Capitalism and War: Capitalism Means Peace

F.A. Hayek said “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”2 As Mises points out, the State lacks the needed information to make accurate calculated economic decisions therefore, the State, if it won’t go away, must leave the Market alone.

All the wealth and prosperity that we enjoy today is thanks to capitalism. One of the key components of capitalism is private property. You cannot have true capitalism without the private ownership of the means of production. The unfortunate thing about private property is that it has never played nice with the State (or rather, the State has never voluntarily elected to play nice with private property).

“All those in positions of political power, all governments, all kings,and all republican authorities have always looked askance at private property. There is an inherent tendency in all governmental power to recognize no restraints on its operation and to extend the sphere of its dominion as much as possible. To control everything, to leave no room for anything to happen of its own accord without the interference of the authorities. This is the goal for which every ruler secretly strives. If only private property did not stand in the way! Private property creates for the individual a sphere in which heis free of the state. It sets limits to the operation of the authoritarian will. It allows other forces to arise side by side with and in opposition to political power. It thus becomes the basis of all those activities that are free from violent interference on the part of the state. It is the soil in which the seeds of freedom are nurtured and in which the autonomy of the individual and ultimately all intellectual and material progress are rooted. In this sense, it has even been called the fundamental prerequisite for the development of the individual. But it is only with many reservations that the latter formulation can be considered acceptable, because the customary opposition between individual and collectivity, between individualistic and collective ideas and aims, or even between individualistic and universalistic science, is an empty shibboleth.

Thus, there has never been a political power that voluntarily desisted from impeding the free development and operation of the institution of private ownership of the means of production.Governments tolerate private property when they are compelled to do so, but they do not acknowledge it voluntarily in recognition of its necessity.”3

So long as governments exist, your private property is never truly safe. This flies in the face of what government is supposed to do. Protect the property of you and me. On a positive note, private property is a space where government cannot intervene. It’s a place where ideas that keep government in check are formulated. Perhaps this is why government always looks with suspicion at private property.

Another key component of capitalism is the division of labor. “What distinguishes man from animals is the insight into the advantages that can be derived from cooperation under the division of labor.”4 The division of labor is the assigning of different tasks of the manufacturing process to different individuals in order to improve efficiency. Instead of the farmstead that produced everything it needed to subsist on its own, it later developed to a larger scale where they farmed specific things and were dependent on other producers. The division of labor creates an interdependent existence but allows efficiency to be focused on one particular task in production. This increases wealth and saves time. “Originally confined to the narrowest circles of people, to immediate neighbors,the division of labor gradually becomes more general until eventually it includes all mankind.”5 It eventually encompasses countries, this is why the way to peace is not to disrupt the division of labor with war, but enforce it through trade.That is why tariffs are actually harmful to the economy. Sure they give the immediate appearance of helping local economies, but it also promotes inefficiencies in production since it props up failing industries that would otherwise fail (looking at secondary consequences like Hazlitt1). Essentially, it causes resources, wealth,and labor to flow into inefficient manufacturing processes. Like all other government policies, it decreases the potential wealth for everyone rather than enhances it like it promises. The Division of Labor leads to the next point. War.

There are moral reasons of course, but mine are more from an economic perspective. As I stated above, the division of labor has grown to an international level. Countries are now dependent on other countries since production has become specialized under the division of labor. War interrupts the division of labor thus making production and efficiency slam to a halt. War also diverts precious resources to destructive ends. The same goes for labor. We are left with all the economic “could-have-beens”. If resources were not diverted to make weapons which have a singular and specific use, what other things could they have been produced that the free market could have dictated?

Another negative aspect of war is the debasement of currency. Inflation is another form of taxation and what makes it insidious is that it is a hidden tax. You don’t really notice it right away. “You can line up 100 professional war historians and political scientists to talk about the 20th century, and not one is likely to mention the role of the Fed in funding US militarism. And yet it is true: the Fed is the institution that has created the money to fund the wars. In this role, it has solved a major problem that the state has confronted for all of human history. A state without money or a state that must tax its citizens to raise money for its wars is necessarily limited in its imperial ambitions. Keep in mind that this is only a problem for the state. It is not a problem for the people. The inability of the state to fund its unlimited ambitions is worth more for the people than every kind of legal check and balance. It is more valuable than all the constitutions every devised.”6 Technically, the State has no wealth to really call its own. The State does not produce anything like a private individual does. This means that it is usually limited to what it can spend and what it can spend money on. I cannot overly tax it citizens because that angers them and can even lead to revolution. This is why sound money is so important (gold or silver standard), it acts as a check against government overreach by hitting the government in its wallet.

But what happens when there is a central bank that can “create” as much money as it wants. Now the States ambitions are “unlimited”.Of course this is not true. There is always limit to resources. What occurs is that when a government wishes to use fiat currency in order to fund its imperialism, it has the central bank “create” money in order to pay for it, or it starts buying government bonds with the inflated currency. “To be sure, it doesn’t require a central bank for a state to choose inflation over taxes as a means of funding itself. All it really requires is a monopoly on the production of money. Once acquired, the monopoly on money production leads to a systematic process of depreciating the currency, whether by coin clipping or debasement or the introduction of paper money, which can then be printed without limit. The central bank assists in this process in a critical sense: it cartelizes the banking system, the essential conduit by which money is lent to the public and to the government itself. The banking system thereby becomes a primary funding agency to the state, and, in exchange for its services, the banking system is guaranteed against insolvency and business failure as it profits from inflation. If the goal of the state is the complete monopolization of money under an infinitely flexible paper-money system, there is no better path for the state than the creation of a central bank. This is the greatest achievement for the victory of power over liberty.”6 Therefore inflated currency is used to pay for unjust wars at the expense of you and me.

This expansion of credit is what has lead to the various “booms” and“busts” that have occurred through our history ever since the FED was founded in 1913.7 People are reaching for resources but they soon learn, to their dismay, that the resources were not real nor were the savings.

Therefore wars make us all poorer, so the interventionist policies that we have today make us poorer. You see “The more knowing inflationists recognize that any substantial increase in the quantity of money will reduce the purchasing power of each individual monetary unit—in other words, that it will lead to an increase in commodity prices.But this does not disturb them.”1 This harms us, those that have savings or those that are retired or on fixed incomes. Our dollars go, progressively, less farther than before. This is why we libertarians get so frustrated with Presidential Executive orders for military intervention, it is firstly unconstitutional and it is secondly expensive. We as tax payers are the ones that end up picking up the tab, not the ones making the decisions. Not only that, but war is often used as an argument to increase aggregation, unfortunately this is what is known as the broken window fallacy.8 Destruction does not equate to economic prosperity.

1) Hazlitt, Henry. Economics in One Lesson. New York: Arlington House, 1979. Print.

2) Hayek, Friedrich A. Von, and William Warren Bartley. The Fatal Conceit: The Errors of Socialism. Chicago: U of Chicago, 1989. Print.

3) Mises, Ludwig Von, and Bettina Bien. Greaves. Liberalism: The Classical Tradition. Indianapolis: Liberty Fund, 2005. Print.

4) Mises, Ludwig Von. Human Action: A Treatise on Economics. New Haven: Yale UP, 1949. Print.

5) Mises, Ludwig Von. Middle-of-the-road Policy Leads to Socialism. South Holland, IL: Consumers-Producers Economic Service, 1951. Print.

6) Rockwell, Llewellyn H. “War and Inflation.” – Llewellyn H. Rockwell Jr. N.p., n.d. Web. 14 Aug. 2014. <>.

7) “”Fear the Boom and Bust” a Hayek vs. Keynes Rap Anthem.” YouTube. YouTube, n.d. Web. 14 Aug. 2014. <>.

8) “What Is the Broken Window Fallacy?” Investopedia. N.p., n.d. Web. 14 Aug. 2014. <>.

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