Money and Markets: Essays in Honor of Leland B. Yeager

15 Ethnic conflict and theeconomics of social cooperationReflections on a difficult problem *Laurence S. MossI wish to explore the logic of economic efficiency as it is applied to ethnic conflictwithin a geographic region or even a nation state. Many economists believe that asmaller economy means less wealth for all participants. The less extensive the divisionof labor the lower will be the hourly productivity of the workforce as well as theper capita output. This suggests that an eliminationist policy by which one groupseeks to sanction or banish another group will lower living standards by reducingthe population of traders and/or encumbering trade with extra transaction costs.In this paper, I shall argue that eliminationist policies may not have unfortunateeconomic effects at all for the dominant group – that is, the group that is doing theeliminating. As Thomas Sowell pointed out in a related context, “under specialconditions, discrimination can be made profitable” (Sowell 1975: 169; cf.Hampsher-Monk 1991: 38–41). 1 Efficiency arguments by themselves may not beadequate to stop the tragedy of ethnic cleansing and modern genocide since sucheugenic programs may indeed be individually profitable for those doing the“cleansing.” These are the horrible side effects that have come to be associated withthe nation-state and this twenty-first century’s continuing emphasis on nation-statebuilding. Without a strong commitment to human rights norms, which mustdominate any economic efficiency argument no matter how well constructed, theeconomist turned policy maker is not likely to have much to offer about ending theethnic atrocities of our age. Orthodox economists are more likely than not tobecome silent partners in these horrific developments (Dworkin 1982).Motivation for this paperThe idea for this paper was suggested by some peculiar remarks in the writings ofAlfred Marshall. He noted in his Principles of Economics (1890) that some ethnicgroups, through trade with other ethnic groups, may have material success but failto “raise the quality of human life as a whole” for members of the group theyrepresent (Marshall 1961 [1920]: 244). According to Marshall, there are parasiticraces “not capable of independent greatness.” He went on to define the “parasit[ic]races” as those that make their living off the productivity of other, greater races.Marshall named “Chinese labour in California” and the Jewish and Armenian“money-dealers in Eastern Europe and Asia” as examples of parasitic races. The