Economics of the Dark Side

John Quiggin, Australian National University

Jack Hirshleifer, The Dark Side of the Force: Economic Foundations of Conflict Theory, Cambridge University Press, Cambridge, 2001 (pp. 366). ISBN 0- 52100-917-0 (paperback) RRP $69.95.

In the foreword to his best-selling Brief History of Time, Stephen Hawking passed on the warning of his editor that every equation reduced the potential readership by half. It follows that ten equations should reduce readership by a factor of around 1000.

On reading this collection of papers on the economic theory of conflict by UCLA economist Jack Hirshleifer, it is evident that the editor was pretty well spot on. The sections of the book that are entirely free of equations and graphs are precisely those that will interest general readers, potentially numbered in the millions. By contrast, even among mathematically literate readers, only a few hundred specialists in formal conflict theory will find much to detain them in the equation-heavy papers that attest to Hirshleifer’s eminence in this field.

As a result, readers who adopt the natural strategy of reading from beginning to end are likely to give up after a few chapters. The best way to read the book is to begin with the last and second-last chapters, then return to the beginning and keep reading until the ratio of equations to text exceeds your tolerance. I will review the book adopting this order.

The final chapter deals with ‘economic imperialism’. This term refers to an intellectual development of which this book is an example, namely, the application of economic methods of analysis to problems traditionally regarded as non-economic, such as crime, family structures and political processes. Most such applications have relied on the homo economicus model of humans as self-interested agents engaged in rational optimization. This model has worked fairly well in relation to the core issues of interest to economists, such as the determination of prices, the output decisions of firms, and the valuation of assets.

In broader applications, as Hirshleifer notes, the most common pattern has been of easy initial successes, followed by the emergence of intractable difficulties. As against a sociological model in which crime is postulated to arise from individual ‘deviance’, it is useful to make the point that crime can be regarded as a career choice, such that the decision to enter it will be influenced by relative risks and returns. However, it rapidly becomes apparent that models based on rational calculation alone give a poor guide to why some people become criminals and others in similar circumstances do not.

Hirshleifer notes—and rejects—two possible responses to this situation. The first is to define terms in such a way that all objectives are self-interested and all behaviour is rational. William Hazlitt, writing nearly two hundred years ago was probably the first to point out that this manoeuvre empties the terms ‘rational’ and ‘self-interested’ of any content, and the point has been made repeatedly since then. Nevertheless, this evasion is still commonly adopted, even as, Hirshleifer observes, by writers as sophisticated as Richard Posner, the leading theorist of law and economics.

The second approach is a ‘self-denying’ ordinance, in which the applicability of the Homo economicus model is confined to standard economic topics, while other models are used to analyse behaviour in other contexts. While more defensible than the first approach, this is still unsatisfactory. As Hirshleifer puts it, ‘There is only one social science’.

Hirshleifer deals with the application of economic methods to problems traditionally regarded as non-economic.

At a minimum, we should be able to explain why one sort of behaviour is observed in economic contexts, and a different sort of behaviour is observed in political contexts. In fact, however, a more thoroughgoing reformation is needed. As in other imperialism, not only do imperialists affect the areas they colonise, but the colonised in turn have their revenge. Once the issue of non-egoistic behaviour is broached, it rapidly becomes clear that the workings of economic systems, as well as other social systems, are ‘lubricated by the individuals who are willing to act voluntarily pro bono publico’. Hence, we need a social science model that accounts for both egoistic and cooperative behaviour.

Hirshleifer’s statement of the problem is the best I have seen. His proposed solution, however, relies almost exclusively on what used to be called ‘sociobiology’ and is now referred to as ‘evolutionary psychology’. While the literature on this topic has produced some interesting insights and fascinating hypotheses, as a scientific endeavor it is fatally flawed by the impossibility of making serious empirical tests. Apart from cultural universals, which are essentially uninteresting, the relevant data would consist of evidence on the social structures of our Paleolithic ancestors, which determined the environment in which humans evolved. We know far more about the first microseconds of the Big Bang than we will ever know on this topic—it is more comparable to the famous question, ‘What song did the Sirens sing?’, than to any serious subject of scientific inquiry.

Hirshleifer’s penultimate chapter illustrates this point. He presents a range of game-theoretic ‘Just So’ stories that lead to the emergence of cooperative behaviour as an evolutionary equilibrium. Not only do these stories differ in subtle and crucial details, but their application to behaviour in post-Paleolithic settings requires liberal use of metaphor. Altruistic behaviour based on kin-selection, for example, must be extended to nations or social groups, or even to humanity as a whole.

These chapters provide the programmatic background for Hirshleifer’s analysis of the economic foundations of conflict theory. The crucial idea is that conflict should be modelled using the standard economic tools of optimisation and game theory, but allowing participants a broader range of motivations than rational egoism.

These ideas are applied most directly in the first chapter, on the bioeconomic causes of war. As Hirshleifer observes, wars are fought not only in pursuit of the basic biological goals of food and sex, but in the service of less tangible goals such as prestige. Nevertheless, since war always destroys resources, it must ultimately arise from errors of belief on one side or other regarding the likely outcome, a point he attributes to Geoffrey Blainey.

The ghost at the feast in this story, as in all ‘realist’ analyses of war, is that of Norman Angell, who argued that, under modern economic conditions, the use of war in the pursuit of material benefit is always mistaken. Hirshleifer mentions Angell, but only as refracted through the lens of the recent debate on globalisation, which attributes to him the view that economic interdependence makes war less likely.

Angell’s real point is more fundamental. A modern economy cannot be run on the basis of expropriation. Even if, for example, Germany had established mastery over Europe in World War I, French workers would still have had to be paid, and Belgian households would still have needed the inducement of interest to part with their savings. Hence, even successful aggression would have yielded no improvement in living standards for Germans in general, although no doubt individual leaders could have enriched themselves greatly. The corollary is that the whole Clausewitzian doctrine of Realpolitik is obsolete. A rational country, therefore, will never use aggressive war as an instrument of policy, and when forced to deal with aggression will seek to restore the status quo ante as soon as possible.

Popular wisdom has beaten economic theory to the punch.

It is often suggested that Angell’s arguments were invalidated by the great wars of the 20th century, which began only three years after the publication of his major work The Great Illusion. It is true, that, having demonstrated that war is irrational, he was excessively optimistic about the prospects for rational behaviour. Nevertheless, the experience of the 20th century proves Angell’s central point in spades. Both aggressive war and economic systems based on wholesale expropriation have proved to be miserable failures in terms of delivering improved economic outcomes.

Ultimately, Hirshleifer concedes much of this. As he observes, biological motivations for war are largely irrelevant in the modern world. As he notes ‘were it not for the symbolic or prestige aspect, disputes over resources would be solvable without resort to war’. Moreover, as the social dysfunctionality of systems of ideas that promote war becomes more apparent, prestige is increasingly attached to the pursuit of universalistic goals.

Hirshleifer’s final ‘big idea’ is what he calls the ‘paradox of power’, namely that depending on the technology of conflict, those with a lower initial endowment of resources may improve their position relative to those with a larger initial endowment. This point is surely valid, but it is going too far to call it a paradox. From the biblical observation that ‘the battle is not always to the strong’ to the admonition of the Communist Manifesto ‘workers of the world unite, you have nothing to lose but your chains’, the idea that force can be used to reshuffle the distribution of wealth and power has been repeated in a thousand different forms. Hirshleifer’s game-theoretic analysis yields an interesting idea about how the technology of conflict determines whether or not it is a force for egalitarianism, but even here, popular wisdom has beaten economic theory to the punch. One need only recall, for example, George Orwell’s observation that ‘the rifle is a democratic weapon, the machine-gun a totalitarian one’.

Despite is limitations, this book is an excellent introduction to the economic foundations of conflict theory. Its weaknesses, including excessive formalism and reliance on ‘Just So’ stories, are characteristic of the field, while its strengths reflect Hirshleifer’s keen intellect and broad-ranging intellectual background.


Angell, N. 1911, The Great Illusion: A Study of the Relation of Military Power in Nations to Their Economic and Social Advantage, London, Heinemann.

John Quiggin is an ARC Senior Fellow in the School of Economics, Faculty of Economics and Commerce at the Australian National University.

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