Theories of International Political Economy

IPE is a discipline that studies the way in which global economy and politics interacts and the result of that interactions. at is, “IPE studies the political battle between the winners and losers of global economic exchange”. Market vs state is one of the main dichotomies that is widely cited among scholars of IPE since IPE is generally defined as “a marriage of two disciplines, integrating market studies and political analysis into single field of inquiry”

State and market or economy and politics were not so separated from each other for a very long time. In this sense, the historical evolution of IPE can be classified into three sub-periods, under which general approaches to the discipline shifted fundamentally:

1. classical period;

2. the long negligence period;

3. the rise of IPE.

Physiocrats were French social reformers and their immediate in influence in French economic and political a airs lasted about two decades and ended when their most politically influential member, Anne Robert Jacques Turgot ( 1727- 1781), lost the o ice of comptroller general of finances in 1776. Francois Quesnay (1694-1774) was the most influential physiocrat. Physiocrats were generally acknowledged as having established the first systemic school of political economy even before Adam Smith. They were also the first groups of economists who proclaimed “laisser faire laisser passer”, which later became the central theme of the liberal school.

François Quesnay (1694-1774) was the leading figure of the French physiocrats School. He served as a medical doctor (surprisingly not as an economist) in the Louis XV’s Versailles palace. Quesnay was the doctor of Madame de Pompadour, King Louis XV’s favourite mistress. He became interested in economics in his rather later years and he wrote his most in influential piece of work, “Tableau économique” (1758), which diagrammed the relationship between the different economic classes and sectors of society and the ow of payments between them (‘François Quesnay’ 1998). Quesnay was thoroughly modern in trying to find laws to describe the behaviour of the economy and in depicting them in models.

Physiocrats were the proponents of the new ideas of economic freedom in France. e term came from the ancient Greek word, “physiocracy,” meaning “rule by nature.” They also liked to call themselves the economists. During the time of physiocrats’ rein, France was trembled by the economic and social disorder, which eventually lead to French Revolution in the later phases. In such circumstances, physiocracy was a reaction to both industrial revolution and mercantilism.

Physiocratic economic doctrine consists of

• Societies were governed by natural law, which argues that human behaviour and human reasoning are governed by a set of rules inherent in human nature.

• The basis of the social order lay in the economic order;

• Agriculture was the supreme occupation not just because it was morally and politically superior to manufacture or commerce, but also it was much more productive than the others;

• Those who engaged in agriculture were productive class while those who engaged in with non-agricultural activities were sterile classes.

Bullionism was the earliest phase of mercantilism, and it was derived from the experience of an acute shortage of gold and silver bullion in Europe in the fifteenth and the sixteenth centuries. Bullionist policies were designed to attract a ow of gold and silver into a country to service the rapidly expanding volume of trade and to keep them there by prohibiting their export. These restrictions lasted from the late Middle Ages into the sixteenth and seventeenth centuries

Mercantilism was properly regarded as a blend of economic fallacy and state creation of special privilege. As the earliest systemic understanding of IPE, mercantilism goes back to the period between the sixteenth to the nineteenth centuries. To understand mercantilism, we must look back to the eco-political environment of which the mercantilism was born out. Throughout that period mercantilism served both as a state policy and an economic theory. Mercantilists were also in cooperation with absolutist princes during an era of state-building out of the ashes of feudalism. Therefore, mercantilism was a strong nation-building policy as well as an economic policy.

In mercantilism, profit or the source of the capital accumulation came from merchandise trade. at is, buying cheap and selling expensive. So, the important question turned to be how to increase effectiveness in trade in order to increase profit.

To buy cheap and sell expensive and thus to sustain the highest possible profit, monopolies were created. Prohibiting its own merchants from competing by establishing monopolies was the easy part. When it comes to exclude other competing nations, the state coercive power rein to ensure a monopoly of trade by establishing colonial empires. at two practices became so general among European nations during the mercantilist era

As it was in bullionist tradition, mercantilists saw gold and silver held in the public treasury as the source of national wealth. However, the differences from bullionists was that mercantilists saw international trade as the source of capital accumulation, while bullionists saw mere imperial expansion through conquest rather than trade as the important source of surplus value. at is, even though both bullionists and mercantilists were on the same page for the question of what the reflection of the nation’s wealth is – it was gold and silver held in the public treasury- yet they fundamentally differed on from where to get it.

Thomas Mun, (1571-1641) was an English writer on economics and a merchant himself. He carried out trade around the Mediterranean. He was known for his theory of the balance of trade. He argued that the best way for having a trade surplus (that means getting more gold and capital accumulation) went through more trade -not restrictions. In this sense, as long as total exports exceeded the total imports in the process of visible trade, the export of bullion was not harmful. That idea was a total innovation compare to old bullionist economic thinking.

Over all assumptions of mercantilism are;

• International economic relations between states are competitive and national power and wealth are tightly connected to each other;

• Like war and conquest, trade is zero-sum game, where there is only one winner;

• Trade provides an important leeway for states to acquire wealth from abroad if state can run a positive balance of trade;

• To have trade surplus, states should follow a strategic trade policy by levying high tariffs to the import of manufactured goods, and low tariffs to the imports of raw materials as well as promoting export of manufactured goods while banning export of raw materials.

The theory of economic nationalism can be divided into two categories: i) Classic Economic Nationalism, which goes back to the ideas of economic theories in the nineteenth century; ii) Contemporary Economic Nationalism, which is very different and nuanced version of economic nationalism having particular ramifications in the contemporary economic thinking and practice.

Friedrich List (1789–1846) was the most influential classic economic nationalist. His book “ e National System of Political Economy” had a global appeal after it published in 1841. For List, the essence of political economy is the discovery of the means by which national economies grow and develop. Liberal political economy was a wrong- headed cosmopolitan view.

The concept of the developmental state is used to refer to the phenomenon of the rapid growth of several countries in East Asia in the late twentieth century. ese so called ‘Asian Tigers’ relied on state-led macroeconomic planning and extensive regulation. Chalmers Johnson, who pioneered the term for the first time, defined the capitalist developmental state as a state that is focused on economic development and takes necessary policy measures to accomplish that objective.

One of the central themes of liberalism is the ‘spontaneous order’ derived from market forces. Liberals basically argue that there is no need for state to bring together buyer and seller, set prices and quantities, or spur investment and production. e ‘invisible hand’ will find the most effective balance in the market instead of any central authority. at is, markets govern production, consumption, and exchange on its own in a best effective and efficient way. These are orders that, to Adam Smith, spring to life through the operation of an Invisible Hand; to F.A. Hayek, they are spontaneous orders; and to Paul Krugman, they are self-organising system.

Adam Smith (1723–1790) is probably the most influential liberal in all times. He established a new approach to political economy and his work opened new era in the thinking of IPE. Even though the liberal political economy goes back to classical thinkers like Jeremy Bentham, John Stuart Mill, John Locke and Thomas Jefferson, Adam Smith is the most influential figure in classical liberalism (Smith, 2011, 7). The intellectual history is often taken as before and after Adam Smith, which is a obvious indicator of his influence in the literature. Smith is distinguished from all prior economists not only by his scholarship and breadth of knowledge, but also by his development of a complete and relatively consistent abstract model of the nature, structure, and workings of the capitalist system.

The stability of the International System requires a single dominant state to articulate and enforce the rules of interaction among the most important members of the system. According to HST If there is such a hegemon, who is willing to bear the costs and enforce the rules while retaining political, economic and military edge for the hegemony, the international system would be stable (stability means the absence of war among major powers).

According to mercantilist, profit was derived from merchandise trade while liberals argued that profits came from production itself (buying the raw materials to produce a goods, then selling them in order to make a profit out of it). Like Adam Smith and David Ricardo, Marx said that the value of a good is the amount of labour used to make it, and that was where economic value comes from, which is known as the labour theory of value. In Marxist theory, to increase the profit as much as possible, capitalist exploits labour as much as possible.