SCHOOLS OF THOUGHT in International Political Economy * Mercantilists Mercantilism was the economic philosophy adopted by merchants and statesmen during the 16th and 17th centuries. Mercantilists believed that a nation’s wealth came primarily from the accumulation of gold and silver. Nations without mines could obtain gold and silver only by selling goods than they bought from abroad. Accordingly, the leaders of those nations intervened extensively in the market, imposing tariffs on foreign goods to restrict import trade, and granting subsidies to improve export prospects for domestic goods. Mercantilism represented the elevation of commercial interests to the level of national policy. * Physiocrats Physiocrats, a group of 18th century French philosophers, developed the idea of the economy as a circular flow of income and output. They opposed the Mercantilist policy of promoting trade at the expense of agriculture because they believed that agriculture was the sole source of wealth in an economy. As a reaction against the Mercantilists’ copious trade regulations, the Physiocrats advocated the policy of laisse faire, which called for minimal government interference in the economy. * Classical School The Classical School of economic theory began with the publication in 1776 of Adam Smith’s monumental work, “The Wealth of Nations”. The book identified land, labor and capital as the three factors of production and the major contributors to a nation’s wealth. In Smith’s view, the ideal economy is self-regulating market system that automatically satisfies the economic needs of the populace. He described the market mechanism as an “invisible hand” that leads all individuals, in pursuit of their own self-interests, to produce the greatest benefit for society as a whole. Smith incorporated some of the Physiocrat’s ideas, including laissez faire into hos own economic theories, but rejected the idea that only agriculture was productive. David Ricardo > focused on the distribution of income among landowners, workers and capitalists > he posited that the growth of population and capital pressing against a fixed supply of land, pushes up rents and holds down wages and profits Thomas Robert Malthus > he argued that population tended to increase geometrically, outstripping the production of food, which increased arithmetically > The force of a rapidly growing population against a limited amount of land meant diminishing returns to labor. The result, he claimed, was chronically wages, which prevented the standard of living for most of the population from rising above the subsistence level. John Stuart Mill > He pointed a distinct difference between the market’s two roles: allocation of resources and distribution of income. > The market might be efficient in allocating resources but not in distributing income, making it necessary for society to intervene. * Marginalist School Marginalist emphasized that prices also depend upon the level of demand, which in turn depends upon the amount of consumer satisfaction provided by individual goods and services. Marginalists provided modern macroeconomics with the basic analytical tools of demand and supply, consumer utility and mathematical framework for using those tools. In a free market economy, the factors of production such as land, labor and capital receive returns equal to their contributions to production. This principle was sometimes used to justify the existing distribution of income: that people exactly earned what they or their property contributed to production. * Marxist School Karl Marx believed that all production belongs to labor because workers produce all value within society. He believed that the market system allows capitalists to exploit workers by denying them a fair share of what they produce. * Institutionalist School This school regards individual economic behavior as part of a larger social pattern influenced by current ways of living and modes of thought. They call for government controls and social reform to bring about a more equal distribution of income. * Keynesian School Falling prices and wages, by depressing people’s incomes would prevent a revival of spending. John Maynard Keynes insisted that direct government intervention was necessary to increase total spending. Government would spend and decrease taxes when private spending was insufficient and threatened a recession. It would reduce spending and increase taxes when private spending was too great and threatened inflation. POLITICAL ECONOMY Political Economy originally was the term for studying production, buying and selling, and their relations with law, custom, and government. Political economy originated in moral philosophy. It developed in the 18th century as the study of the economies of states – polities, hence political economy. In late nineteenth century, the term “political economy” was generally replaced by the term economics, used by those seeking to place the study of economy upon mathematical and axiomatic bases, rather than the structural relationships of production and consumption. HISTORY OF THE TERM Originally, political economy meant the study of the conditions under which production or consumption within limited parameters was organized in nation-states. The phrase economie politique first appeared in France in 1615 with the well-known book by Antoine de Montchretien: Traite de l’economie politique. French physiocrats, Adam Smith, David Ricardo and Karl Marx were some of the exponents of political economy. In 1805, Thomas Malthus became England’s first professor of political economy at the East India Company College, Haileybury, Hertfordshire. The world’s first professorship in political economy was established in 1763 at the University of Vienna, Austria. Joseph von Sonnenfels was the first tenured professor. In the United States, political economy was first taught at the College of William and Mary. In 1784, Adam Smith’s Wealth of Nations was a required textbook.
Posted on: Wed, 21 Jan 2015 09:31:01 +0000
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