Scholars have so thoroughly mined the idea of the democratic peace that it takes an extraordinary contribution to advance the discussion further, rather than simply restating previous ideas in a slightly new way. Patrick J. McDonald's attempt at this contribution focuses on the role of economic, not political, institutions. Of course, as he acknowledges, the idea of the commercial or capitalist peace is nothing new, but he develops novel ideas based on the domestic distribution of economic power. The resulting analysis points to extensive government ownership of the country's assets and to policies closing domestic markets to the international economy as the important precursors of war.

In particular, McDonald asserts in The Invisible Hand of Peace that owning property gives governments financial autonomy, freedom from the constraints that come with having to raise revenue through taxes. This freedom allows the state to pursue militaristic policies despite the opposition of the public, while preventing it from credibly committing itself to peaceful policies (which can provoke attacks from fearful opponents). At the same time, protectionist trade policies further allow governments to consolidate their power by choosing to distribute the largesse of trade protection to interest groups in exchange for support of militaristic policies. In addition, the passage of protectionist policies signals the triumph of import competers, who generally favor territorial expansion (which would enlarge domestic markets) and international conflict (which disrupts international trade, producing, accordingly, higher real returns to groups who lose from cross-border exchange). McDonald argues that these economic explanations of the liberal peace outperform and possibly subsume democracy-related explanations.

After laying out these theories and testing them in large-n statistical analyses of both the post–World War II and pre–World War I periods (Chaps. 4–5), McDonald turns to a series of detailed qualitative case studies. These explore the proposed mechanisms in the nineteenth-century relationship between Britain and the United States (Chap. 6), in the outbreak of World War I (Chap. 7), and in the China-Taiwan relationship (Chap. 8). The discussion returns to quantitative methods for a brief statistical comparison of the power of his preferred explanation with the standard democratic peace account (Chap. 9) before offering some conclusions for both scholars and policymakers (Chap. 10).

McDonald's analysis is provocative in the best sense: It leads to startling suggestions that provoke thought and cast unexpected new light on old questions. (How often do accounts of World War I's origins identify the Russian vodka monopoly, or France's 1905 imposition of capital controls, as a key factor?) The argumentation is, however, quite loose. Central assumptions remain opaquely implicit. For instance, the theorizing never seriously acknowledges or addresses the possibility that elites may sometimes be more pacific than is the broader public, that privately held firms may have noneconomic ends, or that institutions may arise to impose veto constraints on spending of state-owned enterprises' profits as well as taxes. (Indeed, another seeming assumption is that state-owned enterprises are always profitable and never money sinks.) The explicit assumptions are sometimes equally debatable: Much of the discussion of trade policy starts from the idea that “consumers should strongly support [trade-promoting] policies” (p. 68), which conforms with neither most empirical findings about trade policy preferences nor the usual logic of collective action. It is likewise unclear why efficient industries should never prefer the more certain gains of domestic tariff-induced rents to the possibility of reciprocal tariff concessions. All the premises may be plausible, but the lack of attempts to establish their reasonability in the face of possible disagreement is unfortunate.

Relatedly, a general neglect of alternative explanations, with the exception of a brief mention of socialist theories linking capitalism to war (p. 50), detracts from the persuasiveness of the account. There is generally little allowance that alternative explanations might produce the discussed outcomes. This problem continues into the empirical evidence, with alternative explanations—control variables—again thin on the ground. Generally, the models appear to draw exclusively on the conflict literature, not on the political economy literature. This means that the tests omit potentially relevant control variables that are not standbys in models of conflict (and include control variables not obviously relevant for the independent variable of interest)—models designed to test other hypotheses. To take an example from the discussion of trade policy, studies generally find that feelings of national pride intensify protectionism, and chauvinistic government attitudes could plausibly also trigger conflicts. But the models have no room for nationalism. Without consideration of more potential alternatives, the explanations and empirical tests are more suggestive than conclusive.

Even informal illustrations of the case get less than compelling presentations. To take just one example, McDonald supports the proposition that governments use their large reserves of public property to pursue aggressive foreign policies by pointing out Egypt's “participation in thirty-nine militarized international disputes” during Gamal Abdel Nasser's nationalizing rule—but no comparison is given to the pre-Nasser rate of disputes (p. 59). Even if there were, the Egyptian government might plausibly have marshaled more resources—and the Egyptian public might have accepted a militarizing state—in anticipation of conflict, as a result of the international environment: The confounding factor of Israel's formation is hard to ignore. Yet this account ignores it. As with the theoretical presentation, this prospect that there might be an explanation other than that of the book's central thesis, or that reverse causation may be an issue, goes unremarked and unrebutted. Alternative possibilities do receive more attention in the case studies, but it is disappointing to miss them in the more generalized, systematic discussions.

The empirics also suffer from gaps between theory and model. As noted, it is already questionable how closely public property correlates with unrestricted state revenues: how the story gets from the much-invoked “quantities of public property,” which seems to concern the absolute amount and ignore fiscal returns, to a baseline quantitative measure involving the proportion of public revenue that comes from nontax sources. (Furthermore, a denominator of public revenue rather than GDP is puzzling, especially for a measure purporting to capture “the size of public property within a domestic economy” [p. 79].) It also seems as if the logic of the argument hints at interactions involving the variables of interest rather than the individual variables, but the only interaction tested, between protectionist policy and dyadic trade dependence (p. 105), touches on a relationship somewhat remote from the central argument. While none of these are fatal flaws, they leave many questions open and uncertain.

The ideas in The Invisible Hand of Peace are likely to be worthwhile to the large scholarly community interested in the democratic or liberal peace. In addition, the case studies provide a rich source for future analysts interested in tracing how the incentives that governments face can lead either to or away from conflict. Notwithstanding the book's underdeveloped arguments and evidence, McDonald raises possibilities that can enrich an understanding of the causes of war and the bonds tying foreign policy to the domestic economy.