Mercantilism

Philosophy of International Political Economy that emphasizes the role of state power in
obtaining advantageous trading arrangements for states. This presumes that states should
aggressively seek to maximize exports and to minimize imports.
- "Protectionism" is often seen as a primary characteristic of Mercantilism.
Two Ways to Increase a Nations Wealth

Obtain as much gold and silver as possible

Establish a favorable balance of trade, in which it sold more goods than in bought

This system dominated Western European economic thought and policies from the sixteenth to
the late eighteenth centuries. The goal of these policies was, supposedly, to achieve a
favorable balance of trade that would bring gold and silver into the country and to protect
domestic industry from foreign competition and also to maintain domestic employment.
To gain wealth a country had to have colonies. This is to provide a constant source of raw
materials and become markets for the manufactured goods to the country that owned them or
their "Mother Country." For example, the colonists cut down trees, these trees were sent to
England where craftsmen made furniture, paper, barrels, and tools. These goods were then sent
back to the colonies and sold to the colonists. The money went back to England.
To enforce mercantilism England passed the Navigation Acts beginning in 1651. These acts
were designed to control trade with its colonies. These laws forced the colonies to trade only
with England. Under these laws the colonies were not allowed to make any products they could
buy from England. In other words, if you needed a barrel to pack your goods, a cooper in your
town could not make or sell you that barrel. You had to buy the barrel from England. Also, all
goods had to be shipped on English ships or ships built in the colonies. In other words no Dutch,
French, or Spanish ships could sell or trade their goods to the colonies. The colonies were not
allowed to sell raw materials or products to them.
A modern version of mercantilism emphasizes the role of the statehence the term statism
and the subordination of all economic activities to the goal of state building, which includes the
maintenance of the states security and military power. Statists see the international economic
system as anarchic, and therefore as in herently conflictual, just as their realist counterparts see
the international political system. Each state is continually trying to improve its own economic

potential, acting defensively at the expense of other states. This view is similar to that of realists
who seek to increase power in response to the security dilemma.
Economic Liberalism
Philosophy of International Political Economy that emphasizes the role of markets in maximizing
aggregate social welfare. market surpluses do not exist over time and that attempts to achieve
them interfere with efficient production and consumption, stifling welfare.
Liberal refers to a 19th century English political movement that advocated laissez faire
economics. Laissez-faire translates literally as let it be, governments should not interfere in
the market. The government should allow the market, or the desires and wants of the people, to
determine what is produced and in what quantity. In essence, this is reflective of Lockes idea
that people function best when they are left alone.
They think that human beings act in rational ways to maximize their self-interest. When
individuals act rationally, markets develop to produce, distribute, and consume goods. These
markets enable individuals to carry out the necessary transactions to improve their own welfare.
Market competition when there are many competing buyers and sellers, ensures that prices will
be as low as possible. Low price result in increased consumer welfare. Thus, in maximizing
economic welfare and stimulating individual economic growth, markets epitomize economic
welfare.
However, the liberal do not totally exclude the role of government under economic liberalism.
Most of the proponents viewed that government should be limited to defence, public works and
the administration of justice, financed by taxes based on income. Government should provide
basic order in society, its institutions are largely developed to facilitate the free flow of trade and
to maximize economic intercourse, which in the long term guarantees both optimum prices and
economic stability. Liberals see economics as determining politics, though ideally the two should
be kept separated as much as possible.
Some economic liberals go further than extolling the economic benefits of liberalism; they see a
positive relationship between the international liberal economy and war and peace. Norman
Angell, recipient of the Nobel peace prize in 1933, argued that national differences would vanish
with the formation of an international market. Interdependence would lead to economic wellbeing and eventually to world peace; war would become an anachronism. Under this
formulation, international competition is viewed as healthy and desirable.