By Alan Hall, originally published in the October 2008 Global Market Perspective Download PDF (868 KB)

The principle of Occam’s Razor states that the explanation of any phenomenon is more likely to be correct if it makes as few assumptions as possible. Socionomics makes a single assumption: that endogenous social mood ultimately dictates the character of collective social action.

This hypothesis reverses the conventional direction of inquiry about what causes war. Instead of asking how war affects the economy, stocks or commodities, the socionomist asks, “How do fluctuations in social mood affect the prices of stocks and commodities, the strength of the economy and the likelihood of war?” This non-conventional approach to causality eliminates conflicting assumptions and rationalizations, and provides the simplest explanation of the available data.

Using socionomics’ single assumption, this report examines war’s relationship to the economy, real stock prices and commodity prices.

War and the Economy From 1776 to 2008, United States military forces have been deployed hundreds of times, both abroad and domestically. In this report, we will examine only the major wars that involve the United States.

For many years after World War II, most economists and historians assumed that war, man’s most destructive activity, was good for the economy. A recent quote from Nobel-winning economist Joseph Stiglitz illustrates the popular change of opinion: “It used to be thought that wars are good for the economy. No economist really believes that anymore.”

EWI has always disagreed with this idea and observed that the error arose from incorrect assumptions about what causes war. In 1999, The Wave Principle of Human Social Behavior addressed this:

Major mood retrenchment produces war, as humans finally express their collective negative mood extreme with representative collective action. As with economic output, the size of a war is almost always related to the size of the bear market that induces it.

An initial look at the steady ascent of the U.S. Real Gross Domestic Product — the upper line in Figure 1 — suggests that U.S. economic growth is largely unaffected by its wars, which have mostly been waged elsewhere. Looking more closely at the upper line, we can see downturns in real GDP near the end or shortly after each of the completed wars. In the lower line, the real GDP rate of change showed net slowing during all wars except World War I. Just after World War II, real GDP suffered its second lowest rate of change since at least 1870. The data shows that the economy has usually slowed during war and regressed afterward.

Figure 1 – Click Image to Expand

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