Almost two decades later, we are still embroiled in the endless “War on Terror” and globally, terrorism has increased. The only way to reduce the amount of terrorism is to think through the economic and institutional questions of why terrorism seems to be an effective means for social, economics, religious or political change for some people. Before we can argue for effective policy, we must understand al-Qaeda as an emergent order in which the willing participants are voluntarily choosing to advance the mission of the organization to effect change important to them. If we know the “why” we can ask questions about what policies could help alter the incentives those individuals face.

The Economic Realities

The economic way of thinking requires that we bring specific assumptions to all human behavior, regardless of whether we condone the behavior. We also make assumptions about the world in which humans live and the exchange that happens within that context. These assumptions about both human beings and our environment are often excluded from policy conversations, much to the detriment of the potential efficacy of those policies. This seems particularly true with respect to the policy conversations about terrorism broadly and al-Qaeda specifically.

The first anthropological truth of human nature is that all humans engage in purposeful behavior relative to the ends they seek. In Human Action Ludwig Mises articulates the mechanics of our decision-making process. The desires of human passions are endless, and we have scarce resources, time, and knowledge to satisfy those desires. For people to engage in voluntary choice three conditions must hold: uneasiness, vision, and conscious and purposeful behavior.

For people to go from inaction to action we first must have uneasiness about our current situation. Then we have a vision that helps us believe we can alleviate that uneasiness, even if temporarily. Finally, we take conscious and purposeful steps to obtain that vision. This framework for choice is universally true, covering the mundane choices of what to have for breakfast and the seemingly irrational choice of joining or forming a terrorist organization. That the framework is true does not imply that our behavior is necessarily good, ethical, moral, or socially productive. It helps us understand acts of violence as well as acts of charity; but it is always true.

This is our first step in understanding why Osama bin Laden and his partners formed al-Qaeda, why donors wrote checks, and why recruits would sacrifice their lives for the cause. We cannot systematically explain al-Qaeda or any other terrorist behavior by labeling it “crazy.” In the context of the economic way of thinking, a crazy person is one who cannot weigh costs and benefits. The members of al-Qaeda were cunning planners who considered the costs and weighed the relevant threats to their organization and adjusted their behavior accordingly. The value of the Misesean approach to human action is that it allows the economist to ask different questions. Rather than all terrorists being “crazy,” most terrorists are quite rational. This implies that they face incentives and espouse values and meaning about the conditions in which they live. Changed institutions and changed incentives will alter behavior, which implies that we can ask questions about how to get less (although not zero) al-Qaeda terrorism.

“Thwarting al-Qaeda requires that we understand why terrorism seems to be their adopted institutional mechanism for social change.”

Scarcity and the purpose of production are also important economic insights. Adam Smith suggests that the sole purpose of production is consumption. Supply in markets is a response to a perceived demand. In a market setting, entrepreneurs must figure out the demands of consumers in various markets and from that calculation production occurs. Scarce resources, which include our time, have multiple and competing ends. Scarcity means that we must ration those resources to their most productive temporal uses. Al-Qaeda operates within this framework both in the production of the organization and the execution of their resources. Al-Qaeda, like every other organization, operates in the framework of supply and demand. They are not a for-profit firm, but they allocate scarce resources and direct them to deliver terrorist attacks in pursuit of larger goals. Thwarting al-Qaeda requires that we understand why terrorism seems to be their adopted institutional mechanism for social change.

Al-Qaeda: An Emergent Order

This proper understanding of human nature paired with the important economic realities of scarcity, supply, and demand allows the economist to understand al-Qaeda as an emergent order which is context specific but also capable of change. Al-Qaeda was formed in 1988 by Osama bin Laden, Ayman al-Zawahiri, and Abdullah Yusuf Azzam as a Sunni militant organization. Bin Laden was spiritually mentored by Azzam as an adherent of Wahhabism, a radical strand of Islam that encourages attacking innocent citizens in the name of the faith and restoring the caliphate. Overall, very few Muslims are adherents of Wahhabism, and the religious aspects of al-Qaeda alone are not sufficient to explain why terrorism in general, and al-Qaeda specifically, exist.

Al-Qaeda had several known goals, including ending the U.S. alliance with Israel and ending U.S. influence in Saudi Arabia, which bin Laden believed was making the Saudi Arabian government stray from their orthodox role.

Important international policy strategies predate the formation of al-Qaeda and had both direct and indirect effects on bin Laden and his peers when forming the group. The post-World War II world and the economic growth that accompanied it created an increased reliance on crude oil, which today remains one of the world’s most politicized goods. Rent-seeking to control world oil supplies created many exclusive international allies. Oil supplies became so important that in 1980, in his State of the Union Address, President Jimmy Carter articulated the “Carter Doctrine,” which for the first time claimed that the United State would protect its interests in the Persian Gulf with military force if necessary. This doctrine came on the heels of the growing global desire to control oil resources as well as on the heels of the Soviet invasion of Afghanistan in December of 1979.

President Ronald Reagan continued the strategy of the Carter Doctrine and spearheaded a campaign to assist the Afghan mujahedeen in their fight with the Soviets. Under Reagan, the CIA launched “Operation Cyclone” which lasted beyond 1989 when the Soviets left Afghanistan and included on-the-ground military training, stinger missiles, and military supplies in cooperation with the ISI, Pakistan’s intelligence agency. It was under this climate that bin-Laden created al-Qaeda.

We don’t have to agree with the tactics or the purpose of al-Qaeda as a terrorist organization to understand that the claims their leadership made against U.S. involvement in the Middle East—both its position on Israel and its desire to support governments based on their oil supplies—would warrant disapproval among citizens of Middle Eastern countries and in particular, Saudi Arabia. Additionally, Saudi Arabia was a place with little economic freedom, political freedom, or cultural pluralism but rather a theocratic authoritarian state. For bin Laden and the original members of al-Qaeda, they were responding to their environment within the context of the constraints they faced.

From 1988 until the September 11, 2001 attacks on the United States, al-Qaeda embarked on an organizational mission of specialization and the division of labor. They began honing their skills with many attacks, including but not limited to the 1992 Yemen hotel bombings, the 1993 World Trade Center bombing, 1998 embassy bombings in Kenya and Tanzania, and the 2000 USS Cole bombing and British embassy attack in Yemen. Western, and in some cases specifically U.S., interests are targeted in all these attacks, which is consistent with their stated purpose. These attacks each have a strategic purpose of their own, but they are also the way that al-Qaeda engages in tactical practice, learning-by-doing, and discovery. This is essential for their success in the larger September 11 attacks.

The worst thing a terrorist can do is fail publicly; that will ensure that they end up dead or in captivity. The process of figuring out how to be better at their craft is necessary for both the success of the organization and for their ability to gain recruits and solicit donors. The nature of growing and developing any terrorist organization is risky business. The organizational form of al-Qaeda is important: they are not a for-profit firm and not a direct extension of the state. Al-Qaeda is best classified as a para-military bureau. In the early years, they were organized in a militaristic, top-down fashion. This can best be thought of as a hub-and-spoke model. Bin Laden, Azzam and al-Zawahiri were the leaders and planners and they split the hierarchical organization into operational cells of small groups of people. This allowed them to control information flows and behavior.

As with any organization, alignment with organization mission is important for productive employees. The leadership cannot solely rely on Wahhabi extremists and simply expect them to die for the cause. Keeping the cells separated and isolated is important for al-Qaeda to help accelerate individual commitment and to train for efficacy. Recruits were promised remuneration for their families should they die. Within the organization, recruits have an identity, a cause, friends, and a mission that unites them. The leadership rightly worried about defection, especially with the September 11 attacks. Of the nineteen September 11 hijackers, many had to travel to the United States months or weeks before the attacks to prepare. This was perhaps the highest point of vulnerability for the mission. As such, they did not send the recruits any earlier than necessary to avoid defection. September 11 was successful because al-Qaeda was prudent, trained, and patient, not impulsive.

Roving Bandits

Al-Qaeda is translated as “the base” which might reveal something about what the top three leaders desired when they launched. They wanted to restore the caliphate in Saudi Arabia and to cleanse it of Western political, cultural and social influence. It is reasonable to think that the leadership thought that if they could be successful in their attacks and in their organization’s momentum, they could change the position of the Saudi government. It is reasonable to think that the leadership wanted to stay in Saudi Arabia, but were forced to move. Bin Laden was a Saudi citizen from a wealthy Saudi family and was able to generate locate support for al-Qaeda both prior to and after its formation.

Staying in Saudi Arabia would not ultimately be possible for al-Qaeda. In 1991, al-Qaeda was kicked out and relocated to Sudan. In 1996, under more international pressure, al-Qaeda was kicked out of Sudan and relocated to Afghanistan, where they had to deal with the presiding stationary bandit, the Taliban. Early support from the Taliban was important for al-Qaeda and provided regional security, and support. Roving and stationary bandits face different cost and benefit structures.1 The stationary bandit must secure some local support through either voluntary support or coercion and fear. The stationary bandit, if it can be successful in doing so, does not have to relocate and thus can obtain regional stability.

The roving bandit does not have to think about long-term local support or make the same investments in either the provision of club-goods, public goods, or the use of force and threats. Rather it roves and plunders until it roves again. Settling in Afghanistan prior to the September 11 attacks did allow the organization to train and recruit followers and accrue resources and donations. The regional movement of al-Qaeda prior to 1996 likely slowed their progress and resulted in a less efficient use of resources. bin Laden was forced into a roving bandit position due to international government pressure, but that did not stop them. Today al-Qaeda is organizationally much different than it was prior to the September 11 attacks.

Effective terrorism is not about money or resources per se. The September 11 attacks which killed over 3000 people and resulted in an estimated $10 billion2 in infrastructure and property damage alone only cost about $500,000.3 Of all the resources necessary for al-Qaeda to be successful in that attack, money seems to be the lowest hanging fruit—the talent and training is far more difficult to obtain. In a 2002 raid, a list of donors was discovered referred to as the “Golden Chain” and suggests that a-Qaeda had an operating budget of about thirty million dollars a year.4 This was funded in part by the personal fortune of bin Laden, the heroin trade, and donations from bankers, businessmen, and former ministers.

The list of donors helps us understand the demand for al-Qaeda and shows that these individuals were well-positioned both financially and socially within their communities. They are not poor, uneducated, or coerced. They want what al-Qaeda is “selling,” and their contributions help al-Qaeda exist. In some ways, if al-Qaeda were solely financed by the fortune of bin Laden we might rest a little easier. But that is not the story. There are others who share in the demand for what al-Qaeda offers and who wish it to be successful. This suggests a deeper institutional problem in need of repair. Immediately after September 11 we certainly got a big dose of policy, but did we fix the problem?

The Solution

For policy efficacy in the “War on Terrorism”, we cannot focus only on the supply. We must also ask what would reduce the demand. Many policies have emerged, most notably the Patriot Act, as part of the War on Terrorism, which includes provisions for the Department of Homeland Security and the Transportation Security Agency (TSA). These policies include efforts to make airports safer, to reduce hijackings, to make ports secure and safe, to vet those who would enter the country, and to try and “fix” the regions of the world ripe for terrorists. On paper, these are good and reasonable ideas. After September 11, it is right to rethink airport safety, and transportation and port security in general. Such measures can only reduce the supply of terrorism in the short run. But unless we think carefully about the demand for terrorism which includes donors, the organizers of al-Qaeda themselves, and others who think terrorism is an effective means to the ends they desire, then terrorism in general and al-Qaeda in particular will find another way rather than go away.

Effective defenses against al-Qaeda must consider why they emerged in the first place and what they seek. Such defenses must ask: what would it take for members, donors, and organizers of al-Qaeda to disengage in terrorism? Their own cost benefit framework must be altered, from their perspectives. Focusing on the supply curve is a necessary but not sufficient condition for the reduction in al-Qaeda sponsored terrorism. Supply is a response to demand, so trying to ascertain what motivates individuals to engage in such costly decisions warrants careful economic consideration.

For additional background and thoughts on airport security, see “Ensuring—and Insuring—Air Security,” by Robert P. Murphy. Library of Economics and Liberty, February 7, 2011.

As of this writing, al-Qaeda is bigger and has more resources than ever, despite bin Laden’s death. Today al-Qaeda boasts an annual budget of $150 million5 and rather than being a top-down paramilitary organization it has taken on more of a franchise structure— five primary groups with growing numbers of affiliated groups. The U.S. led “War on Terrorism” comes at a great cost, and is correlated with more not less terrorism around the world.6 The United States has not seen a repeat of the September 11 attacks, but more global terrorism increases rather than decreases that risk.

Stop Playing Whack-a-Mole

For background discussion, see Economic Freedom, by Robert A. Lawson in the Concise Encyclopedia of Economics.

Unless we stop the demand for terrorism, we will see terrorists respond to the increased costs of supplying terrorism by utilizing other methods to create it. To significantly reduce al-Qaeda’s attacks and terrorism around the globe in general requires that we think about the incentives terrorists face. Economic freedom, freedom of association and religion, cultural pluralism, and global commerce are the solutions. It is true that U.S. policy cannot engineer all or even many of these outcomes. They are emergent phenomena, but they are fully realizable. Terrorists thrive where free societies are absent. Terrorists become impotent when no one will fund or join their cause. Economic freedom makes terrorism expensive for most terrorists. No policy or state of the world will ever eliminate terrorism. It has existed through all human history, but it can become negligible and ineffective.

What are some reasonable first steps? Reduce U.S. interference in Middle Eastern politics. Bin Laden’s complaints, in part, were over U.Ss interference in the region and over the U.S. relationship with the government of Saudi Arabia. We can also foster and encourage commerce, which pacifies, creates relationships, and fosters cooperation. We must stop playing whack-a-mole. We cannot create democracies in Afghanistan, Pakistan, or anywhere else we might seek them. Democratic institutions require freedom of exchange and commerce. They are the best bet for generating long-term political freedoms and democratic institutions. When we whack the mole, the mole never goes away. It just relocates. Not only is there more terrorism in the post 9/11 world, the terrorists have moved and found new supporters, new leaders, and new stomping grounds. To get real reductions in al Qaeda rather than just playing whack the mole, we need to seek a changed environment of economic freedom, which will make the mole leave for good.


The 9/11 Commission Report: Final Report on the National Commission on Terrorist Acts Upon the United States, July 22, 2004.

Coll, Steve, Ghost Wars: The Secret History of the CIA, Afghanistan, and Bin Laden, from the Soviet Invasion to September 10, 2001. Penguin Group, 2004.

Bergen, Peter (2006). The Osama bin Laden I Know: An Oral History of al Qaeda’s Leader (2nd ed.). New York: Free Press.

Lawrence, Bruce, Editor. Messages to the World: the Statements of Osama bin Laden, Verso, 2005.

McGrath, Kevin (2011). Confronting Al-Qaeda. Naval Institute Press.

Wright, Lawrence. The Looming Tower: Al-Qaeda and the Road to 9/11, Alfred A. Knopf, New York, 2006.

*Dr. Anne Rathbone Bradley is the George and Sally Mayer Fellow for Economic Education and the academic director at The Fund for American Studies. She also serves as the Vice President of Economic Initiatives at the Institute, where she develops and commissions research toward a systematic biblical theology of economic freedom. She is a visiting professor at Georgetown University, and she also teaches at The Institute for World Politics and George Mason University.