Global Political Economy: Glossary (Part 5) T-Z

Tax Haven: A tax haven generally refers to a country, often an offshore island country, where taxes are very low or near zero. Those wishing to avoid taxes can invest their money in these countries and avoid paying taxes to their home governments.

Taylorism: Techniques of production using discipline and organization in the workplace. Production is based upon the scientific study of human efficiency and how much speed the human body can tolerate in the work place. It also uses incentives to increase the speed of work and exploitation. Used widely in US and Europe. Also used by Lenin and the Bolsheviks to modernizes production in the Soviet Union. See Harry Braverman. Labor and Monopoly Capital.

Technocratic Rule: Technocratic rule or management of the economy is frequently seen under neoliberal regimes when the economy has suffered a recession or is under austerity. For example a technocrat prime minister was appointed as Prime Minister of Greece after the economic crises in 2010. In this way, the country may avoid populist pressures to maintain benefits for the poor, elderly and working classes.

Technological Leapfrogging: Technological leapfrogging can be achieved by developing countries when they adopt technologically advanced methods of production as they industrialize. This means that they avoid going through the stages of older less efficient and polluting technologies and advance to more sophisticated technologies at once. This might provide them an advantage in the global market over countries which are still using less efficient production techniques.

Technological Spillover: Technology spillover happens when new technologies developed by a particular firm or group of firms becomes available for use by other firms or countries. The monopolization of a new technology by a particular firm may be relatively short term as other firms gain access to the technology.

Technology Transfer: Technology transfer happens when knowledge, technologies, skills, manufacturing techniques, and other technologies are learned and adopted by other countries, particularly developing countries. For example the technologies for the production of radio, television and video machines by the United States was quickly transferred to Japan in the l950s and l960s. 

Terms of Trade: The terms of trade indicate the relative price of exports of a country in terms of imports. It is the ratio of export prices to import prices. When the price of exports rise, a country can import more products. If the price of exports fall, the country can import less. The terms of trade generally militate against countries which depend upon the export of primary products such as bananas or coffee, because the price of agricultural products is likely to fluctuate greatly in the global market. For example, if the price of coffee falls, a country will have to export a large amount of coffee to buy a bulldozer.

The Theory of Capitalist Development (1942): A seminal book by the Marxist economist Paul Sweezy which extended the theories of Karl Marx to the twentieth century economy of the United States. Sweezy analyzed the operation of monopoly capitalism as it existed in the United States in the twentieth century.

Time Preference Theory of Interest (Irving Fisher): A concept from Irving Fisher that interest is a reward for not consuming things today, but putting off consumption until a later time.

Tobin Tax:  A tax proposed by the late economist James Tobin on international Financial flows but never established. The tax would provide a fund to help bail out countries in financial crises.

Tokyo Round: Trade talks under GATT which began in September 1973 and lasted for 74 months, involving 102 countries. The talks addressed the issues of tariffs and non-tariff measures. The talks resulted in tariff reductions worth 300 billion dollars in world trade.

Toxic Imperialism: Toxic imperialism happens when nations or firms act in such a way as to pollute other countries and profit from doing so. One form of toxic imperialism is dumping toxic waste in low income countries which lack environmental regulations. This can happen through the trade in toxic waste, often mislabeled. Another form is using countries with lax environmental regulations to produce products.

Trade Barriers: Trade barriers are restrictions on international trade, particularly tariff barriers, for the purpose of protecting the survival and profits and of domestic industries. Other types of trade barriers may include quotas, technical regulations, tax policies, and government subsidies to industries.

Trade Protectionism: Barriers to foreign trade, particularly tariff barriers. The major argument for trade protectionism has traditionally been to protect small industries.

Trade Rounds: Generally refers to the trade rounds carried out under the General Agreement on Tariffs and Trade (GATT) in the late twentieth century. The major trade rounds were the Kennedy Round, the Tokyo Round, and the Uruguay Round. The Doha Round has been carried out under the World Trade Organization. 

Traditional Growth Theory: May refer to the theories developed by Robert Solow and others in the l950s. Traditional growth theory posited that economic growth was a function of labor and capital. Technology and human knowledge were considered as exogenous variables. There were seen to be constant returns to scale.

Transatlantic Trade and Investment Partnership (TTIP) A trade investment agreement between the European Union and the United States which was being secretly negotiated through 2014. Talks began in Washington, DC in July 2013 and continued. Objectives of the trade agreement is to remove barriers which will result in millions of dollars of savings to US and European companies. It is argued by liberal proponents that everyone will benefit. Objectives also include cutting tariffs, standardizing technical regulations on products, opening up markets to services and investment, restricting subsidies to state owned enterprises, ensuring a market for genetically modified foods now restricted in Europe, and coordinating regulations in the financial sector between the EU and the United States.   

Transfer Pricing: Transfer pricing is the setting of prices between different branches or companies of a single corporation which are generally located in different countries. The misuse of transfer pricing involves pricing to lower the profits of a company in high-tax countries and raising the profits of a branch in a low-tax country. Transfer pricing is the major tool for corporate tax avoidance.   

Trans-Pacific Strategic Economic Partnership Agreement (TPSEP): A trade agreement of 2005 among Brunei, Chile, New Zealand and Singapore. The purpose was to liberalize trade in the Asia-Pacific region.

Trans-Pacific Partnership (TPP): A proposed expansion of the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP) which has been negotiated beginning in 2010. The potential members include Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the US. The agreement might also include Taiwan and South Korea. A round of secret negotiations began in August 2013. Information about the large scale deal was leaked to the public and on November 13, 2013, the complete draft of the Intellectual Property Rights chapter of the agreement was published by WikiLeaks. There are many concerns about the potential agreement. Joseph Stiglitz has said that the TPP presents grave risks.

Turkish Financial Crises (2001): The 2001 Turkish Financial Crises broke out in February. Turkey was under an IMF structural adjustment program with the Turkish Lira pegged to the dollar as a crawling peg. In November, 2000, the banks had liquidity problems with a loss of confidence in the system. The central bank injected a large amount of liquidity into the system, violating its own rules. But this had little effect as a large amount of money flowed out of the country. The current account deficit rose sharply due to high imports. Interest rates rose. On February 19, the President of Turkey, Ahmet Necdet Sezer, warned the Prime Minister, Bulent Ecevit, about corruption in his ministry. Following this, the currency peg collapsed on February 21. The currency was floated, leading to a thirty percent devaluation. The currency crashed further in subsequent days with extremely high interest rates. The Turkish Banking system was badly in need of reform and a large amount of hot money had flowed into the country to take advantage of high interest rates on Turkish liras. Turkey received a loan of 11.5 billion US dollars from the IMF. However there were many strings attached. The government had to embark on a privatization of state economic enterprises and change many laws. Kemal Dervis, a World Bank former vice president was brought into the government to carry out an extensive reorganization of the banks and the country’s economy.

Uneven Development and Combined Development: A complex theory developed by Leon Trotsky to understand global development and the potential for development in Russia under the Czar. Trotsky’s analysis led to the theory of the permanent revolution. He noted that in human history, different countries do not modernize in the same way through linear stages of growth. Also countries are affected by each other with a spill-over effect. This means that countries could skip stages, telescope development, or compress development stages in the transition to modernization. He also noted how imperialism affected the way countries under the rule of another country were changed and modernized or impeded from development.   

Uruguay Round: A round of trade talks which resulted in the establishment of the World Trade Organization. The talks began in September 1986 and continued for 87 months, involving 123 countries. Issues addressed include tariffs, non-tariff measures, rules, services, intellectual property rights, dispute settlement, textiles and agriculture. Besides establishing the WTO, the talks resulted in major reductions in tariffs and agricultural subsidies, an agreement to allow full access for textiles and garments from developing countries, and the extension of intellectual property rights.  

Use Value: Use value is a concept which was developed by classical political economists in the eighteenth and nineteenth centuries. Use value is a measure of the utility which a commodity contains as opposed to its exchange value. For example, paper money contains little use value but only exchange value. 

Utilitarianism (Jeremy Bentham): Utilitarianism says that policies are best which produce the greatest good to the greatest number of people. The theory is sometimes seen to be unethical, as it could allow the weak members of society to perish without any help if the resources used could produce greater happiness elsewhere.    

Variable Capital (Karl Marx): A concept used by Karl Marx to describe labor as a factor of production in which the cost of labor was not fixed, but subject to change according to the conditions of production.  

Virginia School of Economics: A school of economics characterized by the Public Choice approach. Major architects of the school include James M. Buchanan, Gordon Tullock, G. Warren Nutter, and Mancur Olson. A major work was The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962) by James M. Buchanan and Gordon Tullock. First located at the University of Virginia, in 1969 the Center for the Study of Public Choice was established at Virginia Tech University. This center was moved to George Mason University in 1983. Theorists share the “free market” approach with the Austrian and Chicago schools. They apply economic analysis to national constitutions. Mancur Olson studied collective action and special interest groups. They have published a body of literature on rent seeking behavior.

Volatility: Volatility may refer to the rapid and unpredictable changes in the market values of major currencies in the global market. This makes it difficult to predict the prices of imports and exports and impedes international trade.

Wage Fund Doctrine: This principle says that employers must have a fund of capital available to pay the workers during the production process.

Washington Consensus: The assertion made by such organizations as the IMF and the World Bank in the l990s that countries around the world agreed with the approach of the United States that there was no alternative to instituting neoliberal economic management in countries in the age of globalization of production and marketing and that the rollback of interventionist governments along with privatization was necessary. In reality, there is little evidence of such a consensus.  

The Wealth of Nations: The famous book by Adam Smith published in 1776. Adam Smith argued that a more free market and liberal policies had an advantage over statist policies such as those advocated by Friedrich List. The book contained the idea that the free market functioned as if there was an invisible hand operating to produce a favorable result for all parties. The book also promoted the idea of free trade between countries, but noted that sometimes the worst enemies of the free market were the capitalists themselves who tended to form a monopoly in order to control the market.

Welfare Maximizing: Welfare maximizing may refer to devising economic policies which are designed to increase the social welfare of members of a society by the optimal allocation of resources to different segments of the population.

Welfare State: Welfare state may refer to the Western governments which began to provide a range of social services and benefits under Keynesian economic management after the early l930s. Social spending served as a government tool to increase effective demand and stimulate capitalist economies.  

World Bank: The World Bank includes The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The World Bank is an international financial institution which was set up at the Bretton Woods Conference in the United States in 1944. It provides loans to developing countries. The official goal of the World Bank is the reduction of poverty. The first World Bank loan was made to France for 250 million US dollars, half of what was asked for. The US State Department refused to approve the loan until the French Government expelled the Communist Party members from the Government.  

World Trade Organization(WTO): The organization established in l995 under the Uruguay Round of Trade negotiations. It replaced the General Agreement on Tariffs and Trade (GATT). As of 2013, there were 159 member states in the WTO.

Zaibatsu: A zaibatsu is a type of business firm which existed in Japan before World War II. The US occupation sought to destroy the Zaibatsus but they were reorganized as keiretsus. These large firms are interlocking and their presidents cooperate in formulating joint policies. They also share in financial matters, R&D, and marketing. They form the backbone of Japanese monopoly capitalism.



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Veblen, Thorstein. The Theory of Business Enterprise. Mansfield Centre, CT: Martino Publishing, 2013. (First published 1904)



Global Political Economy: Glossary (Part 4) O-S

Offshore Banking: Offshore banking units are concentrated in the Bahamas, the Cayman Islands, Hong Kong, Panama, and Singapore. They can also refer to Swiss Banks and banks in Luxembourg and Andorra. An offshore bank is simply one located outside the country of the depositor. It is usually in a low tax jurisdiction, that is, a tax haven. These banks may provide bank secrecy, low or no taxation, easy access to deposits, and protection from local political or financial instability. It has been estimated that half of the world’s capital may flow through offshore banks. These tax havens have 1.2 percent of the world’s population and 26 percent of the world’s wealth. They have some 31percent of the net profits of US multinational corporations. It has been estimated that some 13 to 20 trillion pounds sterling may be hidden in such tax havens. According to the World Wealth Report of 2010, one third of the wealth of the highest worth individuals, some six trillion dollars, may be held offshore.

Oligopoly: A market situation where a small number of large companies control the market for a commodity. This may allow companies to be price setters and keep profits high.

Oligopsony: Refers to a market in which there are many sellers but few buyers.

Opportunity Costs: The opportunity cost is the benefits that one must give up in order to engage in an alternative activity. For example, the income one would have to give up to take a long holiday.

Pareto Optimality: A pattern of resource distribution in which no one can be made better off without making someone worse off.

Partial Equilibrium Analysis: A type of analysis which examines equilibrium in one of more specific markets, without looking at the entire economy.

Path Dependence: In economics, decisions and patterns are frequently limited or determined by decisions which have been made in the past. For example, a particular technology is established and is put on the market. Once it becomes established, future versions may follow the same technology even though this is not the best possible technology. An example frequently given is the Microsoft operating system which became the dominant technology, even though it is not the best one. 

Pegged Currency: A system in which there is a fixed exchange rate between a  currency and gold or some other currency such as the dollar.

Periphery: Political economies, whether national or global, can be seen to be divided into a core and a periphery. The periphery is the outlying region farthest away from the center.

Physiocrats: A school of political economy in France in the Eighteenth Century. Physiocracy means the government of nature. The Physiocrats believed that the wealth of nations was derived solely from the value of land and agriculture. They saw productive work as the source of national wealth. They said that all life depends upon the productivity of the soil and the ability of the natural environment to renew itself. They praised country living. Their work is seen to be the first well developed theory of economics. The main figure was Francois Quesnay (1694-1774). Another important figure was Anne-Robert-Jacques Turgot (1727-1781).

Pigou Effect (Real Balance Effect from Arthur Cecil Pigou): Says that in a recession, the declining prices will increase the wealth of consumers and therefore increase spending.

Planning Commissions: Government economic institutions which were responsible for planning future economic development in countries such as India that developed plans, such as the Five Year Plans, for development. This approach was modeled after the development plans of the Soviet Union.   

Plaza Conference (1985): A conference in which Japan agreed to appreciate the value of the Yen, under US pressure.  

Pluralism: In the American context, pluralism refers to the concept that power is divided between many groups in the society and that their political activity is primarily a matter of each group trying to maximize their gains from the political system.

Portfolio Investment: Refers to investment in the financial sector in such investment assets as securities, stocks, bonds, Repo and so on, rather than in the manufacturing sector. Foreign portfolio investment is risky for emerging market economies as this type of money is essentially hot money. It can leave the country quickly in the case of economic or political instability.

Post-Fordism: Indicates an economy which has made the transition to a post-industrial economy which is dominated by the service sector. In the case of the United States there is a financialization of the economy.

Precariat: A class of people, such as urban poor, who lack secure jobs and economic security. An increasing proportion of the global population in the early twentieth century.

Predatory Pricing: Happens when businesses sell goods or services below the cost of production in order to ruin their competition. For example, large waste companies in the United States frequently sign up people for waste collection at very low rates until their competition is forced out of business. It is analogous to dumping in the international arena.

Preemption: Happens when a firm succeeds in getting its products into the market ahead of other firms. It is also called First Mover Advantage. This may preempt other firms by preventing them from moving into the market for a considerable time during which the initial firm enjoys high profits. 

Price Setters: A situation in which oligopoly firms control the market for a product and are able to keep the prices from falling. That is, they are able to set the price rather than allow the market to set the price. Having a unique product may also enable a firm to be a price setter.   

Price Takers: Price takers are at the mercy of the market and must sell their products at the price which the market or another firm decides.

Principles of Economics (1890): The famous textbook written by British economist Alfred Marshall (1842-1924 which went through many editions and was the standard textbook for generations economics students. The textbook deals with theories of supply and demand, marginal utility, costs of production and many other topics. The book is seen as consolidating the ideas of neoclassical economics into a coherent theory. The book was also responsible for changing the name of the discipline from political economy to economics.

Prisoner’s Dilemma: A game which has been analyzed in game theory. The game demonstrates why two individuals might not cooperate, even though it appears that they could benefit by doing so. Two prisoners are arrested and charged with a crime. The prisoners are isolated from each other. Because of lack of evidence, they can be convicted only on a charge that carries a one year sentence. So if neither one gives evidence on the other, they each get a one year sentence. If one remains silent and the other tells, the one who tells goes free and the other gets three years jail. If both of them tell on each other, they both get two years. The rational solution is that both of them defect and tell on the other. But the best solution would be for both of them to remain silent. This is seen to apply to real life situations. In the cold war, the rational solution was to build nuclear weapons. But the best solution for two enemy countries was to cooperate and not build nuclear weapons. The game shows how rational behavior may make one a rational fool. 

Product Cycle Theory (Raymond Vernon): From Raymond Vernon’s book Sovereignty at Bay (1971).  According to this theory, every product follows a cycle from innovation to maturity to the time when it is obsolete. After World War II, American firms had a comparative advantage in innovation because the American market was so large and because the US led in R&D. In the first phase, American products are exported from their US base. Sometime later, the product matures and production techniques become standardized. Foreign firms enter the market as there is technological transfer and a demand for the product. At this point, US firms export the means of production and produce abroad in order to preempt foreign firms. So FDI is a device used to preempt foreign firms from gaining a foothold in the market and allowing American firms to keep their monopoly. This theory helped to explain the behavior of US firms in the l960s.

Profit Seeking Activity: Another term for rent seeking by a coalitional distribution or interest group. If the activity is merely to gain greater benefits without enhancing production, such as in cotton agricultural subsidies in the United States, then the activity is unproductive and unjustified. The term is associated with Mancur Olson and the Virginia School of Public Choice Theory. 

Progressive Taxation:  The policy of taxing high incomes at a higher rate than low incomes.

Public Choice Theory: A theory largely devised by James Buchanan and Gordon Tullock in their book The Calculus of Consent (1962). They used economic theories to understand political behavior. These theorists were strongly opposed to government interference in the market.

Quantitative Easing: Another term for printing money. Central banks may have a policy of increasing the money supply with the aim of stimulating economic activity. This was the case following the financial crises in the United States in 2008. Quantitative easing by the United States and Europe tends to flood foreign currencies into emerging markets such as Turkey, where interest rates are higher.

Radical Critique of Political Economy: Radical critique may refer to the work of Karl Marx and others who challenged the approach and assumptions of the mainstream of political economy, such as Adam Smith, David Ricardo, Thomas Malthus and John Stuart Mill in the 18th and 19th centuries. After the marginalist revolution in the nineteenth century and the establishment of neoclassical economics by Alfred Marshall and others, radical critique refers to leftist thinkers in the Marxist tradition, who continued to support working class movements and base their economic analysis upon the labor theory of value, rather than the theory of marginal utility. The modern radical critique can be seen in the writings of Paul Sweezy, Harry Magdoff and others at the Monthly Review journal in New York, as well as other left critics of neoclassical economics.

Rational Choice Theory: Rational Choice Theory emerged from the use of methodological individualism to explain all of human behavior. The approach uses economic theory of utility maximization to analyze political behavior. Examples include the work of Anthony Downs in An Economic Theory of Democracy in the l950s and Gary Becker in The Economic Approach to Human Behavior (1976). The approach is also used in the Public Choice approach of Mancur Olson. It assumes that people make rational calculations to gain the basic desires of life, including food, prestige, awards, health, wealth and happiness. People are seen to approach life with the selfish and egotistical desires assumed by Thomas Hobbes. To act otherwise, presumably, would be a mistake. Probably a justification for capitalist profit-seeking behavior.

Rational Fools: A term from the political economist, Amartya Sen. While economists emphasize rational decision making by individuals, those rational decisions may also mark individuals as rational fools in terms of the likely outcome. One could relate this to rational profit making activity of corporations, which is swiftly destroying the global environment and so turning out to be quite irrational in a larger sense.

Reading School: The Reading School of Political Economy named after the University of Reading in England. The Reading School associated with John Dunning emphasizes technology as an important factor in the development of multinational corporations as well as the organization of production on a global basis. The theory is seen as eclectic as it borrows ideas from different schools of thought.

Real Economy: The Real Economy refers to the production of goods and services rather than investment in the financial sectors of the economy.

Realism: Realism may refer to state-centric realism which assumes that the international system is anarchic and sees the state as the most important actor. The approach also recognizes the role of international organizations, multinational firms and NGOs in the international arena.

Recession: A sharp downturn in economic activity in a country. In the United States, the technical definition of a recession is two consecutive quarters of negative economic growth.

Regime Theory in International Political Economy: A regime is defined by Stephen Krasner as a “set of principles, norms, rules, and decision making procedures” which guide actors, such as the directors of the World Trade Organization. In International political economy, the major approach is the liberal approach which assumes that actors act according to their rational interests and cooperate through international organizations. The realist approach sees states as the main actors in the international political economy and often in conflict with each other.

Regional Monetary Integration: May refer to the process by which the currencies of Western Europe were linked together into an exchange rate mechanism and eventually replaced by a single currency, the Euro. It may also refer to attempts toward monetary integration in North America, South America, East Asia, West Africa and other areas of the world through monetary unions and other forms of monetary cooperation.

Regionalism: A process by which the countries of a region, such as Western Europe cooperate to solve regional problems through such methods as customs unions, free trade areas, single markets, and monetary integration. It may refer to countries in North America, Europe, South America, East Asia, South Asia and elsewhere.

Rent Creation: May refer to activities of a government, such as legislation to create new programs, which results in the establishment of benefits which may then be available for distribution to an interest group. For example, a government may create social welfare benefits which are then distributed throughout the society. This can be contrasted to wealth creation in which new values are created through economic production.

Rent Seeking Behavior: Refers to the activities of coalitional distributions or interest groups which lobby or engage in other types of political activity to secure benefits from the government or public sector. This is seen by public choice theorists to be unproductive as it does not create any wealth but merely consumes resources already created.

Research and Development (R & D): Refers to activities which are aimed at innovation, the creation of new products and the improvement of existing products.

Reserve Army of the Unemployed (Karl Marx): A term Marx used to describe those workers who were unemployed and which capitalists could easily hire at cheap wages to expand production in a short period of time.   

Right to Work Laws (Irving Fisher): Also called open shop laws. This means that workers in a factory cannot be forced to join a labor union established by workers or labor officials in the factory.

The Road to Serfdom (1944): This is a famous book by Frederick Hayek which argued that the social welfare programs of the British Labour party were likely to result in totalitarianism.

Roundabout Production: Production methods which require more machinery and capital and therefore take more time to put into place when a decision has been made to expand production.

Savings: Savings may refer to the part of the national income which is not spent or consumed. In this case, it may result from deferred consumption. Savings in an economy may be related to investment and capital formation as the amount of savings may be made available to use as capital, when deposited in a bank or other investment asset.

Seigniorage: Refers to the special privileges the United States enjoyed during the Bretton Woods period as the provider of the world’s reserve currency, the US dollar. 

Service Sector Economy: A service sector economy is an economy in which the dominant enterprises of the economy are in the service sector. The service sector or tertiary sector includes information, transport, distribution of products, sales, pest control, entertainment, repair, food, hotels, hair solons, tourism and more. More than seventy percent of the work force in the United States is in the service sector.

Shareholder Capitalism (Stockholder Capitalism): The national system of political economy in the United States which is based upon the requirement that firms manage their business in such a way as to maximize profits for their stockholders or shareholders, rather than to serve the general needs of society.

 Smithsonian Agreement (December 1971): An agreement which adjusted the fixed currency exchange rates established at the Bretton Woods Conference in l944. The US dollar’s convertibility into gold was abolished. The dollar was over-valued by the l960s. In February 1973, the dollar was devalued by ten percent. The conference was held in Washington, D.C.

Social Dumping: Refers to a situation in which transnational corporations move manufacturing to countries which lack work standards and pay low salaries and few benefits to workers. Relocating in such countries as Bangladesh, for example to produce cheap clothing for higher profits is an example of social dumping.

Social Market Capitalism: Refers to the national systems of political economy in Western European nations such as Germany. These economies have been characterized by higher levels of social welfare and greater benefits to workers as compared to the United States. The members of society are seen as shareholders, as the companies are supposed to serve the interests of the whole society. 

Special Drawing Rights: A reserve currency created by the IMF in 1969 due to the shortfall in US dollars for international liquidity. The SDR is made up of a basket of currencies of the US dollar, British Sterling, the Euro and the Japanese Yen. As of 2013, there were some 275 billion in SDRs which are owned by the member countries of the IMF. They have served as a unit of account for the IMF and before 1981 were mainly seen as a form of credit. Countries are expected to maintain their SDR holdings at a given level. The SDR is sometimes seen as a source of credit for developing countries. They are not seen as very important in providing liquidity, however, as they make up only about four percent of global forex reserve assets.

Specie flow mechanism (David Hume): An analysis of the international flow of money which measures the effect upon an economy, including prices and the value of the currency. Hume observed that exports from a country would cause the value of the currency to rise, raising prices and having a negative effect on exports.

Speculative Mania: A phenomena which happens when investors rush to invest in a particular area of the economy, such as stocks or housing. The market may overheat creating a bubble which is likely to burst when investors start to become skeptical that the market will continue to rise. There is then a stampede of investors to get out of the market as quickly as possible.

Stagflation: A term used by a Conservative member of Parliament in the UK in a speech in l965. Lain Macleod warned that the economy was suffering from both high inflation and high unemployment.  This phenomenon was seen in the US economy beginning in the l960s. Unemployment remained high even when there was considerable inflation in the US economy. Some economists believed that the situation could be corrected by applying the proper monetary policies.

Stagnation: Stagnation in an economy happens when the rate of economic growth slows down and economic recovery is difficult to achieve.

Stakeholder Capitalism: Stakeholder capitalism can refer to the national system of social market capitalism in some European states, such as Germany. Members of society are seen to be stakeholders as they have an interest in the economic outcome in terms of their social welfare and quality of life.   

State-Centric Realism: A view of global political economy in which the state is seen as the primary actor in the international economic arena. International organizations are seen as having a secondary importance.

Steady State Economy: A steady-state economy may refer to the economic growth model of Robert Solow. In this model, the economy reaches a steady state when investment is equal to depreciation and is said to be in equilibrium. Knowledge is seen as an exogenous variable.

Stockholder Capitalism: The name applied to the national system of political economy in the United States which is based upon the requirement that firms manage their business in such a way as to maximize profits for their stockholders, rather than to serve the general needs of society.

Stolper-Samuelson Theorem: Says that international trade will tend to benefit those who own the abundant factor (capital or labor) and hurt those who own the scarce factor. Over time there will be a redistribution of value to either labor or capital. In a developing country, labor will benefit most. In a developed country, capital will benefit most.

Strategic Behavior: Strategic behavior in economics is a broad term which could apply to both firms and governments. In order to be successful, a firm must develop a strategy to manage the firm optimally and meet specific goals, most importantly making acceptable profits for its owners and stockholders. The production of cutting edge profits might be part of this strategy. For governments, strategic behavior can involve economic policies which promote domestic firms in the domestic and international environments.

Strategic Management: Strategic management involves the operation of a firm to meet specific objectives. It primarily involves responding to external issues outside the company, such as understanding the customers’ needs and responding to competitive forces. There is a need to continuously adapt to the changing external environment. Strategic management provides overall directions to an enterprise. There are a number of models of strategic management.

Strategic Trade Theory: Strategic Trade Theory argues that countries can increase international trade, particularly exports, by implementing specific policies. For example, Japan was able to capture a large share of the US market in electronics and automobiles in the l960s and 1970s by such policies as government support to oligopolistic industries, producing quality products at low cost, producing niche products, and supporting domestic firms even when they did not make a profit.   

Structural Adjustment Programs (SAP): Structural Adjustment Programs are economic reform policies administered by the IMF as requirements for obtaining a loan from the IMF. These policies usually involve the implementation of austerity packages. They may require large scale privatization of state owned enterprises, cutbacks in government employment, cutbacks in education, cutbacks in health, cutbacks in social welfare, banking reforms, decreases in government subsidies, and other such policies.

Structural Investment Vehicle (SIV): A financial instruments which earns a profit by producing nothing. The SIV was invented by Citigroup in 1988. The market in SIVs collapsed in 2008 with the financial crises. Money is made by borrowing money on short and medium term notes such as securities, commercial paper, and public bonds, at low interest. This money is then used to buy longer term securities that pay higher interest, such as mortgages, bonds, auto loans, student loans, and credit cards. The net credit spread produces profits for the investors. The amount of SIVs reached 400 billion dollars in 2008, but then the market collapsed.

Subprime Mortgage: A subprime Mortgage is one which is held by a borrower with a lower credit rating than a borrower with a conventional mortgage. Since the risk is greater in such lending, the interest rate is generally higher. Over-lending in the subprime market helped to produce the financial crisis in the United States in 2008. 

Subsistence Economies: A subsistence economy is one in which food, clothing, shelter and other basic needs are supplied through nature, such as through hunting and gathering and agriculture in which that which is produced is consumed by individual families or small groups and does not enter the market. Trade in such an economy would be carried out through barter as money is absent.

Subsistence Theory of Wages:  A principle held by classical political economists which says that wages will fall to the point in which the wage only allows the worker to survive.

Supply Side Economics: A right-wing conservative approach to economic policy. Supply side advocates argue that economic growth can best be increased by such policies as a lower income tax, a lower capital gains tax, and by reducing government regulations on firms. They argue that consumers will benefit from the greater supply of goods which result. It is the opposite of demand side economics. 

Surplus Value (Karl Marx): The source of profits for Karl Marx. When the worker works longer than is necessary to produce his cost of living, the additional part of the day is surplus labor for which the capitalist does not pay. This surplus labor produces surplus value for the capitalist.   

Global Political Economy: Glossary (Part 3 ) J-N

Jamaica Conference (1976): A conference in which the major industrial powers accepted flexible currency exchange rates. Most economists thought that this would benefit the global economy, while others argued that it would create higher inflation and destabilization.

Japan (Bank of): Nippon Ginko, the Central Bank of Japan located in Tokyo. It was founded after the Meiji restoration in 1882. In l871, a new currency, the Yen was established. The bank issued new bank notes in 1885 which were greatly favored by the rats which ate many of them.

Jevon’s Paradox (William Stanley Jevons): Says that an increase in the efficiency of use of a commodity will not result in decreased consumption of the commodity, but rather increased consumption. For example, if light bulbs become more efficient by using less energy, people will just buy more bulbs and use them longer.

Jugler Cycles (Joseph Schumpeter): A business cycle discovered by Clement Jugler associated with changes in investment in new plant and equipment. These cycles last eight to eleven years.

Justifiable Coalition: A distributional coalition, such as a corporation, which is set up to create value or wealth, rather than to engage in rent seeking on its own behalf. According to New Political Economy, in this case, the coalition is justifiable.

Keiretsu: In Japan, a set of companies with interlocking business relationships. They appeared after World War II, after the partial breakup of the big companies called zaibatsu. The six major postwar groups were Mitsubishi, Mitsui, Sumitomo, Fuyo, Dai-Ichi Kangyo, and Sanwa.  

Kennedy Round: Trade round talks under GATT which began in May 1964 and continued for 37 months. The talks involved 62 countries and addressed the issues of tariff reductions and anti-dumping measures. The talks resulted in 40 billion dollars of trade concessions in world trade.

Keynesian Economics: Also known as demand side economics. The theory presented in The General Theory of Employment, Interest and Money (1936) by the British economist John Maynard Keynes. Keynes noted that economic output depends upon aggregate demand, or total spending in the economy. During a recession or depression, the government can come to the aid of the economy by government spending programs to boost aggregate demand and thus economic output.

Kitchen Cycles (Joseph Schumpeter): Short fluctuations in the economy discovered by Joseph Kitchen, which last from three to four years. They are due to the changes in business inventories.

Kondratiev Waves: Long-run economic cycles lasting between 45 and 60 years and discovered by Nikolai Kondratiev. Prices rise during a 20 to 30 year period, and then decline for 20 to 30 years.

Labor Productivity: The amount of goods and services a worker produces in a unit of time. It can be measured in terms of a firm, a particular process, an industry, or for a country. Productivity depends upon such factors as investment, technology, human capital and intensity of work.

Labor Theory of Value: A theory devised by the classical political economists beginning with Adam Smith and David Ricardo. The theory was used by Karl Marx in his critique of political economy in Capital. The theory basically says that economic value is produced by labor. The amount of value produced depends upon the prevailing means of production in an economy.

Laissez faire capitalism: A system of economy which historically has existed only in theory. In is a concept from classical political economists, such as Adam Smith, of an economy in which the government does not interfere in the workings of the market. Prices are seen to be set by natural factors, such as effort in labor.

Late Industrializer: Countries such as Germany, Japan and the former Soviet Union which industrialized after the rise of earlier industrial countries such as England and the United States. The term is associated with Alexander Gershenkron who argued that the pattern of industrialization was different for countries depending upon the time frame of industrialization. While industrial capital was accumulated gradually through emerging corporations in early industrializers, the state was active in the accumulation of capital in late industrializing states. For example, the banks were a source of capital for capitalist businesses in Japan after 1945.   

Law of Diminishing Returns: A fundamental economic principle which says that in a process of production adding one more factor of production, while holding other factors constant, will, at some point, yield lower per unit returns. This is because at some point, additional units of a factor of production may lower the efficiency of the process.

Law of Income Distribution (Vilfredo Pareto): A pattern of income distribution across nations discovered by Pareto. Income increases geometrically from the poorest to the wealthiest members of society in almost every society, according to the law. Pareto believed that the natural distribution was that twenty percent of the population would own eighty percent of the wealth.

Laws of returns to scale: Includes the law of increasing returns to scale, the law of constant returns to scale and the law of diminishing returns to scale.

Least Developed Countries (LDCs): Least developed countries are countries which lack socioeconomic development and have a low human development index. The three criteria for least developed countries include poverty, lack of human resources and economic vulnerability. LDCs have a gross national income (GNI) per capita of less that US $992 as of 2012. Human resources are weak in terms of nutrition, health, education, and adult literacy. They also demonstrate economic vulnerability based upon the instability of agricultural production, the instability of exports of goods and services, merchandise export concentration, the handicap of smallness, and a significant proportion of the population affected by natural disasters. These criteria are set by the Committee for Development Policy of the UN Economic and Social Council (ECOSOC). There were 50 LDCs in 2014, including 34 in Africa, 10 in Asia, five in Australia and the Pacific, and one in the Caribbean.

Lender of Last Resort: The International Monetary Fund is frequently referred to as a lender of last resort when a country experiences serious financial problems and needs a large loan. The IMF is then seen as the only solution to the problems which the country faces.

Leontief Paradox: A concept from Wassily Leontief. The paradox was that the United States was seen to enjoy a comparative advantage in the export of labor-intensive agricultural products when traditional H-O theory predicted that the US should export capital intensive goods. Most of these agricultural products, however, were not produced under conditions of corporate production, but on individual small and medium sized farms in the United States. The process utilized much family labor which otherwise might have remained idle. Perhaps other relevant factors are the high productivity of much farm land in the US and efficient farming methods used by farmers in the US.

Less Developed Countries: Countries characterized by a low national per capita income, a high rate of population growth, high unemployment, and a dependence upon commodity exports.

Liquidity: Liquidity is cash, cash equivalents, and other assets, such as stocks and bonds that can easily be converted into cash.

Loanable Funds Theory of Interest: This theory says that interest rates are determined by the supply of savings and the demand for loans.  

Lobbying: In the American political system, all major corporations station representatives in Washington, DC, who petition Congressmen for legislation favorable to their business. Congressmen are in turn rewarded for their service with campaign contributions from these corporations. While it appears to be a form of bribery, it is referred to as lobbying, in the American context. More generally, lobbying also occurs in the European Union and other political contexts. 

Macroeconomic Policy: Includes the policies of a government in shaping the national economy. It includes monetary policies and fiscal policies. Monetary policies include such tools as raising or lowering interest rates to expand or restrict the economy. Also a policy of quantitative easing (printing money) is sometimes used to increase the money supply and stimulate the economy. Fiscal policy includes spending policies of the government, including military spending, spending for social welfare, spending for new infrastructure and so on. It also includes policies on taxation.

Managed Float: An exchange rate system in which the value of a currency is largely determined by the free market and changes from day to day. However, it can be adjusted by actions of the central bank, such as the buying and selling currencies. This is part of the current international financial environment. It is also called a dirty float.

Managerial Capitalism: A form of capitalist production and accumulation in which firms are managed and controlled by highly paid managers who are the central agents of power and direct the enterprises of the firm in order to maximize profits and accumulation. In the case of financial firms, profits and accumulation of capital is the sole underlying objective of the enterprise. 

Marginalist Revolution: The Marginalist Revolution refers to the development of neoclassical economic theory in the Nineteenth Century, beginning in the 1860s with the work of William Stanley Jevons, Carl Menger, and Leon Walras. These theorists developed a marginal theory of value to replace the labor theory of value of the classical political economists. Jevons published The Theory of Political Economy in 1871. Menger published his Principles of Economics in l871 and Walrus published his Elements of Pure Economics in 1874. This work anticipated the work of Alfred Marshall at the end of the century, which began the neoclassical period of economics.

Marginal Return: The marginal return to a factor of production is the change in output brought about by a change in that factor of production. The marginal product of labor is the change in output per unit change in labor.   

Marginal Productivity: The additional output that is produced by hiring one more worker or by using one more unit of input.

Marginal Utility Theory: An economic theory which attempts to measure the increase in satisfaction which consumers gain from consuming an extra unit of a good.

Market: A system, institution, procedure, or infrastructure by which people or parties may participate in the exchange of goods and services. A market generally also establishes the prices of goods and services. A market with a single seller is a monopoly. A market with multiple sellers and a single buyer is a monopsony.

Marshall’s Cross: The graphic depiction of supply and demand in Alfred Marshall’s economic model which depicts price on one axis and quantity on the other. Since the supply and demand curves cross at the point of equilibrium, the graph resembles a cross. It was seen by some to be the worker under capitalist production who was being crucified on this cruel cross.  

Masters of the Universe: The title which the owners and directors of giant global corporations have given themselves depicting their role in the global economy. 

Meiji Restoration (1868-1912): The economic rise of Japan during the imperial rule of Emperor Meiji. Meiji came to power with the end of the Tokugawa Shogunate in 1867. Changes brought about the end of feudal society and the beginning of a market society. Industrialization and the rise of the military promoted Japan as a modern nation with western influence. A Meiji slogan was “Enrich the Country.”   

Methodological Individualism: An approach to understanding economic and political behavior by focusing upon the discreet decisions of individuals which are seen to be rational. Typical of the neoclassical era of economics and particularly of the Austrian school of economics.

Mexican Debt Crisis: In August 1982, Mexico defaulted on its debt to the IMF. The Mexican Peso was devalued by about 50 percent. The private banking system was nationalized and Mexico suspended payments on its debt. The US Government arranged a 3.5 billion dollar loan to Mexico. This was followed by another loan of 3.8 billion dollars three months later during which Mexico was forced to make free market reforms. Wages fell and there was high unemployment. 

Mexican Financial Crises (1994): The Mexican Peso Crises began in December 1994 with the collapse of the Mexican Peso. The new President, Ernesto Zedillo had just been elected. Carlos Salinas de Gortari was the outgoing President. Zedillo took office on December 1, 2004. The Peso was four to a dollar but quickly crashed to seven to a dollar. The United States bought pesos and organized a loan of 50 billion US dollars. The Peso stabilized at around six to a dollar and Mexico emerged from the crises in around three years, which is a typical time. The causes of the crises involved several factors. First, Zedillo reversed the tight monetary controls of Salinas implementing financial liberalization. Secondly, Salinas’s populist policies before the election had strained the country’s finances. His efforts to stimulate the economy were unsustainable. Further the quality of loans made in a period of low interest rates led to high risk. Another factor was the Chiapas rebellion in late 1994. This helped to lead to a drop in foreign investment. Inflation also increased due to high spending in the period 1985-1993. At the same time, oil prices dropped. This made it hard to finance past debts. The current account deficit rose and dollars flowed out of the country.

Microeconomic Policy: Economic policies which are said to be designed to improve economic efficiency such as tax policy, competition policy, deregulation, economic liberalization, reforms of industrial and import licensing, the ending of public monopolies, and bringing an end to central planning.

Ministry of Economics, Trade and Industry (METI): The ministry of the Japanese Government which succeeded MITI in 2001 to coordinate and guide the Japanese economy.

Ministry of International Trade and Industry (MITI): A government ministry in Japan which was created in l949 to coordinate international trade policy with the private and public sectors of the economy and revive the Japanese economy. It provided money for R&D and investment to major companies. It was succeeded by the Ministry of Economics, Trade and Industry (METI) in 2001.

Misery Index: The misery index is a measure of the inflation rate plus the unemployment rate.

Mittelstand: The name given to small and middle sized industries in Germany, Austria, and Switzerland. They are given credit for much of Germany’s economic growth in the 20th century. These firms are seen to be efficient concentrating upon a particular niche in production. They typically enjoy economies of scale, have highly skilled workers, provide high job security, are export oriented, and manufacture innovative and high-value products. In Germany, in 2003, seventy percent of employees in the private sector worked in such industries and contributed fifty percent of GDP. They are often located in small rural communities and produce such items as machinery, auto parts, chemicals and electrical equipment. 

Mixed Economy: An economy typical of Sweden and several developing countries such as India in which some industries are privately owned and some are state-owned. Infrastructure industries, such as dams and electricity producing plants are typically state-owned.

Mob Psychology: Also called crowd psychology. Mob psychology can help to bring about a financial crises as viewed in the financial instability theory of Hyman Minsky. When a new opportunity opens up in the market, firms and individuals rush in to invest resulting in euphoria and creating a bubble in overvalued assets. At some point, some start to believe that the market has reached its peak and start to pull out by selling assets. This trickle picks up and turns into a panic as the mob psychology takes over again and this results in bankruptcies and a financial crisis.

Money Illusion: Happens when people react to the amount of money rather than to the purchasing power of the money. For example, people generally believe that their income has gone up when they get a pay raise, but their real pay may have actually decreased in terms of purchasing power.     

Monetarism: A school of economic thought associated with the American economist Milton Friedman. Adherents of monetarism emphasize the role of government to control the amount of money in circulation. Friedman argued that the excessive expansion of the money supply is inflationary and governments should concentrate upon price stability by regulating the money supply.

Monetary Reserves: Monetary reserves are funds which a government must hold, such as dollars or Euros, to pay its international debts.

Monopoly: A situation in the market when a single enterprise is the only seller of a particular commodity. There is an absence of economic competition and therefore the supplier can raise prices at will.

Monopoly Finance Capital: A description of the US economy after the late twentieth century in which companies engaged in financial enterprises controlled the economy and made the great bulk of their profits from financial enterprises, rather than in manufacturing. The approach is associated with the journal, Monthly Review, in New York, edited by John Bellamy Foster. Financialization is seen as a response to the stagflation in the US economy in the l970s. Financial institutions turned to speculation in the financial markets to generate higher profits. They also invented new financial tools, such as derivatives.   

Monopsony:  Refers to a market situation in which there are many sellers but only one buyer.

Moral Hazard:  Moral hazard is the principle that nations must be held accountable and responsible for their debts. If they are not held responsible when they default on a debt obligation, for example, and are then given a new loan to cover the default, this could be seen as throwing good money after bad, and encouraging the country to be irresponsible. Moral hazard says that actors may be more willing to take risks when most of the risk will be borne by another actor. Therefore, it is important to hold actors responsible.

Multilateral Agreement on Investment (MAI): A draft agreement negotiated between members of the Organization for Economic Cooperation and Development (OECD) between 1995 and l998 on international investment. It was launched in May 1995 and negotiated in secret. In March l997, a draft of the agreement was leaked. NGOs and developing countries launched a campaign of criticism of the draft agreement because it would largely prevent countries from regulating foreign companies. Due to this pressure, the negotiations were suspended in April 1998 and France withdrew from the negotiations in October. The negotiations were then canceled on December 3, 1998. However, similar measures to serve the interests of corporate investors and prevent their regulation are being established under the World Trade Organization.

Mundell Equivalency: Says that trade in capital or labor and trade in goods will have the same effect on the economy and that one can fully substitute for the other. 

Mundell-Fleming Model: A model developed in the l960s by Robert Mundell and John Fleming. It describes an open economy and the relationship between exchange rates, interest rates, and output. The Mundell Flaming Model is used to argue that an economy cannot maintain fixed exchange rates, free capital movement, and an independent monetary policy all at the same time. This is the irreconcilable trinity also known as the Mundell-Fleming Trilemma.  

National Economic Competitiveness: The ability of a country’s firms and industries to supply and sell goods and services in international markets. Paul Krugman, in a 1994 article in Foreign Affairs, “Competitiveness: A Dangerous Obsession,” argued that countries do not compete with each other the way corporations do. US President Bill Clinton once said, on the other hand, that each nation is like a big corporation competing in the global market place. US economist, Lester Thurow, in his 1993 book: Head to Head: The Coming Economic Battle Among Japan, Europe and America argued that nations do compete with each other. He argued that Europe would win out over the US and Japan due to its superior national system of political economy.

National System of Political Economy: The term describes the parameters of a national economy, such as the Japanese or German Political economy. Relevant criteria are the role of the domestic economy and differences with other nations, types of economic activity, the role of the state in the economy, the structure of the corporate structure, and private business practices. 

Negative Externalities: A phenomenon which happens when all of the costs of production of a product are not included in the price. For example, if the cost of an automobile included the cost of the environmental pollution created the price would be considerably higher. These costs, however, are externalized.

Neoclassical Growth Theory: The theory of growth formulated in the l950s by the economist Robert Solow. This model states that economic growth is a function of the factors of production, labor and capital. Technology and human capital are exogenous variables. It assumes that once new technology is invented, it is available to all producers. It also assumes constant returns to scale. It has been superseded by New Growth Theory, which takes account of such factors as economies of scale and control of R&D.

Neoclassical Political Economy: The term was used originally by Thorstein Veblen in 1900. The neoclassical era of political economy began in the late nineteenth century with the marginalist revolution, and particularly with the work of Alfred Marshall in 1890. The three basic assumptions include (1) people have rational preferences which can be identified (2) individuals try to maximize utility and firms try to maximize profits (3) people and firms act independently, based upon relevant information. Marshall used supply and demand graphs to specify when an economy was in equilibrium. These theorists also developed a theory of value based upon marginal utility. This approach may be viewed as including the Austrian School of political economy.

Neoclassical Synthesis: The neoclassical synthesis is defines as including neoclassical political economy plus Keynesianism.

Neo-institutionalism: An approach to studying society, including economics, sociology, international relations, and political science, that has emerged since the 1980s. It focuses upon the way people behave in institutions. It borrows from the work of Max Weber. In economics, this approach is associated with Douglass North at Washington University in St. Louis. Scholars note that the main goal of institutions is to survive and to do so, they must establish their legitimacy. People may act within institutions rationally to maximize utility; or act out of duty, that is normatively; or they may act cognitively, that is, taking for granted that certain ways are the correct way to do things. Neo-institutionalism emerged as a reaction to behavioralism which focuses upon the individual.

Neoliberalism: The mainstream approach to capitalist accumulation which has emerged since the l980s in Great Britain and the United States and spread widely around the world. Neoliberalism is characterized by the privatization of public sector enterprises, deregulated financial markets, an opening to the global market and foreign direct investment, austerity in government services and social welfare, and state support for capital and failing markets, rather than people. 

New Political Economy: There are several key parameters of the New Political Economy. Following the work of public choice theorists, such as Mancur Olson, it is argued that rent seeking distributional coalitions, such as labor unions, are unproductive and slow economic growth. Economic policy making should be taken out of the hands of populist politicians and put in the hands of technocrats who make decisions based purely upon economic parameters. Justifiable coalitions are positive when they are for the purpose of investing capital for economic growth. Those guiding the economy are seen to be rational and interested in only the needs of the economy.

Niche Products: Products which are produced and intended for a narrow segment of the market.

Nominal Interest Rates: The rate of interest in the current price but ignoring the rate of inflation. For example if the rate of interest is twelve percent, but inflation is ten percent, the real rate of interest is only two percent.

North American Free Trade Agreement (NAFTA): A trade agreement which came into effect in 1993 and links together the economies of Mexico, the United States and Canada. This agreement has shifted many US manufacturing jobs to Mexico. It has also had the effect of lowering average wages of workers in all three countries.  

Global Political Economy: Glossary (Part 2) E-I


Early Industrializer: Countries such as the UK and the United States which were among the first countries to industrialize in the industrial revolution.

Economic Geography: The study of how a national economy or the global economy is organized spatially in terms of cores, peripheries, and semi-peripheries. Attempts to explain why industries locate where they do leading to agglomeration or decentralization of economic activity. It also includes the factor which affect transportation and patterns of national and international trade.

Economic Miracle: A term which refers to the high rate of economic growth in specific countries for a period of time. For example, Japan after World War II.

Economic Stagnation: Economic stagnation occurs when the rate of economic growth slows down or decreases to a very low level for a considerable period of time.

Economies of Scale: The advantage that firms gain due to their size. The cost per unit is expected to decrease with larger quantities of production up to a point. 

Elasticity of Demand: The percentage change in consumer purchases divided by the percentage change the price of the good. This measures how much sales will be affected by a change in the price.

Embedded Liberalism: A term used by the political scientist John Ruggie (1982). Karl Polanyi had earlier written about disembedded markets and said it would be necessary to re-embed them in society after World War II. The term refers to the global political economy outside the communist sphere following WWII up to the l970s, which promoted free trade, national Keynesianism, and the management of unemployment. The international monetary system was the Bretton Woods System based upon the US dollar. The World Bank was to manage credit to developing countries and the IMF would settle payment accounts between countries.  

Emerging Markets: Refers to countries which have liberalized their economies since the l980s and experience generally rapid economic growth and a high rate of industrialization mostly in the private sector. Particularly, the big emerging markets include China, India, Brazil, Russia, and South Africa.

The End of History and the Last Man: The seminal book by Francis Fukuyama, published in 1992. While Karl Marx believed that history would end with Communism, Fukuyama claimed that Western Liberal Democracy would be the final form of human government.

Endogenous Growth Theory: A theory of economic growth in which knowledge and technological advance through R and D are treated as endogenous variables in the model. The theory is based upon economies of scale and says that there need not be diminishing rates of return.

Endogenous Variable: A variable which is included in the economic model.

Environmental Dumping: This happens when corporations move into developing countries to produce commodities, taking advantage of lax environmental pollution standards to cut the cost of production and increase profits.

Equation of Exchange (Irving Fisher): An equation derived by Irving Fisher which is used to discover the causes of price inflation. According to the equation, the Money supply (M) times its velocity (V), the number of times a unit of money is used during a year to buy goods and services, must equal the value of goods and services (P times Q). MV=PQ.

Equilibrium: In economics, market equilibrium is a situation in which supply and demand are balanced. There may be equilibrium in the market, even though people are starving.

Equity Company: A company which makes investments in the private equity of operating companies using investment strategies. Some examples are The Carlyle Group, Kohlberg Kravis Roberts, Blackstone Group, and Bain Capital.

Eurodollar Market: The Eurodollar market refers to foreign currencies, including dollars, which are deposited in European and other international banks.   

European Central Bank (ECB): An institution of the European Union which administers the monetary policy of the Eurozone, the countries in the European Union which use Euros as their currency. The bank was established by the Treaty of Amsterdam in 1998 and its headquarters is in Frankfurt. The bank is charged with maintaining price stability in the Eurozone and implementing monetary policies.

Excessive Exuberance: A term used famously by Alan Greenspan referring to the US economy in which investors were believed to have overestimated the potential for greater profits in the financial sectors of the economy.

Exchange Rate Mechanism: A complex system implemented in Europe in the l970s to link together the European currencies.

Exchange Value: The value of a commodity in terms of what it can be exchanged for.

Exogenous Variable: A variable which cannot be included in the economic model.

Export Led Growth: A strategy of economic growth which relies upon production of commodities for export. The major shift to export led growth in developing countries happened in the l970s, from the earlier import substitution industrialization approach.

Export Orientation: An economic strategy designed to increase the exports of a country. A typical strategy of many emerging market countries after the l970s.

Externalities: Externalities happen when the cost of producing a good is not paid for by the consumer or when the benefit of the good is not received by the consumer. An example of the first is pollution. An example of the second is the benefit of education to society.

Extreme Poverty: A condition in which individuals lack such basic human needs as adequate housing, clothing, food, electricity, safe drinking water, sanitation facilities, health care, education, and access to information. In such a condition, individuals cannot enjoy the most basic human rights.

Factor Price Equalization Theory: A part of the Heckscher-Ohlin Model of conventional trade theory. It says that under certain circumstances, trade in goods will over time equalize the return for each factor of production, wages to labor and profits to capital.

Factors of Production: The resources necessary to the production of commodities. Classically, the factors of production were land, labor and capital. It is also sometimes claimed that entrepreneurship is also a factor of production.

Falling Rate of Profit: A hypothesis of classical political economy found in the work of Karl Marx, Adam Smith, John Stuart Mill and Stanley Jevons. It says that the rate of profit will tend to fall over time. Marx explained the falling rate of profit according to his theory of exploitation. As the industry develops, the fixed capital or constant capital will increase in relation to variable capital or labor. This means that the surplus value will fall in relation to fixed capital. Since the rate of profit is equal to the surplus value divided by the total capital, the rate of profit will tend to fall.

Fast Track Legislation: A process used when a US Administration wishes to speed up the passing of a law and avoid extensive debate which might be widely reported in the press. For example, the passing of legislation for the North American Free Trade Agreement (NAFTA) was through a fast track legislation process.

Federal Reserve (The Fed): The Central Bank or national bank of the United States. It was privatized in the early part of the twentieth century. 

Financialization: The shifting of the major economic activity in the United States from industrial capital or manufacturing to generating profits through the financial sector. The primary sectors of the financial economy include the finance, insurance and real estate sectors, sometimes referred to as “F|IRE.” This happened after the early 1970s marking the US as a post-industrial service-sector economy. Manufacturing operations were mostly exported to developing countries such as China and Mexico. The analysis of financialization in the American economy is associated with the Monthly Review school in New York, and particularly John Bellamy Foster.

Fixed Exchange Rates: A fixed exchange rate system is an arrangement in which a country attempts to maintain a fixed rate of exchange between its currency and a given weight of gold, another currency or a basket of currencies.

Flying Geese Paradigm: A Japanese view of Kaname Akamatsu describing the pattern of technological development in East Asia. This view argues that Asian nations will catch up with the West as the production of goods for the global market moves from more advanced to less advanced countries in a sequence. With Japan in the lead of the formation, the second tier of countries following will be South Korea, Taiwan, Singapore, and Hong Kong. A third tier includes Indonesia, Thailand and Malaysia. Following these are China, Vietnam and the Philippines. As each country develops, production becomes more capital intensive and production shifts to cheaper labor countries.

Fordism: The term comes from the industrial system developed by Henry Ford to mass produce automobiles in the United States. The same system has been used to manufacture a wide range of products. The three fundamental aspects of Fordism include the production of standardized products, assembly lines based upon the low skill of workers, and living wages with benefits. See the Charlie Chaplin film, Modern Times.

Foreclosure: The process by which a bank reclaims title to a house or other asset when the mortgage holder fails to make the required payments on the loan.

Foreign Direct Investment (FDI): This is a process whereby a company invests in the manufacture of products in a foreign country either by buying companies or expanding production in the foreign country. It is distinguished from portfolio investment, where companies invest in securities.

Fragmentation: Fragmentation happens when production of a good is organized so that different components of the product, such as an automobile, are produced in different countries. The components are then shipped, or traded, and assembled elsewhere. Much of trade is in the form of components.

Free Market Economy: The concept of an economy in which the forces of supply and demand are not controlled by the government or some other authority. This ideal could be described as that of laissez faire. It is also associated with capitalism, but theoretically could be used in other economic systems. It is largely an ideal, as it is difficult to find actually existing economies that conform to these parameters. It is contradictory to the logic of capitalism itself, which tends toward monopoly.

Free Rider Problem: The free rider problem happens when individuals enjoy the benefits of a good for which they do not pay. For example, they may enjoy the benefits of good roads even though they do not pay taxes to construct them. Good roads may not be constructed unless individuals are forced to share the cost. 

Game Theory: The study of strategic decision-making. It involves mathematical models of conflict and cooperation between decision-makers who are considered to behave in a rational manner to maximize their gains in the game. Can be applied to economics and political science as well as other disciplines.

GATT: The General Agreement on Tariffs and Trade. The global multilateral trade agreement which existed from 1947 until 1994. It was replaced by the World Trade Organization in 1995. GATT was an arrangement which resulted from the failure to establish an international trade organization. Its purpose was to reduce tariffs and preferences and increase free trade.

General Equilibrium (Leon Walras): General equilibrium happens when all markets in an economy are in equilibrium at the same time.

Globalization: Globalization may be defined in many ways. Broadly, it can be seen to describe processes of linking peoples of the world together for thousands of years through commerce, travel, conquest, war and so on. The term has come to be largely a buzz term since the l980s, describing global changes associated with the spread of neoliberal capitalism to most countries and areas of the world. The International Monetary Fund (IMF) sees globalization as involving four aspects: global trade and transactions; capital and investment movements; migration and the movement of people and the spread of knowledge. Beyond this doctrinaire definition, the term could just as well describe the growing global resistance to neoliberalism capitalism.

Gold Standard: A strict gold standard is a monetary system in which currencies are made of gold. The Bretton Woods System was a modified gold system as the US dollar was linked to gold at the official price of 35 US dollars per ounce. Other currencies were then linked to the dollar. Gold was thus used to stabilize and maintain the value of the dollar. This could only work if there were not too many dollars. So the seeds of destruction were built into the Bretton Woods System.

Golden Fetters: From the book by Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. (1992) Eichengreen argues that economic policies, particularly the gold standard, constrained economic policies and was largely responsible for the unstable economic environment of the l930s.

Governance: Governance refers to the management, making policies and decisions, instituting processes, and carrying out all the tasks to keep an organization running. It may apply to a government, a business corporation, or other organization, such as a non-governmental organization.   The World Bank defines governance as “the manner in which power is exercised in the management of a country’s economic and social resources for development.”

Gresham’s Law: A principle which says that “bad money drives out good money.” The principle says that people will hold more valuable money and spend less valuable money.

Gross Domestic Product (GDP): A measure of the market value of all the final goods and services produced within a country in a designated period of time.

Harmony of Interests: In economics, the assertion that there is a harmony of interests in society between all members of the population.  The Austrian school of economics claims that this is because the division of labor removes conflict between individuals. This view is the opposite of seeing society in a dialectical way where there is a clash between the interests of different classes in society.  

Hecksher-Ohlin Model (H-O Model): The Hecksher-Ohlin Model is the neoclassical model of international trade theory. The theory is based upon a number of assertions. The model is based upon comparative costs and says that a country will specialize in products where it has a cost advantage over other countries. The model also assumes constant returns to scale and universal availability of production technologies. The model says that (1) a country will export those things which it has in abundance, (2) trade will benefit those who own abundant factors (capital or labor) and hurt those who own scarce factors, (3) all sectors will benefit, but there will be a redistribution to either labor or capital (Stolper-Samuelson Theorem), (4) trade in capital or labor and trade in goods will have the same effect and one can fully substitute one for the other (Mundell equivalency), and (5) trade in goods will over time tend to equalize the return for each factor of production, wages to labor and profits to capital. (Factor-Price Equalization Theorem).  

Hedge Funds: A hedge fund is a pooled investment vehicle run by a management firm. Hedge funds are not sold to the general public and are frequently held by financial institutions. Hedge fund managers invest in a broad range of markets.

Hegemonic Stability Theory: A theory that claims that free trade in the international arena is dependent upon a strong hegemonic state to keep the international system open to international commerce. Seen to be typical of the international order under British colonialism. More generally, it says that the stability of the international order depends upon the dominance of a single powerful state.

Helms-Burton Act: A US law which punishes foreign firms which deal with Cuba. It is seen to be an example of how the US tries to impose its policies on other countries.

Hyper Speculation: Excessive or overextended speculation in markets, whether in financial markets or other assets.

Holding Company: A holding company is a company which owns other companies, for example the outstanding stock. The holding company does not itself produce goods and services.

Hot Money: Money generally from developed countries invested into a foreign country as foreign investment or portfolio investment. The purpose is generally to take advantage of the higher interest rates in emerging market countries such as Brazil, China, Turkey, and Malaysia. These are generally short-term investments and are called hot money because the funds can move out of the markets very quickly, especially with financial or political instability.  

Human Capital: A term which treats the labor, ability, talent, skill, and education of human individuals as capital or a factor of production in the production of commodities.

Imperfect Competition: Imperfect competition refers to a market which shows only some of the characteristic of competitive markets. This can be due to the presence of an oligopoly, where a few companies control the market; due to monopolistic competition, where there are many sellers producing highly differentiated products; a condition of monopsony, where there are many sellers, but only one buyer; and a condition of oligopsony, where there are many sellers but few buyers.     

Imperialism: Generally refers to the domination of one country over another country. Classical imperialism saw the rule of one country over other areas of the world, such as under the British, French, or Dutch.  Modern imperialism may involve the economic and political domination of countries through the dynamics of global capitalism.

Import Substitution Industrialization: The pattern of development typical of countries after World War II, such as India, which tried to produce most products inside the country for domestic markets, rather than to produce products for export and import other goods.

Increasing Returns to Scale: Happens when the output increases by more than the proportional change in the factors of production.

Indivisible goods: Goods that are sold in discrete quantities, such as automobiles, airplanes or computers.

Inductive Reasoning: A type of logical reasoning in which general propositions are derived from a number of specific observations. For example, it may be observed that a number of developing countries suffer negative terms of trade when trading with rich developed countries. Therefore, as a general rule, a developing country can be expected to experience negative terms of trade in international trade. 

Infant Industries: Newly established industries, generally in developing countries, which have not yet developed to the point of being competitive in the international arena.

Infant Industry Argument: The mercantilist argument that protection should be used to protect small industries until they become strong enough to compete in the international environment.

Inflation: A persistent rise in general prices of goods and services over a period of time. Inflation is considered by some economists to be due to a growth in the money supply.

Information Technology (IT): The use of computers and telecommunications equipment to store, retrieve, transmit, and apply data. IT includes computers, software, electronics, semiconductors, internet, telecommunications equipment, and so on.

Institutionalist School of Economics (Thorstein Veblen): Says that economic behavior is not driven by rational decisions by individuals, but rather by the requirements of the institutions in society, such as conspicuous consumption and prestige.

Intellectual Property Rights: The rights given to a person over the creation of their minds. It is said to give the creator an exclusive right over the use of his or her creation for a period of time. Intellectual property rights may apply to literary works, scholarly works, artistic works, symbols, names, images and so on. They may be protected through patents, copyrights and trademarks. In real life, however, creations of the mind are not generally owned by the creator but by a publishing company or other company which pays a small fee for the exploitation of the intellectual creation.

Interest Group Theory: The theory that in a pluralist democracy, individuals and groups are free to form groups which petition the government for certain demands. The theory is closest to American political theory and is associated with such figures as Arthur Bentley and David Truman. Traditionally, interest groups have been seen to make society more democratic and better for all. Public choice theory challenges this view of interest groups.

International Monetary System: Refers to the system that was put into place at the end of World War II to regulate the world’s major currencies. In particular, the Bretton Woods System made the US dollar the principle global reserve currency. The US dollar was linked to gold at the rate of 35 US dollars per ounce. The major European currencies were pegged to the dollar with fixed exchange rates. The system operated well until the early 1970s when the dollar was devalued.

Intrafirm Trade: Trade which takes place between different branches of the same company in different countries. For example, some parts of a ford automobile may be produced in Turkey and shipped to a Ford auto plant in Vietnam. This transfer counts as international trade, even though it is only between two branches of the same company.

Intraindustry Trade: Trade which takes place between firms in the same industry.

Interindustry Trade: Trade which takes place between firms in different industries.

Investments: Capital spent for the purpose of increasing profits or income in future.

Investor-state dispute settlement: A process of the World Trade Organization in which a panel of corporate lawyers make a ruling in disputes between companies investing in foreign countries and the host government. For example, if parliament in the host country makes a law regulating environmental pollution which the company will produce, the company may make a claim to compensation from the host government. In this case, the WTO panel is to decide whether the company is entitled to compensation.

Irrational Exuberance: A term used by the head of the US Federal Reserve System, Alan Greenspan in a speech in 1996, to describe excessive investment by firms and individuals in stocks and other assets during the era of the dot-com bubble. It suggested the assets might be overvalued. The speech was followed by a world-wide fall in stock prices. It is the title of a book, Irrational Exuberance by Robert Schiller in 2000. 

Irreconcilable Trinity: The theory which says that only two out of the three goals of monetary management can be met at any one time. These are stable exchange rates, national independence of monetary policy and capital mobility. An international monetary system can accommodate only two of these goals at any one time. The Bretton Woods system, based upon fixed exchange rates promoted economic stability, but not the free movement of capital.   

Global Political Economy: Glossary (Part 1) A-D


Glossary of Terms of Political Economy:


Adding-Up Problem (Product Exhaustion): The question of whether the sum of the marginal productivity of all inputs used by a firm equals the product of output in order to cover the cost of the factors of production.

Adjustable Peg: A type of currency exchange rate management in which the currency is pegged to another stronger currency, such as the US dollar, and then the exchange rate is adjusted from time to time when economic conditions change.  

Agglomeration: A process which tends to lead firms to locate near other firms, large markets, and manufacturers. It is most typical of locations within developed countries. This process of concentration of business activities tends to build up the core areas of an economy.

An Economic Theory of Democracy (1957): The seminal work by Anthony Downs who argued that economic theory can be used to understand political behavior. In particular, he studied such phenomenon as the behavior of political parties and individuals in voting.

Arbitrage: An economic activity in which one takes advantage of differences in price between the same assets. For example, the difference in interest rates between two countries allows investors to make profits by moving their money from one country to another.

Asian Financial Crises (1997): The Asian Financial Crises began in July 1997 and affected most of the countries of East and Southeast Asia. In Thailand, the Thai baht was forced to float due to a lack of foreign exchange to maintain its peg to the US dollar. At the same time there was a real estate bubble and financial over-extension. Thailand was also effectively bankrupt with a high foreign debt. The collapse of the Thai economy spread to all of Southeast Asia. The Japanese yen declined. Stock markets fell. The IMF injected 40 billion US dollars to rescue Thailand, South Korea, and Indonesia. Also less affected were Hong Kong, Malaysia, Laos, and the Philippines. Less affected were China, Taiwan, Singapore, and Vietnam. On 21 May, 1998, Indonesian President Suharto was forced to resign after some thirty years in power. There was much crony capitalism in the country. The rupiah was devalued, causing riots. The causes of the crises are disputed. Paul Krugman disputed that there and been an Asian Economic Miracle with the eight to twelve percent economic growth previously. He argued that growth was based on high capital flow into the country due to high interest rates. He claimed that Asian productivity was not high. Secondly, there was a bubble in the Thai economy in housing, stocks and other assets. Further, development money had flowed to those close to power. Most countries also had high current account deficits. The economic recovery took around three years.

Austrian School of Economics: Developed in the late nineteenth and early twentieth centuries in Vienna by the work of Carl Menger, Eugen von Bohm-Bawerk, Friedrich von Wieser, Ludwig von Mises and others. It is based upon methodological individualism. These theorists developed a subjective theory of value and a price theory based upon marginalism. Seen as part of the nineteenth marginalist revolution.

Balance of Power: The term may refer to either nations or groups within a nation where there is a rough equality of power between nations or groups. This is generally seen to lead to political and economic stability.   

Basle Accord (1988): The Basle Accord was an agreement to standardize the regulations on reserve requirements of capital for international banks on an international scale. The agreement was in response to the desires of American bankers. Since reserve requirements were higher for American banks, the American bankers claimed that this gave foreign banks an unfair advantage. The US Federal Reserve put pressure on foreign banks to raise their reserve requirements. European and Japanese banks were forced to raise their reserve requirements.     

Big Bang Approach: A strategy used in Eastern European countries and the former Soviet Union after the collapse of communism. Under this approach, state control of wages and prices is relaxed at once generally leading to vast disruption in the economy for a period of time. It generally militates against those on retirement incomes and those who are suspended from their work. Sometimes associated with the economist Jeffrey Sachs.     

Big Emerging Markets: Refers to the newly industrializing countries after the 1990s era of globalization and neoliberalism. Includes at least twelve countries including the BRICS countries.

Big Push Theory: A theory launched in the 1940s which is seen to have established the field of development economics. Paul Rosenstein-Rodan argued that the governments of the less developed countries should take an active role to promote development. It was argued that with a big push, they could get the development ball rolling.

Biotechnology: Processes which use living systems and organisms to make new technologies and products. Biotechnology includes genomics, recombinant gene technologies, applied immunology and other inventions.

Bretton Woods System: The international monetary system which was put into place at the l944 conference in Bretton Woods, New Hampshire. The system was based upon the American dollar as the hegemonial currency. European currencies and the Japanese Yen would be pegged to the dollar to stabilize the key currencies of the international system. The dollar was the only currency which could not be devalued and was linked to gold, a modified gold standard. The system broke down under its own weight by 1971 as the US abused the system by flooding the world with dollars for war spending. This forced other countries to hold overvalued dollars and help the US pay for the war in Vietnam. The system contained its own seeds of destruction.

BRICS: Refers to a set of five big emerging market countries, specifically, Brazil, Russia, India, China and South Africa.

Bubble Economy: A situation in an expanding economy in which investment and prices tend to overheat and lead to the danger of an economic recession when the bubble bursts.

Capital: Includes capital goods, capital assets, or non-financial assets used in the production of goods and services. Money invested in the productive process is capital in capitalism.

Casino Capitalism: Refers to the era of the financialization of the economy in which capital is used in highly speculative ways. It is seen to increase the danger of a financial meltdown of the economy.

Centrifugal Forces: In economic geography, factors which tend to disperse economic activities away from the center or core toward the periphery.

Centripetal Forces: In economic geography, factors which tend to concentrate economic activities in the center or core, rather than in the periphery.

Chaebol: A Chaebol is a type of business enterprise in South Korea similar to a zaibatsu in Japan. It is a conglomerate which owns many companies and is controlled by a wealthy family. There are several dozen such multinational enterprises in South Korea.

Chicago Boys: Professors and students at the University of Chicago who worked to establish conservative free market policies around the world, particularly in Chile.

Chicago School: The Chicago School of Economics. Approach to economics developed at the University of Chicago by Milton Friedman and others.

Class Struggle: In the Marxist analysis of society, class struggle is the conflict between workers and capitalists.

Classical Political Economy: The Classical era of political economy began in the eighteenth century with the Physiocrats, the writings of Adam Smith and later, David Ricardo and John Stuart Mill.

Collateralized Debt Obligation (CDO): A type of structured asset-backed security (ABS). It is a promise to pay investors in a prescribed sequence based upon the cash flow. The CDO collects money from the pool of bonds or other assets which it owns. CDOs include mortgage backed securities, student loans, credit card debt, aircraft lease equipment as well as other securities.

Collateralized Mortgage Obligation (CMO): A CDO which is based upon mortgages.

Colonialism: The practice of countries ruling over other countries. The era of Western Colonialism emerged in the sixteenth century, up to the twentieth century.

Commercial Paper: Commercial paper refers to money-market securities sold by large corporations to obtain funds to pay short-term debts. They are not backed by collateral and present a particular problem in a financial crises.

Comparative Advantage: Comparative Advantage or comparative cost is usually associated with David Ricardo. The principle of comparative advantage says that in trading with other nations, a country should produce and export that in which it has a cost advantage.

Complementary Goods: These are two or more goods which are generally consumed together, such as peanuts and beer.

Constant Capital: The part of capital consisting of machines, buildings, and so on, which does not change during the production process.

Constant Returns to Scale: A situation in which output increases by the same proportional change as the change in the factors of production, such as labor and capital.

Consumer Satisfaction: A measure of the extent to which an individual’s expectations are fulfilled after purchasing a product. It may include utilitarian dimensions, such as how useful the product proves to be. Also it may include hedonic measures, such as how it makes the consumer feel, happy or disappointed.   

Convergence Theory: In economic development, the theory that developing countries will have a tendency to catch up with the developed countries. This is because the rates of economic growth should be higher in developing countries as the law of diminishing returns has not yet set in.

Convergent Growth: The pattern of high economic growth by which big emerging markets countries tend to catch up in development with developed countries.

Core: In economic geography, the core is an area or a country which is the center of economic activity. The outlying region is a periphery.

Corn Laws: A series of laws in England in the nineteenth century between 1815 and 1846 which levied a heavy tariff on imported grain. The laws were designed to protect landowners who had strong representation in Parliament from foreign competition. The tariffs kept the price of food, primarily bread, high. This also tended to keep wages higher and so was opposed by the industrialists. The 1815 Corn Law, supported by Thomas Malthus, led to wide-scale rioting in London.  

Corporate Governance: The system by which corporations are directed and controlled. It sets out the rights and duties of the board of directors, the managers, the shareholders, the creditors, the auditors, the regulators, the stakeholders and so on.

Corporate Leveraging: Techniques whereby investors gain the right to the return on a capital base that exceeds the investment which the investor has personally contributed to the entity or instrument achieving a return. This can be achieved through derivatives, such as the gains or losses on 25 million dollars in grain by investing one million dollars in cash as margin.

Corporatism: A type of economy in which labor, capital and the state work together to expand the economy. Typical of fascism.

Cost Benefit Analysis: An evaluation of the benefits of investment or spending for an enterprise, compared to the costs of the enterprise. 

Cost of Production Theory of Price: A concept from Adam Smith in which the natural price is the sum of the costs of paying land, labor, and capital for their contribution to production.

Council of Economic Advisers (CEA): A part of the Executive Office of the President in the United States which provides advice to the President on economic policies.

Crawling Peg: A type of adjustable currency exchange rate system in which a currency is pegged to a stronger currency, generally the dollar, and adjusted as economic conditions change.

Creative Destruction: A concept derived from the work of Karl Marx and used by Joseph Schumpeter to describe the dialectical development of capitalism. For Marx, capital must continuously destroy existing modes of production in order to bring new modes into operation. Schumpeter further developed the concept as typical of modern capitalism.

Credit Default Swap (CDS): A financial instrument which provides insurance against a loan default. It is a financial swap agreement in which the seller of the CDS agrees to compensate the buyer in the event of a loan default or other credit event. This tool was invented by Blyth Masters of JP Morgan in 1994. The value of all credit default swaps reached $62.2 trillion in 2007 and fell to $26.3 trillion in 2010 after the financial meltdown. A CDS has been referred to as a financial weapon of mass destruction.

Crisis of Governability: An explanation for the severe problems encountered by post-communist countries which argues that political elites brought about the collapse of the state as quickly as possible before the societies were ready for such change. They relied too heavily upon neoliberal views of the state. They also feared a return to communism if radical changes were not consolidated quickly.   

Crony Capitalism: A situation often seen in developing countries where state elites are in league with friends and relatives to divide up sectors of the economy to those whom they favor and enrich them. Success in business generally depends upon a close relationship with those in power.

Cultural Legacy Theory: An explanation for the problems of reform in post- communist societies in Eastern Europe and the former Soviet Union. The argument claimed that communism created a society characterized by passive people who had little incentive to work hard, were mainly self-interested, and did not take responsibility for their actions. The problem of nationalism and ethnic conflict returned especially in the Balkans disrupting the economy.

Cumulative Causation: (Gunner Myrdal): This happens when one economic variable affects another economic variable and the process continues. For example, for Myrdal, being black in the United States led to getting a poor education and getting a poor education led to having a poor job. So these effects add up to a worse and worse situation. For a member of the white race, getting a good education could have the opposite effect.

Cumulative Processes: When new growth is added to old growth, then cumulative processes lead to a build-up. In economic geography, cores of an economy build up through a cumulative process as new businesses and production facilities are added to those already there.

Decreasing returns to scale: See Diminishing returns to Scale.

Deductive Reasoning: Reasoning from a general principle to the specific. Also called “top-down” logic. Example: In a democracy, the people rule. This country is democratic, therefore, the people rule.

Loan Default: The failure to repay the loan.

Deflation: The fall of prices during a recession or a depression.

Demand Side Economics: Essentially Keynesian economics in which the economy is believed to be driven by total demand from the government, businesses, households and individuals. Government spending can be increased to avoid recessions and smooth out the business cycles in the economy.

Denaturalization: A process of examining the material causes of phenomenon and events in society, rather than accounting for them as part of a natural process. It is a humanistic approach which implies that individuals are largely responsible for and can change history.

Dependency Theory: Dependency theorists, such as Andre Gunder Frank, argued that third world countries lacked development because they were kept dependent upon developed countries such as the United States and Western Europe. Resources flow from poor countries on the periphery to the rich countries in the core. Therefore, development depends upon the location of the country in the world capitalist system.

Depression: A sharp economic downturn which lasts for a considerable period in the economy.

Deregulation: The process of lowering or removing government regulations on certain activities, particularly on businesses, such as large corporations. Generally corporations claim that it results in greater efficiency, production and lower prices. Opponents point out that it results in lower standards in regard to product safety, environmental standards, and work standards. Deregulation is typically associated with economic change in the age of neoliberalism.

Deregulation of Financial Markets: Signifies the removal of government regulations from the financial sector. This has tended to make the financial sectors more susceptible to crises. An example is the financial crises in the United States in 2008, which was largely brought about by excessive financial speculation in the housing market. Much of this was based upon new types of derivatives, which greatly increased the risk in the financial markets.    

Derivatives: A type of financial instrument and financial contract which derives its value from the performance of another entity, such as an asset, index, or interest rate which is known as the underlying entity. The most common underlying entities are commodities, stocks, bonds, interest rates and currencies. Financial instruments take the form of futures, swaps, credit default swaps, options, and so on.

Developing Countries: Developing countries are defined according to the Gross National Income (GNI) per capita per year. Countries with a GNI of US $11,905 and less are defined as developing countries according to the World Bank (2012). The list included 127 countries as of January 2014.

Development Economics: Development economics emerged in the l940s as a theory of how to help post-colonial countries develop within the capitalist orbit of the global economy. The theories set out the economic aspects of development in Eastern Europe and other low-income countries. Theories focus upon promoting economic development, economic growth, and structural change. The goal is also to improve the health, education, work place conditions, of the people and improve the standards of living and income levels. An early theorist was Paul Rosenstein-Roden in 1943. Others include Walt Rostow in the 1950s and Hollis Chenery in the l960s.

Developmentalist State Capitalism: A type of economic development in which the state takes the lead in economic development. A concept used by Chalmers Johnson to describe economic development in Japan in the twentieth century. Also typical of economic development in such states as Taiwan and South Korea. 

Dialectical view: A methodological approach to understanding society and social change. First a dialectical view of society includes the recognition that two opposite characteristics may be true at the same time but for different sections of society. For example: “It was the best of times; it was the worst of times.” For some people it was the best, for other people, it was the worst. Secondly, the dialectical view observes that social conditions (the thesis) change by destroying existing conditions and creating new conditions (antithesis). These new conditions are in turn destroyed resulting in yet another new condition (synthesis). The synthesis, however, contains elements from both the thesis and antithesis, and is a new stage in social change. This process then continues.

Diminishing Marginal Utility: An economic theory which says that the utility of the first unit of consumption is greater than the second unit of consumption and so on.

Diminishing returns to scale: A situation in production where output increases by less than the proportional change in the factors of production, such as labor and capital.

Directly Unproductive Profit-Seeking Behavior (DUP): Activities in society which are seen to waste resources, such as labor unions which attempt to raise wages above the market rate.

Dismal Science (Thomas Carlyle): A term used to describe the science of economics based upon the pessimism of Thomas Malthus.

Dispute Settlement Body (DSB): A method of settling disputes which arise among the member countries of the World Trade Organization. As of 2014, there were 159 members. According to the World Trade Organization, the DSB is the “central pillar of the multilateral trading system.” It is seen to be the greatest contribution of the WTO to the stability of the global economy. Rulings are made by a dispute panel of experts, who may be corporate lawyers, and presented to the General Council of the WTO, which consists of all member countries. It is effectively impossible for the General Council to reject a ruling, as it requires the consensus of all members. So countries which lose the case cannot block the ruling. Prompt compliance of countries with the ruling is expected. If not the country may have to pay compensation or have trade sanctions imposed upon it. By 2008, 136 out of 369 cases had been resolved. Some were pending and some were resolved out of court.

Distributional Coalition: A concept from Mancur Olson’s book, The Logic of Collective action. A distributional coalition is a group “oriented to struggles over the distribution of income and wealth rather than to the production of additional output.”

Distributional Justice: The idea that justice is not giving every person an equal amount of goods, but rather giving each person his due according to some measure of merit.

Divisible goods: Goods that can be sold in “divisible quantities” such as wheat, oil, corn, or cloth.

Division of Labor: In Adam Smith, division of labor is a process of dividing the production of a commodity into small tasks performed by different workers, in order to increase efficiency and productivity.

Doha Round: A round of trade talks under the World Trade Organization which began in Doha, Qatar in November 2001. The talks, which involved 159 countries, were not yet concluded in 2014. Issues involved tariffs, non-tariff measures, agricultural subsidies, labor standards, environment, competition, investment, transparency, patents, and a number of other issues.

Dollar Hegemony: Refers to the dominance of the US dollar in the global economy beginning with the Bretton Woods period, based upon the fact that the dollar was the central currency. During the Bretton Woods period, the dollar could not be devalued. This gave the US a tremendous privilege and power in the global arena. After l971, the central role of the dollar as a reserve currency continued giving the US a continued central role and power over many countries around the world.

Dollarization: Dollarization is the process by which local prices become linked to the value of the dollar. For example, since petroleum is sold in dollars, the price of petrol in the local currency rises when the exchange rate of the local currency drops against the dollar. Commodities become effectively priced in dollars.  

Dumping: In international trade, dumping happens when producers market goods in a foreign country below the price charged in the home country or below the cost of production. This selling at less than the “normal value” is seen to be a form of protectionism.

Global Political Economy: Biographical Sketches


Biographical Sketches

Amin, Samir (1931-): Egyptian Marxist political economist. Author of many books including The Liberal Virus (2004). Worked in Dependency and World Systems Theory. Critical of US imperial policies and neoliberalism.

Aristotle (384-322): Greek Philosopher. His economic ideas are discussed in The Politics. Perhaps he influenced Marx.

Arrighi, Giovanni (1937-2009): Italian scholar of Political Economy and Sociology. Collaborated with Immanuel Wallerstein at the Fernand Braudel Center at SUNY Binghampton. Worked on World Systems Analysis. Influenced by Adam Smith, Max Weber, Karl Marx, Antonio Gramsci, Karl Polanyi and Joseph Schumpeter. Major works: The Long Twentieth Century: Money, Power, and The Origins of Our Times (1994) and Chaos and Governance in the Modern World System (1999).

Arrow, Kenneth (1921-):Became famous for his impossibility theorem. Contributed to rational choice theory. He said essentially that social decision making is not rational. It is impossible to derive a social group choice from individual preferences. In an election, the rules determine who wins. No matter what the rules, there will be some unintended result. This casts doubt upon the possibility of democracy.

Bagchi, Amiya Kumar (1936): Indian Political Economist. Student of economic history and development. Author of Perilous Passage: Mankind and the Global Ascendency of Capital (2005).

Baran, Paul (1909-1964): American Marxist economist. Stanford University professor. Famous for his book, The Political Economy of Growth (1957).

Becker, Gary (1930-2014): University of Chicago economist. Contributed to rational choice theory. Claimed that all forms of human behavior can be explained by economic theory including decisions about who to marry, whether to have children, whether to rob a bank, or become a dealer in drugs. Claimed that there was no racial discrimination in America. Won a Nobel Prize.

Bentham, Jeremy (1748-1832): British philosopher and economist. Developed a philosophy of utilitarianism. The fundamental principle was: “It is the greatest happiness of the greatest number that is the measure of right and wrong.” In economics, he focused on monetary expansion as a means of helping to create full employment. He also worked on legal reform designing a prison building called the Panopticon. This concept influenced the French philosopher Michel Foucault.

Bernanke, Ben (1953-) American Economist, Chairman of the US Federal Reserve Board 2006-2013. Professor at Princeton University. Wrote on Monetary theory. Influenced by Milton Friedman. Became known as “helicopter Ben” by critics after quoting a statement made by Friedman about using a helicopter to drop money into the economy to fight deflation. Bernanke thought that adequate liquidity could have saved the US from the Great Depression of the l930s.

Bernstein, Eduard (1850-1932): A German Social Democrat. Bernstein was the founder of evolutionary socialism and revisionism. Bernstein believed that socialism could be achieved through peaceful means. Workers would win democratic rights through the democratic parliamentary process. With better social conditions, there would be less motivation for a revolution.

Bhagwati, Jagdish (1934- ): Indian-American economist. Taught at Columbia University in the field of international trade. A Liberal scholar pushing the notion of globalization and free trade. Worked with Amartya Sen and Indian Prime Minister Manmohan Singh. Work: In Defense of Globalization (2004) and many other books.

Blanc, Louis (1811-1882): French politician, historian, and socialist. Advocated cooperatives to guarantee employment for the urban poor with equal wages. An actor in the Revolution of 1848.

Blanqui, Louis Auguste (1805-1881): French socialist and revolutionary. Elected President of the Paris Commune. Wanted a just distribution of wealth carried out by a temporary dictatorship.

Bohm-Bawerk, Eugen von (1851-1914): An Austrian economist and disciple of Carl Menger. He published Capital and Interest in three volumes (1884, 1889). He criticized the exploitation theory of Karl Marx and influenced Joseph Schumpeter and Ludwig von Mises. He rebutted the labor theory of value of Marx. Wrote that “capitalists do not exploit workers; they accommodate workers by providing them with income well in advance of the revenue from the output they helped to produce.” 

Braudel, Fernand (1902-1985): French Historian of the Annales School. Precursor of World Systems Theory. Studied long historical waves of capitalist development in the Mediterranean and Europe. Famous for the books: The Mediterranean, Civilization and Capitalism, and Identity of France. 

Buchanan, James M. (1919-2013): American economist. Founder of the Virginia School of Political Economy and Public Choice Theory. Awarded Nobel Prize in l986. Said to be founder of “New Political Economy.”

Bukharin, Nikolai (1888-1938) A member of the Bolshevik Party in Russia. Participated in the Bolshevik Revolution in 1917. Leader of the right wing of the Party in the 1920s. Thought that the peasants should be allowed to get rich because they supplied food to the cities. Purged in the l930s by Joseph Stalin. Executed in the Purge Trials in 1938.

Cardoso, Fernando Henrique (1931-): Sociologist, professor, politician, President of Brazil (1995-2003). Worked on Dependency Theory. Author of Dependency and Development in Latin America (with Enzo Faletto) 1979.

Darwin, Charles (1809-1882): English naturalist and geologist. Contributed to evolutionary theory. Wrote: The Evolution of the Species (1859).

Downs, Anthony (1930- ): American Economist. Influenced Public Choice School. Famous for An Economic Theory of Democracy (l957). Since most voters have incomplete information, they resort to economic voting in an irrational way.

Engels, Friedrich (1820-1895): German social scientist, author, political theorist and philosopher. Engels worked with Marx on developing Marxist theory and edited Marx’s unfinished works after Marx died in 1883. Engels met Marx in 1842 in Germany and later in Paris and London. Major works include: The Condition of the Working Class in England (1844), The Communist Manifesto (with Marx, 1848), and Socialism: Utopian and Scientific (1880).

Faletto, Enzo (1935-2003): Chilean economist. Taught at University of Chile. Worked on Dependency Theory and development and underdevelopment in Latin America.

Fanon, Frantz (1925-1961): French Creole psychiatrist, philosopher and revolutionary. Made post-colonial studies. Best known for The Wretched of the Earth (1961). Studied the psychopathology of colonialism.

Foster, John Bellamy (1953-): Editor of the American independent Socialist journal, Monthly Review. Wrote many books focusing upon Marxist political economy, capitalism, economic crises, and the ecological crises. Author of many articles in Monthly Review journal.

Fourier, Charles (1772-1837): French philosopher and utopian socialist. Coined the word “feminism.” People would live in socialist communities called a phalanx. He set up several socialist communities in the USA. 

Frank, Andre Gunder (1912-2005): German-American economic historian and sociologist. Promoted Dependency Theory and World Systems Theory. Used Marxian concepts in political economy. Wrote many books on underdevelopment.

Friedman, Milton (1912-2006): American economists. Leader of Chicago School at University of Chicago. Awarded Nobel Prize (1976). A monetarist who challenged Keynesianism. Influential conservative economist.

Fukuyama, Francis (1952- ): American political scientist. A neoconservative who first supported George W. Bush and later changed his mind. During the George W. Bush Administration, he abandoned his neoconservatism.  His main thesis was that liberal democracy and the free market was the final form of human government. Wrote: The End of History and the Last Man (1992).

Furtado, Celso (1920-2004): Brazilian economist. Worked on development, underdevelopment, and poverty. An economic  structuralist. Inspired by Keynesianism and dependency theory. He was exiled with the military coup in l964.

Galbraith, John Kenneth (1908-2006): Canadian-American economist and diplomat. A Keynesian and institutionalist. Taught at Harvard University. US Ambassador to India. Wrote almost 50 books. Criticized the power of large corporations over consumers. Noted that economic ideas have inordinate stability, even when they are wrong.

George, Henry (1839-1914): An American writer and political economist. He was the strongest proponent of the “single tax,” the land value tax. Most important work is: Progress and Poverty (1879). He said that people should own what they create, but that everything found in nature, including land, belongs to all humanity. George criticized the railroad and mining interests, corrupt politicians, land speculators, and labor contractors. He thought the high price of land was the cause of poverty. He thought that a land tax was the only tax needed for public expenditure.

Godwin, William (1756-1836): English political philosopher. Anarchist and utilitarian. Advocated the peaceful overthrow of political, economic, social and religious institutions. Wrote: An Enquiry Concerning Political Justice. Engaged in a debate with Thomas Malthus over the issue of population.

Greenspan, Alan (1926-): American economist. Chairman of the US Federal Reserve (1987-2006). Supported Social Security privatization and tax cuts. Loved to write his memoirs in the bathtub.

Hamilton, Alexander (1757-1804): American founding father. He was chief of staff to General George Washington. He became the leader of the Federalist Party. He helped to put down a tax revolt by western farmers known as the Whiskey Revolt. The farmers opposed a tax on whiskey. He supported tariffs on imports to protect American industries. One of the main proponents to organize a constitutional convention to write a new constitution to replace the Articles of Confederation. He was killed in a duel with Aaron Burr.

Harberger, Arnold C. (1924- ): University of Chicago Professor (1953-1982). He headed the Chile Project of the US Government to establish free market economics in Chile, Argentina and other Latin American countries. Many of his students became Chicago Boys in Chile and Argentina. Established the technique of “Shock Treatment.” An economic adviser to many Latin American nations, including Chile under Augusto Pinochet.

Hayek, Friedrich (1899-1992): Austrian-British economist and philosopher. Defended classical liberalism. Awarded Nobel Prize in l974. Worked on the theory of money. Wrote: The Road to Serfdom (1944).

Hilferding, Rudolf (1877-1941): An Austrian-born Marxist economist who developed the theory of organized capitalism. Hilferding published his most influential work in l910, Finance Capital. Hilferding believed that the concentration of capital in the industrial, mercantile, and banking sectors of the economy was a key factor in the transformation of capitalism into socialism in future. As capitalists came to rely upon the state as a narrow ruling class, it would be relatively straight forward for the working class to take over the state and initiate socialism, once the forces of production were sufficiently developed.

Hobsbawm, Eric (1917-2012): British Marxist historian. Studied the rise of industrial capitalism, socialism and nationalism. Coined the term: “The Long Nineteenth Century.”

Hobson, John A. (1858-1940): John Hobson was an English economist and critic of imperialism. He is best known for his 1902 book, Imperialism: A Study. Hobson believed that imperialism was the result of the forces of expanding capitalism. Over-saving and underconsumption set in causing a maldistribution of income. Capitalists, finding no profitable investments for their capital in the domestic economy, exported their capital abroad to make higher profits. He believed that the solution to this was the redistribution of wealth through taxation and the nationalization of monopolies. Hobson’s work was a major influence on Vladimir Lenin’s theory of imperialism.

Hume, David (1711-1776): Scottish philosopher, historian, and economist. An empiricist. Hume argued against innate ideas. His economic works include ideas on the balance of trade. He said that protectionism to promote trade was counterproductive, since exports caused the value of the currency to rise. Hume said that there is no natural right to property. Wrote: A Treatise of Human Nature (1739) and An Enquiry Concerning Human Understanding (1748). 

Huntington, Samuel (1927-2008): A conservative American political scientist. Advocated the strategic hamlet program in Vietnam to depopulate areas and push peasants into the cities to help prevent revolution. Became famous for his thesis of the clash of civilizations. He said that after the collapse of the Soviet Union, the main cleavage in international politics would not be between ideologies, but between cultures. It seemed to justify the US wars in the Middle East. He also saw the danger of a “crises of democracy” in developing counties as countries developed. Wrote: Political Order in Changing Societies (1968); The Third Wave: Democratization in the Late Twentieth Century (1991); and The Clash of Civilizations and the Remaking of the World Order (1996).

Jaures, Jean (1859-1914): Jaures was the leader of the French Socialist Party. He tried to prevent the outbreak of World War I. He was assassinated at the outbreak of the war.

Jevons, William Stanley (1835-1882): British economist. Part of the marginalist revolution. Originator of mathematical methods in economics. Developed marginal utility theory of value. Famous for Jevon’s Paradox which states that an increase in the efficiency of use of a resource will tend to increase the rate of consumption of that resource rather than lead to less consumption.

Kalecki, Michal (1899-1970): Polish economist and Keynesian. Integrated Marxist class analysis with oligopoly theory. Predicted that the Keynesian Revolution would not endure.

Kautsky, Karl (1854-1938): German social democrat. An orthodox Marxist who wrote on imperialism. He criticized the Bolshevik Revolution as a coup. Said that imperialism was not a necessary form of capitalist development, in contrast to Lenin and Rosa Luxemburg who believed imperialism was necessary to capitalist development.

Keynes, John Maynard (1883-1946): British economist and professor. Developed the theory for Keynesian economics. Best known works: The Economic Consequences of the Peace (1919) and The General Theory of Employment, Interest and Money (1936). The most influential economist of the twentieth century.

Khaldun, Ibn (1332-1406): Arab historian and philosopher. Considered to be a founding father of sociology. Also wrote on economics. His most famous work is The Muqaddimah. He developed a theory of history of the successive regimes in the Maghreb. He saw history as evolving in cycles from primitive life among desert tribes to civilized life in cities. Analyzed society primarily on the basis of material conditions.

Kondratiev, Nikolai (1892-1938): Russian economist. Worked in agricultural economics. The Deputy  Minister of Supply in the government of Alexander Kerensky in 1917. He founded a research institute in Moscow in l920. He worked on the Five Year Plans of the Soviet Government and developed a theory of long economic cycles of fifty years. A proponent of Vladimir Lenin’s New Economic Policy (NEP).

Krugman, Paul (1953- ): American economist and professor at Princeton University and the London School of Economics. Author of many books on economics, he has worked on trade theory and New Economic Geography. Also a columnist for the New York Times. A liberal in terms of politics.

Laffer, Arthur B (1940- ): American economist who became famous for the Laffer Curve during the Reagan Administration (1981-1989). The argument is that there is some tax rate between zero and one-hundred percent that will maximize tax revenues to the government. Laffer argued that the current tax rate was above the optimum percent. Laffer did not claim originality for the theory, citing Ibn Khaldun and John Maynard Keynes as sources. A conservative and libertarian advocating supply side economics.

Lange, Oskar (1904-1965): Polish economist and diplomat. Developed a market model of socialism using market tools and economic planning. Prices would be adjusted according to supply and demand.

Lenin, Vladimir (1870-1924): Bolshevik and the first leader of the Soviet Union after the Bolshevik Revolution in l917. Contributed to theories on imperialism and capitalism. Famous for the theory of democratic centralism and the idea that professional revolutionaries or a vanguard must lead a revolution. He warned against making Josef Stalin the leader of the Soviet Union in his last will and testament.

Locke, John (1632-1704): An English philosopher and economist. His book, Two Treatises on Government laid out the ideology of liberal government in 1690. His contributions to economic thinking included the argument that men acquired property, including land, through a natural process when they mixed their labor with land and other elements of nature. This was a sort of labor theory of property. He argued that in nature man could appropriate as much provisions as he could use before it spoiled. Once money was invented, a substance which did not spoil, it legitimized unlimited property. Locke’s ideas provided an ideology which legitimized the emerging system of industrial capitalism.

Luxemburg, Rosa (1871-1919): A Polish Marxist and political economist. She was murdered by a member of a right-wing German paramilitary group, the Freikorps. She attacked militarism and imperialism. She was not enthusiastic about the Bolshevik Revolution, believing that it would turn into a dictatorship.

Marcuse, Herbert (1898-1979): German philosopher, sociologist, political theorist, and a member of the Frankfurt School. He worked on The Economic and Philosophical Manuscripts of 1844 of Karl Marx.  He wrote about the dehumanizing effects of capitalism and modern technology.  Most well-known books are Eros and Civilization (1955) and One Dimensional Man (1964).

Magdoff, Harry (1913-2006): American socialist writer. He worked for the US Government in the Franklin D. Roosevelt Administration. Later he became the co-editor of Monthly Review journal. Wrote many books on US Imperialism and on financial crises with Paul M. Sweezy.

Malthus, Thomas Robert (1766-1834): English cleric, scholar, political economist. Became famous for his arguments on population in his book: An Essay on The Principle of Population (1798).  Predicted that population growth would outstrip the ability to produce food bringing a Malthusian catastrophe. Misery and vice would suppress the population. His book was part of an argument with Rousseau about the future improvement of society. He became professor of political economy at East India Company College.

Marshall, Alfred (1842-1924): Primary founder of Neoclassical Economics with his textbook: Principles of Economics (1890). Cambridge University professor.  He developed famous supply and demand curve and developed  marginal utility theory.

Marx, Karl (1818-1883): German philosopher and political economist. Most famous for his three volume work, Capital (Volume I, 1867;Volume II, 1885; Volume III, 1894). Marx used Hegel’s philosophy to develop the dialectical materialist theory of history along with Friedrich Engels. This theory was published in The German Ideology (1845)  Marx’s early work on economics began with the Economic and Philosophical Manuscripts of 1844. Marx wrote his outline for Capital, The Grundrisse, in 1856-1857, published later. Marx continued to work on Capital until his death, but never finished the three volumes. These were edited by Engels after Marx’s death and published. Theories of Surplus Value (three volumes, 1862) critiques the work classical political economists, including Adam Smith. Stated that he was not a Marxist. Marx laid the foundation for the continuing radical critique of capitalism to the present time. Marxism may refer to a method of understanding society and history rather than an ideology.     

Menger, Carl (1840-1921): Founder of the Austrian School of Economics. Contributed to marginal utility theory. He opposed Adam Smith and David Ricardo on their cost-based labor theory of value. He helped develop a theory of marginal utility which argues that price is determined at the margin. Books include: Principles of Economics (1871) and The Theory of Capital (1888). He also wrote on monetary theory.

Mill, John Stuart (1806-1873): English philosopher, political economist and civil servant. He was raised as a precocious child being tutored by his father, James Mill, and Robert Thomas Bentham. He also knew David Ricardo, a friend of his father, and met Jean-Baptiste Say and Henri Saint Simon in Paris at a young age. Highly influential thinker of the nineteenth century. A proponent of Utilitarianism. Defended the freedom if the individual from the state. Called for the right of women to vote in Parliament. Wrote: The Principles of Political Economy (1848),  On Liberty (1859, and Utilitarianism (1863).

Minsky, Hyman (1919-1996): An American economist and professor. A post-Keynesian, he studied financial crises. He studied under Joseph Schumpeter and Wassily Leontief. He developed a theory of financial crises and the concept of the “Minsky Moment.” He wrote: “A fundamental characteristic of our economy is that the financial system swings between robustness and fragility and these swings are an integral part of the process that generates business cycles.” He emphasized the dangers of speculative bubbles in asset prices.  Works: Can “It” happen again (1982), John Maynard Keynes (1975, and Stabilizing An Unstable Economy (2008).

Mises, Ludwig von (1881-1973): Philosopher, Austrian School economist, sociologist and classical liberal. Moved from Europe to the United States in 1940. Became a professor at New York University (1945-1969). Developed his theory of praxeology. In Vienna, he was influenced by Carl Menger and Bohm-Bawerk. Wrote The Theory of Money and Capital (1912), Socialism (1922), and The AntiCapitalist Mentality (1956). He influenced James Buchanan, Milton Friedman, Friedrich Hayek, Lionel Robbins and Joseph Schumpeter. Von Mises stated that anti-capitalist sentiment is rooted in envy. He praised Ayn Rand.

More, Sir Thomas (1478-1535): English philosopher, author, statesman, Renaissance humanist, Councilor to Henry VIII. Wrote Utopia (1516). Utopia addressed the problems of the land due to the enclosures of common lands. Enclosures brought poverty and starvation due to lack of access to land because of sheep farming. There was a system of socialism where there was no private property and people requested what they needed from storehouses. Everyone must farm for two years and learn a trade. It was a welfare state with free hospitals. Thomas More was tried for treason, convicted and beheaded.

Mun, Thomas (1571-1641): A seventeenth Century British merchant economist. He was a mercantilist and a director of the East India Company. He said that a country becomes wealthy by making more money and produce than it spends. Mun preached the virtues of surplus trade.

Myrdal, Gunnar (1898-1987): Swedish economist and social democrat. Studied race relations in the United States, unemployment and poverty. Wrote the four volume work on Asian development, Asian Drama. Developed the idea of cumulative causation which helped to explain the cycle of poverty seen in rural Asia. He was critical of mainstream economists who often hid a political agenda under what seemed to be objective social science.

Olson, Mancur (1932-1998): American economist and social scientist. Contributed to conservative Public Choice theory. Studied institutional economics and collective action. Challenged the logic of interest group theory and saw such groups as damaging to economic growth. Wrote: The Logic of Collective Action (1965) and The Rise and Decline of Nations (1982). When groups such as cotton farmers, steel producers and labor unions form lobbies and engage in rent seeking, they hurt economic growth. Such unproductive distributional coalitions lead to the economic decline of nations. 

Owen, Robert (1771-1858): The founder of utopian socialism and the cooperative movement. Utilitarian. Famous for setting up New Lanark Mill to give mill workers a better life with physical, moral and social progress. Several communities were set up in the United States based upon Owen’s ideas.

Pareto, Vilfredo (1848-1923): Italian engineer, sociologist, economist, and political scientist. He studied income distribution and derived the notion of Pareto efficiency. He said income follows a Pareto distribution. For example, 80 percent of the land is owned by 20 percent of the people as a general rule in any human society in any age and country. Derived the notion of circulation of elites. Said “History is a graveyard of aristocracies.” Said that democracy is a fraud. He advocated free trade and believed like Walras that economics is a mathematical science. As part of the neoclassical revolution, he said that “good” cannot be measured. Utility is just preference ordering. The concept of Pareto Optimality says that a system enjoys maximum economic satisfaction when no one can be made better off without making someone else worse off. Pareto succeeded Leon Walras in the chair of political economy at the University of Lausanne in l893. He influenced Talcott Parsons at Harvard University. Wrote: The Mind of Society (1935). Advisor to Mussolini. Opposed worker strikes and may have favored fascism.

Parsons, Talcott (1902-1979): American sociologist. Studied at London School of Economics and the University of Heidelberg.  Taught at Harvard University 1927-1973. Developed the concept of action theory based upon voluntarism. Influenced by Emile Durkheim and Vilfredo Pareto. At Harvard worked with Joseph Schumpeter, Wassily Leontief, and Paul Sweezy. Wrote many books on sociology.

Pigou, Arthur C. (1877-1959): English economist, taught at the University of Cambridge, succeeding Alfred Marshall. Worked on welfare economics, unemployment and public finance. Invented the concept of externality which could be corrected with a Pigovian tax, such as a carbon tax on pollution. Wrote: The Economics of Welfare (1920) and The Theory of Unemployment (1933).

Polanyi, Karl Paul (l886-1964): Hungarian economic historian, political economist and social philosopher. Wrote: The Great Transformation (1944). Worked on the Enclosure Movement.

Prebisch, Raul (1901-1986): Argentine economist who contributed to the development of Dependency Theory. He was the President of the Central Bank of Argentina. He became the director general of the Economic Commission for Latin America (1948)  Dependency theory is based upon the Singer-Prebisch Thesis. This thesis reexamines the comparative advantage theory of David Ricardo. The international arena is seen to be divided between a center, such as the US or Western Europe, and a periphery, such as Latin American countries. While the center produces manufactured goods, the periphery produces agricultural products. 

Proudhon, Pierre-Joseph (1809-1865):  French anarchist, socialist, and political economist. Said “property is theft.” Advocated worker’s self-management and libertarian socialism. Developed a philosophy of Mutualism. Wrote: The System of Economic Contradictions on the Philosophy of Misery (1846).

Quesnay, Francois (1694-1774): French economist, Physiocrat and surgeon. Believed all national wealth came from the productivity of the soil and the ability of the natural environment to renew itself. Praised rural life over life in the city. He attempted to understand the economy in a systematic way. His economic table showed the distribution among the productive classes, proprietors and cultivators of land and the unproductive classes, the manufacturers and merchants. He praised Chinese constitutional despotism. Wrote: The Economic Table (1758).

Rand, Ayn (1905-1982): American novelist, philosopher, playwright. Developed a philosophical system called Objectivism. Promoted limited government and laissez faire capitalism. Emphasized individual rights and property rights. Ethical egoism or rational self-interest is the guiding moral principle. She rejected all forms of religion. Said that all knowledge is sense perception. Probably influenced Alan Greenspan. Wrote: The Fountainhead (1943) and Atlas Shrugged (1957).

Riker, William H. (19201993): American Political Scientist. The godfather of rational choice theory as applied to political science. An elitist, who believed that politics should be run by elites who manipulate the system through rhetoric and structuring institutions so that they can “win.” Elections are seen as meaningless. Used economic rational utility theory to understand politics. Wrote: The Art of Political Manipulation (1986).

Robinson, Joan (1903-1983): Post Keynesian economist. She worked on monetary economics and other economic theories. Taught at Cambridge University. Influenced Manmohan Singh, who became the Prime Minister of India. Wrote: The Economics of Imperfect Competition (1933), An Essay on Marxian Economics (1942) and The Accumulation of Capital (1956). Wrote many other books, some on China.

Rodney, Walter (1942-1980): Guyanese historian and political activist. Wrote: How Europe Underdeveloped Africa (1972). Assassinated by a car bomb.

Russell, Bertrand (1872-1970): British philosopher, logician, historian, social critic and aristocrat. An anti-imperialist. Believed religion is harmful to people. Wrote many books.

Sachs, Jeffrey (1954-): American economist. Professor at Columbia University. Became an adviser to Eastern European governments after the transition to market economies. Advocate of shock therapy to reform statist economies. Adviser to Bolivia, Poland, Slovenia, Estonia, and Russia. Worked on economic development, environmental sustainability, poverty alleviation, and debt cancellation. Stated that there is no solution to global warming and environmental degradation under current pattern of development in 2013. Said poor countries are caught in a poverty trap and cannot escape without foreign aid. Works include: The End of Poverty (2005) and The Price of Civilization (2011).

Saint-Simon, Claude Henry de Rouvroy, Comte de (1760-1825): An aristocrat and early French utopian socialist. He influenced Marxism, positivism, and sociology. His influence is seen in Karl Marx, Auguste Comte and Emile Durkheim. He thought industrialists would lead society using technocratic socialism. This would eliminate poverty. Science should control society, not religion. He saw “the hand of greed” as the avarice of human beings, controlling society. Socialism would be possible only when this is eradicated through education. His works have been published in 47 volumes.

Samuelson, Paul A. (1915-2009):  American economist. Nobel prize winner. He has been called the “Father of Modern Economics.” A key figure in the development of neoclassical economics, particularly the neoclassical synthesis, which combines Keynesian and neoclassical principles. He taught at the Massachusetts Institute of Technology (MIT), along with Robert M. Solow, Joseph E. Stiglitz, and Paul Krugman. Wrote the best- selling economics textbook of all times, Economics: An Introductory Analysis (1948), which has sold more than four million copies in many editions. Also: Foundations of Economic Analysis. (1947)

Say, Jean-Baptiste (1767-1832): French economist and businessman. Classical liberal views and an advocate of free trade and competition. Known for “Say’s Law.” It was not his original idea, however. The law says that “inherent in supply is the wherewithal for its own consumption.” This was criticized by John Maynard Keynes. John Kenneth Galbraith said that Say’s law is the most distinguished example of the stability of economic ideas, including when they are wrong.

Schumpeter, Joseph (1883-1950): Austrian American economist and political scientist. Coined the concept “creative destruction,” which described the continuous evolution of capitalism. Predicted capitalism would be destroyed by the emergence of social democracy. He influenced Milton Friedman, Paul Samuelson and others. He opposed Keynesianism. Studied business cycles. He said that capitalism would collapse, not from a revolution, but as a result of internal conflicts within capitalist society. The success of capitalism would lead to a form of corporatism and the rise of values hostile to capitalism, particularly among intellectuals. The intellectual climate necessary to entrepreneurship will be lost. A sort of laborism will be established and social democrats will come to rule society. These restrictions on business will come to destroy capitalism. Best known work: Capitalism, Socialism and Democracy (1942).

 Sedgewick, Henry (1838-1900): English utilitarian philosopher and economist. Founded Newham College for women at Cambridge (1875). He said no man should act so as to destroy his own happiness. He influenced Alfred Marshall.

Sen, Amartya (1933- ): An Indian economist who won the Nobel Prize. He contributed to welfare economics, social choice theory, and economic and social justice. He worked on the economic and political cause of famines. Sen showed that it is not just a lack of food which causes famines but a lack of equitable distribution of food. The Bengal Famine was caused by an economic boom in the cities that raised prices and starved millions of peasants in the countryside. Also wrote on why there are one-hundred million missing woman in Asia. Works: Poverty and Famines: An Essay on Entitlement and Deprivation (1981) and The Idea of Justice (2009).

Singer, Hans. (1910-2006): German development economist known for the Singer-Prebisch Thesis. This states that the terms of trade militate against the producers of primary products, so that the benefits of free trade go to the countries which produce manufactured products. He worked at the United Nations Economics Department on international trade. Taught at Sussex University, producing 30 books.

Soros, George (1930- ): Hungarian-American businessman, investor, money-trader. He made one billion US dollars in 1992 in the Black Wednesday United Kingdom Currency crises. Soros sold over ten billion pounds Sterling after which the sterling crashed out of the exchange rate mechanism, earning Soros a huge profit. Soros was implicated in helping to trigger the Asian financial crises. A liberal. Runs Soros Fund Management, a currency trading company. As a philanthropist he has given some eight billion dollars to causes such as human rights, public health and education. He funded the European Central University in Budapest. In 2009, Soros said that the world’s financial system had collapsed and was effectively on life support. He donated 23.5 million dollars to defeat George W. Bush in the 2004 Presidential campaign, but failed. He has written several books

Smith, Adam (1723-1790): Scottish moral philosopher and political economist. Famous for his image of “the invisible hand.” Smith argues that when one pursues their own interests, they contribute to the general interest of society and promote the public good without knowing it. He warns against a conspiracy of businessmen against the public who attempt to form a monopoly and raise prices. He also warned against a business-dominated political system where businessmen come to unduly influence politics and legislation. He said that the interests of manufacturers and tradesmen are often opposite to that of the public. His support of laissez faire economics has probably been exaggerated as he saw the necessity of government regulation. Two major works: The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776).

Spencer, Herbert (1820-1903): English philosopher, biologist, anthropologist, sociologist. Liberal political theorist. Coined the terms “Survival of the Fittest” and “There is no alternative.” Said all socialism is slavery. Had a great influence on many writers. Works: Principles of Biology (1864).   

Sraffa, Piero (1898-1983): Italian economist. Close friend of Antonio Gramsci. He was brought to Cambridge University by Keynes. Criticized Alfred Marshall’s work. Founded the neo-Ricardian School of Economics. He reconstructed Ricardo’s theory of surplus value. He demonstrated flaws in the marginalist value theory. Constructed a major challenge to the neoclassical theory of value.  Major work: Production of Commodities by Means of Commodities” (1960).

Stiglitz, Joseph (1943- ): American economist. Won Nobel Prize, 2001. He worked for the World Bank. He criticized free market economists, the IMF and the World Bank. Said markets are efficient only under exceptional circumstances. Wrote: Globalization and its Discontents (2002); Making Globalization Work (2006); The Price of Inequality (2012).

Strange, Susan (1923-1998): British scholar of international relations and political economy. She taught at the London School of Economics. She said one cannot understand how the world works without an understanding of international financial markets. Markets create great uncertainty and risk in the international arena. Wrote: Casino Capitalism (1986); The Retreat of the State (1996); States and Markets (1988).

Summers, Lawrence (1954- ): American economist. Professor at Harvard University. Worked at World Bank and in the US Government at the US Treasury Department as Undersecretary under the Clinton Administration. Worked on public finance, labor economics, economic history and development economics. Said that toxic waste should be dumped in low-wage African countries.

Sweezy, Paul M. (1910-2004): Giant of American leftist political economists. Reconstructed Marxist political economy. Founder, editor of Monthly Review journal. Called the Dean of American Marxists. Wrote: The Theory of Capitalist Development (1942). Said modern capitalism is characterized by monopoly, stagnation, and financialization. Influenced many leftist political economists, such as John Bellamy Foster.

Swift, Jonathan (1667-1745): Anglo-Irish satirist and essayist. His satirical works have meaning for political economy as he addressed the economic and political ills of society. In A Modest Proposal, he satirically suggests that the poor in Ireland sell their young children to the rich as food. What he is really suggesting is that most of the problem could be solved by other policies, such as taxing absentee landlords, home manufacture of goods, a rejection of foreign luxury goods, moderation in consumption and less fighting among political factions. Works: Gulliver’s Travels (1726), A Modest Proposal (1729) and many others.

Thompson. E.P. (1924-1993): British historian, writer, socialist. An intellectual of the Communist Party in Great Britain. He remained a Marxist after leaving the party. Part of the New Left in Britain and a socialist humanist. Wrote: The Making of the English Working Class (1963) and William Morris: Romantic to Revolutionary (1976).

Tobin, James (1918-2002): American economist. Taught at Harvard University. Served on the Board of Governors of the Federal Reserve System. A Keynesian who advocated government intervention. Won Nobel Prize in l981. He wanted a tax on foreign exchange called the Tobin Tax. This would serve to reduce speculation in the international currency markets.

Truman, David B. (1913-2003): American political scientist. Wrote on interest groups and pluralism. Professor at Columbia University. Best known work: The Governmental Process: Political Interests and Public Opinion (1951).

Tullock, Gordon (1922- ): American economist. Major figure in Public Choice Theory associated with the Virginia school of economics. He developed a theory of rent seeking, which happens when a monopolistic firm uses its financial position to lobby politicians in order to create new legislation to increase their profits. This results in a moral hazard which does not serve the public interest. Wrote: The Calculus of Consent (with James Buchanan, 1962), Private Wants, Public Means (1970), and many other books.  

Turgot, Anne-Robert-Jacques (1727-1781): supporter of private property in land and individualism. An economic liberal. Supported the ideas of Quesnay that land is the only source of wealth. Carried out tax reform, reducing the tax on land. Wrote the first complete statement on the idea of progress, A Philosophical Review of the Successive Advances of the Human Mind (1750). Best known work: Reflections on the Formation and Distribution of Wealth (1769).   

Veblen, Thorstein (1857-1929): American economist and sociologist. Most famous for A Theory of the Leisure Class. Saw capitalism as a modern form of barbarism. War is highly praised. Conspicuous consumption and conspicuous waste are integral to the feudal nature of modern capitalism. Said the modern economy must be run by engineers, not businessmen. Businessmen try to wreck the system to increase profits.

Volcker, Paul (1927- ): American economist. Chairman of the US Federal Reserve 1979-1987. Chairman of the Economic Recovery Advisory Board under President Barack Obama, 2009-2011. He played a role in President Richard Nixon’s decision to suspend gold convertibility on August 15, 1971, leading to the collapse of the Bretton Woods System. Famous for the Volcker Shock in 1981, when he raised interest rates to 21 percent to slow down inflation. This hurt developing countries.  

Wallerstein, Immanuel (1930- ): American Sociologist, historical social scientist, and world systems analyst. He is famous for his world-systems theory. Influenced by Karl Marx, Fernand Braudel, and Franz Fanon. Most known work: The Modern World-System (Four Volumes, 1974, 1980, 1989, 2011).

Walras, Marie-Espirit-Leon (1834-1910): French mathematical economist. He formulated the marginal theory of value. Helped develop general equilibrium theory. Advocated the nationalization of the land which he thought would support the nation. Became professor of political economy at the University of Laussanne and founded the Laussanne School of Economics. A leader of the marginalist revolution, along with William Stanley Jevons and Carl Menger.

Williams, Raymond (1921-1988): Welsh academic, novelist, and critic. Influential figure in the New Left in Britain. Wrote on politics, culture, mass media, and cultural studies with a materialist approach. Wrote many novels. Wrote: Culture and Society (1958) and The Long Revolution (1961).


Global Political Economy: Chapter Twenty


Chapter Twenty: Conclusion: Global Political Economy

The great dialectical struggle over which ideological system of thought would control the world economy and the world’s wealth has been seen in the history of economic thought since the classical period of political economy. It is a matter of the division of the spoils between capital and labor. This historical dynamic has produced the world as it exists today. A critical dimension includes increasing inequality both globally and domestically. Another critical dimension is the ecological one with increasing environmental destruction. The struggle goes on and no one has a crystal ball to tell what the future holds. It is the task of political economy to attempt to understand the complex nature of the global political economy. Attempting to predict the future is a more risky enterprise. Political economists have made many such attempts but have generally not been successful.

We have seen since the seventeenth century the evolution of economic thought has resulted in two great camps. One says that the world as it exists is natural and approved by God. The market and capital are neutral. Inequality is also said to be natural and reflect an equilibrium or Pareto Optimality.

The other perspective is a denaturalization of the world. The world is not natural but rather man-made, a product of history. The first, mainstream economics, has served as an example of an ideology to underwrite the capitalist system even going so far as to say that there is only one possible system of economics. There is no alternative (TINA). The idea comes from Herbert Spencer, but was popularized famously by British Prime Minister Margaret Thatcher.

Today, after the failure of socialist societies to provide their promised benefits, the capitalist ideology has strengthened and essentially rules the global political economy. Since the l970s, the myths of classical political economy, such as laissez faire, have been reinforced. The Austrian School trend in the market and public choice theories in the area of public policy have largely taken over. This has produced a new condition in the world since the middle of the twentieth century. The open global economy generally serves the interests of international capital and the financial sector at the expense of the working classes around the world.

More than half of the world’s people live in conditions in which Jack London called “The People of the Abyss.” Dispossessed. At the same time, they produce the wealth for those who do not have to work. The world precariat, those who barely survive on the edge of existence, and do not know from where their next meal is coming, is increasing. The global ruling ideology is neoliberalism. It is based upon running the world by a technocratic elite and the bankers that serve the interests of global capital. This ideology has become the ruling ideology as even those at the bottom tend to buy into it with effective right-wing propaganda. The world’s leaders talk about democracy but generally do not give the masses a voice. Democracy has been rejected outright by the rational choice theorists. The majority of the people must survive in the underground informal economy just to live and breathe. The underground informal economy, it seems, is the real free market and the underbelly of the global class struggle. The official economy is a monopoly capitalist economy controlled by oligopolistic global corporations.

The Physiocrats saw the rural life as natural and productive of wealth. They promoted agricultural interests and an anti-urban agrarian ideology similar to the Jeffersonian ideal in America. Their ideas were largely pre-capitalist. The eighteenth century saw the beginning of industrial capitalism and the extension of colonialism by European powers. The industrial revolution based upon enclosure, disfranchisement, and colonialism produced wealth for the rising capitalist class in England. Adam Smith and David Ricardo constructed an ideology of free market capitalism. However this approach showed that the wealth and profits of capitalism came from the exploitation of labor.

Two streams of critique emerged in the nineteenth century: the utopian socialists and the scientific socialists. The utopian socialists wanted to use the emerging technology, the means of production, to construct an ideal society. The emergence of science and technology would serve the interests of the whole society and the public good.

With the emergence of industrial capitalism, the proletariat struggled just to live. And many did not live very long, as the brutal exploitation of early factory work meant death at a fairly young age. Marx and Engels explored their condition in England. This provided a critique and platform for the working class in the middle of the nineteenth century. These thinkers set out to shed light upon “the laws of motion of modern capitalist society.” They built upon the insights into capitalism by Adam Smith and David Ricardo, showing that profits came from the exploitation of labor. Their work became a powerful tool for the working classes in the historical struggle for a living wage.

The classical capitalist ideology was forced to shift gears as the theory of surplus value was apparently too revealing. Adam Smith and David Ricardo had clearly exposed the exploitation of labor in capitalist production as the source of profit. The marginalist school emerged. This provided the ideological basis for neoclassical economics. The veil was thrown over the capitalist productive process. Historical reality was obscured, partly by obscure mathematical formulas. The neoclassical approach tended to hide the nature of capitalist exploitation beneath vague concepts and mathematical equations. Presented as economic science, it also hid the fact that it was an ideology of capital. Perhaps it was smoke and mirrors, a way to pull the wool over the eyes of society and defeat the efforts of the working classes for decent wages. The various schools of thought which emerged in the nineteenth century to repair the damage done by the deep insight of Karl Marx into capitalism in the Grundrisse and Capital were consolidated in the work of Alfred Marshall at the end of the nineteenth century. It was to be a water tight proof that capitalism was moral and ethical and that society was in equilibrium. God is in his heaven and all is right with the world. It was all explained by supply and demand, Marshall’s cross. This has become the mainstream approach to economics ever since.

In the late 1920s, a critical problem arose in the system. The internal contradictions were bringing the system down. The system was modified by Keynesianism when neoclassical economic theory could not account for how the real economy worked in the great depression. John Maynard Keynes criticized economists for teaching wrong doctrines to students rather than facing the truth. Economics was political. It was being used as an ideology. With insights from the classical political economists, Keynes devised an approach which would save the capitalist system from itself while providing for the public good. The system must divide a portion of the spoils with the working class. This would be more of a stakeholder approach, rather than harsh class struggle from above for maximum profits. The working class would be cut into the system for a greater share of the spoils. At least for a period of time.

The problem was that the owners of wealth were not willing to share the spoils. The world had been divided up under an imperialist system. For profits, capital needed an open world economy for markets and resources. Those with capital were interested in profits. They fell back on classical ideology for an open world economy which would serve the interests of capital over the interests of the working class. A controlled economy was more compatible with the interests of labor.

After World War II, the Bretton Woods Monetary system put some controls upon capital but the interests of capital won out over the interests of labor. The US pushed for an open global political economy. This was to come about fully only in the l970s, with the strengthening of conservative economics and the attack upon Keynes. It was as Joseph Schumpeter had seen, namely that the capitalist class would not tolerate the gains of the working classes. So it was a struggle from above to remove controls on capital on a global basis. However, the system did not become socialist, as Schumpeter feared. The capitalists were winning with the help of the Nobel Laureates at the University of Chicago.

By the l970s, the US was faced with competition from Western Europe and Japan. The Bretton Woods Monetary System had collapsed, but the dollar was still the global currency. American capitalism, along with European and Japanese capitalism, were oligopolistic systems of political economy. They began to spread and operate on a global basis with strategic management. It became rational for the capitalist class to deconstruct the industrial state in the United States. The deindustrialization of America was carried out. Most industrial jobs shifted overseas. Under the ideology of conservative economists this was said to be good for everybody. Another shift in the ideology was in order.

The ideology of the new political economy based upon public choice theory began to emerge. For the justification for the new phase of global rule, it had to be explained why the stockholders would rule and why there was no need for the stakeholders to be included. It had to be explained why democracy could be simply be dismissed. It came to be said that the problem with democracy and grass-roots interest groups were that they were in conflict with capitalism. The interests of the global population everywhere were in conflict with the interests of capital. The Public Choice school set about to construct an ideology which explained why democracy and political participation on the part of the people must be rejected and society run by technocrats. Getting a share of the spoils was “rent seeking” and this went against the interests of capital. It simply wasted capital. The traditional pluralist theory of American democracy, based on interest group theory, had to be modified.

Marginal utility theory of the nineteenth century was extended beyond economics to every phase of society. It was said that economic methodological individualism could be used to explain all of human behavior by the rational choice theorists. The ideology began to take over all of social science. This pushed both economics and politics to the right.

The liberal doctrines and marginal utility theory had provided an ideology of capitalism. Globally, it was an imperialist political and economic order. The United States, Europe and Japan ruled the world after the war.

After World War II, the US set up a new world order. Theories of trade and development followed traditional liberal doctrines. But these theories did not describe the real world. Multinational corporations arose protected by states to control the economy. America was a global empire, Europe a sub-empire, along with Japan. Samir Amin called this collective imperialism.

By the l970s, American capitalism had stagnated. Greater profits could be made abroad. So the deindustrialization of the US began. This was a dialectic that led to development in some areas, such as China and the big emerging markets, while the American empire declined. America fought wars for the control of markets and resources and for the control of oil in Afghanistan and Iraq, but the empire was declining.

Financialization of the US economy proceeded as manufacturing jobs were exported. Multinational corporations gained great political power. Public choice ideology took hold to roll back Keynesianism. The defense industry preferred military Keynesianism which generated greater profits. The new political economy became the ideology of neoliberalism. The result has been greater struggle and increasing inequality both in the US and in the wider world.

Today, the picture is complex, but clearly, the financial elites have taken over the global economy. They have imposed their ideology on global development to slow economic growth through the structural adjustment programs of the IMF. The official institutions, particularly, the World Trade Organization, serve their interests.

The idea of global development with social dimensions providing for social welfare, the public good and democracy, has largely been lost. Since public choice theory says that democracy does not work and is impossible, it is logical to let technocrats control the economy. This is the new political economy. Since democracy holds back capitalist profits and wastes capital it is not desirable.

Lost sight of as well is the critical dimension of ecological destruction.

In the underground economy, System D, we see the precariat struggling to make a living. If lucky, they work in sweat shops, garbage dumps, ship recycling, and polluting industries. They are street sellers and drug smugglers. The rise of religious politics, in part, may be a result of this struggle that alienates a large section of the society. Socialism failed, but liberal democracies have also failed to meet most people’s needs. The system results in a colossal waste of human resources, human brains and human talent. Western youth sometimes turn against the system and become militants.

The world is becoming increasingly turbulent. The existing system is not serving at least three-quarters of humanity. Today the global political economy is exceedingly complex. It will continue to be a challenge to political economists to understand what is happening. It is an even bigger challenge to change the world for the better for the people. First one must understand as much as possible. Global political economy is a matter of lifting the veil on the real world.