Resource Rivalries, the Industrial Organization of Taxation and Trade, Competition and Conflict: Economic Origins of Latin America’s Plate Basin Wars

Abstract

We argue here that previously ignored economic and strategic rivalries played a role in the onset of Latin America’s two costliest interstate armed conflicts to date in terms of casualties, as well as in that of a lesser preceding war. The conceptual economic framework from which we proceed, inspired in the stylized facts of the empirical record as well as on relevant classical and modern insights, allows discussion of the state and of inter-state conflicts. Smith’s distinction between European states according to whether they finance themselves “from a special fund” or “from the revenue of the people” facilitates analysis of the differential political nature and capacity of the South American states involved. His remark that the lower Danube states used their power to obstruct the trade of the upper country with the Black Sea applies as well to the subequatorial states of the Plate river basin emptying in the Atlantic at issue, which governed over resource-abundant export economies. While comparative advantage trade between
individuals has been shown to be negatively related to conflict between trading partners, we posit that states ruling over competing resource abundant economies may be comparatively more likely to conflict with one another as compared to with those of differently endowed trading partners. Conflicts between these states may be exacerbated by their different political nature and public finance institutions. Absolute political rulers who derive revenues from “a special fund” may be more likely to finance themselves through vertically integrated state monopolies, and to curtail foreign competition for their monopolies by embarking on wars. Like some earlier researcher, we find no persuasive evidence that, as has been argued, these particular wars were imperialist proxy wars, though some of the absolute rulers involved seemed to have had imperial ambitions over territories they captured. World trade fluctuations may also have been of import. Implications arise.