Economic Peace theory

September 21, 2015
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The capitalist peace, or capitalist peace theory, posits that according to a given criteria for economic development (capitalism), developed economies have not engaged in war with each other, and rarely enter into low-level disputes. These theories have been proposed as an explanation for the democratic peace theory by accounting for both democracy and the peace among democratic nations. The exact nature of the causality depends upon both the proposed variable and the measure of the indicator for the concept used.

History[edit]

The philosophical roots of capitalist peace can be traced back to Immanuel Kant, Joseph Schumpeter, Norman Angell, and classical economic theory. In his 1795 essay Perpetual Peace, Immanuel Kant argued, among other things, that “the spirit of commerce . . . sooner or later takes hold of every nation, and is incompatible with war.” In the early twentieth century Norman Angell reasoned that trade interdependence in modern economies makes war unprofitable. Later, Joseph Schumpeter offered the observation that with the advancement of capitalism people form “an unwarlike disposition.”

The modern capitalist peace emerged with the democratic peace. In one of the earliest systematic confirmations of the democratic peace, Stuart Bremer also examined the relationship between capitalism and war. He found capitalism to be a more powerful force for peace than democracy, yet the democratic peace accrued much more attention in the academic and policy literature. Today at least four theories of capitalist peace can be identified, with some of these theories claiming that a capitalist peace may subsume the democratic one, given that capitalism may be the cause of both democracy and peace.

Definitions[edit]

A key to explaining the capitalist peace rests on the indicative measures for capitalism. There are at least four different definitions of capitalism currently being employed.

Capitalism1[edit]

A number of models of the capitalist peace equate free markets with capitalism. In this usage, free markets and trade cause economic development, which in turn accounts for the peace among nations with advanced economies.

Capitalism2[edit]

A second understanding of capitalism is one that is conceptualized based on the intensity of market contracting in a society, where a capitalist economy is defined as one where most actors in the economy are integrated by contracting in the market. By definition contracts must be voluntary and undertaken without coercion.

Capitalism3[edit]

In the third measure for capitalism inter-state trade is seen as an indicator for a developed, hence a capitalist economy. The level of trade interdependence, therefore, is the operationalized measure of this third type of capitalism.

Capitalism4[edit]

The final way that capitalism has been measured is with the size of government. States that have limited governments, hence large private sectors, are supposed to be capitalist economies. The size of government is used as an indicator for the level of capitalism a state has achieved.

Explanations[edit]

There are four primary theories that have attempted to explain the capitalist peace, each of which has used one of the above definitions of capitalism. Each theory has achieved varying levels of success and empirical corroboration, although they all rely on capitalism as the main explanatory variable for peace.

Trade interdependence[edit]

The interdependent trade explanation for the capitalist peace is built on the foundations of classical economic theory. This idea, which can be traced back to Kant, became the original theoretical explanation for the capitalist peace. In 1996, Erich Weede tied trade and free markets to development and peace, proposing that trade interdependence caused peace between nations. Weede followed this up with what he called the "capitalist peace". However, the empirical findings of the link between trade and development have been drawn into question, as one study found that the proportion of GDP to foreign trade is only 0.08, measured by logged GDP per capita.

Economic norms theory[edit]

Economic norms theory links the economic conditions of clientelism, which prevail in many lower income societies, and a contract-intensive economy, which prevails in many higher income societies, with divergent political interests and habits.

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