Emil Lederer, War Economics (1939)

Emil Lederer’s essay, presented as chapter X of War in Our Time, examines how modern warfare transforms economic organization before and during hostilities. Its two sections move from peacetime preparation, contrasting totalitarian and capitalist states, to wartime mobilization, resource shortages, and the purposes of comprehensive state control. The central argument is that modern war requires planned allocation regardless of a country’s political system, but that this convergence does not make war economy socialist. Its defining problem is scarcity, whereas peacetime economic policy must often address unused capacity and insufficient demand.

Lederer begins by dissolving the apparent boundary between civilian development and military preparation:

WAR economics always reaches into peacetime measures, though the public is not always aware of it.

Roads, railways, shipping subsidies, agricultural protection, and industrial development can simultaneously serve commercial and strategic purposes. Modern warfare, however, demands more than these partly concealed preparations: the economic mobilization improvised during the World War must increasingly be organized beforehand. The extent of preparation depends on political institutions and national wealth. Lederer argues that totalitarian countries have proceeded furthest partly because their limited ability to sustain prolonged conflict makes advance mobilization particularly urgent, and partly because their coercive powers permit deeper intervention.

His account emphasizes the diversion of real resources rather than the mere collection of money. Holding wages and salaries below their ordinary level reduces consumption; investment licensing, rationing, compulsory substitution, and controls over imports and foreign exchange redirect productive capacity toward military needs. Reduced civilian demand also weakens the incentive for private investment, making capital available for state borrowing. The apparent financial efficiency of this system rests on suppressed living standards. Totalitarian war preparation thus becomes an integrated economic order:

But in the totalitarian countries the state intervention which is necessary everywhere during the conduct of a war has been incorporated into the economy of peace.

This does not mean that capitalist democracies must adopt the same peacetime regime. Lederer identifies substantial possibilities short of complete integration: reserves of food and raw materials, industrial equipment prepared for conversion to military production, subsidies to strategic industries, and centralized coordination of procurement. British discussion of a ministry of supply illustrates both the possibilities of coordination and the institutional rivalries obstructing it. His distinction is between the scope of preparation under different regimes, not between countries capable and incapable of preparing.

The second section turns from preparedness to the material constraints of war. Comparative figures for raw materials, food, and prospective iron requirements demonstrate uneven dependence on imports and sharply different capacities to meet military demand. These comparisons remain conditional: warfare’s form cannot be predicted, and alliances and secure sea transport can alter the effective resource base. American and British supplies, for instance, could become complementary under favorable political and maritime conditions. Meanwhile, military consumption rises just as labor shortages and exhaustion threaten agricultural and industrial output.

Substitute materials offer only a qualified escape from dependence. Industries producing synthetic rubber, fuel from coal, or alternative textile fibers must be established before war begins, and their demands on labor and capital can weaken other sectors. No country can satisfy the military’s ideal requirements; what matters is relative capacity, combining resources with preparation, organization, and exertion. Economic coordination cannot abolish material limits.

Lederer therefore treats wartime planning as unavoidable even where private ownership survives. The state must command supplies, direct investment, allocate labor and materials, and ensure that military orders take priority. Price controls prevent shortages from escalating procurement costs and profits, but they require complementary restrictions:

If the consumers are inclined to consume more than can be supplied at the fixed price, only rationing can create an equilibrium between supply and demand on the market.

Government orders increase aggregate incomes while civilian supplies contract. Stabilizing prices consequently requires rationing and limits on purchasing power, alongside the allocation of workers and recruitment of previously unoccupied labor. The projected American War Industries Administration exemplifies how extensive such powers could become within a capitalist polity. Lederer presents these provisions as plans for mobilization, whose implementation would depend on military demands and economic efficiency.

The essay’s decisive conceptual move separates comprehensive administration from socialism. Wartime regulation maximizes military production and minimizes civilian consumption; its limited egalitarianism follows from the need to distribute scarcity:

It is this principle of equality rather than a socialization of the means of production that characterizes the system of war economy.

Lederer does not expect emergency rationing to establish lasting equality of real incomes. Once scarcity recedes, the purpose of its administrative machinery disappears. Peacetime measures to expand consumption through public spending, subsidies, or taxation would serve a different objective and could undermine wartime mobilization.

When a nation is at war its demand, even if it is a rich country, exceeds its supply.

In peace, especially during depression, the danger is instead deficient demand, deflation, and idle resources. This contrast gives the essay its broader relevance: similar instruments of state intervention cannot be understood apart from the economic problem they address. Lederer concludes that the diffusion of modern technology increasingly makes military effectiveness depend on population and available raw materials. Organization determines how effectively those resources are mobilized, but productive capacity remains the ultimate constraint.