Old Political Economy Theories

There have been different international political thoughts since the early stage of history. In this essay, we will see 3 big economic thoughts which are Mercantilism, Economic Nationalism, and Classical Liberalism. In doing so, I will first discuss the historical development of the thoughts, then analyze the understanding of state market interaction and their source of wealth. Finally, I will give an example, a policy from today's nation-state that aligns with the idea of these thoughts to some extent.

Mercantilism: it is a traditional economic thought which flourished between the 16^th and 19^th centuries. The earliest phase of mercantilism is called Bullionism which valued the accumulation of precious metals, gold, and silver as a source of wealth because of the shortage of these substances in Europe in the fifteenth and the sixteenth centuries. Later, Mercantilism emerged during the state-building period supporting the intervention of a state in the market and cooperation with absolute princes leading to the successful creation of absolutist states in Britain and France. It strongly relies on the state’s coercive power to expand its market and protect its economic interest. It creates trade monopolies that are supported or backed by the state. It generally emphasizes on state’s intervention in the market and protectionist measures such as tariffs.

According to mercantilism the main source of wealth is trade surplus. By Trade surplus we mean a positive trade balance in which a country sells more than what it buys or in other words, it exports more than what it imports. Thus, profit comes from merchandise trade, not agricultural production. Mercantilists were merchants and not producers, their main strategy was buying cheap and selling expensive. One of the major scholars of Mercantilism Thoman Mun mentioned trade as the sole means for a nation's wealth and power and also reflected this idea in his book "England’s Treasure by Foreign Trade."

Modern examples of mercantilism could be the growing protectionism measures taken by world economic leading countries such as the United States mainly after or during the Trump administration and also other European Countries and China as well. United State’s economic policies like withdrawing from multilateral economic agreements and regional organizations like NAFTA and TPP could be taken as an example of ideas that corresponds to the mercantilist protectionist idea. Also the winner and loser of policy demanders in the United States and how these affect the politics, which in turn affects the policies. We can also give examples of states’ attempts to support their domestic producers. For instance, the European state’s subsidy for agricultural production. This makes trade between Europe and Third-World countries even harder as these Third-World countries’ export item is mainly agricultural products, but still Europe continues to support domestic agricultural producers because it believes it should not be dependent on the external world. Also as we see in the class, Canada’s subsidy for its state lumber production shows to some extent similarity to the idea of relying on the state’s coercive power to protect its economic interest. 

Economic Nationalism: The origins of economic nationalism can be traced back to Alexander Hamilton and Friedrich List. This economic thought often emerged in countries which are undergoing industrial revolutions since most European countries had yet to industrialize by the mid-nineteenth century. Economic nationalism arose as an outgrowth of mercantilist thinking; but, unlike classical mercantilism, it prioritized the development of the national economy in order to promote rapid industrialization and growth.

It mainly focuses on transforming an agrarian economy into an industrialized economy and strongly emphasizes self-sufficiency. It supports being an economically self-sufficient state that is independent from any external world. Therefore, the source of wealth of a state is in the industrialization of itself. They see the state as the key actor in accomplishing this transformation of an agrarian economy to an industrialized nation. Economic nationalists thought that the state had the transformative power to back the transition and aim for rapid industrialization to catch up with leaders in the industry. They rely on national economic support and depend on the government's economic assistance for industrialization. They also support protectionism which is protecting its national industries or enterprises against external competition. It is the state’s responsibility to protect its national domestic enterprises ranging from small to big. As a trade policy, economic nationalist scholars like Alexander Hamilton suggest trade tariffs, duties, and prohibitions.

The logic behind this as Listian interpretation is strengthening infant local industries until they are ready to compete in the global market. Fredrick List believes that the external world is different from the domestic world thus different measures should be taken for trade relations with the external world because trade within the state and trade with other countries is tremendously different.

In the contemporary world, the biggest example of this is developmental states. A developmental state is a state that aspires an economic development and takes political measures that achieve this development plan. The East Asian countries also referred to as ‘Asian Tigers’ are the first examples to give but all “developing” countries including Turkey design development plans through an autonomous and centralized state bureaucracy. These states also face economic crises from time to time. Developing countries face development plan inefficiency or imbalances which lead to economic crisis however, economic nationalism has also been an answer for this kind of crisis by balancing free trade policies with exceptions. 

Classical Liberalism: this is the most dominant theory of IPE. It emerged in Britain during the eighteenth century to challenge the dominance of mercantilism in government circles. Scholars such as Adam Smith and David Ricardo (who first expressed the modern concept of comparative advantage) were trying to change government economic policy. It has a different market-state interaction understanding from the other two. Its main distinctive character is the invisible hand, which means the market on its own can govern the production, consumption, and exchange of products efficiently without the state’s intervention in the market. The only room for the state’s intervention is in services that the market could not produce such as national defense, supervision of the proper functioning of markets, and defending property rights.

One of the main principles of Classical liberalism is free trade among states as being more beneficial to society in the long run, resulting in increased efficiency and wealth development. It views all trade barriers as inefficient and unproductive and has called for their elimination, claiming that they impede the effective allocation of resources. The source of profit is efficient production with a specialized labor force and a fostered trade relation. Efficient manufacturing methods result in profits for both manufacturers and consumers as they lower costs for consumers and boost output for manufacturers.

Liberalism, different from the first two thoughts, has 3 main points to list out. First, liberalism aimed to make a clear distinction between politics and economics. It maintained that the purpose of economic activity was to benefit individuals rather than to strengthen the state's power. Second, liberalism comes against the idea that countries only benefit from maintaining trade surpluses. Instead, they believe whether the trade balance is positive or negative, countries benefit from trade. Finally, manufacturing manufactured items rather than primary commodities does not necessarily increase a country's wealth. Instead, classical liberalism claimed, countries become wealthier by producing things at a cheap cost at home and exchanging them for goods that can only be produced at a high cost at home, with this comes comparative advantage. Comparative advantage is an economic situation and method in which a state produces a specific good or service at a lower opportunity cost than its trading partners. Whereas John Stuart Mill refers to the indirect social consequence of trade. Although trade immediately produces tangible benefits, such benefits also have moral and political effects. Increased trade leads to a larger labor division and specialized workers, which promotes economic growth and a strong work ethic.

In the contemporary world, although classical liberalism was the prevailing economic thought of the eighteenth and early nineteenth century, its main principles like free trade and non-intervention of the state are still the most relevant ideology in today’s global economy. International economic institutions like the World Trade Organization and the International Monetary Fund are run by liberal ideology and liberalism is the driving ideology of policies made in these institutions which are abiding for all member states. Also, almost all countries in the world in every continent abide by these liberal ideologies to some extent.