Includes all the required readings for the 2nd year UvA Political Science course Political Economy. the summaries are detailed and consist of article summaries as well as summaries to the chapters of the Schwartz book "States versus Markets".
(Introduction to) Political economy: summary lectures
Summary 'States versus Markets' by Herman Mark Schwartz
Readings (Introduction to) Political Economy
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Political Economy (73220020FY)
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“Economists need a little history to their toolkit” - Noah Smith
In his Bloomberg article, Noah Smith emphasizes the importance of economists learning history
as a way to learn about real economic events that normally repeat themselves (and their
solutions at the time). Furthermore, he states that learning history as an economist can help
answer greater questions, like why and how poor countries turn into rich countries, or why China
had a period of being technologically behind. Knowing history as an economist is also important
in order to keep other economic theorists in check if they make dramatic or exaggerated claims
that do not show any correlations based on historical knowledge.
“The Political Economy of Economic Policy” - Jeffrey Frieden
Political Economy, as defined by Adam Smith, is a study of how politics affects economy, how
economy affects politics. Frieden adds to this definition by stating that political economy is also
an interpretation of political and economic factors in our analysis of modern society. He uses the
example of the COVID-19 pandemic to illustrate the ways in which politics and economics are
interconnected and how political economy can explain the reasons why certain policies were
rejected even though they were recommended by public health experts.
Frieden explains that unlike in the study of economics, winners don’t like to be taxed to
compensate the losers. Therefore, there is a constant battle over who is the winner and who is
the loser. Usually, concentrated interests (usually the producers) win over diffused interests
(usually the consumers) (example of the sugar industry in the US). However, because
associations of consumers can be concentrated interests as well, the prices do not go as high
as the producers would like them to.
Battles over winners and losers are constant, because in political economy, oftentimes what is
the best for a country may not be the best for a region, industry or group. This is why
special-interest groups play a crucial role in policy-making in order to protect their interests and
stay on the winning side. Frieden identifies a way to understand these special interest groups by
splitting them into several institutions: social institutions, legislative institutions (the
parliaments and the ways in which their power is separated with the other 2 branches. If they
want to protect their interests or push for policies in their interests, they might hand over control
to smaller, independent bodies who can get it done faster, in cases of them having a slower
procedure of policy making), political institutions (political rulers who want to stay in power -
their best interests, care about public opinion and public pressure) and electoral institutions
(care about their interests for the long run of the party and therefore dictate the identity of their
politicians). Different interests will therefore push for different policies - domestic companies
may be a force which pushes away international cooperation to benefit public, domestic
interests, while international corporations and organizations tend to do the opposite.
Policy-making is therefore really important to maintain the interests of different institutions.
Electoral institutions therefore focus highly on swing voters and keeping next elections in mind
in order to be the winning party and be able to push forward their agenda. However, even if
,economic analysis indicates a specific policy as the best possible solution, because of politics,
other policy measures have to be taken. Political economy does not consider whether this is
good or bad, because it does not concern itself with the issues of morality and ethics.
“Some Desert Island Stories” - Susan Strange
3 competing models of political economy:
1. Realist model: anticipating external threat, national approach to authority, security over
justice and freedom, values wealth for the sake of maintaining security
2. Idealist model: socialist approach to authority, values justice and freedom the most
3. Economic model: liberal approach to authority, values wealth and individualism the most
“What’s Political Economy?” - Stillwell
Stillwell explains the overall definition of Political Economy and later identifies different economic
reasonings as well as different schools of thought in political economy.
He argues that political economy provides an accessible approach to the study of economic
issues in terms of real world problems, how those problems can be analyzed, and in terms of
the currents of economic thought from which it draws. He argues that the best way to study
political economics is to ask these 5 questions:
1. What is happening? (look at the facts)
2. Why? (look at the possible factors)
3. Who gains/ wins and who loses?
4. Does it matter?
5. If so, what can be done about it and by whom?
Different economic reasonings:
1. Orthodox economic reasoning (market exchange under competitive conditions)
2. Political economy approach (current political economic problems and policy issues)
Different schools of political economy:
1. Classical political economy
→ Adam Smith
→ production surplus and economic growth, trade
→ property/land ownership
2. Marxist political economy
→ different lens of capitalism
→ distribution of labor, property and class relations, labor exploitation
, 3. Institutional economics
→ focuses on the study of economic development through institutional change
→ studies the growth of big businesses, transnational corporations, trade unions
4. Keynesian economics
→ identifies drawbacks of capitalism and things which are not guaranteed by it
→ identifies remedies which can help stabilize the monetary system
→ useful during financial crises, inflation,...
6. Modern political economy
→ uses the currents of economic thought of its subsequent scholars
→ addresses political economic problems in the modern world
→ emphasis on current issues while assessing competing economic ideologies and
political philosophies
States versus Markets Chapter 1: “The Rise of the Modern State”
The development of the modern globalized political economy emerged around the 15th century,
but it accelerated in the 19th century. It is important to note that despite the backwardness of
northwestern Europe at the time, times changed and Europe became the hegemon by the 19th
century. States transformed themselves from mafias into modern bureaucratic states by
deploying increasingly more organized forms of violence internationally and internally.
In the 15th century, Europe faced three main problems:
1. backwardness of agriculture (this was a problem because all economies rely on the
transformation of energy into life and goods)
2. Poor transformation systems (goods could only be transported in a 20 mile radius, so it
was difficult to create surpluses)
3. Limited state organization (national economy did not therefore exist which is why social,
economic and political life took place in microeconomics)
→ this was a problem because the division of labor was weak and therefore the
productivity rate was low, and the incomes were low as well
Crucial triangle: king, nobles, merchant
To monetize resources, the king needed to monetize the microeconomy. He needed resources
in order to have a continuous monopoly over violence and of public symbolic value. This could
be done through taxation and organized violence. However, because the national economy did
, not exist, there was a threat among European countries that other kings would seek their
territories.
The need for other territories existed because of long-distance resources because of limited
state organization.
Solution: Mercantilism
- Seeks to create trade surpluses through state-building policy
- Fused king & merchant interests
- The nobility would be the middleman and create checks & balances on the king in
exchange of allowing the king to have central power in the nation-state
- Merchants dominated the cities because that is where they could trade
- The competition between nobles in Europe led to them extracting a surplus from the
peasants and asking for higher productivity rates in order to be able to sell more grain
- Motivation to tap into external resources (merchants traded long-distance to avoid
central control from the king)
- The king had benefits from merchants trading long-distance so he protected them
abroad against other threats
- Taxes helped control the nobles and also advance in social technologies of organized
violence
- Developed constitutions at the intersection of conflicts and common interests among
kings, nobles & merchants
- Technological backwardness prevents any exclusive dominance by any European
nation-state
- Internal competition between European nation-states causes them to seek resources
from abroad to prevent threat (economic growth -> better military)
- Rules and management for the protection of property (king does not have absolute
control of the land)
In China, there was no nobility or middlemen because it was an empire with a bureaucracy. The
internal market was nationalized, so there was no need to seek external resources to monetize
the realms and find resources.
In the Indian Ocean, there was no king to deal with and the merchants were just looking to
trade. However, because of the lack of the king, there was no organized violence, and therefore
the merchants were unprotected and weak.
To form a state, it has to be demaffiazed because otherwise, there would be no stability and
predictability and therefore the productivity would be low. It has to be done inside and outside
the states.
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