We are frequently told that modern democracies are “soft” and unable to bear the stress of a major war, compared with our iron-hearted ancestors with less affluent lives. However contemplation of the likely relative effects of the possible war between Colombia and Venezuela makes one realize: a society that finds the costs of a major war unbearable isn’t decadent, it’s civilized.

In agrarian economies, war’s costs could be immense, but they were short-term. If crops were burned by marauding armies, villagers starved to death. If cities were sacked, they had to be rebuilt. The economic and political life of the community nevertheless went on as previously in the areas not directly assaulted by foreign enemies. People had few possessions, so little to lose and the ability to tax them was limited. The ability of the entire Jane Austen oeuvre to ignore the Napoleonic Wars is symptomatic of this existence.

In a modern industrial economy the effects of a war that is large enough to disrupt economic life is much greater, with one caveat. Countries with gigantic economies that are more or less invulnerable to direct attack, like the United States, can fight quite substantial wars overseas without much adverse effect. Even World War II, which began with a direct attack on the United States, was largely positive in its effect on the US, since at the cost of vastly increased government debt it made the US the preeminent economic power for two decades thereafter.

The adverse effects of war are compounded in a democracy. War allows government to take control of large swathes of the economy, control that is only rarely relinquished afterwards. It also removes the connection between sound economic policy and good results, so that if a war begins with an economically sound government, there is very little likelihood of it ending with one, or regaining one for a considerable period afterwards.

To see this in action, consider World War II. The Soviet Union went into the war with a primitive command economy and massive surplus in manpower. It thus already had in place the controls, including concentration camps, which it needed to fight the war effectively. Its inability to produce high quality technological goods was overcome by the simple expedient of begging them off the United States, using its undoubted sufferings and pretended leftist brotherhood to ensure supplies kept flowing. After the war, it was able to use technology received from the US or stolen from the ruins of Germany and Czechoslovakia to construct during the 1940s and 1950s a highly effective military apparatus and Communism’s most successful years.

The Third Reich entered the war with a partially capitalist economy, excellent technology that had not been devastated by civil war as in Russia and a highly efficient police state. It already had in place all the controls it needed for a war machine; there were no difficulties in commandeering resources from the private sector. In addition, it was able to sequester further resources from the countries it conquered; until late 1941 the war was an economically highly profitable exercise. Germany was thus able to continue producing war materiel much longer than might have been thought in the face of Allied bombing.

More important for the long term, in the postwar period state control was at least partially discredited, reducing the appeal of social democracy which would otherwise have been considerable in conditions of penury and economic collapse. Consequently, the pro-market Konrad Adenauer was able to achieve power and produce the wirtschaftswunder economic miracle, making Germany by 1960 the richest and most economically vibrant country in Europe, a position it relinquished for only a few years in the 1990s.

Britain on the other hand was dragged into World War II after a decade of excellent free-market economic management under Chancellor of the Exchequer and then Prime Minister Neville Chamberlain. It had instituted a modest “Imperial preference” tariff binding together its colonial system, cut taxes, and emerged from the Great Depression by 1934, several years before other countries. It had also enjoyed a decade of successful innovation unequalled elsewhere, developing a notable collection of new industries in chemicals, automobiles and aircraft manufacture. For example the British Lagonda V-12, a luxury saloon with a cocktail cabinet in the back seat, captured the speed record on the new German autobahn against competition from Mercedes and others. That AND splitting the atom! Contrary to the myth later propagated by the Chamberlain government’s successors and enemies, by 1938 Britain was the freest and most successful society in the world.

All that changed with the war. Britain already had experience with controls from the last year of World War I; these were re-introduced in full force. Taxes were massively increased – and were to stay at confiscatory levels for over three decades after the war. Draconian exchange controls were introduced, not to be removed until 1979. Rationing of food and other goods, even food produced domestically, was introduced and not removed until 1954. Britain’s overseas assets, notably Courtaulds’ American Viscose subsidiary, the world leader in artificial fibers, were sold off at knock-down prices in exchange for obsolete military equipment.

Most damagingly, the Left was allowed to conflate the foreign policy error of Munich with domestic policies, to produce a “black legend” that was to produce hard-line socialism in 1945 and prevent the return of a free-market government until 1979. Britain, which in 1938 had been among the happiest of the world’s nations, ruler of a vast and benign Empire, was by 1979 reduced to a small and insecure island, poorer than almost all the economically recovered countries of continental Europe.

The same dynamic is at work in the potential war between Venezuela and Colombia. Venezuela has a one-product economy, whose other sectors were atrophied even before Hugo Chavez’s advent in 1998, and have been run into the ground since. It has one of the worst economic records on the planet over the last 40 years. It can be damaged by direct attack on the oil installations, but neither economic decline nor international bankruptcy are of any concern to its ruler – stiffing international investors would give him great pleasure, and he will always be able to get the foreign exchange he needs for armaments and materiel by selling oil to China. Any war short of a military holocaust is highly advantageous to Chavez; it would enable him to declare a crisis and cement himself in power.

Colombia on the other hand, while somewhat poorer than Venezuela in terms of GDP per capita, has a much more balanced economy, much of it in the private sector. President Alvaro Uribe won re-election in an open contest in 2006 at least partly because of his well-considered economic policies and their success. War would devastate the country’s finely balanced economy, possibly cause it to default to international creditors, and cut off the flow of foreign investment. It would bring great hardship to the majority of Colombians who have been improving their lot in recent years, and would make Uribe and his policies highly unpopular, however well-considered they are. At the next election due in 2010, Uribe or his chosen successor would almost certainly be overwhelmed by the left, since he would no longer have a superior economic record to point to.

In short, like Nazi Germany, Venezuela would at least in the short term benefit from the war, whereas like Neville Chamberlain’s Britain, Colombia would be vastly the loser, possibly for decades to come.

This problem is likely to exacerbate itself in decades to come, as failed states with natural resources increasingly see the benefits of assaulting their hard-working neighbors. The United Nations could provide an appropriate solution to this problem, could that body be relied upon to choose the right side in such situations. Since it can’t, the wealthy nations of the world need to take advantage of situations that arise to destabilize rogue regimes. Had the US provided proper support to the Venezuelan coup of 2002, for example, Chavez would have become history before the oil revenues really began to increase, and any hard feelings among the Venezuelan poor could have been assuaged from the enormous subsequent flow of funds, that in the event have been almost entirely wasted.

It is however clear that intervention by the rich nations themselves is not the answer. Even before Iraq, an intervention from which there currently appears to be no exit, the examples of Kosovo and Bosnia should have convinced us of this. In both cases, intervention produced an economically counterproductive rule of the bureaucrats, which left the two countries’ economies as basket cases a decade after intervention. Since Bosnia at least had been reasonably prosperous and self-sustaining in the 1980s, intervention in both cases was both economically and politically damaging – Bosnia is now 20% poorer than Macedonia, historically the most impoverished part of the Yugoslav federation.

Apart from Venezuela, other countries that might believe a modest aggressive war could be to their advantage are Russia and Iran. This is not because of the uniquely evil political systems in those countries, it is because their foreign exchange source is entirely in the hands of the government, and the rest of their economies underdeveloped. In Russia’s case, there is currently a sufficient consumer society and non-oil economy to make the leadership skeptical of military adventurism, but in Iran no such constraint exists. The neighbors of both countries, notably Georgia, Ukraine under its current pro-market government, Israel and possibly Iraq should the US leave (though that too is a primitive commodity-driven economy) should live in appropriate fear and trembling.

Theoretically, other authoritarian-ruled countries with a reasonably sizeable population (for military service) and a reliable source of foreign exchange income from energy or minerals – one thinks of Chile and copper—should also find aggressive war an attractive option. In practice, there are currently only the few such aggressors listed above – a fact for which we must all be grateful. If Canada or Australia ever suffers a deep recession and chooses a man on horseback, the world is in trouble!

Conversely China is much less of a threat. While well able to afford an aggressive war, its economy is today to complex and its people too affluent to make such a war domestically acceptable. An attack on Taiwan is thus much less likely than 20 years ago, though if China were to enter a deep recession that might change.

The primary solution to aggression by oil exporting countries is to get the oil price down. That can best be achieved by a sharp rise in interest rates, which would take the world economy off the boil and reduce commodity prices at least to their long term equilibrium levels. Since oil shale costs no more than $25-30 per barrel to extract, and is plentiful, it is likely that the equilibrium oil price, even with the Chinese and Indian economies growing rapidly, is no more than $50 per barrel. At that level, the Venezuelan, Russian and Iranian military machines are much less well endowed, and their threat to civilization correspondingly less.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)