Adam Smith: natural tendency to “barter, truck, and trade”
commerce requires partners
establish partners
partners establish partners
commerce creates networks
Simmel, Philosophy of Money
how we develop anonymous relationships
people all over the world are working for us
Two worlds
a political world
an economic world
how international political economy makes the two coincide
questions:
which world determines the other?
Regime theory
Kindleberger’s argument
the lack of hegemonic power during the interwar period
“regime”
“hegemon”
power
declining power
the institutionalization of the regime
cf. the role of China in international trade
Development of a world economy
Long-distance trade for some 2,000 years
Mediterranean
Indian Ocean
Southeast Asia
Cross-Sahara
Inner Asia
Europe: Commercial revolution, 17th century
herring from the North Sea
grain from the Baltic
The Industrial Revolution:
The growth of industrialization in the 19th century led to increased economic interdependence between states and a greater need for international cooperation on trade and finance.
The first era of globalization:
The adoption of the gold standard in the late 19th and early 20th centuries facilitated international trade and investment but also led to financial instability and periodic crises.
The Great Depression:
The economic collapse of the 1930s highlighted the need for greater international economic cooperation and coordination.
The Bretton Woods System:
The post-World War II international economic order, which included the establishment of the International Monetary Fund (IMF), the World Bank, and the General Agreement on Tariffs and Trade (GATT), sought to promote global economic stability and growth.
The Washington Consensus:
Neoliberal economic policies, which emphasized deregulation, liberalization, and the primacy of markets
Second era of globalization
and a backlash
Mercantilism
the state in early modern Europe
Europe divided in many sovereign parts
sovereignty — anarchy
constant warfare
forced to arm themselves
constantly looking for resources
golden age of political economy
the state as a sort of machine for mobilizing the resources of society and use them for military ends
enriching the state
Cameralism or Polizeiwissenschaft
like an early political science
a rule for everything
society rational, well-organized and harmonious
two functions:
care for the well-being of the people
supervise the people under its jurisdiction
regulation of economic activity:
guild privileges – monopolies & patents – “enriching the state”
International trade
enriching the nation by gathering as much wealth in the country as possible
restrict foreign trade
gather as much as possible from abroad
give them as little as possible
for example:
import raw material and sell manufactured goods
sell to foreigners who buy in gold
in some cases: outlaw foreign trade completely
foreign colonization
occupy valuable land
population
encourage as large a population as possible
good tax base — lot’s of soldiers
international politics as
quest for resources
precious metals — especially gold
predatory system
How to grow tea in Sweden
the Linnaeus story
a botanist and a nationalist
trying to make tea grow in Sweden
“Bullionism”
the gold aspect of the mercantilist doctrine
wealth as a matter of the hoarding of gold
gold
from Africa – Gold Coast – Ghana
quest for Eldorado in the Americas
silver
Potosí — mountain of silver
forced labor — mines very remote —
impossible to get people to go there voluntarily
Adam Smith and free trade
the first to think systematically about the economy
free trade
new orthodoxy – “only the intellectually inferior fail to understand the logic”
“Wealth of nations”
we all want to make our countries as rich as possible
we need money
mercantilists: we need gold
but something was wrong …
eg how Spain never managed to hold on to any of the gold
it didn’t correspond to any real wealth in Spain itself
they didn’t produce anything
it created inflation and slipped away
in the end the ships from the Americas went straight to England and Holland to pay the debtors
Smith: “opulence” not through the hoarding of gold
gold has no particular value which other goods don’t have
any good is as good as any other good
cf. the history of money …
e.g. Tartars count their wealth in sheep rather than in gold — or tobacco — or cattle — or deer hides
gold is a token of value — the tokens can be anything
if there is no money, people will invent it
instead …
wealth is how much we can consume or invest
wealth consist in what money purchases, and is valuable only for purchasing
consequently …
depends on how productive we are —
how efficiently we can produce —
how much resources that must be used to produce a given output
if we don’t have gold, but have goods, we can always get the gold we need by selling the goods
The old lady analogy
wealth as an aristocratic old lady who is surviving by selling paintings in her collection
she may be fantastically wealthy – the wealth of kings in the loot in their coffers
wealth as stealing more paintings – cf. selling the paintings as expensively as possible
political question: how to organize this theft
Smithian economics …
wealth as a creative painter who can produce as much art as he himself desires
if you need more money – you just paint another picture
wealth as providing the right conditions for painters
political question: how to encourage economic activities
Smith: “hidden hand”
theory of incentives
people are constantly trying to find the most advantageous use for their money
if everyone acts in this way — the total benefit for society will be maximized
as individuals we are all selfish, but the total outcome of our selfish actions is the outcome most beneficial to society
cf. self-interest of baker and shoe-maker etc
“he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention”
Government imperative
maximize the opportunities for individuals to enrich themselves
everyone will benefit
Advantage of foreign trade:
“If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage … It is certainly not employed to the greatest advantage, when it is thus directed towards an object which it can buy cheaper than it can make it”
i.e.
free trade permits the best allocation of society’s resources
protective tariffs interfere with this allocation
reduce national income
cf. Linnaeus and his tea:
very idiotic to make tea in Sweden – expensive and low quality
only the domestic producer gains – consumers suffer
much better to buy tea from China – and sell them IKEA furniture
plenty of contemporary examples
after years of import substitution
autarchy
The problem with bullionism
David Hume: the specie flow — balance of trade
e.g. England is booming economically — inflow of gold
gold standard — money stock tied to gold
prices rise — including prices of exports
foreigners, now with less money, buy less from England
foreign prices go down since there is less money
Englishmen start buying foreign goods
gold flows out — money stock declines — prices go down
etc.
Problems of protectionism
consequences of a tariff or a custom
the protected sector will benefit, but
what matters is what happens to the entire economy
opportunity costs:
the amount of capital is limited in an economy — at least in the short run
increasing output in one sector means reducing output in another sector
crucial question:
is an artificial direction of capital into one particular sector more or less efficient than the natural flow of capital without any conscious direction?
Smith: this is never the case
trade protection as another form of state regulation
never more efficient than pure market allocation
consumers vs producers
the interests of consumers are sacrificed at the expense of producers
mistake to see production and not consumption as the end of economic life
trade restrictions lead to monopolies and inefficiencies and the domestic consumer has to pay higher prices
case against tariffs — any form of state protection
reduce competition
rent-seeking — groups, companies are able to manipulate the market to their own advantage
companies don’t have to try their best
consumers will suffer
high prices
poor qualities
slow at introducing new technology
slow at following changes in consumer demand
Division of labor
cf. Adam Smith — and the pin factory
the advantages of specialization
division of labor — more productive labor — easier to invent machines
size of the market
the bigger the market, the more specialization
for a very big market you can survive making a very small thing
applies also across borders
we need to make the markets as big as possible — increase specialization
in order to take advantage of division of labor — we must trade
a few exceptions …
protecting industries that are important for national defense
when domestic goods are taxed and imported ones are not
an import duty will restore equal treatment
Absolute advantage
simple and intuitive idea
if our country can produce some set of goods at lower cost than a foreign country
and if the foreign country can produce some other set of goods at a lower cost than we can produce
then
clearly it would be best for us to trade our relatively cheaper goods for their relatively cheaper goods — in this way both countries may gain from trade
to take the earlier example …
let China make tea – and Sweden make IKEA furniture
and let the two trade
after the exchange you get …
advantage to each country
advantage to the world as a whole — fewer resources are spent in producing the same goods — more efficient — cheaper
Comparative advantage
Smith’s assumption:
that two countries – England and Portugal
trade since they are more productive in respect to one particular good
Ricardo’s example:
Portugal more productive in both goods
counter-intuitive according to Smith – not clear why Portugal should bother trading with England
Ricardo’s solution —
England specializes in one good – Portugal in the other
Portugal specialize in that which it is “most best” at — England specialize in that which it is “least worse” at
before specialization:
days work/
England
Portugal
cloth
150
100
wine
200
50
total
350
150
500
after specialization:
days work/
England
Portugal
cloth
(2*150 = 300)
0
wine
0
(2*50) = 100
total
300
100
400
in other words …
each country gains — and the world gains
real wages rise in both countries — wages being a reflection of productivity
observe …
either both country has a comparative advantage — or none has it
there cannot be a situation in which only one country has a comparative advantage
counter-intuitive conclusions
even when one country is technologically superior to the other in both industries
one of these industries would go out of business when opening to free trade
like the Portuguese cloth industry — in the example above
Second era of globalization
Globalization refers to the increasing interconnectedness of national economies, driven by the liberalization of trade and investment and advances in technology and
communications. 2. The impact of globalization on national economies and the distribution of wealth and power among states is a central concern in IPE.
Key debates surrounding globalization include the erosion of state sovereignty, the potential for global economic imbalances, and the impact on social and environmental conditions.
B. International trade and finance
International trade and finance are critical components of the global economy, with significant implications for state relations, economic growth, and development.
Key issues in international trade and finance include trade liberalization, regional trade agreements, currency manipulation, and financial crises.
The role of international institutions, such as the World Trade Organization (WTO), the International Monetary Fund (IMF), and the World Bank, in shaping and regulating global trade and financial flows is also an important area of inquiry in IPE.
C. Development and inequality
Development and inequality are central concerns in IPE, as scholars examine the factors that contribute to economic growth and the distribution of resources within and between states.
Key debates in this area include the role of foreign aid, the effectiveness of development strategies and policies, and the relationship between economic growth, inequality, and political stability.
The impact of global economic processes, such as trade, investment, and financial flows, on development outcomes is also a critical area of inquiry.
D. Environment and resource politics
The politics of natural resources and environmental issues, such as climate change and resource scarcity, are increasingly important in IPE.
Key debates in this area include the management of common-pool resources, the role of international institutions and agreements in promoting environmental cooperation, and the impact of global economic processes on the environment and natural resources.
The relationship between economic development, resource consumption, and environmental degradation is also a critical area of inquiry.
E. The role of non-state actors in IPE
Non-state actors, such as multinational corporations, international organizations, and civil society groups, play an increasingly important role in shaping the global political economy.
Key issues in this area include the impact of corporate power on state policies and international relations, the role of global governance institutions in shaping economic outcomes, and the influence of civil society groups on global economic and environmental policies.
Conclusion: International political economy is a dynamic and interdisciplinary field that seeks to understand the complex interplay between politics and economics on a global scale. By examining the history of IPE, key theoretical issues, and contemporary challenges and debates, we can develop a deeper understanding of the forces that shape the global political economy and the implications for state relations, economic growth, and development. As we continue to grapple with the challenges posed by globalization, trade, development, and environmental issues, the study of IPE will remain an essential component of our efforts to understand and navigate the complexities of the global economy.
Marxism and dependency theory
Marxist and dependency theories argue that the global capitalist system perpetuates and exacerbates inequalities between countries, with wealthier nations exploiting and dominating less-developed countries.
These theories emphasize the role of multinational corporations, global financial institutions, and international trade policies in perpetuating global economic inequalities.
world poverty
return to mercantilism
separate development
but always a failure
just as Adam Smith would have suggested
developmental states
spectacularly successful
why are some states able to encourage development
many successful cases in East Asia — Japan as the first one
infrastructure broadly understood
stuff that companies cannot invest in
cf. Biden
infant industry argument
might work differently if we are producing for exports
