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Introduction to Political Science

16.2 The Advent of the Liberal Economy

Introduction to Political Science16.2 The Advent of the Liberal Economy
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Table of contents
  1. Preface
  2. Introduction to Political Science
    1. 1 What Is Politics and What Is Political Science?
      1. Introduction
      2. 1.1 Defining Politics: Who Gets What, When, Where, How, and Why?
      3. 1.2 Public Policy, Public Interest, and Power
      4. 1.3 Political Science: The Systematic Study of Politics
      5. 1.4 Normative Political Science
      6. 1.5 Empirical Political Science
      7. 1.6 Individuals, Groups, Institutions, and International Relations
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
  3. Individuals
    1. 2 Political Behavior Is Human Behavior
      1. Introduction
      2. 2.1 What Goals Should We Seek in Politics?
      3. 2.2 Why Do Humans Make the Political Choices That They Do?
      4. 2.3 Human Behavior Is Partially Predictable
      5. 2.4 The Importance of Context for Political Decisions
      6. Summary
      7. Key Terms
      8. Review Questions
      9. Suggested Readings
    2. 3 Political Ideology
      1. Introduction
      2. 3.1 The Classical Origins of Western Political Ideologies
      3. 3.2 The Laws of Nature and the Social Contract
      4. 3.3 The Development of Varieties of Liberalism
      5. 3.4 Nationalism, Communism, Fascism, and Authoritarianism
      6. 3.5 Contemporary Democratic Liberalism
      7. 3.6 Contemporary Ideologies Further to the Political Left
      8. 3.7 Contemporary Ideologies Further to the Political Right
      9. 3.8 Political Ideologies That Reject Political Ideology: Scientific Socialism, Burkeanism, and Religious Extremism
      10. Summary
      11. Key Terms
      12. Review Questions
      13. Suggested Readings
    3. 4 Civil Liberties
      1. Introduction
      2. 4.1 The Freedom of the Individual
      3. 4.2 Constitutions and Individual Liberties
      4. 4.3 The Right to Privacy, Self-Determination, and the Freedom of Ideas
      5. 4.4 Freedom of Movement
      6. 4.5 The Rights of the Accused
      7. 4.6 The Right to a Healthy Environment
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
    4. 5 Political Participation and Public Opinion
      1. Introduction
      2. 5.1 What Is Political Participation?
      3. 5.2 What Limits Voter Participation in the United States?
      4. 5.3 How Do Individuals Participate Other Than Voting?
      5. 5.4 What Is Public Opinion and Where Does It Come From?
      6. 5.5 How Do We Measure Public Opinion?
      7. 5.6 Why Is Public Opinion Important?
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
  4. Groups
    1. 6 The Fundamentals of Group Political Activity
      1. Introduction
      2. 6.1 Political Socialization: The Ways People Become Political
      3. 6.2 Political Culture: How People Express Their Political Identity
      4. 6.3 Collective Dilemmas: Making Group Decisions
      5. 6.4 Collective Action Problems: The Problem of Incentives
      6. 6.5 Resolving Collective Action Problems
      7. Summary
      8. Key Terms
      9. Review Questions
      10. Suggested Readings
    2. 7 Civil Rights
      1. Introduction
      2. 7.1 Civil Rights and Constitutionalism
      3. 7.2 Political Culture and Majority-Minority Relations
      4. 7.3 Civil Rights Abuses
      5. 7.4 Civil Rights Movements
      6. 7.5 How Do Governments Bring About Civil Rights Change?
      7. Summary
      8. Key Terms
      9. Review Questions
      10. Suggested Readings
    3. 8 Interest Groups, Political Parties, and Elections
      1. Introduction
      2. 8.1 What Is an Interest Group?
      3. 8.2 What Are the Pros and Cons of Interest Groups?
      4. 8.3 Political Parties
      5. 8.4 What Are the Limits of Parties?
      6. 8.5 What Are Elections and Who Participates?
      7. 8.6 How Do People Participate in Elections?
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
  5. Institutions
    1. 9 Legislatures
      1. Introduction
      2. 9.1 What Do Legislatures Do?
      3. 9.2 What Is the Difference between Parliamentary and Presidential Systems?
      4. 9.3 What Is the Difference between Unicameral and Bicameral Systems?
      5. 9.4 The Decline of Legislative Influence
      6. Summary
      7. Key Terms
      8. Review Questions
      9. Suggested Readings
    2. 10 Executives, Cabinets, and Bureaucracies
      1. Introduction
      2. 10.1 Democracies: Parliamentary, Presidential, and Semi-Presidential Regimes
      3. 10.2 The Executive in Presidential Regimes
      4. 10.3 The Executive in Parliamentary Regimes
      5. 10.4 Advantages, Disadvantages, and Challenges of Presidential and Parliamentary Regimes
      6. 10.5 Semi-Presidential Regimes
      7. 10.6 How Do Cabinets Function in Presidential and Parliamentary Regimes?
      8. 10.7 What Are the Purpose and Function of Bureaucracies?
      9. Summary
      10. Key Terms
      11. Review Questions
      12. Suggested Readings
    3. 11 Courts and Law
      1. Introduction
      2. 11.1 What Is the Judiciary?
      3. 11.2 How Does the Judiciary Take Action?
      4. 11.3 Types of Legal Systems around the World
      5. 11.4 Criminal versus Civil Laws
      6. 11.5 Due Process and Judicial Fairness
      7. 11.6 Judicial Review versus Executive Sovereignty
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
    4. 12 The Media
      1. Introduction
      2. 12.1 The Media as a Political Institution: Why Does It Matter?
      3. 12.2 Types of Media and the Changing Media Landscape
      4. 12.3 How Do Media and Elections Interact?
      5. 12.4 The Internet and Social Media
      6. 12.5 Declining Global Trust in the Media
      7. Summary
      8. Key Terms
      9. Review Questions
      10. Suggested Readings
  6. States and International Relations
    1. 13 Governing Regimes
      1. Introduction
      2. 13.1 Contemporary Government Regimes: Power, Legitimacy, and Authority
      3. 13.2 Categorizing Contemporary Regimes
      4. 13.3 Recent Trends: Illiberal Representative Regimes
      5. Summary
      6. Key Terms
      7. Review Questions
      8. Suggested Readings
    2. 14 International Relations
      1. Introduction
      2. 14.1 What Is Power, and How Do We Measure It?
      3. 14.2 Understanding the Different Types of Actors in the International System
      4. 14.3 Sovereignty and Anarchy
      5. 14.4 Using Levels of Analysis to Understand Conflict
      6. 14.5 The Realist Worldview
      7. 14.6 The Liberal and Social Worldview
      8. 14.7 Critical Worldviews
      9. Summary
      10. Key Terms
      11. Review Questions
      12. Suggested Readings
    3. 15 International Law and International Organizations
      1. Introduction
      2. 15.1 The Problem of Global Governance
      3. 15.2 International Law
      4. 15.3 The United Nations and Global Intergovernmental Organizations (IGOs)
      5. 15.4 How Do Regional IGOs Contribute to Global Governance?
      6. 15.5 Non-state Actors: Nongovernmental Organizations (NGOs)
      7. 15.6 Non-state Actors beyond NGOs
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
    4. 16 International Political Economy
      1. Introduction
      2. 16.1 The Origins of International Political Economy
      3. 16.2 The Advent of the Liberal Economy
      4. 16.3 The Bretton Woods Institutions
      5. 16.4 The Post–Cold War Period and Modernization Theory
      6. 16.5 From the 1990s to the 2020s: Current Issues in IPE
      7. 16.6 Considering Poverty, Inequality, and the Environmental Crisis
      8. Summary
      9. Key Terms
      10. Review Questions
      11. Suggested Readings
  7. References
  8. Index

Learning Outcomes

By the end of this section, you will be able to:

  • Explain the origins of the market economy.
  • Define wealth according to classical liberal theory.
  • Describe Adam Smith’s argument regarding the three levels of analysis.

The Enlightenment and the Industrial Revolution marked the introduction of new concepts that fundamentally transformed European societies and the world. Enlightenment thinkers freed human beings from an unquestionable religiosity, superstitions, and social rigidity. Absolutism could no longer be defended on the basis of God’s will and divine providence. The ideas of anthropocentrism, or the argument that human beings are the most important component of the Universe; rationalism, which is the belief that reason rather than experience is the foundation of knowledge; and scientism, or the view that inductive methods of the natural sciences are the only source of genuine knowledge, prompted changes that culminated with the French Revolution and the Declaration of Independence of the Thirteen Colonies. Movements toward political democratization and economic development based on these ideas have since been diffused to the four corners of the world.

The Enlightenment period promoted the idea of civilization as opposed to savagery. Societies that reflected anthropocentrism, rationalism, and scientism were the first to reap the benefits of the Industrial Revolution, including the development of the market and social progress, and to embody the idea of civilization. These societies were initially located in Western Europe and were then propagated to the colonized world, accompanying the migration movement and the birth of industrialization. Societies based on traditional religion and superstition, where family relationships defined power and politics, were considered savage. In University of Denver emeritus professor David P. Levine’s words, “Civilization is an important concept in political economy. . . . Civilized society provides its members with opportunities not otherwise available; but it also confronts them with dangers.”16

One of these opportunities is wealth creation. Enlightenment thinkers rejected the mercantilist idea that wealth is finite, proposing that wealth could in fact be created. The concept of wealth had been transformed. As Levine puts it, “Producing wealth is a special sort of activity. It is one that employs some of our assets to produce commodities: goods and services valued in the market.”17

This change in the perception of what constituted wealth had an enormous impact on political economy. If wealth is understood as the extent to which the market values a good or service, and if the creativity and industriousness of the human mind is boundless, then wealth is infinite.

More than 200 years later, we still employ Enlightenment ideas about the concept of wealth. Adam Smith played an important role in defining our understanding of wealth creation, the functioning of the market, and the role of the government in a market-based society. His beliefs in science and in human beings’ inclination toward progress are key to his account of political economy. Adam Smith laid the foundation for liberalism, the dominant economic practice that persists today, in his classic work The Wealth of Nations (1776). He rejected mercantilism, suggesting that monarchy’s insistence on the balance of trade surplus through trade barriers would hurt the economy. According to Adam Smith, the best approach to the economy was a laissez-faire one, in other words, the free-market approach in which governments do not interfere in the market and let things take their own course.

An advertisement shows the words “Think markets are competitive? Think again” across a black and white portrait of Adam Smith.
Figure 16.2 As this 2019 advertisement in a Bulgarian airport bearing his image shows, Adam Smith is still closely associated with free market ideas. (credit: modification of work by “Adam Smith Spreads the Gospel” by summonedbyfells/Flickr, CC BY 2.0)

Adam Smith developed his argument in The Wealth of Nations using different levels of analysis. First, he focused on the individual level and argued that self-interested individuals, or in other words, individuals focused on advancing their personal interests, tend to make decisions that will maximize results to their own benefit. Thus, if governments guarantee individuals the freedom to produce and trade as they please, society will be better off in the long run.

His second level of analysis examined the state. Adam Smith argued that countries should dedicate themselves to the production of what they produce best, following their comparative advantages. For example, he argued that given France’s geographic characteristics and the developed skills and abilities of its people, France can produce better cheese and wine than, for example, Great Britain, and at a lower cost. Therefore, he argued, France should produce cheese and wine. On the other hand, given Great Britain’s geographic characteristics and traditions, the British can produce better quality wool than the French, and therefore Smith argued that the British should produce wool and not cheese and wine.

At the international level of analysis, Smith argued that if countries stick to their comparative advantages, international trade should allow individuals in different countries to have access to the best products at the lowest costs. This would eliminate the need for trade barriers and result in a system of free international trade. In this case, both the French and the British would get the best cheese, wine, and wool at the lowest cost.

Adam Smith’s assumption regarding the benefits of a laissez-faire economy has accompanied the mainstream understanding of political economy since the publication of The Wealth of Nations. According to Adam Smith, the accumulation of capital in preindustrial societies allowed for the emergence of the Industrial Revolution, which produced consumable goods for society and elevated the quality of life of industrialized nations.

The ideas promulgated by Adam Smith and other political economists slowly promoted trade liberalization in Europe. Britain moved toward free trade in the 1780s with the repeal of the Corn Laws, trade restrictions such as tariffs and quotas on imported corn and food. The Corn Laws intended to keep corn prices high and favor domestic producers of food.18 Several European states followed Britain’s move and similarly promoted trade liberalization. Nevertheless, Britain returned to protectionist policies during the Napoleonic Wars (1803–1815), a series of battles fought by the French Empire and its allies, led by Napoleon I, against several European countries that formed various coalitions. The costs of war are high, and as war expenses accumulated, the British government levied tariffs on imported goods to generate revenues and pay for the costs of war. The end of the Napoleonic Wars culminated with the Congress of Vienna (1814–1815), a peace conference to reconstruct European relations after the downfall of Napoleon I. The Congress of Vienna led to the Concert of Europe, a general consensus to promote equilibrium among the five great European powers (Austria, France, Prussia, Russia, and the United Kingdom). It prevented another war from breaking out in Europe from 1815 to 1914.

The Concert of Europe period saw the flourishing of trade liberalization. Moreover, improved technology and the advent of new players in the international commodities market increased competition, and domestic pressure in favor of protectionist policies led the recently unified Germany to defect from the free-trade regime and return to protectionism in the 1870s.

In general terms, international trade picked up from the late 19th century until World War I. After World War I, protectionist policies became the rule again until the end of World War II, when the bases of the current international financial system were established.

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