Free Market Capitalism In Purest Form Is Incompatible With War, Especially Endless Wars

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“The market economy involves peaceful cooperation. It bursts asunder when the citizens turn into warriors and, instead of exchanging commodities and services, fight one another.”

So Ludwig von Mises begins a short chapter in Human Action called “The Economics of War.”

While brief, the eleven pages (pages 817–28 in the scholar’s edition) are densely packed with Mises’s take on the history of warfare, what leads to total war, how wars are won, the costs of war, and the ideological conditions for war and peace. As is his modus operandi, Mises frequently contrasts war with the peaceful cooperation of the international division of labor.

The History of Warfare

In his short history of warfare, Mises describes the wars of primitive times as total wars, in which both sides sought the complete annihilation of the other. This “spirit of conquest” applied to the ancient empires and their leaders, who viewed unconquered territories not as potential trading partners, but as “targets for later onslaughts.”

But in medieval Europe, monarchs were constrained by the limited obligations of their vassals. Wars could not be waged endlessly because the king’s subordinate lords did not want to fight forever, risking their own land, wealth, and lives. This is how “the peaceful coexistence of a number of sovereign states originated.”


During the early modern period, kings sought to nationalize military forces, but they found that “the organization, equipment, and support of such troops were rather costly and a heavy burden on the ruler’s revenues.” And their “citizens detested war which brought mischief to them and burdened them with taxes.” These and other political constraints led to limited warfare, in which kings sought to conquer only a few cities.

Philosophers during and after this monarchical era concluded that wars are futile:

Men are killed or maimed, wealth is destroyed, countries are devastated for the sole benefit of kings and ruling oligarchies. The peoples themselves do not derive any gain from victory. The individual citizens are not enriched if their rulers expand the size of their realm by annexing a province. For the people wars do not pay.

The unpopularity of the tyrannical governments that waged wars led to the emergence of revolutionary wars. At the same time, the philosophy of liberalism was born, in which “free trade, both in domestic affairs and in international relations, was the necessary prerequisite of the preservation of peace.”

What Causes Wars?

Mises criticizes contemporary historians’ treatment of the causes of war. They saw aggressive nationalism and the advancement of military technology and strategy as the primary drivers of war, but Mises saw these as mere symptoms of an overarching cause: “government interference with business and socialism.” This economic nationalism and its attendant protectionist policies created conflicts between nations and gave individual citizens a reason to support the state’s wars. The popularity of these wars led to the reemergence of total or unlimited war, like that of primitive times. Thus, Mises concludes: “What has transformed the limited war between royal armies into total war, the clash between peoples, is not technicalities of military art, but the substitution of the welfare state for the laissez-faire state.”

The ideology of statism, therefore, is what drives modern total war. It is no surprise that Mises was skeptical of the ability of treaties or “bureaucratic outfits as the League of Nations and the United Nations” to abolish war and create a lasting peace. “The spirit of conquest cannot be smothered by red tape. What is needed is a radical change in ideologies and economic policies.”

War and Capitalism

Modern total wars like World War II were extremely costly for the belligerents. The United States mobilized the entire economy toward the war effort. Mises remarked that victory did not require heavy price controls and direct rationing—the government could have financed the war through taxes, borrowing, and inflation. But the government succumbed to unionist pressure and took on the impossible task of preserving workers’ prewar standard of living in war. This inevitably led to the government’s complete control of production. Nevertheless, Mises credits the productivity of private enterprise, “not government decrees and the paper work of hosts of people on the government’s payroll,” for giving the US and its allies the material advantage.

Here Mises uncovers a seeming paradox, the incompatibility of war and capitalism. While “capitalism is essentially a scheme for peaceful nations,” the productivity of the market economy provides for “the most efficient means of defense.” Mises solves this paradox this way:

What the incompatibility of war and capitalism really means is that war and high civilization are incompatible. If the efficiency of capitalism is directed by governments toward the output of instruments of destruction, the ingenuity of private business turns out weapons which are powerful enough to destroy everything. What makes war and capitalism incompatible with one another is precisely the unparalleled efficiency of the capitalist mode of production.

The contradiction, therefore, is in the eye of the beholder. For the consumer, capitalism is the greatest way to provide for his wants and needs. For the “apostles of violence,” the warmongering state and its accomplices, capitalism is a weapons factory. To the extent that the apostles of violence commandeer the market economy toward their own ends, they dethrone the sovereign consumer and destroy the very foundation of peace and prosperity.

Next, Mises turns his attention to the international division of labor, which “was developed under the assumption that there would no longer be wars.” Belligerent nations must resort to autarky, and not just because they have made enemies of former trading partners. Blockades shut off a country from virtually all trade, forcing the use of lower-quality and higher-cost substitutes. Mises concludes that, for victory, “what counts alone is war preparedness.” This abandonment of profit considerations, in addition to the considerations above, leads to war socialism, the state’s complete takeover of the economy in war.

Statolatry

Mises concludes this somber chapter with a section on the futility of war. Warmaking causes man to become animalistic: “What distinguishes man from animals is the insight into the advantages that can be derived from cooperation under the division of labor.” The international division of labor both produces and is the product of peace.


The philosophy of liberalism, which champions the division of labor, is incompatible with “statolatry,” “the counterfeit theology of the divine state.” Those who worship this false god must reckon with the terrible consequences of its evil wars. “Modern war is merciless, it does not spare pregnant women or infants; it is indiscriminate killing and destroying. It does not respect the rights of neutrals. Millions are killed, enslaved, or expelled from the dwelling places in which their ancestors lived for centuries.”

Banner Image: War. Image Credit – hosnysalah

 


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Jonathan Newman Mises Institute

Dr. Jonathan Newman is a Fellow at the Mises Institute. He earned his PhD at Auburn University while a Research Fellow at the Mises Institute. He was the recipient of the 2021 Gary G. Schlarbaum Award to a Promising Young Scholar for Excellence in Research and Teaching. Previously, he was Associate Professor of Economics and Finance at Bryan College. He has published in the Quarterly Journal of Austrian Economics and in volumes edited by Matthew McCaffrey and Per Bylund. His research focuses on Austrian economics, inflation and business cycles, and the history of economic thought. He has taught courses on Macroeconomics and Quantitative Economics: Uses and Limitations in the Mises Graduate School. He is the author of two children's books: The Broken Window and Ludwig the Builder. His commentary appears regularly in the Mises Wire and Power & Market.


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