Week 2

Question 1

Write the theoretical evolution in 9 steps

Answer 1

1. 1620s mercantilism
2. 1770s liberalism
3. 1790s economist nationalism
4. 1870s marxism + neoclassical economics
5. 1914-20s liberal idealism
6. 1950s realism + neorealism
7. 1970s neoliberal institutionnalism
8. 1985 domestic politics
9. 1995 rationalism vs constructivism

Question 2

Define mercantilism

Answer 2

Mercantilism is a national economic policy from the 17th century.

Question 3

When is the origin of mercantilism ?

Answer 3

Emergence of mercantilism is dated 17th century = 1620s

It then influenced the most modernized parts of Europe, including France, Netherlands, Austria and Prussia.

Question 4

What was the context of mercantilism ?

Answer 4

• Great Power competitions
• emergence of centralized nation-state
• technological changes
• new markets
• modern accounting

Question 5

What are the topics discussed by mercantilism ?

Answer 5

• relations btw merchants wealth and state power

- practical commercial issues

Question 6

How does mercantilism see the world ?

Answer 6

• Hobbesian + machiavellian = realpolitik

- international politics as a zero-sum game –> the relationships for trade are therefore conflictual

Question 7

What is the IV and the DV of mercantilism ?

Answer 7

IV = wealth
DV = power

Question 8

Who is Thomas Mun ?

Answer 8

He is a private merchant and the director of East asia company.
He is considered as a mercantilist because he supports that trade balance is important to explain the national economic welfare.
Moreover he joints trade, exchange rate and growth to form the trade balance.
He thinks that when there is a positive trade surplus, then the country will be rich.

Question 9

Who is Jean Baptiste Colbert ?

Answer 9

He is a public official = French Finance minister
He is considered as a mercantilist because he supports that positive trade balance increase the state power.
Positive trade balance happened when a state does import-substitution and the promotion of its exports.

Question 10

What are the regulations that Colbert suggested ?

Answer 10

• expansion of manufacturing through regulations
• foundation of French East Indies companies
• acquisition of colonies

Question 11

When is the origin of nationalism ?

Answer 11

Created in response to liberalism in 19th century.

Question 12

What are the topic of nationalism ?

Answer 12

individual VS state interest
statebuilding
industrialisation and economic development’s strategy

Question 13

What was the context when mercantilism emerged ?

Answer 13

Mercantilism arrives in the context of the emergence of centralized nation-states. There is a competition for power in Europe, and technology starts reshaping and creating new markets. It is important to note also the influence of the treaty of Westphalia, as it is a basis of non-intervention and sovereignty that was not present before.

Question 14

What supported Thomas Mun ?

Answer 14

His main view was that trade balance is central to understand national economic welfare. To him, the key to increasing wealth and treasure is to export more than is imported, creating a positive trade balance.

Question 15

What do Thomas Mun and Malynes think about the origin of the great depression ?

Answer 15

On the depression of 1620, Mun and Malynes differed on the cause of it: for Malynes, it was because of speculator, while Mun said it was the relationship of war with the trade-balance.

Question 16

What supports nationalism ?

Answer 16

Nationalism opposed the individual to the national interest, and differs therefore strongly from liberalism, where the invisible hand, the interest of individuals will lead to a good market.

Question 17

What is the context of nationalism ?

Answer 17

The context of this ideology is one of industrialization, and British hegemony. The fresh independence of the US, the unification of Germany in a tumultuous context of power politics led them to see the building of their own independent state as a necessity, and to be achieved through an economy concentrated on the domestic protection and development

Question 18

Who is Alexander Hamilton ?

Answer 18

Alexander Hamilton (1757 – 1804) was considered the first “National Economist”. He pushed for a strong central government which he believed to be necessary in the country’s development stage. He wanted to encourage individuals’ contribution to national welfare, and concluded that subsidies and import duties had to be put in place for defensive purposes, in order to protect infant industries.

Question 19

What are the 2 key actors of nationalism ?

Answer 19

Friedrich List and Alexander Hamilton

Question 20

Who is Friedrich List ?

Answer 20

Friedrich List (1789-1846), an academic, entrepreneur and strong supporter of German customs union, and exile in the US. He argued, like Hamilton, that state interests had to be put above private interests, especially in such a stage of development. He came to the same conclusion as Hamilton, and tried to theorize his work.

Question 21

Cite an actual example of nationalism ?

Answer 21

This philosophy is noticeable in practical economy today too. South Korea, for example, developed itself with strong restrictions to protect its domestic market when the country was in a developmental stage.

Question 22

What are the 3 main points to remember of mercantilism ?

Answer 22

1. A Trade balance that is positive; imports should be restricted if needed, and exports be subsidized. The mercantilist trade partnerships rely therefore on a discriminatory system of preferential trade.
2. Concerning the trade structure, mercantilists made distinctions between more valuable goods, and lesser ones. Through this perspective, they promoted manufacturing through the same means as listed above.
3. Their 3rd postulate is the accumulation of gold and silver, and restriction on gold and silver exports. For Colbert accumulating gold was synonymous to accumulating power.

Question 23

In what context did liberalism emerge ?

Answer 23

Liberalism emerged in a context of the glorious revolution (permitting more participation of Parliament in Britain), of American and French revolutions, and the end of absolutism. Liberalism was strongly influenced by the Enlightenment ideology, notably through the concepts of liberty and property presented by Locke, rationality as given by Kant, and saw the international market as a positive sum game.

Question 24

Who are the 4 key actors representing liberalism ? Explain his theory

Answer 24

1. Adam Smith
2. David Ricardo
3. David Hume
4. Richard Cobden

Question 25

Explain the theory of Smith concerning the national interest ?

Answer 25

Smith argued that if markets are totally free, there would be a harmony of interests, creating therefore a more effective market than through government intervention. He also addressed the liberal idea of the constraining effects of the markets that reduces the chances of two states to go to war. The concept of absolute gains is also addressed in The Wealth of Nations.

Question 26

Explain Smith's point of view

Answer 26

He argued that wealth and power is not equal to money. To him what mattered was not how much gold you had, but **how much you could consume***. On top of that, he argued strongly against the mercantilist idea that state interests were not to be substituted by individual interests. If free market then there is a harmony of interests > more effective market. Constraining effects of the markets > reduce chances of 2 countries to go to war

Question 27

What theory did David Ricardo supported ?

Answer 27

He was a member of parliament, a businessman, an economist and a politician. He was the one who theorized the comparative advantages theory resulting from free trade, and argued that free markets promoted peace.

Question 28

What theory did David Hume supported ?

Answer 28

David Hume, another liberal of that time (1711-1776) introduced the Price-specie flow model: A theory that totally delegitimizes the mercantilist trade postulate according to which trade-surplus is necessary. Here is an explanation of this model. Through this, Hume showed how mercantilism did not work in the long term. INTERNAL/EXTERNAL ADJ

Question 29

What theory did Richard Cobden supported ?

Answer 29

Richard Cobden (1804-1865) was another liberal thinker, member of parliament and politician, and a manufacturer from Manchester. His thought led him to see trade and peace positively linked to each other. He put forward the pacifying effect of international institutions, and even concluded that international courts should be established.

Question 30

What are the key recommandations of the liberalism ?

Answer 30

To summarize liberal recommendations at that time, their main focus was first of all to establish free trade zones, eliminate all trade barriers. Trade increases the costs of war, and therefore makes it more viable to have a peaceful relationship between states by the means of free trade. Through Hume’s perspective, we can see well the idea that trade deficits and surpluses are automatically adjusted on the international level, and therefore that government intervention is unnecessary and even harmful. Their last recommendation is mainly about international institutions, how they promote trade through agreements, and make wars less likely.

Question 31

What is the relevance today of liberalism ?

Answer 31

We could see a liberal order maintained until the first world war that was mainly based on trade agreements, the gold standard, and free capital flows. After the two world wars, liberalism imposed itself as the dominant order with the Bretton Woods which created embedded liberalism, and the GATT, the institution responsible for market liberalism. European integration, the European construction as a whole can be seen to be highly influenced by the idea of peace establishing international institutions put forward by liberal theories.

Question 32

What is the relevance today of mercantilism ?

Answer 32

Mercantilist policies nevertheless did not disappear. A lot of countries, especially developing ones, used the strategy of Import-substituting industrialization, like in Latin America from the 1960s and onwards. The idea stressed by Hamilton to protect infant industries is also present today. This could be seen with the dispute between Airbus and Boeing, that was brought to the WTO. It is one of the most commons things to be accused of at the WTO, to introduce mercantilist/unfair policies.

Question 33

What is the theory of neomercantilism ?

Answer 33

There is also a “neo-mercantilist” movement that seems to fain importance, especially in the context of China gaining influence on the world economy. The prominent writers of this current are Krugman and Rodrik, but their ideas are strongly countered by the order in place, and do not resonate as well as they used to.

Question 34

Which theory does Krasner developped concerning the relationship btw power and trade ?

Answer 34

Krasner (1976) also proposed an interesting theory about the relationship between power and trade, trying to answer the question of How do national interests affect trade policy? He describes income, social stability, political power and growth to all be national interests. The effects nevertheless of openness are different depending on the size and power of the state. Large and small countries see relative gains, while intermediate countries see mixed effects.

Question 35

Explain the wage bargaining theory by Manger and Sattler ?

Answer 35

Manger and Sattler tried to explain why do countries have divergent, long term trade imbalances. They found out that the origin of this problem was not the power but domestic institutions. Thus there is wage compression under coordinated wage bargaining.