Around $900 billion a year is thrown into defence spending compared to only $60 billion for foreign aid, he estimates.
"That seems to me to be the most nonsensical thing you can imagine," Wolfensohn said at the International Monetary Fund and World Bank spring meetings.
Pouring money into the root causes of poverty might help prevent conflicts, the World Bank suggests.
"I suggested humorously the other day that if you spend $900 billion on development you probably wouldn't need to spend more than $50 billion on defence."
Wolfensohn was speaking at an event to draw attention to the lack of funding for education in poor countries.
One of the United Nations Millennium Development goals, which have the backing of the world's richest countries, is to make sure all primary school age children in the world have access to education by 2015.
The initiative needs an extra $5.6 billion in funding.
Aid group Oxfam estimates the United States - the world's largest economy - spent 300 times more on the war in Iraq than on supporting education in poor countries.
The US Congress approved $87 billion for the war while contributing $300 million each year for basic education in developing countries.
"We need to focus on the causes of conflicts and the causes of instability and one of the principal causes of all this is education and opportunity," Wolfensohn said.