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Military expenditure and the profit ratein GreeceChristos Kollias a & Thanasis Maniatis ba Department of Business Administration , TEI of Larissab Centre of Planning and Economic Research, Athens andDepartment of Economics , University of AthensPublished online: 17 Sep 2010.

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Defence and Peace Economics, 2003, Vol. 14(2), pp. 117–127

MILITARY EXPENDITURE ANDTHE PROFIT RATE IN GREECE

CHRISTOS KOLLIASa,* and THANASIS MANIATISb

aDepartment of Business Administration, TEI of Larissa; bCentre of Planning andEconomic Research, Athens and Department of Economics, University of Athens

(Received In final form 27 July 2002)

This paper examines the effect of military expenditure on the profitability of the Greek economy for the 1962–1994period. In the theoretical debate on the role of military expenditures they have alternatively been viewed either as a‘‘burden on growth’’ (i.e. an unproductive drain of resources) or as a stimulating factor for demand, profitability andeconomic performance. This distinction is reflected in the Marxist tradition as well where in different theories ofcrisis, military expenditures have been treated either as an unproductive burden or as a savior of the capitalistsystem, mainly through their effect on the rate of profit. Our empirical tests for the relationship between militaryexpenditure, the general Marxian rate of profit and the net rate of profit indicate that those expenditures have hada contradictory effect on profitability, stimulating effective demand in the short run, but affecting negatively bothrates of profit over the long run.

Keywords: Military expenditure, Greece, Profit rate

1 INTRODUCTION

Greece, a middle-income country has allocated a substantial part of its national income to

defence (Kollias, 1995). The Greek defence burden (i.e. military expenditure as a share of

GDP) has invariably been higher than that of all other European Union and NATO members.

In fact, in comparative terms, Greece is the most militarized country in NATO and the

European Union as the human and material resources yearly allocated to defence uses are

currently double the NATO and EU averages. For example, in 1999 defence spending

stood at 4.8% of GDP compared to 2.2% and 1.8% in the case of NATO and the EU,

respectively.

Given the high Greek defence burden, a number of studies have examined the economic

impact of such expenditure and its effects on growth performance, a comprehensive and

critical survey of which can be found in Brauer (2002). Although not conclusive, on balance,

the findings point more to the view that defence spending has a growth retarding effect. The

empirical results reported suggest that growth has been slowed down, mainly through the

crowding-out of investment. Furthermore, defence spending has had a high opportunity

cost since the resources used in defence could potentially find more productive and socially

* Corresponding author.

ISSN 1024-2694 print; ISSN 1476-8267 online # 2003 Taylor & Francis LtdDOI: 10.1080=1024269022000033952

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beneficial uses in other sectors of the economy, such as education, health and infrastructure

works.

The aim of this paper is to examine empirically the role of military expenditure from a

different perspective, that of Marxist and radical political economy. In this respect, we inves-

tigate empirically the relationship between military expenditure and two measures of the rate

of profit, the main determinant of the rate of capital accumulation and economic growth in

the radical-Marxist theoretical framework, in the Greek economy for the 1962–1994 period.

The paper is structured as follows. The next section is a brief literature review while in

section three we present and discuss the model specification and the empirical results.

Section four concludes the paper.

2. MILITARY EXPENDITURE AND THE ECONOMY

Since Benoit’s seminal contribution in the early-1970s, the economic effects of military

expenditure have attracted considerable attention and have generated a growing literature.

Numerous empirical studies published since, applying a variety of methodologies and models

and using both time series and cross country data have reported results that are at best incon-

clusive, since among other things they depend upon the time period and the sample used.

Generally, in the theoretical debate regarding the strictly economic role of military expen-

ditures, they have alternatively been viewed either as an economic burden, usually in the form

of a drain of (limited) resources diverted to unproductive activities, or as a stimulating factor

for profitability, economic performance and growth. Thus, on the one hand, in a more or less

conventional theoretical framework an increase in such expenditures (assuming a situation

close to full employment), on the basis of resource allocation will decrease investment and=or

civilian consumption and thus reduce growth and welfare. On the other hand, in a

Keynesian and=or underconsumptionist perspective, if there is inadequate effective demand,

increased military expenditure through the income multiplier will cause national income and

product to rise. In the case of developed economies in particular, additional demand and

output from increases in such spending will increase capacity utilization which in turn

will have a positive impact on the actual rate of profit and could even lead to an acceleration

in investment spending. This type of impact assumes the permanent presence of excess

capacity in the economy and specifically, excess capacity that can respond to increases in

such expenditures (i.e. a defence industrial basis). Thus, one would intuitively expect aggre-

gate demand stimulative effects to be more pronounced in developed countries where the

domestic armaments sector can produce defence inputs and less so in developing countries

like Greece where a defence industrial sector is almost non-existent and armaments are

imported from advanced economies.

In the Marxist and radical political economy literature on the effects of military expendi-

ture, the aforementioned distinction has been prevalent in the exchange between Dunne

(1990), Dunne and Smith (1994) and Pivetti (1992, 1994). Dunne and Smith (1994) sub-

scribe to the notion that the normal course of capital accumulation is characterized by

high and stable rates of capacity utilization so that the size of the ‘‘reserve army’’ of labor

and the unemployment rate are fixed, and with public and private consumption independently

determined and stable, military spending increases reduce investment and growth rates with

only short-run effects on unemployment. Pivetti (1992) proposes the standard effective

demand argument that applies mostly to the US economy, namely that profitable investment

outlets decrease with economic development and income growth, wages cannot be increased

due to antagonistic class relations of distribution and high military expenditure is the only

appropriate solution to the prospect of chronic stagnation that can keep effective demand

high and wages low. According to Pivetti (1992), this view is empirically supported by the

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postwar history of the US economy where periods of high military spending (from 1947 until

the end of the 1960s and then after the early 1980s with the Reagan military build-up) have

been accompanied with low unemployment and high growth, and vice versa.

On the other side of the debate, Smith (1977, 1980) has found that military expenditure

represents a burden on growth, by absorbing resources that could have been used in a more

productive way, especially investment which shows an almost one for one trade-off with

military expenditure. Thus, he argues that the persistence of high levels of military expenditure

in advanced capitalist countries indicate that militarism may be a necessary for strategic

reasons but contradictory (costly) requirement of the capitalist mode of production.

In the rest of the radical-Marxist literature, the role of military spending has been discussed

within the context of the discussion about the different theories of economic crisis and their

implications for the long-run development of capitalism. The arguments have mostly evolved

around the relationship between military expenditure and the profit rate. This is so since the

rate of profit that private capital is able to earn in its operations constitutes the strategic

variable that affects investment and therefore the pace of the accumulation of capital and

the rate of growth in a capitalist economy.

In Marx’s theory of capital accumulation and crisis the rate of profit defined as the ratio of

the rate of surplus value and the organic composition of capital has a tendency to fall over the

long run (‘‘a long wave’’, or maybe over the entire history of the mode of production). This

tendency that at some point creates a general crisis (when the mass of profits stagnates) is a

result of the processes of technical change and class struggles around the distribution of

income, that cause the organic composition of capital to rise more than the rate of surplus

value. Thus, in Marx’s theory of crisis it is not immediately clear if an expanded military

sector or military purchases can act as a countervailing factor to the tendency of the rate

of profit to fall or as a development that exacerbates this fall.

In another Marxist theory of crisis, that is often called the underconsumptionist or effective

demand theory (see also above), developed to explain the course of advanced capitalist

economies in the twentieth century, military expenditure is clearly regarded as a prop for

economic activity, accumulation and growth. According to this approach, the fundamental

problem encountered by advanced capitalist economies is an inherent demand gap that

does not allow full capacity output to be produced and realized, thus leading to underutiliza-

tion of capacity, lower realized rates of profit, lower investment, and economic stagnation.

This gap between effective demand and productive capacity is due to the huge increases

in productivity that big firms can achieve, the need to keep wages down and the unwilling-

ness of monopolies to invest so that they don’t undermine their privileged position (Baran

and Sweezy, 1966; Kalecki, 1971; O’Connor, 1973). Here, the problem is not too few profits

relative to the total stock of capital but the abundance of goods and services that could be

created if there was enough demand for them. In this theoretical scheme, military spending

by the state is the most appropriate form of absorbing this ‘‘surplus’’ that could be generated

by the full utilization of the system’s productive capacity, overcoming stagnation and the fall

in the actual rate of profit that may result from insufficient demand. The persistent demand

gap is best covered=filled by military spending because it does not increase productive

capacity, it has a certain ideological impact in favor of capital and=or can have positive effects

on technological innovation thus stimulating profitability and avoiding the economic crisis.

In the classical Marxist tradition there is no such unanimity regarding the effect of military

spending on profitability and growth. Rosa Luxemburg (1971) has often been categorized as

an undercosumptionist since she stresses very early the problem of effective demand in her

discussion of the process of accumulation of capital and she sees ‘‘external markets’’ as a

temporary solution to it. However, when she discusses the role of military expenditure in

capitalism she considers it a positive factor for the rate of profit not because it solves any

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realization problems, but because it creates favourable social and economic conditions for a

rise in the rate of surplus value. It is redistribution of value between classes in favour of

capital (directly and through state taxation, namely a decrease in both pre-tax wages and

wage taxes) rather than overcoming the difficulties in the realization of value that raises the

rate of profit (see Rowthorn, 1980). From the same tradition, Mandel (1978) argues that a

‘‘permanent arms economy’’ cannot solve the long run fundamental contradictions of the

capitalist economy because its effect on the rate of profit is contradictory at best. Since

the military sector (included in Dept III in Marx’s reproduction schemes, that produces

‘‘unreproductive’’ commodities, similar to luxury goods) happens to be more capital-

intensive than the average economy, increased military production actually lowers the rate

of profit, unless the expansion of the arms sector increases sufficiently the other component

of the rate of profit, the rate of surplus value in the way described in Luxemburg’s argument

above.

Gottheil (1986) has criticized contemporary Marxists (in general, but his argument applies

only to those that adhere to some version of underconsumptionism) that focus on military

spending by the state as a stabilizing factor in advanced capitalist economies arguing that

their thesis is in theoretical conflict with Marx’s analytic framework. The point he makes

essentially is the incompatibility of Marx’s law of the falling rate of profit (due to a rising

organic composition of capital) that may result in a general economic crisis, threatening

the survival of the capitalist system, with the stimulating effects on effective demand and

the stabilizing role that military spending plays in the monopoly capital=underconsumpt the-

ory of Baran and Sweezy, Kalecki, O’Connor and some early writings of Weisskopf.

In the responses to Gottheil (1986), especially in those by Cypher (1987b) and Miller

(1987), it is correctly pointed out that the discrepancies he observes are due to the different

theories of crisis that exist within the Marxist tradition and the different aspects of the accu-

mulation process emphasized there as potential sources of trouble. Furthermore, those

authors offer some valuable insights in order to systematically assess the role that military

spending could play in the process of capital accumulation within a Marxist theoretical

framework that takes into account the current expanded role of the state and state spending.

Those include the positive effects that military sector R&D might have on technical change

and therefore on increases in the productivity of labor, and the cheapening of the elements of

constant capital, thus slowing down the increase in the organic composition of capital and the

fall in the rate of profit (Cypher, 1987a, 1987b). In a different vein, Miller (1987) emphasizes

the ability of military spending to promote accumulation by effectively augmenting surplus

value and profits through wage (variable capital) taxation. However, since those state

revenues are spent as ‘‘unreproductive’’ expenditures, namely, expenditures that do not

reproduce labor power (health, education, social security, etc) or capital (economic infrastruc-

ture, subsidies to firms, etc) they could harm the long-run productivity, profitability and

growth potential of the economy. This argument may be especially relevant for the Greek

economy that certainly diverts a significant portion of its resources for military purposes

(unreproductive uses according to Miller) whereas it is very unlikely that it benefits from

any technological spin-offs created in its infantile domestic defence industrial sector, even

if those really spring from military-related R&D in the sense implied by Cypher.

Finally, in the context of the Social Structure of Accumulation (SSA) approach, militarism

and high military expenditures were constituent parts of what has been called Pax Americana,

one of the pillars of the postwar Social Structure of Accumulation in the US economy.

According to this theoretical approach, a stable SSA, once established affects positively

the profit rate, capital accumulation and growth and initiates a period of expansion

like the one experienced in the first postwar period by the US economy (Bowles et al.

1986, 1990).

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A number of empirical studies have examined the relationship between military expendi-

ture and the profit rate but they are mostly confined to the cases of certain major capitalist

countries. Riddell (1988) reports findings in which an index of military power is positively

related to the profit rate in the US. Military spending and military power help to create and=or

to maintain a stable international economic order and a stable Social Structure of

Accumulation (SSA), which leads to high profits. It should be noted that Riddell’s (1988)

is a different argument than the one usually tested that relates military expenditures and

profits: here it is military power of a super-power like the US and the rate of profit, in the

spirit of SSA approach. In another empirical study, Georgiou (1992) reports findings that

suggest that military expenditure as a share of GDP has a positive and significant impact

on the profit rate only in the case of the US economy (lending support to Luxemburg’s

argument that military expenditure may increase the rate of profit) whereas it is statistically

insignificant in explaining the behavior of the profit rate in the cases of the UK and Germany.

Thus, both the theoretical discussion and the empirical attempts to clearly assess the

impact of military expenditure on capitalist profitability, growth and crisis seem to be incon-

clusive. In the next section we extend this approach to the case of Greece and we examine the

relationship between the defence burden and profitability for a significant part of the postwar

period. Largely dictated by data availability, the time period covered in the empirical tests is

1962–1994.

3. MODEL SPECIFICATION AND EMPIRICAL RESULTS

We use below two measures of profitability, the general Marxian rate of profit (R) and the net

rate of profit (r) that have been derived from Maniatis et al. (1999). These measures have

been calculated using the Greek National Accounts and Input-Output data for the period

1962–1994 using the methodology outlined in Shaikh and Tonak (1994) that helps to trans-

form orthodox National Accounts categories into the Marxian ones. The general Marxian rate

of profit (R) expresses the maximum possible (if there were no circulation costs, financial

costs, taxes, wages for unproductive labor, etc) or fundamental profitability of the system,

and it is the upper limit of the actual (net) rate of profit. It is defined as the total surplus

value (S) generated in the economy by productive labor, divided by the total stock of fixed

capital (K), assuming that the stock of variable capital is very small:

R ¼S

K

Surplus value is the difference between net value added (Y) and variable capital (V) the latter

being defined as the wages and salaries of productive laborers only. The actual (net) rate of

profit is defined as the actual profits (P) divided by the total stock of fixed capital:

r ¼S � U

K¼

PK

Profits (P) are defined as surplus value minus the wage costs for unproductive labour

employed (UW) and other material costs (UM) incurred by capital for the circulation and

realization of value as well as for the supervision and control of productive labour

(U¼UWþUM). It is the more relevant measure of profitability since it is the rate of profit

that is perceived by capital and exerts a direct and dominant influence on the decisions to

invest and therefore on output growth. In fact, (fundamental and actual) profitability, output

MILITARY EXPENDITURE AND THE PROFIT RATE IN GREECE 121

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growth and unemployment rate in Greece for the period examined have developed in the way

shown below in Table I.

It is obvious that the level and trend of both measures of profitability are closely related to

the overall performance of the Greek economy. When the general Marxian and the net rate of

profit were high the economy grew at a satisfactory pace and unemployment was kept low.

The onset of the economic crisis of the 1970s affected the Greek economy as well but profit-

ability remained high and growth rates were above the average for OECD countries.

However, at some point the continuous fall in both rates of profit and especially in the net

rate of profit triggered a crisis period resulting in a dramatic slowdown in growth and a

considerable increase in the rate of unemployment that still hovers around 10% of the

labor force, a deterioration of public finances with heavy public deficits until the late

1990s and serious problems in the trade balance.

What was the role of military spending in the postwar profitability and economic

performance of the Greek economy? We have seen above that military expenditure can

have complex and possibly contradictory effects on profitability. In order to assess the

possible impact of military expenditures on the net rate of profit the following equation

was estimated:

pt ¼ a0 þ a1ut þ a2pt þ a3mgdpt þ tr þ et ð1Þ

where

Pt : net profit rate

ut : unemployment rate

pt : profit-wage ratio

mgdpt : military spending as a percentage of GDP

tr : time trend

In (1) the ratio of military expenditure to GDP (mgdp) can enter the results with both a

positive and a negative sign. In the first case this could be interpreted as an indication that

military expenditure has acted in one or more of the positive ways discussed above in the

literature review, namely (a) as a stimulus to domestic demand, eliminating any problems

of excess capacity; (b) as a diversion of surplus value from accumulation in the

Departments I and II thus avoiding the overaccumulation of capital, the increase in the

organic composition of capital and the fall in the rate of profit that according to certain argu-

ments depends only on the conditions of production in Departments I and II (Kidron, 1970);

(c) as a factor that increases the productivity of labour through the boost of technological

innovations; (d) as a factor that increases the rate of surplus value trough wage taxation

and=or by establishing those economic and social conditions that allow wage concessions

and increased productive effort on the part of workers; and finally, even though very unlikely

in the case of Greece, (e) by establishing international dominance along with cheap raw

materials and favorable terms of trade. If, on the other hand, the coefficient of (mgdp) has

TABLE I Profitability, Growth and Unemployment: Average Annual Rates of Change 1962–1994

1962–1973 1974–1980 1981–1989 1990–1994

General Marxian rate of profit (R) 0.391 0.323 0.265 0.280Net rate of profit (r) 0.221 0.155 0.110 0.098GDP growth (%) 7.6 3.5 2.2 1.1Unemployment rate (%) 4.4 2.1 7.1 8.8

Source: Maniatis, Tsaliki and Tsoulfidis (1999), National Accounts of Greece.

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a negative sign then this would indicate that military expenditure has really been a net burden

for capital that either (a) it has crowded out investment and other productive uses of the

surplus value; or (b) it has further slowed down productivity growth by diverting resources

to the production or purchase of ‘‘unreproductive’’ articles; or (c) it has raised the organic

composition of capital for the economy as a whole through the expansion of the – usually

capital intensive-domestic armaments sector; and (d) it has been paid at least partly by

taxing capital income since the taxation of wage income does not suffice to finance the

high defense budget. The unemployment rate (u) was included because an increase in the

‘‘reserve army of labor’’ affects adversely labor strength in wage bargaining and therefore

it has a dampening effect on the wage rate, thus affecting positively the rate of surplus

value and the rate of profit. On the other hand, since high unemployment affects negatively

effective demand, (and possibly on technical change, mechanization and productivity

increases) and also raises the organic composition of capital, it may have an adverse impact

on the realized rate of profit.

According to the classical-Marxian approach, the profit-wage ratio (p) as it is recorded in

the National Accounts expresses the combination of the developments in the rate of surplus

value (S=V) (this measure reflects the relative strength of capital and productive labour at the

point of production) and the developments in the spheres of circulation and finance as

expressed by the ratio of the wage costs for unproductive labour relative to those for produc-

tive labour (UW=V). Ignoring for the sake of simplicity the material costs in the spheres of

circulation and finance (UM) we have:

p ¼PW

¼S � UW

UW þ V¼

S=V � UW=V

UW =V þ 1

The profit-wage ratio (p) that behaves in the same way as the profit share in total income,

could be positively related to the profit rate (expressing the ‘‘capital strength’’ effect that

results in a higher rate of surplus value and higher profits) or negatively related because it

falls when ‘‘unproductive’’ activities such as sales, advertising, supervising, and finance

increase either for independent reasons that have to do with the circulation realisation and

distribution of the total social product or according to the underconsumptionist argument

in order to absorb the ‘‘surplus’’. Finally, we expect the time trend (tr) that was included

in (1) to enter our estimations with a negative sign according to the law of the falling rate

of profit.

The methodology used to estimate Eq. (1) is the autoregressive distributed lag approach to

cointegration (ARDL) as outlined and elaborated by Pesaran and Shin (1999). Unlike other

cointegration procedures such as the Engle and Granger two step ECM methodology or

Johansen’s VAR approach, the main advantage of the ARDL methodology employed here

is that it can be applied regardless of the stationary properties of the variables involved-

i.e. whether they are I(0) or I(1). Thus, the pre-testing problems associated with standard

cointegration analysis that requires the classification of the variables into I(0) and I(1) are

avoided. Furthermore, the ARDL approach to cointegration allows for inferences on long-

run estimates, which is not possible under alternative cointegration procedures. The optimal

lag length for each variable involved in the estimations was chosen by maximising the

Akaike information criterion (AIC) and the results are presented in Table II where both

the error correction representation of the short-run estimates as well as the implied

long-run coefficients of the ARDL model are also reported.

Turning to the results in Table II we note that the military expenditure to GDP ratio (mgdp)

has a positive and significant sign in the short run estimations. Given the small size of the

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domestic military sector, and the negligible funds devoted to military R&D, it is very likely

that this positive effect on profitability has to do with the (lagged) impact on effective

demand of military wages and salaries (more than half of the total defence budget). On

the other hand, its negative and significant sign in the long run may be interpreted as indicat-

ing that there has been a drain of resources, diverted to the purchase of ‘‘unreproductive’’

commodities, thus slowing down productivity growth and becoming a burden on profitability

and output growth. That must be true especially in the context of the Greek economy where

the technological spin-offs and increases in productivity that result from the production of

military articles and the related research and development spin-offs are not present. The

unemployment rate (u) enters the estimations with a negative sign. This is evidence more

in favour of the effective demand argument whereby as unemployment rises effective demand

declines and therefore the rate of profit is also adversely affected rather than for the ‘‘reserve

army of labour’’ argument whereby as unemployment increases then wages fall and thus the

rate of profit increases. The coefficient of the profit-wage ratio (p) has a positive and

statistically significant sign as expected from the ‘‘capital strength’’ effect in the sphere of

distribution between capital and labor, especially in the short run. Finally, the negatively

signed time trend can be interpreted as a confirmation of the Marxian law of the falling

rate of profit even though as we discuss below Marx formulates the law at a higher level

of abstraction, namely for the general rate of profit, R. Thus, extending further the empirical

investigation, a second equation was estimated where the general Marxian profit rate (g) was

used as the dependent variable instead of the net profit rate (p):

gt ¼ a0 þ a1ut þ a2pt þ a3mgdpt þ tr þ et ð2Þ

TABLE II The Effects of Military Expenditure on the Net Profit Rate

Results of long run coefficient estimations 1962–1994

Dependent variable pt (net profit rate)

Constant ut pt mgdpt trend

�1.769 �0.034 þ0.318 �0.194 �0.025(6.43) (1.03) (1.69) (2.21) (1027)

Results of short run estimations – error correction representation

Dependent variable Dpt

Explanatory variables Coefficient t-ratios

Constant �1.066 �3.34Dut �0.117 �1.88Dpt 0.559 5.33Dmgdpt �0.001 �0.02Dmgdpt7 1 0.173 2.51trend �0.015 �3.59Ecm�1 �0.602 �3.42

R2¼ 0.72 R2(adj)¼ 0.62 D.W.¼ 1.96 se.¼ 0.03 F-stat (6, 26)¼ 10.089

Additional temporary variables created:

Dp¼ p7 p(�1)

Du¼ u7 u(�1)

Dp¼ p7p(�1)

Dmgdp¼mgdp7mgdp(�1)

Dmgdp 1¼mgdp(�1)7mgdp(�2)

Ecm is the error correction term

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Where:

gt : general Marxian profit rate

ut : unemployment rate

pt : profit-wage ratio

mgdpt : military spending as a percentage of GDP

tr : time trend

The results from estimating (2) are quite similar to the ones from estimating (1), where the

net profit rate (p) was the dependent variable. As noted above, the general Marxian rate of

profit, R expresses the fundamental profitability of the system in the sense that it depends

on the total amount of surplus value produced regardless of its further uses. Thus, it

depends in a more direct way than the net rate of profit on the productivity of labor and

the surplus generating ability of the economy. The coefficient of the unemployment rate

(u) again has a negative sign but it is statistically significant only in the short run. It

seems clear that the impact of unemployment on profitability is felt more through changes

in demand rather than in distribution in the Greek economy. The profit-wage ratio (p) is

again positive in the short run picking up the ‘‘capital strength’’ effect on distribution, but

negative in the long run though not statistically significant. The military expenditure to

GDP ratio (mgdp) is again statistically significant and positive in the short run but negative

in the long run. Military expenditures stimulate demand and profitability in the short run

(through the spending on military wages and salaries and related materials) but in doing

so they divert significant resources from uses that could increase the productivity of labour

TABLE III The Effects of Military Expenditure on the General MarxianProfit Rate

Results of long run coefficient estimations 1962–1994

Dependent variable gt (general marxian profit rate)

Constant ut pt mgdpt trend

�2.014 �0.013 �0.116 �0.398 �0.015(5.71) (0.37) (0.49) (3.67) (5.34)

Results of short run estimations – error correction representation

Dependent variable Dgt

Explanatory variables Coefficient t-ratios

Constant �1.102 �3.69Dut �0.137 �2.21Dpt 0.168 1.51Dmgdpt �0.028 �0.39Dmgdpt7 1 0.224 3.09trend �0.008 �3.15Ecm�1 �0.547 �3.28

R2¼ 0.55 R2(adj)¼ 0.37 D.W.¼ 2.22 se.¼ 0.03 F-stat (6, 26)¼ 4.651

Additional temporary variables created:

Dg¼ g7 g(�1)

Du¼ u7 u(�1)

Dp¼p7 p(�1)

Dmgdp¼mgdp7mgdp(�1)

Dmgdp 1¼mgdp(�1) 7mgdp(�2)

Ecm is the error correction term

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or the efficiency by which capital goods are used thus impairing the long run productivity

and growth potential of the economy. The impact of military expenditures on the general

rate of profit is greater than that on the net rate of profit as expected since the drain on

resources affects more the fundamental profitability, the general rate of profit. Finally, the

negatively signed time trend can be interpreted as a confirmation of the Marxian law of

the falling rate of profit which as we mentioned above is formulated by Marx so as to

refer to the general rate of profit. The fall in the general Marxian rate of profit determines

the fall in the net (actual) rate of profit that could be even sharper if unproductive costs

(U ) increase rapidly and therefore net profits decrease as a share of surplus value. In sum-

mary, both measures of profitability exhibited a downward trend over the period examined,

and output growth slowed down significantly after some point. The heavy military burden of

the Greek economy seems to have been a contributing factor for those developments.

CONCLUSION

The aim of this paper was to examine the effect of military expenditure on the profitability of

the Greek economy for the 1962–1994 period. As discussed earlier, in the theoretical debate

on the role of military expenditures, they have alternatively been viewed either as a ‘‘burden

on growth’’ (i.e. an unproductive drain of resources) or as a stimulating factor for demand,

profitability and economic performance. This distinction is reflected in the Marxist tradition

as well where in different theories of crisis, military expenditures have been treated either as

an unproductive burden or as a savior of the capitalist system, mainly through their effect on

the rate of profit.

The empirical findings reported here tend to support the military expenditure as a ‘‘burden

on growth’’ hypothesis for the post-war Greek economy, even though those expenditures

have had short run positive effects on profitability. It should be noted however, that this

empirical test is certainly not meant to formulate or to imply a general theory of the role

of military expenditure in capitalism. Given the specificity of the post-war Greek economy

and its military sector mentioned in the text, our results should be interpreted with caution

and inferences to other economies and especially large developed capitalist ones may not

be appropriate.

It is interesting to note that both poles of the debate on the impact of military expenditure

can find empirical support in our results but in our opinion more so the ‘‘burden’’ on

‘‘growth’’ hypothesis since military expenditure appears to be a net burden for capital,

affecting in a drastic way both the fundamental profitability (R) of the economy and the actual

one (r) over a long-run basis. In any case, the complex and contradictory role of the military

budget on the economy, one of the stark characteristics derived from the relevant literature,

clearly emerges in our results.

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