(Page 2 of 36) - Neoclassical Economics and War: Unifying the Liberal Peace Hypotheses authored by McDonald, Patrick.

The liberal peace research program has played a central role in the development

of international relations theory during the past two decades. Largely built around the
Kantian tripod (Russett and Oneal 2001), substantial empirical support has been found
for the claims that democracy, international commerce, and membership in international
organization all promote peace between states. Despite this progress, the theoretical
explanations given for these findings remain heavily contested.

Challenging some of the common explanations for the liberal peace, I argue that

the principles of classical liberal theory can be merged with the insights of neo
institutional economics to construct a single conceptual framework capable of generating
a series of liberal hypotheses linking democracy, international commerce, capitalism, and
variations in the forms of wealth to the outbreak of peace between states. Beginning with
the ontological foundation of liberal theory, namely that individuals serve as the primary
unit of analysis in explanations of social behavior, I examine the conditions under which
society can limit a government’s ability and willingness to use military force in the
international system. Such an approach fits with contemporary classifications of liberal
IR theory that focus on the relative strength of state and society to explain interstate
behavior (Moravcsik 1997).

Extending the central insights of Lake (1992), this domestic relationship is

modeled with the neoclassical theory of the state that focuses on a government’s
construction of a war machine capable of defending society from external attack and
conquering new territories. Building on such simple principles as the law of demand,
monopoly behavior, and diminishing returns, I push beyond Lake’s concentration on
democracy to integrate previously neglected domestic institutions also capable of
protecting individual liberties into the study of foreign policy, grand strategy, and the
outbreak of war.

In particular, I place second image variables and mobilizational capacity--or the

state’s ability to tap society’s wealth to define, defend, and implement a grand strategy in
service of national interests--at the center of liberal theories of war. The state’s
autonomy and institutional capacity to protect its interests while surviving in anarchy
derive in large part from its monopoly on the legitimate use of violence within a
territorial unit. Such a monopoly allows the state to create a security apparatus necessary
to defend and extend society’s interests in the international system. At the same, this
monopoly creates opportunities for the state to maintain and even strengthen its hold over
a society. While granting the state authority to provide public goods and protect it from
external threats, society simultaneously seeks to constrain a state’s capacity to abuse its
power and perpetuate its rule indefinitely. Depending on factors that both limit this
monopoly power and shape the cost of mobilizing private sector resources, society’s
ability to constrain and punish the state play a crucial role in the adoption of policies that
promote peace. As society establishes more institutional safeguards that protect
individual liberties and limit a government’s authority, the state should be less likely to
participate in war.

To develop these ideas, this paper will have four sections. The first outlines the

foundations of a liberal theory of international relations and conflict. The second section
builds on these principles to generate a liberal model of war with the simple tools of price
theory and neoclassical economics. The third section uses this model to deduce a series