All Commentary
Sunday, September 1, 1985


Political terrorism has become a sickening yet commonplace fixture of our modern world. In the past 15 years nearly 5,000 persons have died with scores more injured from deliberate terrorist attacks aimed mostly at persons from either western or pro-western nations. We can expect to hear on almost any news broadcast or read in a daily newspaper that a western diplomat has been gunned down, an American military officer kidnaped or a foreign business executive “executed” by a political extremist group that “claims responsibility” for its bloody actions.

Short of abandoning all laws and precepts that guarantee civil liberties, there is little that can be done to totally rid our world, and especially the free world, of political terrorism. The cost of eliminating terrorism would be, in the eyes of most persons, greater than the cost of living with the terrorist specter. However, it is important to understand the reality behind the actions of terrorist groups, what they want and how they can be slowed, if not stopped, from doing irreparable harm to our social fabric.

This article seeks to examine terrorism from an economic point of view. Because of this viewpoint, it will reach far different conclusions on both the nature of terrorism and how to deal with it than most conventional literature on the subject. This is not because economists are weird (though many are, self-admittedly, a bit strange), but rather because the fundamental principle of economic theory—namely self-interest-is missing from most literature on terrorism. By assuming that terrorists are self- interested (like the rest of us), we can examine their motives and plans of action in a rational manner that enables us to understand their goals (though not agree with them) and, more important, predict their reactions to certain government policies.

For the most part, terrorist groups work under the guidance of Marxist-Leninist theory, although there are others who are fighting against communist regimes. What all the groups have in common, however, is that they seek or have sought either to seize power themselves or drastically affect the workings of the government in power. The source of their motivation, as well as the response government should make to terrorist attacks is the topic of dispute, not the actual makeup or ideology of the particular groups.

Traditional literature on terrorism, especially the literature dealing with terrorism from Marxist-led groups, makes a number of important errors. Economist Richard M. Kirk writes that to most analysts of this subject “political purposes are typically defined as ideological in nature. As a result, political terrorists are assumed to be ideological zealots, willing to kill and be killed in order to further ‘the cause’.”[1] This is not to say that ideology or the willingness to die for a cause is not a part of terrorism. Certainly the suicide bombers who killed 252 American soldiers in Beirut, Lebanon, in 1983 (and died in the process) knew they would not survive their attack. The problem here is that such attacks are depicted as a form of altruistic behavior, an action in which the attackers expected nothing in return.

Analyzing Terrorist Actions

Because the prevailing literature simply depicts terrorists as “ideological zealots,” it becomes difficult, as Kirk notes, to analyze rationally their actions. He writes, “As a result, traditional studies are forced to search for typically unobservable psychological and socio-economic characteristics as explanations for violent behavior.”[2] Terrorists, he says, are seen as being low in self-esteem,[3] economically or politically alienated,[4] irrational,[5] or insane.[6] Such analyses provide interesting work for psychologists and sociologists, but afford little help in economic analysis of the problem.

As a result of traditional analysis of terrorism, we find that predictable views of government and its role in stopping terrorism prevail in most literature today. Terrorists, it is believed, work simply out of ideology; in that same vein of reasoning, it is also assumed that governments work ideologically. That is, what on the surface is a violent confrontation between terrorist groups and governments is, in reality, an outgrowth of a deeper ideological struggle. Solutions to terrorist problems, then, are placed in ideological frameworks; depending upon one’s ideological biases, the solutions run from expanding the welfare state to increasing powers of the particular nation’s security police.

Noting this situation, Kirk writes, “The dominant theme in the existing literature is a call for expansion of the role of government, particularly the redistributive role, in order to alleviate the causes and thereby reduce the occurrence of political terrorism.”[7] In other words, he says, it is assumed that many terrorists, especially those on the left, have deep concerns for the poor and, in their desire to make an unwilling government (and the public it represents) bend to the just needs of the poor and oppressed, turn to terrorism as a last resort. Thus, terrorists may have their actions condemned by elements of society who at the same time might have sympathy for their ideology. For example, the infamous Patty Hearst kidnaping in 1974 by the Symbionese Liberation Army brought both condemnation for their tactics and praise for the SLA’s “goals” of”helping the poor.”[8] The public forgot that the act of kidnaping a young woman nearly destroyed her life; the public also forgot that the SLA had gunned down (with poisoned bullets) a popular black school superintendent in the San Francisco area. The perception that became popular was that of a misguided group of men and women whose hearts were in the right place.

Faulty Solutions

To change the breeding grounds of terrorism, it is then supposed, governments must change their ideology (provided they are not already leftist in scope) in order to facilitate the kind of justice that it is assumed will mollify the righteous anger of terrorists. As pointed out earlier, Kirk has written that the dominant theme of literature on terrorism calls for expanding the redistributionist powers of the state. By so doing, the literature assumes, redistribution of wealth from rich to poor through taxation and regulation will actually succeed in reducing the wealth gap between rich and poor. Thus, it is believed, redistribution will bring stability to a society, ending poverty and eliminating the reasons that terrorists operate in the first place.

As one can see, the reality of terrorists and government does not match with the traditional explanations, which also means that traditional literature, far from helping solve the terrorist problem, actually helps contribute to its increase. By presenting false views of both the motives of the terrorists and of the nature of government, traditional writers on the subject simply do not offer the public realistic information.

The remainder of this paper, then, will concentrate on the following areas: first, we will discuss the nature of government; second, why terrorists are motivated to attack governments; third, suggestions on how to stop or at least curtail terrorist activities to more tolerable levels; and, fourth, an explanation of the “new” or government-sponsored terrorism.

The Nature of Government

As discussed earlier, a strong assumption exists in the journalistic and academic worlds that government operates along ideological lines.[9] That is, what individuals do in governmental processes is done because of ideological motivation. Ideology does, of course, play a part in government; the Marxist-Leninist-Stalinist philosophy that permeates communist governments certainly contributes to their restrictive laws on property and enterprise. But one must look one step beyond the obvious to understand what government actually does in practice, not just what people say it should be doing.

In reality, as the Public Choice revolution has demonstrated, government serves to transfer wealth from one group of people to another.[10] This does not necessarily imply that such a role is evil. After all, protection of personal and property rights is a necessary and good function of government, but protection is neither costless nor applied evenly as some persons receive more protection and some less than the norm. The judicial process involves transfers of wealth (for example, lawsuits and fines) as well.

However, many wealth transfers are harmful to the general public. Price controls, regulations and import “protection” are among the many examples of how government reduces public welfare for the advantage of a privileged and well-placed few. The vast number of lobbying groups that make permanent homes in Washington, D.C., are not spending their time and money to improve the state of government in this country. They are, rather, seeking benefits for themselves at the expense of other individuals.

Politicians and bureaucrats serve as the brokers in this process and, like all good brokers, receive their “perks” from the system, politicians being rewarded with votes and bureaucrats with salaries and security.[11] In a democratic system, more available wealth means more wealth to transfer. That is, as the general wealth of a society increases, so will the attempts for some to gain wealth at the expense of others through the political system.[12]

The question here is this: What is the most expedient way to obtain wealth through this system? At the same time, we also ask: What are the limits to the amount of wealth that can be transferred? And, finally, what is the connection of wealth transfers to terrorism?

Like all other markets, the political market is rife with uncertainty. A certain, predictable market would have no need of lobbyists, since political outcomes would be predetermined. As it is now, lobbyists have no guarantee of success in their attempts to seek wealth transfers, hence their willingness to spend large amounts of money. At the same time, politicians have just as little guarantee of being successful in their attempts at being initially elected or re-elected. The political scene is rife with violent change. For example, Richard Nixon was overwhelmingly re- elected in 1972 to the U.S. Presidency; less than two years later, in the wake of Watergate, those same voters demanded his ouster. The rapidly changing face of the economy creates new interest groups and with new interest groups come new demands for politicians.

The Costs of the Political Transfer Market

Thus, the process of seeking transfers is perilous for both lobbyist and politician. There is no guarantee that either will receive what he or she desires. Yet, this is the accepted way of transferring wealth in our society. And like any other market, the political transfer market has its limits. Lobbying groups have limited resources and there is a marginal point at which the cost of lobbying is more expensive than the benefits gained by it. Politicians may transfer too much wealth and, thus, be voted out of office by angry taxpayers.[13]

There are those, however, who do not wish to take the risks of participation in the lobbying or political system directly, but still seek indirect influence over the political processes. For example, college professors and journalists may often have a powerful influence in the system through their writings or studies, yet not be running for public office or be directly lobbying for political favors.

Whatever the mode or level of influence the above groups may have on our political/economic processes, they all have one thing in common: they adhere to a certain social contract which recognizes a “proper” channel of activities to influence the workings of government. Those of us who may decry the irresponsible spending habits of our Congress since the days of the New Deal still follow a nonviolent philosophy. Austrian economists, who may oppose the gargantuan welfare state or the Federal Reserve’s money monopoly, do not take their case to the streets. For example, Murray Rothbard, though an ardent opponent of the Federal Reserve System, has no plans to bomb the Fed offices in Washington, D.C. This does not mean that free market advocates seek no influence on our political economy; rather, such advocates are willing to “play by the rules” in seeking public support of their policy initiatives.

What Motivates Terrorists?

Terrorists break that social contract by their actions of indiscriminate violence against individuals. After peeling away the ideological skins and fig leaves that terrorists use to justify their violence, we come to the core reason for their actions: the terrorists’ own desire for power and influence. Economist Thomas Sowell, following the murder in 1978 of Italian Premier Aldo Moro by the Red Brigades, was one of the few social commentators to recognize the terrorists’ real motives. He writes:


For several weeks a group of obscure young men became important. They carried out a deed that made headlines around the world. They had a famous man in their power, to abuse or taunt as they pleased and to kill when they felt like it. They saw the life of the country around them disrupted as police, workers, and others changed their daily routines in response to the event. The pope, the American president, and the United Nations recognized them with appeals and declarations. In normal times, they might never have gotten past the secretaries to see any of these people, much less expect to influence them. With one daring crime, they leapfrogged bureaucracy and protocol and elbowed their way .into the headlines and even into history.[14]


Why the violence? Is it, as some “experts” have declared, simply an act of insanity by members of terrorist groups?

To the second question, we answer “no.” And because we believe that terrorists are making rational decisions, we can only assume that they carry out acts of violence because they have deemed such violence both more effective and less costly than standard participation in accepted political processes. Kirk notes: “. . . when the cost of gaining conventional political influence is high enough, or some other explicit or implicit barrier to entry into the political sphere exists, the use of violence in the form of political terrorism can become a profitable method of rent seeking.”[15]

In other words, the terrorists are seeking wealth transfers and/or power (all of which can be defined as economic or political rents) through violent means because they are not willing to pay the cost of participating in the political system. True, the political system gives no guarantees of success. Radical politicians, though they may be influential in their own small districts, usually do not sway enough voters to gain national offices or, should they be elected, are often forced to moderate their policies in order to achieve the needed political compromises that permit them to govern effectively.

Potential terrorists (or actual ones) are faced with the following dilemma: They can either pay their dues in the political system, thus perhaps reaping the rewards but also shouldering the greater risks of failure, or they can seek power by other means, that being violence. True, violent activity has the inherent risks of death or imprisonment, but in the terrorist’s mind, the rewards gained from terrorist activity outweigh both those risks and the rewards that could have been gained had he or she simply participated in the political system like everyone else. The act of terrorism gives the individuals involved a chance to gain the kind of significance that most likely could not be gained by legitimate channels. Sowell writes:

The media and intellectuals tend to judge terrorists in terms of the effects of their acts on what the terrorists themselves define as their cause—the “avenging” of this or the “liberation” of that. Usually the terrorists’ acts don’t have a ghost of a chance of achieving their proclaimed goals, but they can give a lot of importance to a lot of otherwise insignificant people in the meantime. And these are not merely insignificant individuals: they are often insignificant individuals who grew up surrounded by people with wealth, power, or recognition which they would be unable to duplicate through normal channels for many long years.[16]

In this passage, however, even Sowell underestimates the accomplishments of the terrorists. Yes, many of them are insignificant individuals who crave attention and power; but, no, they are not simply acting to gain attention the way a two-year-old child throws a tantrum to get Mommy’s attention.

Terrorism can alter the way a government does business, and it can also alter the plans of those who originally wished to be involved in government but change their minds because the inherent risks of kidnaping and/or assassination become high. Democratic nations have seen some erosions of their civil liberties because of terrorist violence. And some European airports have sections that resemble armed camps instead of passenger terminals.

Control Measures

In response to terrorism, as much of the literature suggests, should government expand social services via wealth transfers in order to satiate the terrorists’ “hunger” for social justice? This is a most crucial point in understanding terrorism and the proper response political authorities must give to such violent activity. If government officials misread the reality of terrorist demands and seek to expand the scope and powers of government in the area of wealth transfers, they are actually encouraging more terrorism. The reason for this is quite simple. Expansion of the redistributive powers of government encourages more seeking out of wealth and power transfers. This is the essence of sup-ply-side theory, that is, supply creates its own demand (from J.B. Say). The increased supply of government-induced wealth transfers (rents) will lead to an increase in demand for them.

Far from being appeased by the increase of government powers of wealth distribution, terrorists are likely to become more in number and more and more violent in their activities, the violence coming because of the increase in competition brought about by the proliferation of terrorist organizations.

A second point also needs to be made in regard to expansion of government’s distributive powers. The assumption that is often made is that government can permanently alleviate poverty by fiat. When government assumes the will to eliminate poverty, supporters of intervention believe, then government can actually accomplish that act. All that is missing, they say, is the will. Therefore, they further assume, the idealistic terrorists will be appeased when government acts to eliminate poverty and terrorist activity will then cease.

The problem here is that the state simply does not have the capability to eliminate poverty by command any more than the state can order nature to insure that all Fourth of July holidays are warm and sunny.[17] Since the beginning of the Great Society heydays in the mid-1960s, enough money has been spent by the government to fight poverty to make each poor family in this nation independently wealthy, yet we are no closer to eliminating poverty than we were in 1965 and some forcefully argue that we have lost ground.[18]

Less Government May Lead to Less Terrorism

If increasing the scope and distributive powers of government leads to more terrorism, it stands to reason, then, that scaling back government activity of transferring wealth might lead to a decrease in terrorism, though it will not eliminate terrorist violence altogether. Simply stated, less government may actually result in less terrorism. Increasing distributive powers of government, on the other hand, will lead to a more chaotic social order (an inevitable con sequence of government intervention) and more terrorism.

Terrorist activity can also be curtailed by increased police activity, which is a state function, provided the members of a particular society are willing to give up some of their civil freedoms (search and seizure laws, etc.) or have them modified in order to make it easier for terrorists to be either apprehended or hit in pre-emptive strikes. Modification is more likely than simple elimination of freedoms; so a society is left with choosing between more police protection and activity and, perhaps, fewer civil liberties.

Striking the Balance: Freedom and Protection

Such a choice is not easy, as we have learned from sad experience that police or security officers can very well abuse their powers. Giving them increased powers can lead to new abuses, yet people also wish to be spared the constant state of fear that terrorists can strike into people’s hearts.

As one can see, the choice is not between a high level of terrorism or no terrorism at all, but rather a choice between the amount a society is willing to tolerate versus some suspension of their civil liberties as well as a chance to share in state-transferred wealth. Increasing the welfare state only invites more terrorism, as the experience of the past decade has vividly demonstrated to us. At the same time, we cannot ignore the terrorist threat to lives and property by continually throttling law enforcement efforts (as was done in this country in the 1970s—which corresponded to a rising number of terrorist incidents). But neither do we wish our society to become a police state; a balance must be struck at some point.

State-Sponsored Terrorism

In the past few years we have seen increasing evidence of terrorism backed by national governments, the bombing of the U.S. Marine barracks in Lebanon in the fall of 1983 being a vivid example. Author Claire Sterling in her best-selling book The Terror Network[19] documented the involvement of the Soviet Union, its Eastern-Bloc allies, Cuba, North Korea and other communist states in terrorist activities aimed at the West. Iran, it has been recently learned, is also playing a major role in helping terrorist groups such as the PLO and Islamic Jihad attack both Israel and other representatives of western nations, especially the United States.

The bottom line of state-sponsored terrorism is that such activity is a cheap and highly productive way to wage a form of warfare. The risks to the Soviet Union are minimal (witness the number of disbelievers in the western news media after strong evidence was presented that the U.S.S.R. played a role in the shooting of Pope John Paul II in 1981) and the opportunities for disruption of western societies excellent.

Again, western politicians and opinion makers must not fall prey to the idea that state- sponsored terrorists are simply acting out an ideological cause in controversial fashion. Rather, it is imperative for the West to realize that both the terrorists and their parent governments are using terrorism as a means to snatch political and economic gains that might not be obtained through normal diplomatic channels and are not worth the risk of all-out warfare.

And in response to the terrorist threat, western governments should steer clear of “solutions” which include liberalized wealth transfers toward the guilty hostile nations (e.g. liberalized government-to-government loan agreements, subsidies, etc.) or agreements that “give away the store” militarily. As in the case of domestic terrorism, the expansion of wealth transfers will only serve to bring about increased levels of violence.

In the 1960s many liberals were advocating vast increases in welfare and other transfer payments as well as increasing poverty programs in order to appease what they saw as growing unrest in poor—and especially black—communities.[20] What the nation received in payment for its increased Federal largess was the most violent social upheaval in nearly a century. What was not accomplished was what liberals hoped would be accomplished: the elimination of poverty.

The same analogy can be applied to terrorism. Should our leaders continue to try to appease terrorists by using welfare state expansion, what they—and the rest of us—will reap is more violence.

1.   Richard M. Kirk, “Political Terrorism and the Size of Government: A Positive Institutional Analysis of Violent Political Activity,” Public Choice (Spring, 1983), p. 41.

2.   Ibid.

3.   A. Kaplan, “The Psychodynamics of Terrorism, Terrorism (1978), p. 245.

4.   P. Wilkinson, Terrorism and the Liberal State (London, 1977).

5.   Ibid., p. 49.

6.   National Advisory Committee on Criminal Justice Standards and Goals, Disorders and Terrorism (1976), p. 49.

7.   Kirk, pp. 41-42.

8.   At the time, the SLA received praise in the media for being concerned for “the poor” but also received condemnation for the kidnaping, which is no surprise, since Patricia Hearst came from a family of media magnates.

9.   Kirk, p. 43.

10.   Robert E. McCormick and Robert D. Tollison, Politicians, Legislation, and the Economy (Boston, 1981), p. ix.

11.   Ibid., p. 6.

12.   See William L. Anderson, Federal Spending and Taxes: A Study in Causality, unpublished master’s thesis, 1984.

13.   McCormick and Tollison.

14.   Thomas Sowell, “Terrorist Celebrities,” Pink and Brown People and Other Controver sial Essays (Stanford, California, 1981), p. 63.

15.   Kirk, p. 44.

16.   Sowell, pp. 63-64.

17.   One of the main welfare state fallacies is that belief that whatever government wills, government can do. This fallacy assumes that government action is costless when in reality the opportunity cost of government action usually brings a net loss to society.

18.   See Bill Anderson, “Casualties of the War on Poverty,” The Freeman (January, 1984).

19.   Claire Sterling, The Terror Network (New York, 1981).

20.   James B. Reston, “Focus on the Nation,” The World Book Yearbook, 1966, pp. 25-26.

  • Dr. William Anderson is Professor of Economics at Frostburg State University. He holds a Ph.D in Economics from Auburn University. He is a member of the FEE Faculty Network.