In this article, I would like to present some fundamental economic thoughts on the cause of war, as war has chronically plagued human history, particularly the more recent history. In 1919, the economist Ludwig von Mises (1881–1973) published a book entitled Nation, State, and Economy, presenting an explanation as to why the catastrophic First World War could come about.
Mises’s answer may surprise many people today: the war occurred because of the departure from the idea of free markets, free trade, individual freedom, and equality before the law. In short, it was the abandonment of liberalism and the rise of the state as we know it today that led to World War I.
The modern state is aggressive both internally and externally, and it also has an incentive to wage wars against other states in order to assert its interests by force. State and war go hand in hand, so to speak. To explain this in more detail, I would like to put forward a few economic considerations.
It is a logical, undeniable truth that man has goals that he seeks to reach by employing means. Also, man prefers more means over fewer means and prefers an earlier satisfaction of wants to later satisfaction. As a rational being, he realizes sooner or later that the division of labor is advantageous for him, as it increases the output of his work. Division of labor means that everyone carries out the work they can do at the comparatively lowest cost.
The division of labor requires exchange. After all, if they organize themselves based on the division of labor, most people no longer produce for their own direct needs, but almost everyone produces for the needs of their fellow human beings.
It is the division of labor that brings people together. It makes people recognize each other as mutually useful in dealing with their life challenges. To put it simply, the buyer of a product is interested in ensuring that its manufacturer is doing well—otherwise, he cannot buy the good.
The division of labor is a natural phenomenon in a system of free markets. In free markets, consumers are free to demand the goods that meet their needs best; and producers have the freedom to voluntarily offer their fellow human beings the goods they demand.
A system of free markets, if practiced, would sooner or later allow people around the world to grow into a very tightly knit division of labor. The result would be permanently peaceful and productive cooperation among the people.
Because war is entirely alien to the system of free markets, people who know and experience the productive effect of the division of labor on a worldwide scale have no incentive to engage in something like war, as It would be against their personal interests. But, unfortunately, there is no system of markets in this world that is, or would ever have been, truly free.
For many centuries, especially since the beginning of modern times, there has been the state. Initially, there was a state in the form of the feudal lord and the king. Then, there was the emperor. In the more recent past, there has been the republic, the dictatorship, and the modern democratic state.
We may ask: What exactly is the state? You might answer: “The state, that’s all of us” or “We cannot do without the state because who would build roads and schools, support the needy, ensure justice and security?”
However, the logic of action brings to light a rather different kind of answer. From that point of view, it is obvious that the state (as we know it today) is a coercive monopoly of power, the use of force. The American economist and social philosopher Murray N. Rothbard (1926–95) defines the state (as we know it today) as the territorial, coercive monopolist with the ultimate decision-making power over all conflicts in its territory and as taking also the right to levy taxes.
This kind of state is, of course, not a natural institution, has not been created voluntarily by people, nor could it have arisen in a system of free markets, because in free markets, there is only voluntary exchange; there is no forced action brought about by coercion and violence.
The German sociologist, physician, and economist Franz Oppenheimer (who, incidentally, was the doctoral supervisor of Ludwig Erhard, the father of the German social market economy and the second chancellor of the Federal Republic of Germany) determined unequivocally that the state is in fact based on coercion and violence. Oppenheimer writes that the state
in its genesis, essentially and almost completely during the first stages of its existence, is a social institution, forced by a victorious group of men on a defeated group, with the sole purpose of regulating the dominion of the victorious group over the vanquished, and securing itself against revolt from within and attacks from abroad. Teleologically, this dominion had no other purpose than the economic exploitation of the vanquished by the victors.
Rothbard and Oppenheimer inform us that the state is an aggressive institution and especially aggressive inward. The ruling class, through use of state power, strives not only to maintain its power over the ruled class but also to expand it through prohibitions and bans, regulations and laws, higher taxes, and much more.
The reason for this is obvious: If the state has the territorial monopoly of power to ultimately decide all conflicts in its territory, and if it also has the power to levy taxes (including the inflation tax), then the state (the people who exercise its power) will, of course, make greater and more use of it.
The ruling class prefers more means over fewer means, and it prefers an earlier satisfaction of wants over a later satisfaction. Put simply, the state (as we know it today) becomes larger and more powerful over time, and the citizens and entrepreneurs under its command are increasingly pushed around, their freedoms curtailed. However, the state will not only become larger and more powerful “internally” but also externally as soon as it gets a suitable opportunity to do so.
States that feel ideologically linked to each other have an incentive to form a cartel, to eliminate competition between them. An example of such a state cartel is the European Union. It allows the member states to become bigger and more powerful.
But if states pursue different interests and follow different ideologies, they have an incentive to aggressively and belligerently build up and expand their power. World history is full of wars between states motivated in this way.
Large states are, of course, particularly aggressive toward the outside world because they can relatively easily obtain the means necessary to pursue an aggressive foreign policy, such as money, weapons, and soldiers. When large states follow different ideologies, the danger of war between them is very great. An example of this is the many military conflicts, especially in the form of proxy wars, between the United States and the former Soviet Union.
One can see that the modern state is aggressive in an economic sense, so armed conflicts between states are not a tragic coincidence but a logical consequence. Incidentally, this is a fundamental insight that the Prussian general Carl von Clausewitz formulated in 1832, declaring: “War is a mere continuation of politics by other means.”
So if we want to prevent war effectively, as Mises said, we must limit the state and thus place firm limits upon politics and politicians. Wrote Mises: “Whoever wants peace among nations must seek to limit the state and its influence most strictly.” And we must also unconditionally embrace the concept of the free market, because it, and not the state, guarantees peace and prosperity for the people on this planet.
There are only two ways human cooperation occurs: through voluntary means or through coercion. The free market stands for voluntary cooperation; Coercion and violence are the means of the state.
There is an important point that we need to make: law and security are indispensable if people in a community want to get along peacefully and productively. But the goods of justice and security can, of course, also be provided under the system of free markets. A state monopolist is not needed.
Economics can do much to make the world more peaceful and thus ethically and morally better. Anyone who learns how a system of free markets works, what it does, will have no reason to call for a state. This helps us to understand why small states and small political entities are more peaceful and prosperous than large states and large political entities. It is no coincidence that the people who rely on the system of free markets and organize themselves in small units are peaceful while also earning the highest per capita income. Switzerland, Lichtenstein, Monaco, Singapore, and Hong Kong come to mind.
Anyone who thinks that the solution to the Russia-Ukraine conflict lies in the further rearmament of states, in sanctions, and in the end of the cross-border division of labor and trade is making a serious mistake. The problem of war is not solved when the aggressor is defeated, but only when the ideologies that lead to war are completely discredited and no longer appeal to the people.
The Königsberg philosopher of the Enlightenment Immanuel Kant wrote: “Peace must be established; it does not come by itself.” I would add that peace comes when people voluntarily cooperate with each other in free markets. Peace is not established by the state. Rather, the opposite is true.Author:
Dr. Thorsten Polleit is Chief Economist of Degussa and Honorary Professor at the University of Bayreuth. He also acts as an investment advisor.
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