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The contributions of thomas mun and john lockes international trade theories to modern global econom

  • This review essay surveys both strains of thought since the emergence of mercantilist policies in seventeenth century England, and finds some constants that run through both schools of thought;
  • There are four interrelated reasons why realism and IPE appear to have parted ways.

Personal use only; commercial use is strictly prohibited for details see Privacy Policy and Legal Notice. And, to be sure, there are obvious and strong areas of overlap. Both paradigms stress the autonomous role of the state—and warn against capture by particularistic interests.

Both also stress the conditioning effects of the distribution of power in defining national economic interests. Despite these constants, however, over time, the two approaches diverged more and more.

Most modern-day writers who sympathize with mercantilism do so from perspectives ranging from left-leaning social democracy to more radical Gramscian critiques. Realists, on the other hand, have tended to gravitate towards the conservative, Burkean side of the political spectrum.

While realists and mercantilists might agree on the role that power plays in the global economy, they do not necessarily agree on the normative implications of that insight. For realism to maintain its relevancy in IPE, it must reacquire its deftness in incorporating nonstructural variables into its explanatory framework. The paradigm retains some useful predictive power for how systemic political variables affect global economic outcomes, but it is of little use in discussing the reverse causal effects.

One would be hard pressed to find a living economist who self-identified as a mercantilist. The paradigm has done less well in maintaining its relevance, however. In a survey of journal publications and citations, Maliniak and Tierney 2009: This is problematic, because current events suggest the continuing relevance of mercantilist and realist approaches.

In the past decade, prominent mainstream econom-ists have warned about the negative distributional effects of offshore outsourcing for the established great powers Gomory and Baumol 2000 ; Samuelson 2004 ; Blinder 2006. Public opinion surveys reveal persistent mercantilist attitudes about the global economy in the United States Drezner 2008a and elsewhere Scheve and Slaughter 2004.

The growth of sovereign wealth funds has triggered heated policy debates about the possibility of governments using these funds to advance their long term strategic interests Cognato 2008 ; Drezner 2008b ; Cohen 2009. The rise of China has fuelled debate about whether Beijing is pursuing a mercantilist foreign economic policy Aizenman and Lee 20072008 ; Bowles and Wang 2008. The growth of global macroeconomic imbalances has generated a discussion about the geopolitical effects of these imbalances Thompson 2007 ; Setser 2008.

The 2008 financial crisis and ensuing recession is reviving debate about the virtues of neoclassical economics and what a post-hegemonic economic order will look like Hayes 2008 ; Mastanduno 2009. Many policy advocates within these debates are using the language of mercantilism and realism to motivate their arguments about the global political economy.

Clearly, the times call for a deeper understanding of what realists and mercantilists actually say about the global political economy.

This review essay surveys both strains of thought since the emergence of mercantilist policies in seventeenth century England, and finds some constants that run through both schools of thought. Both paradigms stress the autonomous role of the state — and warn against capture by particularistic interests. Despite these constants, however, realism and mercantilism have not always intellectually fit hand in glove. Indeed, over time, the two approaches diverged more and more.

The history and historiography of mercantilism Mercantilism originated in a series of sixteenth, seventeenth and eighteenth century writings in England that had their origins in policy pamphlets, and evolved into larger disquisitions and debates on trade policy Malynes 1601 ; Mun 1664 ; Misselden 1622 ; Coke 1670 ; Child 1693 ; Steuart 1767.

Mercantilists frequently disagreed with each other on actual policy, but there was a common core to their writings. In many ways, the content of mercantilism itself is less interesting than the historiography of mercantilism over the subsequent two centuries. Because economists have long rejected its tenets, mercantilism has been defined more by its adversaries than its proponents Schumpeter 1956: It was Adam Smith 1976 [1776]: During the Great Depression, Eli The contributions of thomas mun and john lockes international trade theories to modern global econom 1935 wrote a two-volume evisceration of mercantilist thought and practice.

While some current scholars offer a more sympathetic take on mercantilist thought Magnusson 1994 ; Harlen 1999most mainstream economists have scorned mercantilism for quite some time Irwin 1996. First, neoclassical economics is uncomfortable with factoring in the pursuit of non-economic objectives — an essential feature of mercantilist thought Maneschi 2004.

Second, there is an unresolved debate over placing mercantilism in the proper historical context. The policy prescriptions of mercantilists were hardly uniform, but there was consensus on three points. First, in the absence of domestic mines, states should secure a favorable balance of trade in order to acquire as much specie — gold and silver bullion — as possible. To affect the increase in bullion, states should secure a positive balance of trade.

In a typical passage, Thomas Mun 1664: Indeed, as Wilson 1950: Manufactures were to be exported, because they contained more embodied labor and value-added, while commodities were to be imported. Every nation, with a view to these great objects, ought to endeavor to possess within itself all the essentials of national supply. The rise of mercantilism as a doctrine matched the rise of the nation—state as the primary political unit in Europe.

Mercantilists believed that the creation of a favorable balance of trade would increase state power. The hoarding of specie, for example, was primarily useful for paying the large standing armies that became the norm in seventeenth century Europe.

I believe that practically all mercantilists, whatever the period, country, or status of the particular individual, would have subscribed to all of the following propositions: The equation of specie with wealth represented a clear flaw of economic logic. Similarly, the emphasis on production overlooks the role that domestic consumption plays as a key source of modern economic growth Smith 1976[1776] — as well as modern economic power Drezner 2007.

There has been a fierce debate within the history of economic thought over the precise motivations of the mercantilists. This assertion is far from clear, however. Even skeptics Viner 1937: Other powerful interests — such as the landed gentry — were unable to develop ideas that rebutted the ideas of mercantilists.

In part this was because the policy prescriptions of mercantilists — thrift and security — resonated with the sentiments of the era Appleby 1976 ; Coleman 1980. At a minimum, these ideas were powerful enough to keep the British economy closed off from France following the 1713 Treaty of Utrecht.

Economic, political, and intellectual historians of the era have observed that the mercantilist doctrines independently affected both foreign economic policy and grand strategy Appleby 1976 ; Sofka 2001 ; Nye 2007. Given the economic and political realities of the era, there was an inherent logic to mercantilism. In a world in which the total size of the economic pie appeared to be fixed, the pursuit of both power and plenty demanded a relative gains calculus. Even if one does not accept such a strong assertion about pre-1800 growth, the logic is still compelling.

The discovery of new colonies, resources and markets in Asia and the Western hemisphere appeared to be the primary impetus for growth during the mercantilist era.

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With a one-off increase in wealth available to those states with the power to control the trade, mercantilist writers like William Petty 1690: Clearly, both relative and absolute gains logics led to mercantilist policy prescriptions Irwin 1991 ; 1992.

Many economists do acknowledge that the political conditions made mercantilist policies a natural equilibrium Schumpeter 1954: War, imperialism, colonization and conquest were constant features of the sixteenth, seventeenth and eighteenth centuries.

Monarchs across the continent were engaged in a sustained effort to consolidate the power of the state and develop a monopoly over coercive force Tilly 1992. In such a climate, the need for reserves and the pursuit of power were hardly noneconomic objectives Wilson 1950.

It is not surprising that mercantilist tracts in England focused on the Netherlands during the seventeenth century and the French in the eighteenth century Viner 1937. This corresponded to when those states challenged England for primacy in Europe and elsewhere. Similarly, Hamilton 1791 focused on the myriad ways in which European states blocked manufacturing imports from the United States. On the other hand, the effect was likely reciprocal; mercantilist attitudes undoubtedly contributed to the trade wars of the time Sofka 2001.

In this kind of international environment, deviation from mercantile policies was not necessarily the rational course of action Schmoller 1897: In the absence of anything resembling an effective collective security mechanism, or a clearly defined hegemonic power, military defeat and exclusion from foreign markets seems to us as plausible an answer as any. David Hume 1997 [1752] had already attacked the monetary dimension of mercantilism, with the development of the price—specie—flow mechanism.

Mercantilist and Realist Perspectives on the Global Political Economy

Since then, mercantilist ideas have re-emerged in two situations. Rising and developing powers have occasionally embraced the doctrine as a pathway to accelerate political and economic development. Great powers in perceived decline have also been receptive to the idea as a possible means to reverse their fall. The German Historical School was premised on the belief that national economic policies should flow from the verstehen that builds up within nation—states Swedberg 1991.

Modern scholars of economic nationalism Helleiner 2002 ; Pickel 2003 ; Nakano 2004 argue that this approach differed from classical mercantilism, focusing more o development than trade or finance. It is certainly true that the German Historical School was less concerned about specie than the English and continental mercantilists. Still, beginning with Friedrich List, this school of thought shared many traits with classic mercantilism, including the emphasis on using trade policies and tariffs as a means to promote domestic economic development.

Only after the United Kingdom achieved economic primacy did official British policy switch to laissez-faire. During the Great Depression, mercantilist thought and policy made a partial comeback. Several of the advanced industrialized economies responded to the depression by replicating the mix of trade and currency policies that held sway during the classical mercantile system Hirschman 1945 ; Frieden 2006: On the theoretical side, John Maynard Keynes became increasingly attracted to mercantilist ideas as the depression worsened Irwin 1996: Keynes argued that in a world of fixed exchange rates and wage rigidities, mercantilist trade policies made economic sense as a means of boosting domestic employment: He recognized that a combination of trade liberalization, capital market liberalization, and fixed exchange rates would impose severe macroeconomic policy restrictions on most national governments.

Keynes preferred an open trading system, but he also preferred domestic policy autonomy over unregulated capital flows.

The Great Depression also marked the moment when economists in the developing world embraced mercantilist policy prescriptions. Like the mercantilists, Prebisch believed that the composition of trade mattered for economic development.

On the policy front, the collapse of the Bretton Woods system and OPEC oil embargoes led to a renewed appreciation for the role of the state in the global economy, creating the modern field of international political economy Cohen 2008. The emergence of U. At the same time, the developing world proposed a New International Economic Order that would have dramatically increased state control over the global economy. On the theoretical front, quasi-mercantilist ideas began to appear in both political science and economics.

In political science, Gilpin 1975 did describe his approach as mercantilist in U. Power and the Multinational Corporation.

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He evinced concern that the outward flow of foreign direct investment would lead to a relative decline in American power. Sylvan 1981 labeled the first realist wave of IPE studies as merely the latest wave of mercantilism.

In economics, the emergence of strategic trade theory Brander and Spencer 1985 ; Krugman 1986 provided some mercantilist policies with a formal theoretical foundation. In sectors with increasing returns to scale, export bounties and domestic protection could increase national income.

Indeed, Irwin 1991 ; 1992 used strategic trade theory to explain the trade wars of the seventeenth century.