The Economics Of Perpetual War

The Economics Of Perpetual War (Mises Economics Blog):

By Matt McCaffrey
Wednesday, August 27th, 2014

The 100th anniversary of the beginning of World War I seems like an ideal opportunity to spread a message of peace and economic cooperation; sadly, 2014 has so far been a year of new and renewed conflict far more than one of reconciliation.

By now, talk of the horrors of war is nothing new. Everyone knows about the total destruction war brings; in fact, we’ve known for millennia. As Lew Rockwell points out, “just about everyone makes the perfunctory nod to the tragedy of war, that war is a last resort only, and that everyone sincerely regrets having to go to war”—but war continues all the same. Even classical military strategists like Sun Tzu believed war should only be used only as a last resort, and argued that military campaigns could bankrupt states and ultimately, destroy them. Art of War actually states that “no country has ever profited from protracted warfare,” and cautions generals to “fight under Heaven with the paramount aim of ‘preservation.’” Yet as far back as we have historical records, these sorts of ideas have fallen on deaf ears among governments and military organizations alike.

Economics offers many insights into war making and why it persists, but the most fundamental explanation is an institutional one. It’s tragically simple: warnings about the horrors of war go unheeded because the power to make war—as well as “justify” it in the eyes of those forced to fight and finance it—lies in the hands of the state and its business and intellectual allies. States are monopolists of organized force, and as such decide when and how to use their power on a grand scale, especially when they wish to confront other monopolists.

In fact, economic reasoning tells us that conflict is an integral part of the logic of states, which are inherently prone to warfare and imperialism. That war is an essential and practically inevitable behavior of government has been known since ancient times: for instance, Art of War begins by stating that “War is the greatest affair of state, the basis of [its] life and death, the Tao to survival or extinction.”

The central problem is that government is based on the use of the “political means” rather than the “economic means” of social organization. States are not producers of goods and services in the market; rather, they operate by forcible redistribution. They are therefore founded on a conflict of interest between the rulers and the ruled, especially between the winners and losers of the redistribution process.

Furthermore, because state decisions are not guided by entrepreneurial calculation, they result in the waste and destruction of resources, resources that must be replenished if the ruling class hopes to continue to consume. States therefore search constantly for new sources of revenue to support themselves, and to that end they use traditional methods of public finance: taxation, borrowing, and inflation. But these policies ultimately compound their difficulties, generating poverty and inequality, and intensifying social conflict.

Every way they turn, states face recurring economic problems and the need to distract or suppress the victims of exploitation; war making serves the dual purpose of (a) disguising fundamental social conflicts by refocusing attention and/or blame, and (b) providing economic gains to the state and its allies. This then is one economic explanation of how organized violence on a small scale leads to organized violence on a massive scale.

If we want to understand why war persists, we have to take account of the economic foundation of the state. We can’t reason in an institutional vacuum, like the many people throughout history who believed it was enough to simply point out the obvious calamity of war, while leaving the power to make it in the hands of a ruling class.

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