The long arm of free trade on Putin’s war

Knowledge in science arises when the essential is separated from the non-essential. Why is there unemployment? What can be done about housing shortages? Why do prices rise during crises? – Insightful answers to such questions come from choosing only those influencing factors that are relevant to the effect or problem. 

One of those clever answers that blew me away when I first understood it is how people deal with one another, given the assumption that everyone has their own best interests in mind. Economic theory says there are only two ways to get what others have: cooperation or coercion

The first case (cooperation) is regulated via markets. I go to the bakery, give money, and get rolls. The baker benefits from the exchange just as I do. Such a deal is voluntary and takes place because it is mutually beneficial. 

In the second case (coercion), the baker is threatened, for example, by a robber and gives away his baked goods without returning anything. Such an approach is to the benefit of one side and to the detriment of the other.

Every human encounter can be viewed with this two-sidedness. Business meetings, get-togethers with friends, long-term commitments in relationships. One can come to interesting conclusions by thinking of human coexistence in these two categories. But one thing is always clear: people generally like to live in a collaborative world. Then people interact with others only when they want to. In other words: Cooperation only works in freedom.

In contrast, war is the most monstrous coercion imaginable. Wealth and property are destroyed, land is stolen, life taken. 

Human coexistence in markets, on the one hand, and military conquest, on the other hand, is the greatest possible contradiction.

This contrast is currently visualised in a frightening way. The Ukraine war is, among others, so horrible because we have (fortunately) gotten used to achieving our goals primarily through cooperation. There has never been more of this in human history. Large parts of the world’s population are in constant exchange, in leisure time and at work. We communicate, buy and sell, and work collaboratively. 

We have never been more dependent on the cooperation of others to be able to fulfil our wishes.

The Manchester Liberalism, a political, economic and social movement of the 19th century that originated in Manchester, assumed that a life based on the division of labour would make wars a thing of the past. 

The outstanding Austrian School economist Ludwig von Mises wrote in his major work ‘Human Action‘ in 1949: “In the eyes of British liberals and their continental friends, free trade, both in domestic affairs and in international relations, was the necessary prerequisite of the preservation of peace. In such a world without trade and migration barriers no incentives for war and conquest are left.”

The conviction back then was: You don’t have to wage war when you can get goods and services in a more civilised way and can travel and migrate wherever you want. In a world based on the division of labour, war simply would make little sense. Mises wrote: “If an economically self-sufficient man starts a feud against another autarkic man, no specific problems of ‘war economy’ arise. But if the tailor goes to war against the baker, he must henceforth produce his bread for himself.”

There are still wars. Because some rulers want so. Not because of most of the people. The current war between Ukraine and Russia is disadvantageous for the people of both countries. If they lived peacefully and freely together, they could both live prosperous lives. The more exchange between the states, the higher the prosperity. War destroys this better life.

Nineteenth-century liberals believed it wouldn’t come to those wars in the future. Their great hope was, Mises wrote, that “all peoples will of their own accord recognise the blessings of free trade and peace and will curb their domestic despots without any aid from abroad.” 

The hope was not fulfilled. At least not everywhere.

But another liberal hope remains. That cooperation will triumph over coercion in the long run. Our prosperity and wealth are based on the international division of labour. Those who are excluded by sanctions lose their prosperity. Putin will struggle to maintain his power if two consequences of this exclusion become noticeable: a lack of money to prop up his armed forces and increasingly disappointed Russians who have to limit their standard of living. 

“What distinguishes man from animals,” Mises wrote in ‘Human Action’, “is the insight into the advantages that can be derived from cooperation under the division of labor.” These benefits have never been greater. Conversely, the following applies: the disadvantages of exclusion have never been more significant. In economics, this is referred to as opportunity costs. Here it means everything that you can’t do because of the war. Namely taking part in worldwide cooperation. Turning away from cooperation, chances are not bad that in the end, Putin himself will have to pay a very high price.


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