be regarded.
Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite. [e.g., Fed Economists - RH]
- Dwight Eisenhower, January 17, 1961
This is not saying that President Roosevelt will deliberately plunge the country into a Pacific war in his efforts to escape the economic crisis. There will be an ‘incident,’ a ‘provocation.’ Incidents and provocations are of almost daily occurrence. Any government can quickly magnify one of them into a ‘just cause for war.’ Confronted by the difficulties of a deepening domestic crisis and by the comparative ease of a foreign war, what will President Roosevelt do? Judging by the past history of American politicians, he will choose the latter, or, perhaps it would be more accurate to say, amid powerful conflicting emotions he will ‘stumble into’ the latter. The Jeffersonian party gave the nation the War of 1812, the Mexican War, and its participation in the World War. The Pacific war awaits.
- Charles Beard (1935), quoted in The Progressive Historians
Dan Oliver:
…So again, here’s a guy [Beard] who predicted World War II essentially several years before it happened on an economic basis. And I bring all this up, Grant, because to me, again, we’re living through an exact parallel today where the Biden in the left, they want a war, they need a war, all the price increases is Putin’s fault. You got to tighten your belt and sacrifice your economic well being for the war to be patriotic. Right? It’s all about that. And again, all these themes were picked up, of course, in 1984, right? By George Orwell, that’s why you always have to be at war because it creates sacrifice. And again, this is part of the credit cycle as the economy gets worse and worse, and this is all in 1984, right? The coffee gets more and more drab and the great five year plans are to fail more and more. You need more and more war to convince people that they’re sacrificing for something, and this wasn’t for socialism.
…. I was in Europe about two weeks ago, in Lichtenstein, meeting with various senior people from various places. A lot from Eastern Europe. I would think as a rational person like an American, I don’t have any prejudices or historical knowledge of that particularly. I haven’t experienced it. That if I were an Eastern European country and I remembered, socially, World War II and how horrendous it was, and I was within missile range of Russian that I would really, really want a diplomatic solution to this, more than anything else. And I would be completely wrong because the Eastern Europeans hate the Russian so much because of World War II that they want military, they want arms, I mean, I almost sold all my gold stocks and bought Raytheon after this trip. I was shocked at just the belligerence.
They don’t want Russia to lose, they want Russia to be humiliated and crushed and never rise again. I mean the French versus German. And it’s hard, as an American it’s hard for me to kind of feel that, I can understand it intellectually, I can’t really feel it emotionally.
And on the Russian side, the Russians have been invaded, I thought it was five or six times major invasion. Apparently is more like 15 in the last 200 years from the west, and they fear the west, their country is flat as a pancake, which is great for growing wheat, not so good for military defense. And they fear that. And again, I won’t bore you with all the quotations in my papers from Kissinger and George Kennan, and all those people said don’t increase NATO because all you’re going to do is alienate Russia and create a conflict. And yet the neocons poured arms into one side….
And again, you would think that given the animosities between Eastern Europe and Russia, that the role of the US should have been to go and be like, “Look, guys, let’s come up with a deal here. We know we don’t like each other, but let’s do a deal. We’ll enforce it and we’ll have stability and we all get rich trading with each other.” That’s not what happened. The neocons came in and said, “Look, there can only be one power in the world and that’s us. And the extent that Iran or Russia or China gets bigger we have to crush them.” And so therefore instead of balance of power outlook, which served the British so well. I mean, Britain’s a pretty tiny place and they did a pretty good job with the world for couple of years, they say we are going to arm one side, we’ll be on one side to defeat the other side. Right? And this was a whole miscalculation, I think…
…in the US, the strategy of being like it’s our way or the highway worked really well in the ‘50s when the US really was the only economic and military power of any note in the world. It doesn’t work very well today. And that’s still the model that we have. We dictate to other countries what they have to do and if they don’t do it, we put sanctions on them and we penalize in various ways. And I think that the Europeans are going to discover, or are already discovering this winter that they may not win this. They still think that because Russia’s GDP is the size of Italy’s and the GDPs of Western Europe and the US is so enormous in comparison that there’s no contest.
The north beat the south in civil war in this country because it was more industrialized. It was richer and all the rest of it. But they don’t realize is that a lot of the GDP of the US in particularly based on Apple and Facebook and Twitter and mortgage backed securities and all that fluff is great, but it doesn’t work without oil and metals and petrochemicals and all the things that Russia has. So yeah, their measured economic activity is very tiny but their economy came to be as real stuff. Now I’m not a guy who thinks that’s the locus of wealth, right? Because if natural resources was how you got wealthy then Nigeria, Saudi Arabia- these places would be the richest place on earth and Switzerland would be a basket case. It’s what you do with a natural resource. And that is of course true.
But having built an economy, an economic system that requires certain inputs, if you suddenly take those inputs away, which is what Biden has done by canceling the pipelines and cancelling drilling, and the Europeans by the crazy idea of severing nuclear plants. You take away the resource that drives that economy, it simply doesn’t work. It doesn’t survive, and that’s where they are and people haven’t, I think, woken up in Western Europe yet that the winter is going to be a very, very unhappy, unpleasant place, and how long can they continue this against the place that has the natural resources. I don’t think very long.
…I think there was a quote yesterday from a Biden official who said, well, the high price of the gas pump is the price we pay for the new liberal order. Yeah, if you can afford a Tesla, that’s great. Most people can’t. And even then, as you know, I’m sure your listeners know too, the carbon profile of Tesla is enormous. By the time you mine all those weird materials for the battery and then the electricity comes from somewhere.
But I think about this too, sometimes, when I spent a summer in Cyprus in 1990, my aunt and uncle are archeologists and they lived there. And their next door neighbor, like many people lived in a tin corrugated hut with chickens running around in the front yard and a goat, kind of, “over there”. And that’s the way they lived for thousands of years. Well, the credit bubble of the last 30 years in the EU and Russian money, everything else, now that whole area is 50 story hotels and their cars, of course. Nobody is living with their chickens and their goats anymore, but the economic growth wasn’t real, they haven’t become more productive. It’s a service economy for people who make money in speculation, who may not be there. And imagine having to move back in with your goats and your chickens. I mean, that is a very hard transition to go back to. And yet it was only 30 years ago that they were living like that. And so that’s, again, very socially disruptive when the wealth runs out and all of a sudden you have to go back to real values.
And it’s why the great depression scarred so many people, because the ‘20s was a time of opulence and you read the F. Scott Fitzgerald Novels, there there was money everywhere and progress, all the rest of it. And then people couldn’t afford to eat a chicken. And that’s why Roosevelt promised chicken in every pot and he didn’t deliver it. He just delivered spam instead. But that was very disruptive. And I think similar things will happen today. My grandparents who were very well off, they were still... my grandmother would recycle her paper towels. I mean, it was that generation. You didn’t waste anything. And that’s what depressions do to people is they change their mindset. Nobody in that generation ever invested in stocks because it was...
Grant Williams: And nobody borrowed money, right? Nobody in that generation borrowed money.
That’s right. And no one would lend you money. So it was a fact based economy, which again it’s how you grow. Again, just no one reads history, but you look at that Roman Republic and they lived pretty low to the ground. And even Augustus Caesar only wore clothes spun for him by his sisters and his wife. He was a down to earth guy. He had to be the richest monarch whoever lived probably. But that was the old Roman virtues and you fast forward 100 years and they’re all having orgies all day long and spending a lot of money building marble palaces. And they used their wealth that had been accumulated in a previous period. And I would argue the same thing happened in Egypt. Egypt became very, very wealthy because of good organization around the Nile Delta. And then they wasted all their money building those pyramids. And it’s a great building program, but what did they have at the end of the day when they finished the pyramids and the answer was nothing. And as for the stimulus, by its nature creates assets that don’t produce anything or not very much compared to the inputs of it and that makes a society poor. And eventually there is a moment when society has to revert back to living with what it produces. You cannot consume more than you produce for very long and that’s where the world is headed. And Powell’s accelerating this of course by raising interest rates…
We’re in the bubble collapse phase simultaneously with the monetary innovation phase. And that’s the little vacation now, but it’ll come back with a vengeance. There’s going to be business stimulus. We’ve been living out the last two years, right? And now we have war and authoritarianism. It’s all kind of the singularity right now. All these different themes is they desperately try to keep the whole system alive. And then, again, this war against resources, both literally against Russia and figuratively against the atmosphere and mother earth is going to lead to disaster. I think it’ll be a disaster pretty quickly.
Nowadays the only unforgivable sin in both the Republican and Democratic parties is to question endless, offensive, undeclared wars. - RH, August 2019
Dan Oliver:
…just to pull it together, we’re in a place where the economy needs to be stimulated constantly to keep going, but that creates asset bubbles. So right now the Fed as it has done in the past is trying to reign in the asset bubble, but they’re going to wind up killing the economy as well. And so at some point the Fed is going to pivot, because they’re going to have to pivot. They’re going to print their money again. Now they may try to do it selectively. I know there’s a bill in Congress that would require the Fed to lend on equity principles, meaning racial preferences. So maybe they put the money in different ways. The way Obama sent checks to some people or some checks to everybody. They’re both bad, but I think one is worse. And so you’re going to get more stimulus because they have to unless they want to collapse the entire the economy. That will raise prices for sure. I think we’ll see more war.
The war will accelerate because again, they need the war, both for stimulus purposes and because it’s patriotic and because it gives people an excuse to say why people are suffering whilst Putin’s high prices is Putin’s problem. So you got to have more war to make the whole thing work. And then when prices go up, they’re going to have to have price controls or rationing. And again, we’re already seeing hints of that. It’s going to come. It’ll look like sending checks to certain people so they can buy gas at a higher price. So you can keep demand constant for people to vote for you and take away if people don’t vote for you. And that’s part of this whole story. And that leads more to social disintegration, which is a problem...
And then the question is how much resilience does the economy and society have to put up with the economic dislocations? I mean, so far it’s been, “well, you can’t get the toy you want” or “the chair didn’t show up” or “okay, you can’t buy this brand” of something. You buy a different brand. Okay. But looking forward to what it’s going to be, you can’t buy basic things you want or they’re just so expensive you can’t afford it anymore. Meat consumption’s gone way down already, apparently, because people simply can’t afford it. At what point does the economic coordination break down so much that you get a political revulsion? And I don’t mean just with the polls, I mean deeper than that. And that’s coming too. Again, Anna Smith said there’s a lot of ruin in a nation and it takes a long time.
And as Gibbon said about the Roman empire in his famous book about it, which is brilliant. The surprise wasn’t the collapse. The surprise was it took so long to collapse. It was so badly run. And so it’s hard to put a time on all these events, but I will say that they’re all either happening now or about to happen. You can see it coming. And I don’t think that in a tremendously complex economy that we have today that a big declining coordination would last very long. I think a big collapse comes and in pretty short order right after you start putting wheels out of this incredibly complex machine that we’ve built over the last 40 or 50 years.
…you read the history of inflation big and small. The people who get really, really crushed by this are middle class office workers in the cities. They have no physical capital and you live in an apartment and you rely on everything that you consume for a big, long production chain. And you go work at some intellectual thing where you’re producing paper of something or another, the value of which goes down. So you lose your financial capital, you have no physical capital to set back on and your earnings power disappears. And so that’s the worst place to be. And it’s something that many realists should probably be cognizant of. I moved to the country two years ago as you may know from the city. I see people who are lower down the economic of scale, a lot more resilient than I am. I mean, when things go to crap, the carpenters, they would be just fine, I think. The hedge fund managers may be a little more...have a little more problems…
Our isolation from the bulk of the country left us with a narrow view of the world. We valued what we could measure, and that meant material wealth. Things that couldn’t be measured—community, dignity, faith, happiness—were largely ignored...
Please do a podcast interview with Grant Williams!
Best and most terrifying article I've read in some time, cheers.