Capitalist policies and cultures are peace-generating.

The logic underpinning the peace-generating aspects of international trade is grounded in the economic benefits generated by the division of labor, specialization, and voluntary exchange. The division of labor refers to the separation of production tasks into sub-tasks. It entails individuals specializing in specific production roles which, when combined with the efforts of other specializing individuals through voluntary exchange, yields an output that is greater than what would exist if each worker worked in isolation. Further, there is variation in the distribution of resources across geographic locations. The division of labor allows people to take advantage of variations in skills and resources and, in the process, yields increasing returns whereby a given increase in inputs produces a more than proportional increase in output.

Adam Smith (1776a, p. 31-36) noted that the division of labor is limited by the extent of the market meaning that the more people who are part of the market, the greater the opportunity to take advantage of the division of labor to engage in complex production processes. Expansions in the extent of the market can take place within given borders, but also internationally. The benefits generated by expansions in the extent of the market across borders raise the relative cost of war, relative to relying on peaceful means to resolve conflict. For instance, expansions in the extent of the market lowers the cost of obtaining resources, intellectual talent, and financial capital through voluntary exchange as compared to conquest and military rule. Further, exchange is positive-sum, meaning parties residing in different geographic and political boundaries benefit. This stands in contrast to the negative-sum nature of war where resources are destroyed and one party gains at the expense of another.

In addition to generating immediate economic benefits, the long-term economic benefits of trade can also contribute to peace. If there are potential future gains from repeated exchange, people have an incentive to negotiate peaceful resolutions to conflict in order to be able to capture those gains in the future. In doing so, repeated dealings through voluntary exchange increases the benefit of peaceful means, relative to violent means, of conflict resolution.

As Cobden noted, the economic benefits of international trade for peace are important, but they are not the only benefit. Trade can also foster relationships between people through the creation of friendship and community, a shared sense of understanding, and the cultivation of morals and ethics regarding interactions with others. While the economic logic of exchange notes that trade promotes peace because it raises the cost of violence due to economic interdependence, this line of reasoning holds that markets serve as a space for creating a peaceful society through the creation of cultures of peace (see Coyne, Romero, Storr 2022). Markets are not just economic spaces, but also social spaces where people cultivate and develop relationships with other human beings (Storr 2008). Through market interactions, economic actors connect with others—both domestically and internationally—and, in doing so participate in, and contribute to, the moral strivings of others.

Rothbard (1962) noted that “where one man’s gain is another man’s gain ... great scope is provided for the development of social sympathy and human friendships. It is the peaceful, co- operative society that creates favorable conditions for feelings of friendship among men” (pp. 101, emphasis original). McCloskey (2006) argues that market exchange is not the enemy of higher values and the nonmaterial development of the individual. It is true that markets create wealth, McCloskey notes, but there is more to it as “market society works as an ethical school” whereby people develop virtues contributing to coexistence and cooperation with their fellow human beings (2006, p. 413). Storr and Choi (2019) emphasize that the “market is a moral space that both depends on its participants being virtuous and also rewards them for being virtuous” (p. 11). The non-economic dynamics highlighted by these authors operate both within borders, but also across borders to foster peaceful bonds between people residing in different geographic and political spaces.

Some scholars distinguish between the idea of the democratic peace—that democracies are less likely to engage in conflict with one another—and the capitalist peace as competing explanations for the absence of violence. However, there are conceptual reasons to believe they are related. Hayek (1944) and Friedman (1962) argued that economic freedom was necessary, although not sufficient, for political freedom. Their argument was that if economic decision-making was concentrated in the hands of the state, it would require expansions in political power into the lives of private citizens. Economic freedom necessarily limited the power of the state to engage in economic planning which served as a check on the scale and scope of political power.

More recently, Weede (2004, 2005, 2006) emphasized the importance of development, which results from economic freedom, for functioning democratic institutions. In parsing the influence of capitalism and democracy on peace, Weede (2005) underscores the importance of capitalism’s direct and indirect pacifying effects. He labels the combined international security benefits as the “capitalist peace,” of which the “democratic peace” is but one component. Even if peace through trade were shown to be noncausal, he argues, economic freedom and globalization’s indirect effect would remain. Economic freedom and globalization play a crucial role in overcoming mass poverty and establishing the prerequisites for democratic peace as per the following logic (Weede 2005). First, because capitalism allows economic power to exist separate from political power, dissent is possible in a capitalist society. Second, capitalism and free trade are highly influential in promoting economic development and prosperity (see Gwartney, Holcombe, and Lawson 2006). Thus, according to Weede, democracy and the democratic peace are underwritten by capitalism.