Of Capitalism and Causation
J.T. Young has a provocative piece up today at The American Spectator entitled “Capitalism’s Gift of Peace.” While I’ll never hold any author hostage to a title that was probably chosen by an editor, the body of Young’s piece indicates that he genuinely believes that free markets effectively defuse conflict. To wit:
The reason for states' predilection to war or peace goes back to their underlying economic systems. To fully appreciate it, we must understand the economics motivating each.
Capitalist countries find war a last resort. War is both expensive and wasteful. It is these states' worst economic investment -- diverting their resources from productive uses to an unproductive one.
[And later …]
The economic calculation of war is just the opposite for the fettered market nation. The opportunity cost of war to such a nation is less. By definition, their economy is already operating on a suboptimal allocation of its resources. North Korea is the extreme example. Its economy is so bad that conflict is actually its best economic investment.
There’s a lot going for Young’s general defense of the stability of free-market nations. However, I think it gets the causality wrong. Like the democratic peace theory (democracies don’t wage war against each other), this seems to me to be a confusion of cause with effect.
The existence of capitalism (and/or democracy) in any given nation reflects the government’s decision to liberate its citizenry enough to freely and voluntarily participate in economic and civic life. It’s that willingness to cede power that strikes me as the key metric for understanding a regime’s capacity for hostility on the world stage.
As an example, consider China. While they have substantially freed up their economy (only to the point where it can be considered state capitalism, alas), I don’t think even the biggest Sinophiles in the foreign policy establishment would consider the PRC unambiguously benign. Young might reply that this wouldn’t hold true if China was more authentically capitalist. That, however, underscores my point. A Chinese regime that would be willing to take that step would be qualitatively different than the one we have now. In the end, it’s the leadership and the regime type that matter.
One final note: I think Young’s economic analysis of war (which echoes Bastiat’s “Broken Window Fallacy”) is correct on the merits, but probably doesn’t track with the psychology of many world leaders. Considerations of power are at least as powerful (if not more so) than economic theory in calculating the merits of belligerence.
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Aug '10
Re: Of Capitalism and Causation
It was one of Milton Friedman's hypotheses that Capitalism made the world more peaceful and more free.
Nov '10
Re: Of Capitalism and Causation
I think that Young's premise is solid as a thought experiment, but I'm not really convinced that it has much application in the real world.
The opening quote sums up my problem: "The reason for states' predilection to war or peace goes back to their underlying economic systems."
Come on, there is no "the reason" for war. Human events on that scale are incomprehensibly complicated. Sure, economics has something to do with it, but so does nearly every other factor you can think of - religion, demographics, political ideology, ethnicity, geography...
I think you can make a good argument that free markets shun wars because they waste resources and alienate potential customers, but large moneyed interests sometimes have more of a stake in making war than we'd like to admit. And if they play golf with your senator, well...
Edited on Dec 16, 2010 at 9:47pmRe: Of Capitalism and Causation
Nathaniel, I normally don't comment this early in a thread, but I suspect a lot of readers may share your response. For that reason, let me be clear about where I stand on this (cue Obamaesque throat-clearing).
I don't disagree with Friedman's hypothesis, especially that capitalism makes the world more free (which strikes me as tautological). As for it making the world more peaceful, I agree that's usually the net result. The distinction (which is admittedly subtle) that I'm drawing is that I think it's not capitalism in a vacuum that's responsible for that outcome, but what the embrace of capitalism says about regime type.
May '10
Re: Of Capitalism and Causation
I think the following biconditional proposition is true: "There is peace if and only if there is capitalism." Given that this is a biconditional proposition, it is reducible to two conditional propositions: "If there is capitalism, then there is peace" and "If there is peace, then there is capitalism." Thus, one is a necessary condition of the other - when one appears, so must the other (the consequent of a true conditional claim is a necessary condition for the antecedent).
But furthermore, this depends upon the definition of capitalism. What is capitalism? It is a social system based upon private property rights where property is privately owned and controlled, especially the factors of production which include land and capital goods. A legal order must first exist in order to recognize private property rights. Once such an order exists, then capitalism can exist.
Moreover, private property rights (indeed, all negative rights) are violated only by means of the initiation of the use of force. Hence, under capitalism, no one may initiate the use of force or threaten to do so against other individuals. In the absence of such force or threats of such force, one has peace (by definition).
Edited on Dec 17, 2010 at 12:17amMay '10
Re: Of Capitalism and Causation
If my conjectures are correct, the government of a capitalist nation cannot wage a war of aggression without abandoning the title of "capitalist nation" since wars of aggression involve the initiation of the use of force and (empirically) violations of private property rights.
May '10
Re: Of Capitalism and Causation
Troy,
I wonder if the distinction you make is one with a difference.
Aug '10
Re: Of Capitalism and Causation
Troy Senik:
I don't disagree with Friedman's hypothesis, especially that capitalism makes the world more free (which strikes me as tautological).
From the rhetorical perspective, tautologies are bad. But from the logical perspective, tautologies are desirable critters -- true in all conditions and contingent on nothing. So they have their uses.
Troy Senik:
The existence of capitalism (and/or democracy) in any given nation reflects the government’s decision to liberate its citizenry enough to freely and voluntarily participate in economic and civic life. It’s that willingness to cede power that strikes me as the key metric for understanding a regime’s capacity for hostility on the world stage.
If capitalism reflects the willingness to cede power (rather than, say, capitalism being identified with the willingness to cede power), what else reflects the willingness to cede power?
Could you have real capitalism (not state capitalism) without that willingness to cede power? Could you have that willingness to cede power without capitalism? (If neither happens without the other, then perhaps they ought to be identified.)
China, alas, is not a good example of one without the other, as you admit. Can you name others?
Nov '10
Re: Of Capitalism and Causation
I know it's a small, probably just semantic, point, but it seems from my non-economist viewpoint that a real democratic, free market capitalist society doesn't come so much from the government ceding power to its citizens as much as citizens refusing to cede power to their governments.
As for the article itself, it's ideologically interesting (my own beliefs run in that direction), but it is thin. It needs to address counterexamples that might challenge the hypothesis - for example, the long war against Native Americans, or the Spanish American War. There is also the problem that free markets are prone to booms and busts, and in the bust stage people are often willing to cede power to a highly centralized government, and hence increase the risk of war. It seems especially strong when a society has, during the boom period, become too comfortable. How does one address that?
Re: Of Capitalism and Causation
Interesting discussion and I appreciate Halifax's invocation of the Spanish-American War, which is one of a few problematic counterexamples (Britain and the U.S. were Germany's two largest trading partners immediately prior to World War I; The War of 1812 has troubling implications too).
I do think it's a distinction with a difference. The difference is that the simple version presumes peace is an inherent product of capitalism (see Young's reductive opening, as cited by Starve the Beast). The more complicated version recognizes that there's a very strong correlation, but some counterexamples that make it difficult to argue for universal causation.