Pol. Sci. 1300 International Political Economy

A. Introduction
- Various normative models of IPE (explain what normative means): Mercantilism, Liberalism and Marxism.

B. Mercantilism
Definition: Philosophy of International Political Economy that emphasizes the role of state power in obtaining advantageous trading arrangements for states. Presumes that states should aggressively seek to maximize exports and to minimize imports.
- This idea, which emerged with the rise of the nation state following the Treaty of Westphalia in 1648, is perhaps the first important and coherent expression of International Political Economy. Its importance goes well beyond the merely historic aspects, we also see variants of this idea at the present time, and impulses toward mercantilism exist within all societies.
- Characterizes the dominant economic philosophy in Europe between 1600s and 1900s, though, as mentioned, remnants still survive.
- Presumes that states should seek trade surpluses and should seek to protect domestic industry from foreign competition (usually characterized as being unfair).
- Fits within the broad framework of the realists school of international relations, with its emphasis on national power and the importance of relative versus absolute gains (explain what this means).
- Alexander Hamilton, one of the seminal figures in early American history, was commissioned by the first Congress to write a Report of manufactures, in it, he laid out much of the justification for mercantilist policies:
It is well known … that certain nations grant bounties on the exportation of particular commodities, to enable their own workers to undersell and supplant all competitors in the countries to which those commodities are sent. Hence the undertakers of a new manufacture have to contend not only with the natural advantages of a new undertaking, but with the gratuities and remuneration’s which other government’s bestow. To be enabled to contend with success, it is evident that the interference and aid of their own government are indispensable.

- In short, this is the rationale that has been used by governments, workers, unions, and businesses for the last 300 plus years, others will reward their local industries, why should we not engage in similar behavior.
- Another aspect of Hamilton’s argument is of particular relevance for our discussion of the developing world, that of protecting developing industries from the competition of established multi-nationals, whose variable costs are much lower than those of established companies.
- The mercantilist, or neo-mercantilist argument would hold that these industries must be protected through tariffs (explain how this works), or through subsidies within development. Speak of the Tigers and the ISI policies of Latin America.
- This school of thought was dominant through the 17th and 18th centuries, but began to weaken in the 19th and 20th, though it still hangs on. Remember that in the 17th and 18th centuries, universal conscription and society wide wars were not really known, and the countries of Europe relied heavily on mercenaries to do their bidding. Accordingly, the mercantilist view was that the state with the largest war coffers, was the most powerful.
- This perspective began to decline through the rise of three distinct developments:
1. Rise of England as a hegemon. Within the interest of the strong, and of the most highly developed economy to promote Free Trade, and the English had the ability to do so through the 19th Century. This was followed by the emergence of the United States as a World power following WWI, and especially following WWII, which was another state that was sympathetic to free trade, for both philosophic and practical concerns.
2. The Industrial Revolution. Not only did this abet the conditions that caused England’s rise, but it also enabled the mass manufacture of goods and facilitated their movement. The countries that had industrialized were anxious to trade their products for commodities from the rest of the world, or for products from other industrial nations. Under mercantilism this would be very difficult.
3. The Weakening of the absolute power of Monarchs. Rise of the middle class (trades people) who were more interested in their own profits than the size of the national war chest. Mention the role of Adam Smith and the free traders.
- However, this does not mean that we should presume mercantilism to be dead. Far from it, whether it takes the form of “buy American”, currency transfer restrictions, terms of entry in international organizations (ex. China and Poland), etc. the mercantilist impulse is still with us.

C. Liberalism (Classical Liberalism)
Definition: Philosophy of International Political Economy that emphasizes the role of markets in maximizing aggregate social welfare. Liberalists argue that market surpluses do not exist over time and that attempts to achieve them interfere with efficient production and consumption, stifling welfare.

- Associated with classical economic theory ( people like Adam Smith, David Ricardo, John Maynard Keynes, etc.)
- Liberal refers to a 19th century English political movement that advocated “laissez faire” economics. Mention the contrast between classical and modern liberals. This is a stance most likely to be seen in contemporary US conservatives or libertarians.
- “Laissez-faire” translates literally as “let it be” and centers on the belief that governments should not interfere in the market.
- To look for the roots of this idea, at least in the English language, a good place to start would be with Adam Smith’s “The Wealth of Nations”. Published in 1776, the book is still widely read, and was an argument against the prevailing policies of mercantilism.
- Smith argued that the idea of basing a nations wealth on the amount of gold and silver was nonsense. It should be based on its production of goods, and that a free economy with decisions on production being based on agreements between producers and consumers was the best way to augment production. Strong proponent of economic freedom and private property. Competition between producers - which could only be created through private property, and the freedom to sell and produce - would allow for rational consumers to achieve optimal satisfaction.
-Presumption of enlightened self interest.
- The government should allow the market, or the desires and wants of the people, to determine what is produced and in what quantity. In essence, this is reflective of Locke's idea that people function best when they are left alone.
- This is not to contend that the government should have no role in the economy of a society, beyond the functions of national defense and the preservation of internal order Smith saw the government as being an essential provider of public works, education, and the control of certain monopolies - water, etc. Yet this role was to be carefully prescribed, and it should resist the impulse to interfere in the market.
- Smith also considered the regulation of international trade to be folly. He argued that wealth was not a zero sum game and that trade would increase the wealth of all involved. Idea of comparative advantage - simple example France and Wine, Britain and wollens. Assumption is that if all have open markets all will profit.
- David Ricardo and the English “Corn Laws”
“Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. The pursuit of individual activity is admirably connected with the universal good of the whole. By stimulating industry , by rewarding ingenuity, and by using most efficaciously the particular powers of nature, it distributes labour most effectively and most economically: while, by increasing the general mass of production, it diffuses general benefit, and binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilized world.”
- Trade is seen as being mutually beneficial to all nations. Ferederic Bastiat, French Parliamentarian of the 19th Century, made a sarcastic proposal in the NA – that the government should protect France’s candlemakers from the “ruinous competition of a foreign rival” – the sun.

- Liberalism and the allocation of wealth - fairest means of distribution, based on the skills of the individual to accumulate capital rather than on some other criterion - influence, ethnic
background, etc.
- View of governmental action as largely being an impediment, rather than as an asset. Saw the market as reins on the potentially abusive power of the state.
- Belief that people, left to their own desires will tend to reach the best solutions to their problems, belief in humans as rational entities, capable of reason and also
- Adam Smith and the invisible hand and human rationality:
“He generally, indeed, neither intends to promote the public interest, nor knows how he is promoting it. By preferring the support of domestic to foreign industry, he intends only for his own security; and by directing that industry in such a manner as its own produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote the end which was no part of his intention.”
Liberalism emphasizes co-operation and the benefits of interaction. General faith in human nature.

Marxism
Definition – A major school of thought that views international relations as a struggle between rich and poor classes rather than as a contest between national governments or nation states.
- Argument exists that the international system was constructed with the implicit intention of perpetuating the advantages of the industrialized countries. Based on Marxist ideals, though it may be utilized by others.
- Originating in Marx, carried out by Lenin, Mao, Gramsci, etc.
- Existence of comprador classes within the countries of the developing world.
- Autarky of China under Mao, NK under the Kims.
- Present relevance for the countries of the developing world hit by currency shortages.

Describe the seeming necessity of trade for economic advancement.
- Gartzke’s “Little House on the Prairie” analogy.