The Korean peninsula demonstrates the fundamental differences
between free and fettered markets. As always, there are the
free market’s obvious attributes of prosperity and democracy.
However as recent events have shown, peace should not be
overlooked. And just as importantly, neither should its proper
attribution to a free market.
In one relatively small section of the world, the stark
differences between the world’s most important dichotomy is clearly
visible. In South Korea, a capitalist market, open society, and
democracy exist. In North Korea, a closed market, closed society,
and totalitarian regime exist. You also have a stark distinction
between peace and war.
Perhaps capitalism’s most overlooked attribute is peace.
Virtually all conflicts of the last century have been initiated by
fettered market, authoritarian states. Often the world’s armed
conflicts have been between two such regimes. Contrastingly,
military conflicts have almost never pitted two capitalist,
democratic nations against one another.
Socialist, communist, fascist, or simply non-ideological
dictator-governed nations have almost always been the world’s
aggressors. When capitalist democracies are drawn into armed
conflict, it is almost always against such economically-fettered
nations.
The reason for states’ predilection to war or peace goes
back to their underlying economic systems. To fully appreciate it,
we must understand the economics motivating each.
Capitalist countries find war a last resort. War is both
expensive and wasteful. It is these states’ worst economic
investment — diverting their resources from productive uses to an
unproductive one.
Virtually any alternative to war is a better investment
for a capitalist nation. War only becomes plausible when the
failure to meet military aggression sets the stage for even greater
long-term costs — continued aggression that will inevitably be
even more costly than short-term resistance to it. If the
calculation is simply between conflict and non-conflict, the latter
is the cheaper and therefore preferable alternative.
In economics, cost is the return from an alternative use
of a resource. Thus for a capitalist nation, the opportunity cost
of war is excessive.
The economic calculation of war is just the opposite for
the fettered market nation. The opportunity cost of war to such a
nation is less. By definition, their economy is already operating
on a suboptimal allocation of its resources. North Korea is the
extreme example. Its economy is so bad that conflict is actually
its best economic investment.
However, even if the extreme case is not the point of
comparison, the difference in the opportunity costs of conflict
between a free and a fettered market nation is
significant.
Another aspect of a free market is the fact that it is
likely to produce a free society and government, while a fettered
economy can produce neither.
Both Milton Friedman and Frederick Hayek underscored this
essential difference due to differing economic systems. Friedman
stated: “…[W]e know of no society that has ever achieved prosperity
and freedom unless voluntary exchange has been its dominant
principle of organization. We hasten to add that voluntary exchange
is not a sufficient condition for prosperity and freedom…Many
societies organized predominantly by voluntary exchange have not
achieved either prosperity or freedom, though they have achieved a
far greater measure of both than authoritarian societies. But
voluntary exchange is a necessary condition for both prosperity and
freedom.”
Hayek made the same point: “The free market is the only
mechanism that has ever been discovered for achieving participatory
democracy.”
The reverse is equally true. Where a fettered market
exists, a fettered people are sure to as well. A person who is not
allowed to own private property, is not truly free himself. A
people who can own property and dispose of it freely, will forever
be a check on a state’s attempt to monopolize power.
The result is that fettered markets produce governing
systems that make going to war not only less economically
unappealing, they also produce political systems with fewer means
to stop the government from acting on its diminished economic
disincentive to conflict. Dictators can take their nations into war
with relative ease and then keep them in such a conflict for
relatively longer periods of time.
With democracies, again, the case is just the opposite.
Going to war requires near political unanimity and that unanimity
is continually being reevaluated as a war
continues.
Capitalism is frequently credited with only the most
prosaic of goals and ends in society. In fact, it is really the
protector of society’s most sublime goals. In other societies,
peace and prosperity are uncommon occurrences, happening in
contradiction to their economies and their resulting political
systems. In capitalism, peace and prosperity are its defining
attributes. They are overlooked precisely because they have become
commonplace to those of us fortunate enough to reside in such an
economic-political system.
