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.