The Expansion of Economic Freedom and the Capitalist Peace
Authors: Weede Erich 
Published: December 2016

On the one hand, the idea of a capitalist peace is a set of loosely integrated but testable propositions. On the other hand, it is part of a wider, libertarian philosophy of life. The wider conception aims at minimizing government. Although there has been a proliferation of variables assessing capitalism and economic interdependence—from economic freedom via contract intensity to the avoidance of state ownership or protectionism—the most frequently analyzed proposition about the capitalist peace says that trade makes military conflict and war less likely. By and large, the evidence supports this proposition in dyadic designs as well as in monadic designs. This cross-design validity of the proposition is important because it distinguishes the peace by trade proposition from the democratic peace proposition. Most researchers agree that war is extremely unlikely in dyads where both nations are democracies. But only a minority contends that democracies are less frequently involved in military conflict than other states. The dyadic and the monadic findings are compatible because military conflict looks even more likely between an autocracy and a democracy than between two autocracies. Whereas the democratic peace is limited in application, the pacifying impact of trade or economic interdependence is more general. Moreover, the democratic peace may be embedded in a wider economic or capitalist peace. There is strong evidence that democracy rests on a foundation of capitalism or economic freedom and the prosperity that has been gained only by capitalism or some degree of economic freedom. Moreover, economic freedom and prosperity contribute to the avoidance of civil war. Better still, not only does economic freedom promote economic growth and prosperity among those nations where people enjoy economic freedom, but the economic freedom of rich countries provides poor countries with the advantages of backwardness and catch-up opportunities.

Capitalist peace theory evolves. It has been suggested that the pacifying impact of trade rests on the expectation that trade, or access to resources and markets, will continue. This suggestion requires a new look at economic sanctions, too. By interfering with trade, sanctions must undermine the expectation of future benefits of trade and globally interconnected markets. Given the rareness of evidence in favor of the effectiveness of economic sanctions in eliminating undesirable policies of other nations, a capitalist peace perspective implies the recommendation to use sanctions much less frequently than politicians do. They are likely to eliminate a pacifying factor when it is most urgently needed.

The wider or visionary perspective on the capitalist peace is useful not only in connecting it with the issue of sanctions, but also in demonstrating the inherent limitations of capitalism as a tool to achieve peace. From a static perspective, capitalism, economic freedom, or trade may exert some pacifying impact, as argued previously. But capitalism is a dynamic economic order. It is about “creative destruction.” Capitalism is not egalitarian. Nations grow at different speeds. They rise and decline. Capitalism and unequal economic growth upset pecking orders and contribute to power transitions that are related to risks of war, especially great power war. Whether the contribution of capitalism to power transitions—or its pacifying impact—prevails cannot be judged with much confidence.