According to the standard wisdom in international relations, authoritarian states hold an advantage over democratic states because they can act more quickly and decisively. Yet over the last several centuries, every extended rivalry between an authoritarian state and a liberal one has been won by the liberal state: the Dutch revolt against Spain (late sixteenth and early seventeenth centuries); the 125-year rivalry between England and France (1689-1815); the Anglo-French-American rivalry with Germany (late nineteenth through mid-twentieth century); and the American/Allied rivalry with the Soviet Union after World War II.
This paper shows why liberal democracies have a long-term advantage in international competition with authoritarian states. We argue that this reflects the greater ability of liberal states to establish credible limited government. This ability has both long-term advantages for growth and substantial short-term financial advantages during periods of intense international conflict. The financial advantages allow a liberal democracy to raise massive funds through debt, thus financing larger and longer wars. After developing the theoretical perspective, we study two cases, the 125-year rivalry between England and France and the more recent cold war between the United States and the Soviet Union.