The United States: one of the most peaceful nations in the world, as the Fraser Institute claims, or one of the least peaceful, according to a recently released global peace study?

It depends what's meant by "peace".

The Fraser Institute ranks the U.S. as the third most economically free country in the world. And the more economically free a nation, the institute says, the more peaceful it is.

There's even a name for it: the Capitalist Peace.

But like many claims about the superiority of capitalism, this one doesn't hold up to scrutiny.

Every year, Vancouver's favourite think-tank gets together with libertarian brethren in 72 countries to cobble together an Economic Freedom of the World Index. Collaborators include the Albanian Center for Economic Research and the Zambia Institute for Public Policy Analysis. They are all devoted to Friedrich Hayek and Milton Friedman, the high priests of libertarian ideology.

The index is the brainchild of Michael Walker and Friedman, who believed Chile under dictator Augusto Pinochet's brutal grip was the world's most economically free country.

In the mid 1980s, Walker was fine-tuning the Fraser Institute's operating principle: if it has propaganda value, create a simplistic index for it. (Walker puts it slightly differently: "If it matters, measure it.") Walker already had Tax Freedom Day and would soon concoct the hospital waiting list, school report card, index of environmental indicators, generosity index, and mining policy potential index. The economic-freedom index, developed in 1984, would be one of his greatest propaganda triumphs.

To the libertarian brethren, economic freedom means that government plays a minimal role in people's lives. It establishes a legal and financial structure that enforces contracts, protects private property, prevents inflation, and then gets out of the way. A good government, libertarians believe, minimizes taxes, social programs, and regulations and maximizes individual freedom.

It's a formula that works well for the wealthy but fails everybody else.

Hong Kong leads the index as the most economically free nation in the world. This small city-state does not spring to top of mind when one thinks about democracy, but it does boast more billionaires per capita than anywhere else–22 in all.

Economic freedom must come first, so Friedman taught. Democracy might follow, but that isn't always necessary.

In 2005, a new dimension was added to the index. Miraculously, economically free nations were discovered to be the most peaceful as well, thanks to the work of Eric Gartzke, a professor of political science at Columbia University. This was "exciting new empirical research", the Fraser Institute said.

In the past, experts believed that a strong relationship existed between democracy and peace. Gartzke denies this, arguing that economic freedom, and not democracy, causes peace. He claims to have developed a statistical model proving that economic freedom is "considerably more potent"–50 times more potent–in encouraging peace than democracy.

How do free markets cause peace? Gartzke says that in modern society market competition and efficient production create wealth. Unlike land and gold, this new kind of wealth cannot be stolen by conquest. Nor will local leaders want to go to war, because that act will frighten markets, discourage domestic investment, and encourage capital outflows. Therefore, developed capitalist countries do not go to war with each other.

Gartzke's idea of peace is simply the absence of war between highly developed capitalist countries. Such a negative definition of peace is not very useful, but it is popular. Google "'economic freedom' and peace" and you'll get upwards of 400,000 hits.

The idea may be popular, but it's not true, according to a more realistic and sophisticated peace index released this year. The Global Peace Index is the invention of Australian entrepreneur Steve Killelea, who made his fortune providing systems-management services for Visa, MasterCard, American Express, major stock exchanges, and most of the world's ATMs.

Killelea retired very wealthy and turned to Buddhism and a quest for global peace. Without peace, Killelea fears, humanity will self-destruct, billionaires or not. To ensure his index would be credible–unlike the Fraser Institute effort, with its Albanian and Zambian associates–Killelea commissioned the Economist Intelligence Unit and a panel of international peace experts to develop authentic peace indicators and construct the index.

The Economist Intelligence Unit is not a bleeding-heart-liberal organization. As the leading global business intelligence service, it provides analysis and forecasts on more than 200 countries and eight key industries. More than 100 country experts and economists, supported by a network of 650 contributors, report on political and economic events around the world.

This index found that peace correlates to such indicators as incomes, schooling, and regional integration. Peaceful countries share high levels of government transparency and low corruption. On the Global Peace Index, the U.S. ranks not third but 96th, between Yemen and Iran; Hong Kong ranks 23rd.

In contrast to the Fraser Institute's single negative indicator–absence of war–the GPI rates 24 peace indicators from one to five. EIU staff provided a number of qualitative estimates where gaps exist in quantitative data. These measures include the level of organized conflict within a country, relations with neighbouring countries, levels of violent crime and distrust, and the extent of military research and development. Gartzke considers none of these measures.

The U.S. scored five–least peaceful–on four indicators: jailed population per 100,000, UN and non–UN troop deployments, and military capability. It scored four on potential for terrorist acts and three on ease of access to weapons of minor destruction, respect for human rights, export of major conventional weapons, number of external and internal conflicts, and number of deaths from organized conflict outside the country.

The GPI is controversial, especially regarding the U.S. ranking. Many European countries rank much higher than the U.S., but they benefit from American military expenditures, critics claim. As the world's policeman, the U.S. sees its ranking driven down.

The nations of the world spend $1.3 trillion a year on war and war preparations (also known as defence). The U.S. alone spends nearly half that.

For Fraser Institute libertarians, this spending is a business opportunity. Ironically, the imposition of laws restricting arms sales–and improving the chance for peace–would be a blow to economic freedom (and to peace).

And the EIU's analysts must recognize that a significant portion of weapons sales occur between the U.S. and militaries in the developing world, where many nations are already engaged in conflict. The U.S. supplies nearly half of these weapons, a practice that has little to do with its role as policeman and everything to do with boosting the already obscene profits of the U.S. military-industrial complex.

If you believe that war is peace, then you're likely to side with the Fraser Institute's rankings. But if you're like the rest of us, a ranking of 96th for the U.S. seems about right.