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Global Political Economy
Lecture 3 & 4

11th October 2016
1-3pm & 4-5pm

Recap: Adam Smith
 Smith has providing a synthesis of ideas which had been in circulations for several
centuries before hand
 Smith is correctly identified as being the creator of mercantilism
o Applied to all economy theories that existed before his own – it was a broad
brush stroke designed to lump everything together in order that he could
knock the theories down
o Smith used Mercantilism as a platform from which he could develop his own
thinking
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 Smith was a man of his time – writing in the 1750s and 60s before the industrial
revolution had really begun to get going (this didn’t occur until 50 years after his
death in the 1830s
 Why did Scotland in particular give rise to such an explosion in economic thinking
during the 18th century?
o Scotland became part of Britain – many Scots felt disadvantaged by the Union
as they were being joined by a much more developed and advanced
economic and Scotland had to catch up
o Scotland despite its comparative poverty were far more advanced in terms of
education – the universities of Scotland were far superior to those of Oxford
and Cambridge
 Used this increased academic prowess to address economic matters
o By the early 19th century Scotland had industrialised rapidly (industrialising in
less than half the time it took England to industrialise) and was overtaking
England making them feel less challenged in the economic sphere and did not
need to give it so much academic attention
 Gordon Brown maintained that New Labour was a legitimate successor to the
economic thinking that Adam Smith put forward (however those most closely
associated with Smith say that instead it is in fact the Conservatives whose ideas are
more closely aligned with his thinking and approach to economics)
o Smith did not believe solely in a market economy and there was a role for the
state to play such as the production of public goods – e
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infrastructure,
education (goods which individuals would not have been able to earn a profit
from but would server the wider population)

The Evolution of Classical Liberal Political Economy: Early Challenges to (and
departures from) Classical Liberal Political Economy; and the ‘Dark Sides’ of
Capitalism
Introduction
 Economics of demand management is missing – macro-economics was not invented
until the 20th century
The Evolution of Classical Liberal Political Economy in Britain
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Global Political Economy
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11th October 2016
1-3pm & 4-5pm

Thomas Robert Malthus (1766-1834): His Essay on the Principle of Population (1798;
2nd edition, much enlarged and revised 1803) gave rise too pessimistic
‘Malthusianism’: the belief that the fruits of major (inherently temporary) economic
and technological advances would always be quite literally ‘eaten up’ and cancelled
out by increased population growth (‘Malthusian’ demographic pressures )
o Malthus was internationally famous due to this publication
o Central concept was the suggestion that economy activity grows
arithmetically whilst population grows geometrically
 i
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that population tends to outstrip economic growth
o a gloomy and pessimistic outlook – took pleasure in his gloominess – saw it a
way to counter the positivity of enlightenment figures
 desire to refused William Godwins positivism – in part due to his own
belief in the fallen nature of mankind – the concept of original sin
(Malthus was an Anglican priest)
Malthuhus together with his friend David Ricardo (1772-1823) contributed to the
striking shift from…
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This further reinforced the ‘iron
law of wages’ and helped to turn political economy in an even more hard-nosed and
pessimistic ‘science of scarcity’ and a precursor of more recent ecological,
environmental and natural-resource-based emphases on natural ‘limits to growth’
and potential ecological catastrophe if these limits are continually transgressed
o Mineral resources are finite
o Land is finite
o Resources which are finite will always command a high price
 Landowners becoming wealthier from real-estate – the land was
worth far more as land to build on than as farm land
 Not just from sale of the land but from rent
o Rents are attainable not just from natural resources but from any resource
which is in short supply – e
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specialised services such as Doctors, Lawyers,
Accountants
o Believed that earnings from finite things should be subject to high taxation
o Believed you could and should distinguish between earned and unearned
income (productive/non-productive activities)
o Trade between Portugal and Britain
o Believed it was sensible for Portugal to concrete on production of Wine and
Port even though it could also produce textiles (which Britain was also
producing) because of the comparative cost advantage
o If you take Ricardo’s thinking towards its logical conclusion then you arrive at
Marxist theory (in general the classical-liberal economists of the past have far
more in common in Marx)
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Global Political Economy
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11th October 2016
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Malthus and Ricardo are effectively arguing the same things just from different sides
– both theories compliment each other
Classical Liberal Political Economy as the ‘Science’ Ideology of the British Empire
Jeremy Bentham (1748-1832) and Utilitarianism: Bentham popularised a conception
of human beings as ‘utility maximiser’s whose conduct – especially if allowed
maximum individual freedom
James Mill (1773-1836) and ‘applied Benthaism
o John Stuart Mill’s father
Nassau William Senior
John Stuart Mill
Free Trade as an Evangelical ‘Crusade for Peace and Prosperity

France
 Jean-Baptiste Say (1767-1832): ‘Say’s Law’ that supply creates its own demand,
therefore overproduction/under-consumption is unlikely, if not impossible
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 Even today by having the largest defence budget in the world
is the government’s way of stimulating the country’s economy
o The ‘American system of political economy’ should not be confused with the
emergence during the 1840s-1860s of the so-called ‘American system of
manufacturing’, which was based on comparatively high levels of
standardization, mechanization, capital intensity and ‘interchangeable parts’
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o Henry Charles Carey (1793-1879) influential member of the Republican Party
(at this time the Republican Party was the left leaning party)
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Lecture 3 & 4

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11th October 2016
1-3pm & 4-5pm

o Rejected class struggle in favour of ‘harmony of interests’ which distinguished
between the American System and the British System of political-economic
thought
Germany
o Friedrich List’s The National System of Political Economy (1841), which
became the world’s second most influential book on political economy (next
Adam Smith’s The Wealth of Nations) and the Bible of Germany’s ‘National
Liberals’, who provided the key political backing and economic underpinnings
for German unification, embodied in:
 (i) the Zollverein
 (ii) canal and railway building
 Which should be publicly financed
 (iii) the Revolutions of 1848 and the abortive Frankfurt Parliament
 (iv) the ‘Bach system’
 (v) support for Bismarck’s programme of political unification of
Germany from above, by force (1860s-79)
 Bismarck’s alliance with the central party in 1879 paved the
way for Germany to abandon free trade principles to more
protectionist policies  going far beyond what List had
advocated (for List protectionist polices should only be carried
out for a short period of time to give industries enough time to
establish themselves
 (vi) and, from the 1880s to 1945, Pan-Germanism, a drive for union
(Anschluss) between Germany and Austria (vetoed by the victors in
1918-20, but achieved by Hitler in 1938), and the gradual conversion
of many former German and Austrian ‘(National) Liberals’ into PanGermans and proto- Nazis
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Tsarist Russia:
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Global Political Economy
Lecture 3 & 4

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11th October 2016
1-3pm & 4-5pm

o Sergei Witte (1849-1915), who served as Russia’s Finance Minister from 1891
to 1903 and in 1905-06, pursued a Listian programme of protective tariffs,
combined with a state-led programme of railway construction, to promote
Russian industrialization, grain exports and foreign direct investment in
Russia
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Egypt under Muhammad Ali (reg
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Success in places such as America, Germany and Japan illustrate how successful
interventionalist ideas were in developing economies and industries
o Despite the fact that America advocates a free trade system to the rest of the

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