💰Political Economy of International Relations Unit 2 – Mercantilism, Liberalism, and Marxism Theories

Key Concepts and Definitions

• Mercantilism emphasizes the importance of a positive balance of trade, achieved through exporting more than importing
• Liberalism promotes free trade, minimal government intervention, and the pursuit of comparative advantage
• Marxism focuses on the exploitation of the working class by the capitalist class and advocates for the collective ownership of the means of production
• Balance of trade refers to the difference between a country's exports and imports
• Comparative advantage occurs when a country can produce a good or service at a lower opportunity cost than another country
• Means of production include the resources and facilities used to produce goods and services (land, factories, machinery)
• Surplus value represents the difference between the value of goods produced by workers and the wages they receive

Historical Context and Development

• Mercantilism emerged in Europe during the 16th to 18th centuries as a response to the decline of feudalism and the rise of nation-states
• Liberalism developed in the late 18th and early 19th centuries, influenced by the works of Adam Smith and David Ricardo
• Marxism originated in the mid-19th century, based on the writings of Karl Marx and Friedrich Engels
• The Age of Discovery and the establishment of colonial empires played a significant role in the rise of mercantilism
  • European powers sought to accumulate wealth through the acquisition of colonies and the control of trade routes (Spanish Empire, British Empire)
• The Industrial Revolution and the growth of capitalism provided the context for the development of liberal economic theories
• The social and economic inequalities resulting from industrialization and capitalism influenced the emergence of Marxist thought

Core Principles of Each Theory

• Mercantilism:
  • The wealth of a nation is determined by its holdings of precious metals (gold, silver)
  • Government intervention in the economy is necessary to promote exports and restrict imports
  • Colonies serve as sources of raw materials and markets for finished goods
  • Economic nationalism and protectionism are key policies
• Liberalism:
  • Individuals acting in their own self-interest lead to the greatest economic benefit for society as a whole
  • Free trade and open markets facilitate economic growth and efficiency
  • Government intervention should be minimal, limited to protecting property rights and enforcing contracts
  • Specialization and division of labor increase productivity and economic welfare
• Marxism:
  • The capitalist system is inherently exploitative, with the bourgeoisie (owners of the means of production) extracting surplus value from the proletariat (working class)
  • Class struggle between the bourgeoisie and the proletariat is a fundamental feature of capitalist societies
  • Private property and the concentration of wealth in the hands of a few lead to social and economic inequality
  • The ultimate goal is the establishment of a classless, communist society through the overthrow of the capitalist system

Economic Implications

• Mercantilism led to the rise of state-sponsored monopolies and the implementation of protectionist policies (tariffs, quotas)
• Liberal economic policies promoted the expansion of international trade and the development of global markets
• Marxist theories emphasized the inherent instability of the capitalist system and predicted its eventual collapse due to its internal contradictions
• Mercantilist policies often resulted in economic inefficiencies and the misallocation of resources
  • The focus on exporting led to the neglect of domestic industries and the suppression of consumption
• Liberal ideas contributed to the growth of industrialization and the emergence of modern capitalism
• Marxist critiques highlighted the unequal distribution of wealth and the exploitation of labor under capitalist systems

Political and Social Impact

• Mercantilism reinforced the power of the state and the monarchy, as the pursuit of national wealth was seen as a key objective of government policy
• Liberal ideas promoted individual rights, limited government, and the rule of law
• Marxism called for the empowerment of the working class and the establishment of a dictatorship of the proletariat
• Mercantilist policies often led to international conflicts and wars as nations competed for colonies and trade routes
  • The Anglo-Dutch Wars and the Franco-British rivalry exemplify the political tensions arising from mercantilist competition
• Liberal principles influenced the development of democratic political systems and the expansion of civil liberties
• Marxist ideas inspired revolutionary movements and the formation of communist states (Soviet Union, People's Republic of China)

Critiques and Limitations

• Mercantilism:
  • The focus on accumulating precious metals neglected the importance of productive capacity and technological progress
  • Protectionist policies hindered international trade and economic efficiency
  • The exploitation of colonies and the slave trade were morally reprehensible and had long-lasting negative consequences
• Liberalism:
  • The assumption of perfect competition and the existence of free markets does not always hold in reality
  • The pursuit of self-interest can lead to market failures, externalities, and the concentration of economic power
  • Liberal policies may exacerbate social and economic inequalities
• Marxism:
  • The predicted inevitable collapse of capitalism has not occurred in the manner described by Marx
  • The implementation of communist systems has often led to authoritarian rule and the suppression of individual rights
  • The abolition of private property and the centralization of economic planning can result in inefficiencies and the stifling of innovation

Modern Applications and Relevance

• Elements of mercantilist thinking can be seen in modern economic nationalism and protectionist policies (tariffs, trade wars)
• Liberal principles continue to shape international trade agreements and the policies of multilateral institutions (World Trade Organization, International Monetary Fund)
• Marxist ideas have influenced the development of social welfare systems and the pursuit of greater economic equality
• The rise of globalization and the increasing interconnectedness of economies have highlighted the relevance of these theories in understanding international economic relations
  • The debate over free trade versus protectionism and the impact of multinational corporations on global economic dynamics
• The 2008 global financial crisis and the subsequent economic downturn led to a resurgence of interest in Marxist critiques of capitalism
• The growing concern over income inequality and the concentration of wealth has sparked discussions about the need for alternative economic models

Comparing and Contrasting the Theories

• Mercantilism and liberalism both emphasize the importance of international trade, but differ in their views on the role of government intervention
  • Mercantilism advocates for state control and protectionism, while liberalism promotes free trade and minimal government interference
• Liberalism and Marxism both emerged as responses to the economic and social changes brought about by industrialization and capitalism
• Marxism stands in stark contrast to both mercantilism and liberalism, rejecting the notion of private property and advocating for the collective ownership of the means of production
• Mercantilism focuses on the wealth and power of the nation-state, while liberalism and Marxism place greater emphasis on the individual and class relations, respectively
• Liberalism and Marxism offer competing visions of the ideal economic system, with liberalism championing free markets and individual liberty, and Marxism advocating for a classless, communist society
• While mercantilism and liberalism have shaped the development of the modern global economy, Marxism has had a more significant impact on political and social movements challenging the capitalist system