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
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