Political Economy

Political Economy

International Political Economy The Study of International Political Economy Liberalism and Mercantilism

Introduction to International Political Economy: The Study of International Political Economy Liberalism and Mercantilism

Advocates of liberal policies in international economics support free economic markets and trade and oppose active legislative or regulatory intervention of governments. A commitment to free trade is the foundation of comparative advantage, an idea developed by Scottish economist Adam Smith, and British economist David Ricardo, in the late 18th and early 19th centuries. According to the idea of comparative advantage, a country can produce and export certain goods and services more efficiently than another country because it has a greater abundance of natural resources and labor skills needed to produce these goods and services. Nations should specialize in producing goods and services in which they have a comparative advantage, using the revenues gained to import other needed goods and services. Liberals argue that such practices maximize the creation of global wealth, increasing the fortunes of each individual country, although not necessarily equally.

Mercantilist policies, by contrast, favor greater political control over markets and exchanges. In particular, mercantilists advocate the use of protectionist policies-tariffs, subsidies, and other measures to protect domestic industries against foreign competitors. Mercantilists regard policies involving trade, money, and business as a basis to strengthen the power position of a nation relative to others. In the 16th and 17th centuries, for instance, monarchies controlled national economies in Europe. At that time, government officials viewed a trade surplus (when export revenues exceed import costs) as a way to build a “war chest” of gold and silver that would be available for military needs in the event of war. Mercantilists concern themselves less than liberals with maximizing global wealth. They focus more upon the political and economic strength of their nations in relation to rival countries.

Liberals tolerate temporary protection of domestic industry in selective cases, as when an automotive or steel industry in a country needs time to establish itself before competing in global markets. Policies may also focus on protecting industries considered essential to national security. In the 1980s, for example, the U.S. government developed policies to protect the militarily strategic semiconductor industry from Japanese competitors. Specific industry and labor groups threatened by foreign competition often lobby government officials to protect the markets for their products by raising tariffs or other barriers to trade. ” (1)

Concept of Political Economy

Note: explore also the meaning of this legal term in the American Ecyclopedia of Law.

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See Also

  • Political Economy
  • Public Policy

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See Also

  • Political Doctrine
  • Economic Doctrine
  • Fundamental Right
  • Doctrine

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Notes and References

Guide to International Political Economy The Study of International Political Economy Liberalism and Mercantilism

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