Economic Theory
Essay Preview: Economic Theory
Report this essay
Economic Theory
Countries across the globe differ on basic philosophic insights. These insights determine which economic theory will fit a given nations interests. All nations have an economic strategy that attempts to produce internal benefits, whether the nation is authoritarian, democratic or communist. The international political economy can be explained through the mercantilist, liberal and Marxist theories; the liberal theory being seen as the better and most beneficial view for trade.
According to Gilpin the so called, “mercantilist age of the seventeenth and eighteenth centuries”, was a mass of imperial powers competing over control of the sea and colonial expansion. The major focus of the economy for major world powers (i.e. France, Germany, and England) during this time was to bring money to military and political institutions. The main concerns for the mercantilist states are realistic and typically selfish. The number one point of interest for the mercantilists is the state.
Traditional Mercantilists take on almost an extreme version of self interest. Democracies will work with governments that go in direct opposition to their own beliefs to protect their markets. For example the United States worked with the Chinese during World War II, talked with the Russians during the Cold War, and throughout history has worked with Authoritative
Coggin 2
regimes. States put their ideas of government aside under the mercantilist model. Governments control and determine the balance of economic powers.
Producing as many goods for as low of cost as possible is ideal for the mercantilist, as long as it doesnt hurt the state. A lack of regard for the individual citizen exists under this model of economic theory. The state only cares about progressing its grasp of power. The idea of a welfare state is basically irrelevant. In order to gain more power the state must acquire wealth.
Alexander Hamilton is a major philosopher that dealt with mercantilism. Hamilton encouraged the United States to industrialize as quickly as possible. An industrial economy would be needed to compete in the international market. The industrial economy would strengthen the United States and insure the advance of American power. Hamilton saw the advance of Britain as a worldwide hegemony a product of industrialization. The quicker the Americans could industrialize, the better off they would be and the more power they could control.
For the realist mercantilist view the acquisition of power through external force is paramount. Realists do not pay attention to the domestic make-up of the state; their main concerns deal with external force. This view is very pessimistic compared with the other views. These views maintain a free market and the support of individual rights. The following analogies can be used when speaking about mercantilism: first being the glass is half empty because the realist is very pessimistic and believes that everyone is out to get him. The second analogy views world power as a pie. The pie cannot be expanded; countries can only take their pieces of the greater international economy. A mercantile nations main goal is to acquire and
Coggin 3
maintain its own piece of the pie. This is problematic for other countries because when one country gains power the other countries loose. In almost direct opposition to mercantilism comes the liberal school of thought in regard to the international political economy.
Liberalism focuses on the individual and the individuals rights. It is by far the most appealing form of economic philosophy out there. It supports life, liberty, and prosperity for the individual. Liberal thought is considered to be very optimistic in regards to life and in this case the economy. The school of thought generally is that life is harmonious and peaceful; it is a better way to look at the international economy. The policies support a wealthier world in the long run.
In opposition to the concrete pie in the mercantile model, the pie expands under the liberal ideal. Liberals believe that there is enough to go around for everyone and that nation-state economies can expand without taking away from other countries power and wealth. Liberals believe that the government must institute laws to protect the individual and the individuals ability to obtain wealth. The liberal thought believes in individual rights and most importantly protection of individuals property. Through the protection of the individual the country will prosper in the long run due to the gain made by individual citizens.
A laissez-faire market is necessary to maintain a liberal economy. Protections may be made by the state to insure the market stays free. Adam Smith was a major advocate of the liberal political economy. Smith supported the theory that the state would be strongest when its citizens could, “structure both moral and economic life without direction from the state”. (Wikipedia.com) Smith argued that the so called invisible hand would regulate the market. The
Coggin 4
market would even itself out under the condition that government stayed out completely. As for taxes Smith argued that taxation was okay as long as it didnt hurt the economy.
The liberal economic model maintains that it is necessary to protect and educate its citizens. Unlike the realistic mercantile model, the liberal school of thought relies on individual interests not those of the state. It is in the states interest to educate its citizens. Educated citizens are the base for skilled workers. Skilled workers enable the state to acquire wealth and therefore power. In a liberal state education must remain a public good. If privatization of education were to occur the quality of education would drop dramatically. This would ultimately lead to an ignorant workforce.
Some argue that the Great Depression was caused by liberalism. Others might argue that it was caused by over mercantilism. The invisible hand gone wrong would argue that the market lacked control and spiraled out of control. The argument supporting mercantilism as the problem for the depression would hold that the over regulation. The United States overregulation of the markets and banks made it hard for them to react to the current environment, eventually leading to massive collapse.
A new form of liberalism supports the idea that the government should be limited to its intervention in the economy. Under this modern liberal model the government would be able to intervene in order to protect personal freedom and liberty. The