In the Foundation for Economic Education‘s web magazine The Freeman Online, (in “The Newspeak of Paul Krugman,” Sept. 30), Steven Horwitz condemns Krugman’s assertion (in “Economics Is Not A Morality Play,” NYT Sept. 28) that World War II got us out of the Great Depression.

Although I certainly disagree that war and destruction are desirable ways of sustaining the economy, I do agree with Krugman that WWII ended the Depression.

Horwitz, in countering Krugman’s argument with a description of how economic growth would be achieved in a free market, ignores the point that the industrial system we’ve had over the past 150 years hasn’t even remotely resembled a free market. It has been a corporatist system built from the ground up through overwhelming state intervention and massive collusion between big business and big government.

(Krugman makes the mirror-image error of ATTACKING the present system as a free market: “The market economy is a system for organizing activity … with no special moral significance. The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty …”)

In any case the simple fact of the matter is that the economy, as structured for these many decades, would fall into chronic depression if it weren’t for the artificial demand created by the replacement of “broken windows.”

The state has promoted the overaccumulation of capital in mass-production facilities that are only profitable when they can amortize the cost of their expensive specialized machinery by running at full capacity without regard to preexisting demand, and then find some way to dispose of the product. And the only way to dispose of that full product has been through state-aided planned obsolescence, state-aided expansion into foreign markets, direct state purchases of surplus output and surplus capital, and — as a last resort — massive state destruction of output and capital in war.

As Horwitz writes: “Employing people to dig holes and fill them up again, or to build bombs that will blow up Iraqis, will certainly reduce unemployment and increase GDP, but it won’t increase wealth.” The problem, unfortunately, is that we have an economy so structured as to REQUIRE digging holes and filling them up again to prevent mass unemployment and a collapse of GDP.

In this environment, the work of J.A. Hobson and neo-Marxists like Harry Magdoff is a fair description of macroeconomic reality.

This isn’t to say that these are the alternatives that would confront us in a free market. A free market would restructure the industrial system beyond recognition, to something bearing a much closer resemblance to decentralized flexible manufacturing networks like that of the Emilia-Romagna region of Italy, with much lower capital outlays and overhead.

And I’m afraid that the restructuring process would be will be extremely painful. Getting from here to a free market is a lot like turning a sedan into a motorcycle by taking off two of the wheels. But that’s really our only choice in the end, because Keynesianism is no longer sustainable.

Traditionally, Keynesianism treated deficit spending as an intermittent activity for the downswing of the cycle, to be compensated by countercyclical surpluses on the upswing. State capitalism has reached the point where there is no upswing without deficit spending. The chronic tendencies toward overaccumulation and underconsumption are so great that even half-trillion-dollar deficits every year can’t keep up full employment and utilization of capacity. The traditional Keynesian measures now require continuing deficits so large as to bankrupt the state. A trillion-dollar stimulus this year will avert depression — but only this year.

Lather, rinse, repeat.