Do We Need Government to Design a “War Economy”?

After the Soviet Union fell, just about everybody -- except some humanities professors at Harvard -- agreed that full-blown central planning was a bad way to produce food, cars, and television sets. However, people still seem to have a soft spot for planning when it comes to a "war economy."

Even many who claim to support laissez-faire will make exceptions for such an "emergency," going so far as to embrace price controls, rationing, and even conscription of labor. President George W. Bush, for example, claimed in 2008 that he had "abandoned free market principles to save the free market system" -- and many conservatives supported him.

However, if the country's security is at stake, this is precisely when we need the superior efficiency of markets the most. If we can agree that capitalism produces more food and better computers than socialism, we should trust it to produce more bombs and better tanks, too.

Who Plans for Victory?

In his classic treatise Human Action, Ludwig von Mises -- who had served in an artillery unit in World War I and was no stranger to the Nazis' military might -- explained the flaws in the popular notion that government economic planning is needed in a major war:

What America needed in order to win [World War II] was a radical conversion of all its production activities. All not absolutely indispensable civilian consumption was to be eliminated. The plants and farms were henceforth to turn out only a minimum of goods for nonmilitary use. For the rest, they were to devote themselves completely to the task of supplying the armed forces. (Human Action, Scholar's Edition, pp. 821–22)

But did the government need direct control of industry in order to manage the war economy? Mises says no:

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