The beginning of the game will consist of making your own lands safe and then capturing new rebel lands.
Then what's something like Isengard to do? It HAS no lands of it's own, and is hemmed in by everything ELSE. Whilst breaking the Silvan Elves is not necessarily a poor idea, Mordor, Harad, and Rhun have few enemies and will only prosper under such conditions as are implied by this. I'm curious to what you imagine the start to end up beig for most races, given the economy is fueled by the spoils of war. Even disregarding the direct profit from capturing towns, there's the long-term increases from having more taxes per turn.
I'm all for what you intend, but these questions burn my mind.