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SPEAKER 1: Peace is, among other things, the absence of war. And it is part of what passes for the conventional wisdom, that it is economics which supplies the sinews of war. Napoleon, no doctor of philosophy in economics, said an army marches on its stomach, which is simply a dramatic way of saying that it takes Gross National Product or GNP to conduct a war.

Indeed, some people go further and say that wars are not really a struggle for power between princes, but rather a joust between competing pig irons. That the name of the game, whatever the program calls it, really is plunder. In the well-made murder mystery, there always comes that moment when the infallible detective says, cherchez la femme. Similarly, many acute students of imperialism will counsel that one should seek to ferret out as the proximate cause for war, that love, which dare not reveal its name. I mean, the love for money.

This view that economics is at the root of all conflict is an extreme one, but all the more reason that we analyze it carefully and without prejudice. For who is to say that nature herself does not follow extreme patterns? No one I believe was ever refused a Nobel Prize in science because the great principle he discovered turned out to be simple. All that we require of a principle is that it be correct in relation to the facts, not that it be complicated.

At the opposite poles to the simple thesis that economics is the cause of war is an equally simple antithesis. Economics is the means to peace. I'm referring to that attractive view of John Stuart Mill, which held that if strangers will begin to exchange goods with one another, they will come to prefer the exchange of good with good to the exchange of evil for evil. Strangers who meet in markets, it is hoped, will come to know, trust, and perhaps even like one another.

The free trade cause was espoused by the classical economists of a century ago on the grounds that it would contribute to economic well-being. But also, it was espoused in the faith that free trade would promote world peace. Well, just because a thesis is optimistic doesn't mean that it is necessarily wrong. So economics as a cause of peace also deserves careful and objective investigation.

Finally, there was an important view expressed on the eve of World War I connecting up economics and the peace. The outbreak of hostilities in August 1914 came as a blow to every civilized person. And when the writers and artists of London's Bohemian Bloomsbury set gave voice to their anguish, they were bucked up no end by the assurance given to them by a young man who was to become the greatest economist of our century. I trust you all know his name. I refer, of course, to John Maynard Keynes.

And the message of comfort he preached was this. Be of good cheer. No modern war can last beyond Christmas. It just become too expensive and cannot be a lasting matter. Well, by the way, if that's what a great economist said, what do you suppose the lesser economists say?

[LAUGHTER]

Well, strange as such words may sound-- must sound in the light of hindsight, I seem to recall that Norman Angel was given a Nobel Prize for peace in part, at least, for enunciating this thesis. And I should warn that before we laugh too knowingly at the incertitudes of the past, we recall that one of the reasons, one of the reasons for the acceptance of the recent ceasefire in the Middle East was provided by the brute fact of accounting that neither side had the reserves of material to continue the conflict at its initial intensity. Well, perhaps some day, war will price itself out of the market. That, too, is a thesis that has to be studied. And I might add, don't hold your breath.

Let's examine capitalism as the source or a source of imperialistic wars. And let's face up to the most single most sweeping indictment, which asserts the strong thesis, that the prime cause of war is capitalism. This is not a new thesis. All this century, it has been advanced in one form or another.

Thus, early in the Edwardian period, the British economist, crank, underconsumptionist, John Hobson, sought to find an explanation for foreign investment in capitalism's need to depend upon foreign markets for its continued prosperity. A little later, Rosa Luxemburg from a more Marxian point of view elaborated the thesis that a closed economy, a closed capitalistic economy, would inevitably run out of steam when it came to find vent for its surplus, unless it could find new markets, new third markets abroad.

Lenin, while a political refugee in wartime Switzerland and just prior to arriving at the Finland station to take charge of the impending Russian Revolution, welded together the Marxist views of Rudolf Hilferding, Luxemburg, and others to set forth the thesis that World War I was essentially the outcome of the monopoly banking last stage of capitalism.

It would be a mistake to believe that there is one monolithic Marxian view of these matters. Marx himself, Albert Hirschman has recently discovered, could have found in the writings of Hegel-- that goes back a long time-- the thesis that a closed capitalistic market system requires outside markets for its maintainable equilibrium.

But apparently, according to Professor Hirschman's researches, this particular thesis is not to be found in Marx's own writings. And indeed, it's not a peculiarly Marxian notion that a surplus in the balance of payments is a favorable factor in promoting brisk domestic economic conditions. The pre-Adam Smith mercantilists were, if anything, only too prone to fall into such beliefs. And all this was centuries before the writings of Marx and Engels.

If the results of research were to confirm the belief that capitalism is the prime cause of war, would that be reason for optimism or pessimism? Those who think that the final revolution into socialism is imminent would, I suppose, consider it to be an optimistic conclusion. With one fell swoop, the destruction of capitalism would usher in an epoch of world peace.

But are there really very many today who think that the ultimate revolution is imminent? I rather doubt it. On more than one occasion in the mid-19th century, we know from the letters of Marx and Engels to each other, they did think that Communist revolutions were just around the corner. Often, they would discuss the timetable of the railroad schedules and packing their bags to be in on the 1848 or the later rebellions and revolutions.

But with gray hairs and hopes long deferred, they came to hold a more realistic view. And actually, when the October 1917 revolution did happen to come to wartime Russia, the event came as something of a surprise to most Western European radicals. It was not called for in their philosophies and timetables that pre-industrial backward Russia should skip the stage of Bourgeois capitalism and have enjoyed, if that is the correct verb, her revolution first.

The good book says, we pass this way only once. History is a one time thing. It's not a scientific sample selected by a repeatable procedure from the same statistical urn or universe. As the Greek philosophers insisted, one cannot even swim twice in the same river. One swims differently at 10 than at 20.

More than that, no river stays the same. Mark Twain's Mississippi is not Jerome Kern's. Each generation, alas, must learn its own lessons the hard way. When Saint Paul was a child, he did as a child. Why should that privilege be denied to last night's newly born?

This was brought home to me on an occasion when Paul Sweezy once spoke at Harvard. Paul Sweezy is one of the few Marxian economists who developed out of American academic life. But don't hasten to infer from this that Sweezy holds down a remunerative chair in an American University.

On the contrary, he has gone from being a young radical to an old radical as a freelance writer and editor of the Monthly Review. As close as he was ever able to come to academic tenure was an occasional stint as a summer school teacher or visiting professor, which I must say is a sobering reflection on the American college system.

Well, a colleague reported to me how the Harvard post-lecture discussion ran. One of the new left listeners queried, what I want to know is whether in your opinion, Dr. Sweezy, the revolution will come in my lifetime? In reply, Sweezy was reported to have laid out the pros and the cons of the likelihood of that contingent event, only to evoke the impatient rejoinder, what's the good of it if I can't look forward to a better social order in my own time? Nor was the young leftists disquiet assuaged by Dr. Sweezy's sage observation, don't old men plant small trees that will never bloom in their lifetimes?

Well, I betray my age when I confess that in this matter, I have to side with the old against the young. If there is a true law of conservation of violence and warfare under capitalism, that is indeed a pessimistic conclusion. For as we look around the world today, we realize how tenacious is the grip of the market system.

The counter-revolution in Chile against the Allende government came as no great surprise to the cynical and sophisticated political analysts. Their wonder was that the non-interventionist tradition of the Chilean military establishment prevailed as long as it did. Even the Scandinavian countries with their long socialist tradition, their long tradition of sense consensus, have witnessed in recent years something of a rebellion at the polls against the heavy taxation of the welfare state.

Who would have thought that a George Wallace could gain a considerable vote in Denmark? In Norway and Sweden, the long time dominance of the labor parties has diminished in recent years. The balance of power in Australia and New Zealand similarly oscillates with the narrow limits between left of center and right of center coalitions.

But let us grasp the nettle. However our hearts would feel about the remoteness of true peace under enduring capitalism, our minds will want to know whether imperialism and warfare are indeed inseparable from the market system. Let's try to tally up the score.

Yes, generals do have a vested interest in warfare. And 15 years after World War I, there were senators from this part of the country who believed that America had been pressured into that unnecessary conflict by the machinations of the munition makers who stood to gain their blood profits from the encouragement of hostilities.

This simple-minded notion would make a good Shaw play. In fact, it once did. But every question has two sides, and either side would make a good Shaw play. And Shaw worked the other side of the street, as I recall, in Arms and the Man in which his chocolate soldier is too preoccupied with running hotels along good Swiss lines to indulge himself in patriotic heroisms and histrionics.

Today, there are no few specialized industries which exist only for the purpose of making gunpowder. Nevertheless, the military industrial complex-- and we owe the name to General Eisenhower of all people-- is much more suffused. The house of ITT has many mansions. I'm sorry I wrote that down before it came up in the discussions yesterday.

But the hostilities which enrich its foreign utilities branch may at the same time impoverish its chain of vacation hotels. The name is Sheraton, but the ownership is ITT. The soldier who dies may be a policyholder in the insurance company ITT owns. The name is Hartford, but the ownership is ITT.

Well, of course, some special interests gain from war. But also, some special interest groups lose from the absence of peace. The question must be posed to ask, does the capitalist class as a whole gain or lose from war? It would be misleading to give the following answer, an easy answer.

German and Japanese capitalists were hurt rather than helped by World War II. Of course, nobody starts out gaily in a war he is sure he's going to lose. We must ask, do the capitalists in the country that turns out to be victorious stand to gain as a whole from the business of war? The answer to this question turns out to be not so simple.

On the one hand, one probably can think of historical cases of nice cheap wars where the capitalists of the victorious country ended up with a good return on their investment. And indeed, there is no reason why much or all of the spoils of war could not also have filtered down in those countries to the non-capitalist classes.

But on the other hand, war is almost certain to involve what we economists technically call deadweight loss. After even the most profitable war, economists from either nation or from the outside will almost certainly be able to show that the losers lose more than the winners win. In that sense, war can't be good business.

In the vulgar language of the graduate classroom in economic theory, we say that wars are not Pareto optimal. This is to say that if rational men could foresee correctly the outcome of the war, the losers could bribe the winners, offering them even more than they derive from the successful war and with everybody, I repeat, everybody, ending up better off from peace than from war.

As an aside, let me say that I once appeared on a panel with a sparkling journalist in Washington, Peter Lisagor, head of the Chicago Daily News Bureau. And he had a good solution for the Vietnam War. He thought it would cost between 1 and $5 billion. That was to bribe to and his group with numbered bank accounts in Switzerland. He thought it would be very much cheaper in the end.

Well, such economic analysis, I think, proves a little bit too much. I realize that there are economists, and perhaps, even the majority of economists, who really believe that the world, in fact, ends up Pareto optimal. To me, this is an incredible belief. The very existence of past wars serves as counterexamples to refute the theorem.

By such a theorem, you could prove that crime does not pay. The victims of crime could always pay off the criminals more than the criminals get from the practice of crime and still leave the victims better off. But crime does still occur. And I do not mean only crimes of passion or prey to optimal crime between sadists on the one hand and masochists on the other.

Of course, the Civil War cost the South more than their antebellum slaves were worth. Of course, the Civil War cost the North many times more than the sum needed to buy all the pre-war slaves out of slavery. If that could somehow have been done at a price per slave equal to market quotations at which a limited number of slaves were actually bought and sold in the pre-war years, in practice, probably you'd be bidding up the price against yourself as we, oil consumers, are learning at the present time.

But what is the relevance of this fact? You can't undo a war. You can't fight one on paper for matches rather than for blood. Why do I say that? Maybe somebody should work on some algorithms to see whether it couldn't be done as a substitute.

When the drive for Algerian independence threatened the North African holdings of the French colonists, there was no effective way for de Gaulle's France to compensate those colonists and avoid conflict, even though an accountant could prove that such compensation would be far cheaper in the long run. If one tried to abort crime by paying off bribes to would-be criminals, the effect would be merely to make all economic persons, would-be criminals, kidnappers, and extortionists. One would owe it to oneself, so to speak, to simulate outlawry and charge what the traffic will bear.

To sum up this aspect of the matter, the economic theory of bilateral and multilateral monopoly and of Newman's mathematical theory of games does not have as one of its outcomes and theorems the necessity of peace. We are left after our excursion into economic theory with the definite possibility that some classes within a nation and indeed some victorious nations as a whole may reap selfish advantage from some wars. And because of the human propensity to engage in wishful thinking, wishful dreaming, and to exaggerate one's own prospects and prowess, many nations may go to war in the illusion that they will be the fortunate winners.

Parenthetically, one has to point out that a nation may rationally go to war, even if it expects to be the loser. I am not thinking solely of considerations of honor, even though such considerations are crucially important. No one can improve much upon Horatio's dictum, how can man die better than facing fearful odds for the ashes of his fathers and the temples of his gods? No, I am making the prosaic arithmetic point that if it is known that a country will resist the invader, even the invader who is sure to prevail in the end will find it optimal to invade less often than if he could count on a cheap and easy operation.

Well, let's talk about conditions bearing on the probability of peace. The English scholar, Richardson, studied the historical statistics of past major and minor wars. It's a sorry tale. Just as you can bet that a certain number of Minnesota telephone poles will be hit by lightning each year or to take a classical textbook example, that a certain number of Prussian soldiers will be kicked by a mule, so Richardson found, you could bet that somewhere on Earth a conflict would break out nor have recent years brought favorable improvement in the odds for peace.

Perhaps what is fruitful is not to ask, what can be done to end all wars forever? Nothing or nothing feasible may be the discouraging answer to that question. Instead one might ask, what conditions will lower the odds that peace will break down?

Let me pose a few hypotheses and evaluate them all too briefly. First, would socialism ensure peace? This is no easy question. Utopian socialism everywhere, by definition, might end human warfare, but so might utopian capitalism or utopian anarchism.

And actually, the stage of transition in the world between capitalism and socialism might send up Richardson's odds against peace as rival ideologies fight for the temples of their incompatible gods. The friction between China and Soviet Union remind us that even if the whole world were avowedly socialist, there could still be high likelihood of major war.

The analysis of class, which is often so fruitful for the understanding of Western societies, may be no less rewarding in a Communist society. I have a colleague who uses class analysis all the time on the Soviet Union. The bureaucracy, particularly under centralized planning, may perform many of the roles of the bourgeoisie. And the military classes may be slow to wither away.

Second hypothesis, would reform capitalism, or the mixed economy, which is what we live in, will that increase or improve the odds for peace? It would be nice to be able to give a cheerfully affirmative answer to this question for most of the world has been moving this last half century away from raw, undiluted capitalism towards a post-new deal mixed economy. To a man from the moon-- I first wrote to a man from Mars. Yeah.

SPEAKER 2: Ladies and gentlemen, I'm very reluctant to interrupt. But Charles Cochrane, will you raise your hand? Charles Cochrane, will you immediately leave your seat and go to the back of the chapel to see Bob Peterson of our staff?

SPEAKER 1: As I say, most of the world has been moving this last half century away from raw, undiluted capitalism. To a man from the moon, Sweden and Switzerland, England and Japan, France and Italy, Germany and Australia, Germany and Australia, the United States and the Netherlands would all look very much alike and distinctly different from China, though less different from India or Iran.

But I'm not so sure that the answer with respect to the mixed economy and reform capitalism is altogether a reassuring one. Let me say because it was a question I was asked last night and it's the question that I used to be asked as the single most often question, particularly if I lectured abroad, was whether America's prosperity depends upon military expenditures.

I wish that were the only part of the problem to worry about. Because to that question, one can give a very cheerful answer. In the age after Keynes, there is no need for a mixed economy to find public works projects, killing off people in distant places. No need to find third markets. However true, the thesis of Luxembourg may have been when William Howard Taft was napping in the White House. That is not the case under present mixed economy. But there are other aspects of the problem, a little more disquieting.

The Lord created the Tower of Babel for a reason. So long as every small group could be separated from every other by impenetrable barriers of language, the formation of a gigantic national power remained an impossibility. The affiliated cantons of Switzerland aren't much of a threat to the Pakistani or even to the Austrians.

Similarly, just imagine if you can, a competitive system of capitalistic laissez-faire, that fairy tale told by the economic textbooks. In it, so to speak, every person stands alone, connected with every other human being only by the telephone rings of supply and demand. If you don't know your broker's face, how can you team up with him to beat up folks in the next County? As Keynes said, it is better for a man to tyrannize over his pocket book than over his neighbor.

And if the economy governs itself, no significant fraction of the GNP need be put at the service of government. Louis XIV could not have killed off the flower of French youth without a full royal purse and the power to commandeer man fodder for the cannons. But now, let laissez-faire break down in the direction of the mixed economy.

To curb monopoly, bureaucracies are set up. To iron out the mad vibrations of the business cycle, the central bank is set up. To promote employment, a stabilizing government budget has evolved. To mitigate inequality of outcome and of opportunity, redistributive taxation and transfers are instituted. To keep out the sea, dikes are built and maintained while public works corps engineers build irrigation works. So far, so good. None of us would wish it otherwise.

But alas, having said this, one must go on to say, there is no going back to the linguistic isolation of the Tower of Babel. The Lord's experiment didn't work out. Once having eaten of the fruit of the tree of knowledge on how to run the welfare state, the large nationalistic government, there is no going back to the Hobbes jungle of laissez-faire anarchism.

I don't wish to be misunderstood. Mine is no Spenglerian thesis about the decline of the West's peace as the byproduct of humanitarian social efficiency. I see the reverse of merit in the Hayekian and Friedmanian thesis that the path to social security leads only into the road to serfdom and to the Holocaust of nuclear Armageddon.

My final message is that peace is in our hands but we shall have to work for it. No iron law of economics drives us into war or guarantees for us the peace. In the age after Keynes, no mixed economy needs military expenditure in order to keep the boiler of monetary purchasing power stoked up. The Federal Reserve can see to it that mankind shall not be crucified on a cross of gold or devastated by a shortage of bits of green currency.

Remind ourselves that the economic miracles of Japan and Germany were performed in mixed capitalisms that were denied the pleasures and burden of a vast military expenditure. And under flexible exchange rates, no modern economy needs the favorable balances of foreign investment to preserve its full employment and prosperity. In short, the ghost of Rosa Luxemburg is finally laid to rest in this age after Keynes.

But the advanced countries do depend economically on raw materials to be found in other countries. There lies the surviving germ of truth in the older theories of imperialism as the present oil boycott and so-called energy crisis makes only too clear.

The technical and managerial knowledge in the advanced countries, as well as some of their capital, could, with mutual advantage, be spread abroad. Here, we come back to the problem touched upon yesterday of the multinational corporation. Could. This is the economics of firms.

But the politics of nationalism also demonstrates that free scope for profit-seeking investment is anything but likely. The security of contracting and of property that we take for granted within a country experience suggests is anything but assured when dealing with nationalism abroad and with societies likely to change their regimes in the relevant future.

As a result, I think, we must expect some loss of economic welfare, also, some gains in equity. But this is not an economic loss that government ought to prevent by the use of power or force. The time has passed when we can send a destroyer off the shores of a recalcitrant nation. That way lies a certain threat to the peace.

So I conclude, economics must be a good servant, not a bullying master. Economics may be the queen of the social sciences, but that is only to say that it must be the man servant of humanity. This is a lesson fraught with significance for the cause of peace. But it's not a lesson to be learned by economists alone. Its lesson applies to the man of business, the heads of state, and the people at large who represent the civilization that men of peace are fighting for. Thank you.

[APPLAUSE]