Detailed and extensive lecture notes that cover all aspects of the Political Economy exam. Written in bullet point form, and contains some diagrams. Easy to read and understand. Quick revision material. 35 pages.
70% MC quiz - Week 2, 4 and 6
30% final essay - Week 7
No resit - have to retake whole course next year if fail
Lecture 1
What is Political Economy?
1. studies the fundamental interconnection between states, society and markets
1. states and markets function in a society
2. no market for child labour/slavery anymore, women started working
3. pressure from society = states action
2. understands economic politics as a means for states to achieve their objectives
1. objective of states is to pursue nation’s wealth
3. considers today and tomorrow political economic relations and battles from a historical perspective
1. battles between generations of policies (debts, housing) (domestically)
2. battles between nations
- economic measures have major political implications
- states or markets? - who decides?
- the economy is inherently political
PE I - the classic thinkers on state and market, and their followers
- they considered both states and and markets, integrated in one academic debate
- J.S MILL - principles of political economy
- Adam Smith - the wealth of nations
- Marx - capitalism in economy
- state, how its organised in capitalism and society, how to pursue wealth
- early 20th century - academic divide (politics / economics)
- late 60s and 70s - political economy
PE II - the political science of economic policy fields
- pensions - economists devise pension system (tax system, investment system, hands-off system)
- climate crisis - e.g. flooding in Pakistan - blame other nations, obligation to help, triggered by man-made
developments, how to devise anti-pollution system
- banks - function on how the states let them operate, after 2008 crisis, states started regulating banks more
- migration crisis - how to enforce borders, supply and demand > wages go down > migration decrease
PE III - political phenomena considered from an economics perspective
- “the branch of knowledge concerned with the production, consumption and transfer of wealth”
- “ a branch of the science of a statesman or legislator with the objective of providing a plentiful revenue or
subsistence for the people” - Adam Smith (known for free markets, invisible hand)
- “combining the assumptions of maximising behaviour, stable preferences, and market equilibrium, used
relentlessly and unflinchingly” - Gary Becker
- economics is a domain of science and a perspective of how to study social interaction
- studying consumer behaviour and adjusting policies
PE IV - markets and business considered from a political science perspective
- corporate lobbying - neo mercantilism
Lecture 2
The roots of global capitalism
- geographic expansion of trade goes hand in hand with state formation, but plays out differently across
space and time
Schwartz - Main argument
- place and distance are crucial to understand the development of states in global economy
- government policies are often crucial to understand if and how countries and regions develop
- economic development is a battlefield between political-economic actors, governments, entrepreneurs and
employees - who wins when? how is it created and played out?
- uses different theories - Von Thunen, Ricardo, Kaldor, Gerschenkron, Verdoorn
1
,- focusses mainly on europeans-western trade relations and political economy
- word is dominated by western institutions - innate
- intricate world economy - centre of the trade is in the middle east
- the Chinese developed into empires and continued as empires
- Europe had monarchies and feuding nobles - led to a different type of ruling and trade
- the black death had a detrimental effect in Europe and middle east - city states such as Genova and
Venice - linking pin of Constantinople and middle east - spices and other trades from Asia come from
travelling through those routes
- not necessarily western Europe dominating the trade seas, could’ve been middle east and china
Rise of the West
- argument by Abu Lughod
- starts in 13th century
- cultural differences are important but no sufficient explanations
- internal and external explanations should be taken into account
- importance of systemic geopolitical and demographic causes
Europe 1300-1700
- emergence of capitalist system
- private ownership
- labour market
- capital market - people can set up own companies
- market for land not absolute in the hands of the king, can be bought and sold by merchants
- market for goods and services - constrained by transport costs
- rules and management for protection of property, contracts and bankruptcy - dispute settlements, who
to deal with bankrupt companies
- focusing on growth
- start with surplus
- a lot of agricultural companies - production for own use (subsistence farming)
- little trade, little technological innovation, no incentive and no pressure for innovation
- division of labour + innovation > surplus
- nobility, kings and merchants captures the surplus - forgets about the people/peasants, coming out of a
feudal system, does not have the power
- working to create more of a system that goes beyond a noble and their farmers
- development and external trade - links micro economies to each other
- when one part of Europe goes further, need to focus on external threats
Political and economic context contradicts geography context
- political and economic
- presence of external threats
- traceable raw materials (gold, etc)
- level of technology
- geography
- natural protection
- proximity to sea, rivers
- fertile soil
- climate
- emphasis on transport costs back then - still essential to our modern economy
What do merchants want?
- just want to buy and sell goods
- need for a market
- in order to buy and sell, need for infrastructure, reducing transport costs, higher profit margin
- safety - think of unsafe roads, routes, ships
- if another competitor sees high profit margins from you, increase of competition, loss of market, loss of
supplier
- money - stable currencies to trade, exchange rates
What do Kings want?
- territory - safety in lands
- weapons - need for an army, and soldiers
- subjected people - people to extract surplus (food)
2
,- money - creation of an administration
What does nobility want?
- territory - extract as much surplus as possible
- weapons - to extract and subject people
- subjected people - for the surplus, but not squeeze too much to avoid revolution
- money - buy luxury goods, investments
*Crucial Triangle
- can restrict Kings extraction of surplus
- states make war, war makes states
- very violent process for a noble to become a king - extraction and protection vis a vis the peasants and
external threats
- extractions and surplus unstable and weak
- instability between three levels - kings, merchants and nobles start devoting needs towards outside of their
own lands - Americans for gold, India for spices
- internal competition
Outside of Europe
- China
- emperor dominates nobility and merchants - aristocracy to fight with
- no incentives for trade needed to increase tax revenues
- could survive within china - no need to trade elsewhere
- however, weak with trading posts - no powerful merchants with large armies
The Mafia analogy
- forcing trade with violence - to level the field and create monopolies
- stealing - pirates in oceans
- establish control over territory through force and violence
- specialise in addictive products - e.g. opium, spice
- only ONE to use violence for monopoly
State formation ultimately requires ‘demafiasation’
- Domestically
- safety and predictability - king and bureaucrats running the political economy
- rules applied uniformly - checks and balances against the king, independent judicial system
- consolidative process between king and nobles and merchants - mediate conflict
- Between states
- diplomacy developed
- principles of combat and laws of warfare
- rights to land and sea
Schwartz - combination of theories
- Von Thunen : circles - states stuck in a continuous loop of trade
- Example: a town with a micro economy > grain is produced > farmer brings it to the town > production
costs + transport costs > the further the farm, the more expensive the grain will be (cause of transport
costs) > proximity benefits
- your location creates different productivity and goods being used
- the more you go out of the circle, the less capital intensive the products become, and
productivity decreases
- Von Thunen circles have become larger and wider - seafaring, railways, car, air traffic
- the way you set up a factory, you can mass produce, with technology
- if economies of scale is higher than transport costs, there is potential, more benefits,
closer to producers, closer to labour market and ports, which is why clusters of
factories form - industrial zones
- key question for states is how to allow this, they want high capital investments and
high value products
- David Ricardo : ‘Ricardian Strategy’
- Strategy 1 - bank on comparative advantage - focus on division labour/sectors (where you are the best)
- two goods are produced very well - focus on the best product and allow the other sector to produce
the second best and then trade - specialisation without absolute benefit - international division of
labour
3
, - total output increases
- geography is important - fertile soil, a lot of labour, influences location for trade - large output and
low input
- realising growth through positive effects of free trade - depends on which inner/outer part of the
circle you want to be in
- invest profits in economic activity and innovation
- not pure market process but state controlled - to overcome Gershenkronian collective action
problems
- subsidise production
- attract labour (slavery?)
- build infrastructure - needs state to recognise comparative advantage
- Strategy 2 - learn and get into the lead (Kaldorian strategy)
- Petrus Johannes Verdoorn
- learning by doing - specialisation
- economic growth rise > productive rise > economic growth rise> etc.
- increasing returns
- long run productivity grows proportionally the share root of output
- growth of productivity is explained by progress of knowledge in science and technology -
neoclassical models of growth
- learning curve can get you ahead
- Nicholas Kaldor
- industrialisation rise > economic growth
- wealthy purely through agriculture happens rarely
- Kaldorian strategy takes advantage of Verdoorn effects
- economies of scale
- learning by doing
- key is solving Kaldorian collective action problems - need to make sure labour supply, producers get
credit to start business, infrastructure for roads, schools to learn - way of forcing producers to go into
high value goods
- e.g. shielded from competition from Americans to produce cellphones, and then becomes high
competitor
- way out of getting out of the outer part of the circle
Core Points
- external trade system emerged in 13th century - centres went away from Middle East and towards China
and Europe - trade systems can change, not static
- Europe - trade was important for state formations
- global economic and political order changes through technological progress
- theories about geography, state and economic development - Ricardo, Verdoorn, Kaldor
- development often requires state intervention
Lecture 3
Economic and hegemonic cycles
Production
Waves in economic development
4
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