Capitalist Peace Theory has many reincarnations. Its most popular supporters include the father of modern economics Adam Smith and French philosopher, Montesquieu. Both these intellectuals hypothesize the sharing of earth’s different resources or promoting access to the same between nations as key to sustaining peace between them. Adam Smith predicates this assumption behind his comparative advantage theory.
According to this theory, every nation has certain goods and services that they can produce in better quality and quantity at a competitive price than other nations due to their geographical or demographical or any other external variable that is unique to that particular region. Rather than producing every goods and services required by a nation within its economy in pursuit of self-sufficiency, every nation must trade with each other what the other may produce competitively relative to the other. For example, Japan or Germany may have an advantage in producing competitively priced electronic devices and the software in terms of quality and quantity but it may be lagging behind producing the required agricultural produce in quantity as well as in quality as a relatively comparative price compared to other nations having a predominantly agrarian economy similar to Indonesia, Thailand or India & these agrarian economies may not be having the advantage to built an economy based on technology as effective as Japan or Germany.
This theory suggests rather than investing to remedy the disadvantages or inefficiency in producing particular goods or services within its economy it should instead invest in increasing the efficiency of goods and services that such a particular nation has an already pre-existing advantage in producing relatively competitively in terms of quality and quantity. This creates an economic interdependency or a symbiotic relationship between nations laying the foundation for fostering peace.
A failure of this arrangement would mean a greater possibility for military excursions leading to the annexation of territory by one nation upon another for access to resources that the former lacks an advantage in producing. Most of the nations who engage in war with each other lack a connection of economic relationship with each other. Therefore, according to this theory fostering greater economic relations through the promotion of economic trade and foreign direct investment between nations is key to international peace and security.
It is on the basis of this capitalist peace theory institutions like the International Monetary Fund (IMF) and International Bank for Reconstruction and Development (IBRD) popularly known as the World Bank along with the World Trade Organization (WTO) are created. Each of these eminent international organizations play a special role in maintaining the statuesque of international economic order according to capitalist peace theory. For instance the interdependence or symbiotic economic relationship between nations which exist on the basis of competitive advantage theory may be threatened by an imbalance in the balance of payment between nations or due to monetary instability or it may be compromised due to lack of foreign investment in crucial infrastructure or may be compromised due to anti-competitive import or export trade practices.
When IMF and IBRD were created through the Britton Wood Conference of 1944, the international community vested IMF with the powers and duties to address monetary instability and payment of balance in-equilibrium between nations which may compromise the international symbiotic economic relations among nations. Whereas IBRD was tasked with securing investment in crucial infrastructure interns of loans to bolster the competitive advantage of a nation’s economy. Through the initiatives of the Havana Conference of 1946 WTO came into existence in 1994 with the aim of promoting free trade among nations and mitigating hurdles to free trade through negotiations and dispute settlement. The Legal Framework behind the creation of this trinity of international organizations at the helm of international economic law and order represents the capitalist peace theory in motion through international economic legal practice which has led to the creation of the Global Village or Globalization, science fiction of the past, and a reality in the present.