Capitalism, Peace, and the First World War

4 08 2014


Today marks the centenary of Britain’s decision to enter the First World War. For historians of international business, this milestone offers us a chance to pause and reflect on both the origins of this particular conflict and the role of different forms of capitalism in generating peace and war.

The role of business in the origins of the First World War has been debated since, well, 1914. During the conflict, Marxists such as Lenin published books arguing that business or rather homogenous “capitalist classes” in each of the Great Powers were behind the conflict.  Such a view was, of course, laughably simplistic, since lumped all business interests into the same category, which effectively  equated steelmakers like Krupp, which did stand to profit from a (short) war from, say, perfume companies, who did not.  Writing in the immediate aftermath of the First World War, Schumpeter adapted class analysis to explain the interest-group politics that had led to the outbreak of the war. Schumpeter identified two branches of the bourgeoisie. One element was cosmopolitan and largely pacific in its outlook. Schumpeter associated this sub-class with the ideology of classical liberalism. The other element of the bourgeoisie, according to Schumpeter, were the business interests associated with militarism, economic nationalism, and imperialism. Schumpeter argues that the acquisition of political power by the wrong element of the bourgeoisie, which included armament makers, endangers peace and therefore the interests of the ordinary bourgeoisie.[1]


In the United States, many isolationists came to blame the decisions that brought the US into the conflict not on the business class as a whole but on a few bad apples on Wall Street (e.g., anglophile bankers like Jack Morgan) and, of course, the “merchants of death” who made a killing from, er, the business of killing. The term merchant of death came into common currency in the middle of the 1930s thanks to a Republican Congressman.

In recent years, the role of business interests in political life has been debated extensively in many democratic countries.  In the United States, this debate has centred on the Supreme Court’s 2010 controversial ruling in the case of Citizens United v. Federal Election Commission. In this case, the US Supreme Court ruled that laws restricting the rights of companies to try to influence elections were unconstitutional as they violated the First Amendment. In the minds of many, particularly but not exclusively those on the left, this ruling has opened the floodgates and has made it even easier for business interests to use lobbying to subvert the democratic will.

On the 100th anniversary of the decision of great trading nation (Britain) to plunge into the vortex of European militarism , it is worthwhile considering whether greater business influence over politics can sometimes be a good thing. One of the striking things about the decision-making processes that led to the First World War is that the crucial decisions were made by a handful of individuals.  Christopher Clark’s Sleepwalkers, which is an excellent work of diplomatic history, makes it clear that the key decisions were made by about 20 individuals.  Another striking thing about the crucial days between the assassination in Sarajevo and the outbreak of the war is that the business communities in the major European countries were relatively quiet, even though the vast majority of businessmen, particularly bankers, dreaded the prospect of war. These business groups failed to mobilize for peace.  Yes, it is true that German banker Max Warburg pleaded with the Kaiser to de-escalate the situation and work for peace. It’s also true that the Rothschilds, an international banking family, resisted, at first, the financial mobilization that made the mobilization of actual troops possible. But for a variety of reasons, business leaders did not undertake serious resistance to the war in the form of tax strikes or other robust mechanisms of displaying discontent. I  recently stumbled upon an article that appeared in in the South China Morning Post in the middle of August 1914 that reported that hundreds of thousands of German businessmen were resisting the war and were calling on the Kaiser to declare a unilateral ceasefire.  The article was based on an erroneous rumour,  but it raises the interesting hypothetical question of what would have happened had businessmen been more robust in expressing their preference for peace. Of course, this is a pretty difficult hypothetical to think about, given the nature of the political cultures of most European countries as this time, which expected businessmen to be somewhat deferential to monarchs and other social superiors. (Obviously the cultures of the Western democracies are today very different and encourage all social groups, including businessmen, to be much more outspoken in voicing their opinions).

I understand that many Americans are upset about the Citizens United decision. I know that some British people are annoyed that the City of London has been able to use its influence over David Cameron to water down the sanctions on Russian business imposed after the downing of the Malaysian airliner.  However, I would urge these people to consider whether the events of the summer of 1914 prove that increasing the role of business in shaping public policy can sometimes be a positive force in society.

I have one closing thought about the First World War I would like to share. International trade and globalization cannot guarantee world peace, but they can reduce the frequency, intensity, and duration of war.  It is true that the outbreak of the First World War disproves the crude version of the trade=peace theory that is sometimes articulated by journalists such as Tom Friedman of the New York Times.[2]  Friedman famously argues that since no two countries with McDonald’s restaurants have ever gone to war with each other, capitalism produces peace. The simple rejoinder to this idea is that Germany was Britain’s number one trading partner in 1914 and vice versa, and that this didn’t prevent a drift to war.   However, this is some evidence to suggest that the theory of the commercial peace has some validity, or at least enough validity to guide our thinking about public policy. Since the 1990s, many scholars of International Relations have been persuaded that the mutual economic interdependence characteristic of global capitalism reduces the likelihood of war.[3] This is a theory that can be traced back to Adam Smith’s Theory of Moral Sentiments or even Montesquieu, actually. Although this theory is still controversial in IR departments, it has been bolstered by impressive empirical research and has diffused into other academic disciplines. For instance, the psychologist Steve Pinker incorporates this insight into his well-respected book on why the world has become less, rather than more, violent, over time. Countering the conventional wisdom, Pinker shows that rates of violent death have been falling for centuries, that the 20th century was actually a pretty peaceful century by some metrics, and that things are getting better. He then searches for explanations for why people are becoming less violent. Capitalism and international trade are part of his explanation.[4]


I’m not a big fan of the inefficient little regulations the European Union imposes on firms and consumers in its member states. There are lot of problems with the EU as it is currently constituted. On balance, however, the EU is damn good thing, since it had helped to integrate the economies of nations in Europe that were once enemies, making warfare within the EU virtually unthinkable. Despite its recent problems, the European Union has been a very successful post-conflict initiative. [5] That’s why I’m proud to be a citizen of the EU. I’m also proud to put the flag of the European Union on this blog post.

In the post-1945 period, European economic integration was promoted by a former businessman Jean Monnet, who wanted to make war between Germany and France as unthinkable as warfare within North America. Monnet had travelled to North America before the First World War, when he had been a cognac merchant, and was impressed by the ways in which economic interconnected promoted peace there.[6]

The Western world is now at peace with itself, thanks, in part, to commerce. I would say that Japan is also part of this moral universe of capitalist peace: war between Japan and the US is now unthinkable, which will doubtless assure Toyota owners everywhere.  I suppose that we now face the challenge of building a global economy that fosters peace between countries from very different civilizations and religious traditions (think Gaza, think India-Pakistan, think China-Japan).  How we go about doing that is, of course, a question well above my pay grade.






[1] Joseph A. Schumpeter, The sociology of imperialism (New York: Meridian Books, 1951).

[2] Thomas L. Friedman, The Lexus and the Olive Tree (New York: Farrar, Straus, Giroux, 1999), 249-276.

[3] John R. Oneal and Bruce M. Russet, “The Classical Liberals Were Right: Democracy, Interdependence, and Conflict, 1950-1985” International Studies Quarterly 41 (1997): 267-95; Patrick J. McDonald, The Invisible Hand of Peace: Capitalism, the War Machine, and International Relations Theory (Cambridge University Press, 2009); Erik Gartzke and J. Joseph Hewitt, “International Crises and the Capitalist Peace,” International Interactions 36, no. 2 (2010): 115-145.

[4] Steven Pinker, The Better Angels of Our Nature: Why Violence Has Declined (New York: Viking, 2011).

[5] Brigid Laffan, “The European Union: a Distinctive Model of Internationalization,” Journal of European Public Policy 5, no. 2 (1998): 235-253.

[6] Trygve Ugland, Jean Monnet and Canada: Early Travels and the Idea of European Unity (Toronto: University of Toronto Press, 2011); James J. Sheehan, Where Have All the Soldiers Gone?: The Transformation of Modern Europe (Houghton Mifflin Harcourt, 2009).



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