How do the outcomes of international wars affect domestic social change? In turn, how do changing patterns of social identification and domestic conflict affect a nation’s military capability? We propose a “second image reversed” theory of war that links structural variables, power politics, and the individuals that constitute states. Drawing on experimental results in social psychology, we recapture a lost building block of the classical realist theory of statecraft: the connections between the outcomes of international wars, patterns of social identification and domestic conflict, and the nation’s future war-fighting capability. When interstate war can significantly increase a state’s international status, peace is less likely to prevail in equilibrium because, by winning a war and raising the nation’s status, leaders induce individuals to identify nationally, thereby reducing internal conflict by increasing investments in state capacity. In certain settings, it is only through the anticipated social change that victory can generate that leaders can unify their nation, and the higher anticipated payoffs to national unification makes leaders fight international wars that they would otherwise choose not to fight. We use the case of German unification after the Franco-Prussian war to demonstrate the model’s value-added and illustrate the interaction between social identification, nationalism, state-building, and the power politics of interstate war.