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.



Amin, Samir, The Liberal Virus: Permanent War and the Americanization of the World. New York: Monthly Review, 2004.

Block, Fred L. The Origins of International Economic Disorder. Berkeley: University of California Press, 1977.

Coll, Steve, Private Empire: ExxonMobil and American Power. New York: The Penguin Press, 2012.

Dasgupta, Biplap. “The New Political Economy: A Critical Analysis,” Economic and Political Weekly, 32 (4), 1997.

Foster, John Bellamy and Fred Magdoff. The Great Financial Crises: Causes and Consequences. New York: Monthly Review Press, 2009.

Gilpin, Robert. Global Political Economy. Princeton: Princeton University Press, 2001.

Girdner, Eddie J. and Jack Smith, Killing Me Softly: Toxic Waste, Corporate Profit, and the Struggle for Environmental Justice. New York: Monthly Review Press, 2002.

Girdner, Eddie J., USA and the New Middle East. New Delhi: Gyan Publishing House, 2008.

Girdner, Eddie J. People and Power: An Introduction to Politics (third edition). Istanbul: Literature, 2013.

Heilbroner, Robert L. The Worldly Philosophers (Fourth Edition). New York: Simon and Schuster, 1972,

Hunt, E. K. and Howard J. Sherman. Economics: An Introduction to Traditional and Radical Views (Third Ed.). New York: Harper and Row, l978.

Krugman, Paul, “How the Case for Austerity Has Crumbled,” The New York Review of Books, June 6, 2013.

Krugman, Paul, “Talking Troubled Turkey,” New York Times, Jan. 30, 2014.

London, Jack, The People of the Abyss. London: Pluto Press, 1998. (First published in 1903).

Magdoff, Harry. The Age of Imperialism: The Economics of U.S. Foreign Policy. New York: Monthly Review Press, 1966.

Marx, Karl. Grundrisse: Foundations of the Critique of Political Economy. New York: Penguin Books, 1993.

Marx, Karl. Theories of Surplus Value: Books I, II, and III. New York: Prometheus Books, 2000.

Marx, Karl and Frederick Engels. The German Ideology. New York: International Publishers, 1970.

Medema, Steven G. and Warren J. Samuels, eds., Lionel Robbins, A History of Economic Thought: The LSE Lectures. Princeton: Princeton University Press, 1998.

Payer, Cheryl, The Debt Trap: The International Monetary Fund and the Third World. New York: Monthly Review Press, 1974.

Peritore, Norman Patrick, Adventures in Political Theory. Denver, Colorado: Outskirts Press, 2010.

Pressman, Steven. Fifty Major Economists (Second Ed.). London: Routledge, 2006.

Stiglitz, Joseph, Globalization and its Discontents. London: Allen Lane, 2002.

Tabb, William K. The Amoral Elephant: Globalization and the Struggle for Social Justice in the Twenty-First Century. New York: Monthly Review, 2001.

Terkel, Studs, Working. New York: The New Press, 1972.

Veblen, Thorstein. The Theory of the Leisure Class. New York: Macmillan, 1899.

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



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 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: Part I, Chapter One

Part I

Most people do not realize that the film, “The Wizard of Oz,” is about political economy. At the end of the nineteenth century in the United States, there was a political and economic struggle between the farmers of the great plains states in the Midwest and the emerging great monopoly corporations which were to dominate American capitalism in the twentieth century.

The editor of the South Dakota Weekly, Lyman Frank Baum, wrote a political allegory about the populist era in 1900. This was “The Wizard of Oz.” The Populist Movement grew out of the great structural changes in the American economy due to industrialization dominated by the big corporations. The populists challenged the powerful banks, railroads, and eastern corporate elites. The emerging monopoly capitalist system was seen to be keeping the farmers down by upholding the gold standard as a basis for currency. This was said to hurt farmers by keeping interest rates high. Farmers had to borrow money each year to produce their crops.

Populism was an alliance between the farmers and the workers. Their leader was William Jennings Bryan, a candidate for US President in the election of l896. He wanted to nationalize the railroads and put restrictions on the monopoly corporations.

The story opens with the wicked witch of the East, representing the bankers and capitalists who kept the plains farmers and workers in bondage. Dorothy lives on a farm in the plains state of Kansas. She represents the common people, without power and money. Her magic slippers are made of silver, which was a better standard of money than gold for the farmers. The munchkins are the little people, who lack any political power. The tin woodsman, who represents the industrial worker, is rusted solid. Many factories were shut down in the economic depression of l893. However the tin woodsman has been dehumanized. He does not have a heart, due to the dreadful alienating work in the factories that turned men into machines.

On the other hand, the Scarecrow, who represents the farmer, does not have a brain. He does not recognize where his political and economic interests lie. The Cowardly Lion can roar, but lacks courage. This is the populist leader, William Jennings Bryan.

They are all on the way to Emerald City, which is Washington, D.C., the capitol to meet the President. They travel the Yellow Brick Road, which is made of gold and so is the gold standard. The President represents different things to different people, but they realize that he is a fraud who rules by deceiving the people. The President is the Wizard of Oz. Oz is the symbol for an ounce of gold. In other words, the President is the wizard of the gold standard, which is destroying the livelihoods of the common people, the farmers and workers. This was the populist view.

When they finally reach Emerald City, they realize that the Wizard is really no genius, but just a small confused man pulling strings behind the curtains. It is all a charade which keeps people confused. Could this also be an allegory of economics as an ideology?

The populist dream was to replace the power of the industrial capitalists, the monopoly corporations, with a farmer-worker alliance. This never happened, of course, and the lion returned to the woods.

To make some sense of how the world is run, it is necessary to discover where the ideas came from that determine how things work. The great political economists are the wizards who tell the people in each age what they need. Do they really know, or are they only confused little men pulling strings behind the curtain? Whether their ideas are right or wrong is another matter. As John Kenneth Galbraith has pointed out, sometimes the ideas that are the most mistaken persist the longest and have the greatest influence on society. With that in mind, let us hit the road and dive into the often confusing minds of the great political economists. We will try to make some sense out of it. That is the task of the first part of this book. Good Luck! I hope that it will be an enjoyable tour.


Chapter One: Introduction

Political Economy: Theoretical Perspectives 

Historical Overview:

Thinking about how groups live and produce their means of living is at least as old as the Ancient Greeks. In The Politics, Aristotle discusses some fundamental aspects of the economy which for him was primarily household management. For example, he imagines automation. If a shuttle could weave itself it would save labor and free individuals for other activities. He discusses the concept of exchange value and use value. He sees economic activity carried out exclusively for the purpose of monetary gain to be unnatural and immoral. The desire for wealth should not be unlimited. He sees the pursuit of wealth as an end in itself as a perversion of economics. He also importantly argues that usury is unnatural since it makes something, namely money, which is not living, reproduce. This is what Karl Marx refers to as a fetish of commodities, something magical. Some of these ideas have had great importance in economic thinking. In Christian civilization usury was forbidden for many centuries, based upon Aristotle’s ideas. In some Islamic societies usury is still forbidden.

The term economics comes from Greek oikos (home) and nomos (law and order). As early as 1615, a book entitled “Economie Politique” appeared in France. Later, a book entitle Troite’de Economie Politique by Antoine de Montchretien was published in the same century.

More systematic attempts to understand the workings of the political economy emerged in the sixteenth century with the expansion of money and trade. An early venture in trade between Britain and Asia was the British East India Company, which was a sort of forerunner of today’s transnational corporation. India manufactured many products, such as fine textiles, which were in high demand in England. The employees of the British East India Company could become very wealthy in only a few years in this enterprise. Eventually, this trade resulted in British colonial rule in India.

Every political and economic enterprise needs to be grounded in an ideology which can plausibly be accepted and which legitimizes the emerging practices. This need to put a bright face upon early trading companies gave rise to mercantilism.

Among the early mercantilist thinkers was Thomas Mun (1571-1641). He was a British merchant-economist who became a director of the East India Company and defended its interests in his writings.

In the early Eighteenth Century, the Physiocrats in France developed a different approach to political economy. The most notable of these were Francois Quesnay (1694-1774). Basing their ideas upon the productivity of nature, they believed that all the wealth of society came from the soil. Therefore, they promoted the interests of agriculture over manufacture.

The late Eighteenth Century saw the emergence of another approach, which began the establishment of classical political economy or moral economy, as it was called at the time. This line of thinking began most notably with Adam Smith (1723-1790). The emergence of capitalist industry, linked to the colonial system, called for an alternative ideology to justify the emerging system of factory production and expanding trade between countries. Thinkers such as John Locke and Adam Smith began to construct an ideology of liberal capitalism.

An alternative view was seen in the utopian socialists. Capitalism and technology were starting to change society but where was it going? For the apologists of capitalism, such as Adam Smith, everything was fine and dandy and working to the best for everyone. Everyone in society was seen to be in the same boat. The Utopian Socialists and the radical socialists, however, did not think so. It did not seem that way in the real world. They thought that technology and capitalist production was launching a new, possibly hopeful, phase of society but that it must be guided and shaped to produce the good society. Leaving things in the hands of an imaginary laissez faire market was not the answer. In France, Saint Simon saw the new technology as making possible a society where everyone’s needs could be met in a systematic and organized way. Utopian socialism would usher in the millennium. In England, Robert Owen, who owned a textile mill, wanted to make profits, but in a way which was more humane to the workers and which would help improve the quality of their lives. He set up enterprises for this purpose to improve the welfare of the workers. Others drew up plans for model communities which would lead to what they imagined would be near perfect societies. Many experiments with new types of communities were attempted, particularly in the United States in the nineteenth century, based upon the thinking of the utopian socialists. Today few realize that dozens of experimental communist societies were being set up in the United States in the Nineteenth Century.

For Karl Marx, this was all pie in the sky. A rather useless exercise, he thought. Nice try, but it was not going to go anywhere, unfortunately, in Marx’s view. Marx and Engels had laid out their own model of how history actually unfolds in their earlier work, The German Ideology. One could not just start with fancy ideas and use them to transform society. One must start with the actual way that people in society produce their livelihood. This, after all, was the material basis for the institutions and ideology in society in their model of dialectical materialism. The schemes of the utopian socialists were just a fantasy which could never be realized as they imagined. Marx thought the utopian socialists had good ideas about how people should live, but were wasting their time.

For Karl Marx (1818-1883), and later Friedrich Engels, what had to be done was to understand “the laws of motion of modern capitalist society.” It had to be based upon real world facts, the way things actually existed, and then society would move on from there. Of course, Marx had to first read everything of importance that had ever been written by political economists before he laid out his own ideas. Then he would launch his critique of liberal political economy in the middle of the nineteenth century. This resulted in his major work, the three volumes of Capital. There has probably never been a more influential work in the way of political economy.

Perhaps it was Marx’s powerful radical critique of capitalism that brought about the marginalist revolution in the second part of the nineteenth century. Marx’s critique of many of the classical liberal precepts made necessary a reconstruction of liberal capitalist ideology which would be worker proof. That is, it had to present the world of production and political economy in such a way that the worker could not find a way to claim that he or she was being exploited. It should be a water-tight ideology that served the interests of the capitalist class. More specifically, it called for the discrediting of the labor theory of value, which ironically was a central plank in the works of both Adam Smith and David Ricardo. Marx had seized upon this classical understanding of labor to prove that according to their own systems, the ideas of the liberals about the benefits of capitalism to the working class, was bankrupt. And that, Marx said, was why the capitalists, or “moneybags as he called them,” were laughing. They were laughing all the way to the bank. If the workers really owned their own labor, then they should own the product of their labor as well.  Now the marginalists had to invent a new system.

This attack upon Marx, beginning with Carl Menger, William Stanley Jevons and Leon Walras, culminated in the construction of marginal utility theory. These ideas were consolidated in the seminal work of Alfred Marshall in 1890. The era of neoclassical economics had emerged. The rest is history as they say. The world would never be the same again. It would be modified by the Keynesians and neo-Keynesians but prove exceedingly durable in the service of Twentieth Century capitalism and beyond.

We must look at each of these systems of political economy in turn and attempt to understand why the historical shifts in thinking happened.

Three Perspectives on Political Economy

In general, there are three basic ways of approaching an understanding of the actually existing political economy. These are the liberal, realist, and radical approaches. This chapter will explain the main characteristics of each view.

We must make a distinction, however, between an analytical view and a normative view. The analytical view simply tries to understand how the existing system of capitalist political economy works. The second or normative view sets out what sort of political economy is desired and considered best. This depends upon the individual and how a person decides to understand the world. It also depends upon their values and how they think the social surplus of society should be divided. Or in the words of Harold Lasswell, who gets what, when, and how. That is the ultimate political question for society.

The Liberal Perspective on Political Economy:

We begin with the liberal view, which emerged in the eighteenth and nineteenth centuries with Adam Smith and David Ricardo. This perspective was constructed with the rise of capitalism and indeed served as an ideology of free markets and free trade. Liberalism served as an ideology for the needs of an emerging capitalist economy. While current political economies have been greatly changed since the eighteenth century, this perspective still serves this ideological purpose.

The liberal view begins with a vision of the individual in nature. Classical political economists or moral economists saw men and women as capable of creating a good society through human volition or rationality. God, in this view, had created man as a rational being who was fully capable of pursuing his personal interests for necessities and wealth through his own efforts. This was largely seen to be an individualistic endeavor. As long as individuals respected the rights and property of others, then they should have the freedom to acquire their needs and to even get rich. Political economy would be based upon nature and the results said to conform to what was natural.

John Locke saw such pursuit for a happy existence as being the natural right of human individuals. But since there was no security in a state of nature, men agreed to establish a civil society with a government. However, for liberals, the government would have the minimal role of providing security and allowing the free market to work and individuals to pursue their acquisitive interests. It led to the idea that “the government which governs least is best.”

Liberals argued that it is natural for man to use his labor to produce and to buy and sell. In this free exchange, men will agree upon a price in the market, which can be considered a natural price. Associating the production of society’s needs and wants with nature was a powerful argument and seemed to suggest that the emerging economic system had God’s approval.

Of course thinking of the economy in this way was an intellectual exercise which envisioned men having equal opportunity to pursue possessions and wealth. As time went along this was not the actual case, as great wealth also gave certain individuals and groups great political power over others. Individuals with money to use as capital could have command over the labor of those with no money to use as capital.

Nevertheless, liberalism served as an ideology of trade and the free market. David Ricardo forwarded the theory of comparative advantage and along with Adam Smith, argued that free trade would increase the wealth and well-being of nations. In short, liberalism views the workings of the political economy as a sum-sum game in which everyone has a stake and gains. As Keynes observed, “Capitalism is the extraordinary belief that the nastiest of men for the nastiest of reasons will somehow work for the benefit of us all.” Humans are selfish and greedy, but never mind. That is actually good, because when they act in selfish ways, it actually helps society and results in a good society. Pursuing wealth gives men an incentive to work harder and they produce more for society making everyone better off. So there is a sort of built-in work ethic in the pursuit of wealth.

According to this view, the best thing that the government can do is back off and let the market work. This is the idea of “laissez faire” or leave alone. It is only when property and the market is threatened that the government must act to protect this natural order. The primary function of the government, then, is to provide security to private property, including one’s own life. The watch words of the liberal economy became “Life, Liberty, and Property.” This is the historical legacy of the ideas underlying the ideology of capitalist globalization today. Whether the ideology is true in the real world is an empirical question which must be examined separately.

In modern times a foremost theorist of liberalism was Friedrich Hayek. His writings greatly influenced other free market ideologues such as Milton Friedman and others at the University of Chicago Economics Department. This group of economists came to be known as “the Chicago Boys” and urged developing nations, such as Chile, to adopt free market policies.

Hayek, an Austrian, became famous with his book The Road to Serfdom, published in 1944. Hayek argued that the social welfare system which was coming into operation in England would eventually lead to a totalitarian system in which people would be no better than slaves. This seems exaggerated, in retrospect, but nevertheless, it served as a powerful ideology and influenced governments and economists. It served to frighten people into thinking that socialism, and perhaps even social welfare, was their greatest enemy. It seemed a godsend for the needs of large corporations in pursuit of low taxes and greater profits. It was just the medicine the doctor ordered.

The famous economist, Milton Friedman, followed in Hayek’s tracks at the University of Chicago. He wrote a book called Free to Choose, which was the basis of a popular television program series in the United States. Surely this served as powerful propaganda to lessen the pressure for social welfare provisions in the United States. In fact, Americans enjoy less government assistance than any other developed nation.

The reemergence of liberal ideology in the l970s led to today’s dominant global political economy, namely neoliberalism. While neoliberalism is seen to rely upon classical liberal ideology, it is actually very different, as it uses the power of the state to protect business interests.

To summarize, for liberals the analysis of society is based upon individuals or households and firms. They see rational individuals acting to maximize utility. Society is guided by the dynamics of the market. The entire process is seen as harmonious and a sum-sum game. The ideology of laissez faire is always in the background. Liberals believe that the economic sphere should determine politics. The role of the state is to ensure the optimal functioning of the market. Liberals believe that the free market results in equilibrium in society, which shifts from time to time.

The Realist Perspective:

The Realist Perspective challenged and criticized the ideas of the liberals. Realism emerged from the thinking of the mercantilists. A key figure was George Friedrich List (1789-1846). His major work, The National System of Political Economy, was published in 1856.  Adam Smith claimed that he was writing about the wealth of nations. They simply assume that the free market will serve to make a nation wealthy. List, on the other hand, took a nationalistic view in which the economic health of the nation was paramount. The nation had to pursue its own interests over against the interests of other nations in the international arena. Unlike for the liberals, this was not a sum-sum gain, but rather a zero-sum game. Some nations would win and others lose. What the nation must do was to build up its national manufacturing capacity and seek to export to build up a trade surplus and a national reserve of gold. If necessary, the military and war must be used to achieve and maintain a positive balance of trade. The major actors in the international arena are nations and they must develop a strong military to remain powerful. The economic policy of the nation must be determined by politics and the economy and system of national production will serve the needs of the nation. Capitalists and firms will get rich, of course, but not at the expense of the national interest. The national interest is primary.

This approach to political economy is generally known as Mercantilism. Nations which pursue similar policies today are known as neomercantilist. An example of this is Japan, following World War II. The Japanese mostly rejected the desires of the United States to open their economy to foreign investments and pursue liberal economic policies. Instead, they used the state and government to build up the giant Japanese firms and promote exports. Imports were strictly limited. This sort of policy was not supposed to work in the global political economy, according to the liberals, but, in fact, it seems that it worked very well for the Japanese. It became a model of state-guided capitalist development to be used in other Asian nations, including Taiwan, South Korea, and the People’s Republic of China after the Maoist period.

List believed that one must take into account the stage of development of the political economy of a country before choosing a trade policy. A country has to go through several phases as it develops. A fully mature and developed economy with sophisticated manufactures can easily pursue an export strategy. But what about a developing economy which manufactures only primitive products and mainly produces primary or agricultural products? Does it make sense for such a country to go in for free trade? In fact, it is going to be hurt very badly by the terms of trade, according to List. It will be trading bananas and coffee and cotton for bulldozers and computers from the developing world. In years when the price of coffee is high, it will not be so bad, but when the prices of coffee and bananas drop, the country will suffer badly. So List made some very useful observations about the real conditions of free trade. Infant industries need protection to survive and flourish until they become strong. This is the practice of protectionism. The one size fits all theory of the liberals would militate greatly against underdeveloped nations. Again, it was a zero-sum game and the powerful developed countries were going to win every time. It was a useful observation. As is said today, it does make a difference whether a country exports potato chips or computer chips.

To summarize, realists or mercantilists base their analysis of society upon nation states. States are seen as rational actors that maximize their interests, such as power and wealth. Politics is a basis for increasing the strength of the state. The international arena is characterized by a zero-sum game between nations and is necessarily marked by conflict. Realists believe that politics should determine economics. Change occurs when there is a shift in the distribution of power between states. The purpose of the economy is to serve the state.

The Radical Perspective:

The radical perspective on political economy is based upon the ideas of a long line of thinkers beginning with Karl Marx. In other words, it is the politically left position of political economic analysis. First, radical thinkers view society in a dialectical way. This just means that whatever happens affects different groups in society differently. They see society as basically divided according to class interests. This is the major social cleavage in society. Those who own capital in society have interests which are opposed to members of the working class.

Radicals are critical of capitalism and believe that it is based upon the exploitation of the working class. They continue to believe in the economic analysis of the classical thinkers and Karl Marx, that the labor theory of value is the way to view the productive process under capitalism. They believe that capitalism creates inequality, while at the same time creating over-production and under consumption. For the most part, capitalism keeps the working class in a situation of poverty, according to radicals.

Radicals believe that capitalism tends to be in crises due to the contradictions in the system. For example, as capitalism develops, they believe there is a tendency for the rate of profit to fall. While there is the capacity for enormous production of commodities, the working class does not have sufficient income to purchase all their needs.

The continuous search for profits leads to continuous change, but the economy tends to reach stagnation as there are limited outlets for productive investments. This leads capitalists to seek investment opportunities in the international arena to increase their profits. So the emergence of imperialism is a result of capitalism. Imperialism and the attempt to control global resources and markets, in turn, often lead to war. War also must be seen in a dialectical way, as wars are generally fought in the interests of the capitalist class. In wars, workers of one country fight the workers of another country to ensure that the capitalists make more profits.

Global trade is also exploitative due to the terms of trade. The conditions for the mutual gain of both nations, as seen by David Ricardo, seldom exist in the real world. Powerful countries set up trade agreements, but these generally serve the interests of the most powerful countries and large multinational corporations. So trade agreements serve to increase global inequality and capitalist accumulation. They are seen by radicals as a new form of colonialism or neocolonialism. The US is seen as the global hegemonic country, linked to the European Union and Japan.

The international monetary and financial system set up at the end of World War II, The Bretton Woods System, is seen as another way of dominating and exploiting the world, rather than creating global prosperity. Radicals believe that the IMF and the World Bank were set up primarily to serve the interests of the powerful countries and keep global profits flowing to them.

Radicals have created an extensive body of work to understand colonialism and imperialism, including the works of Vladimir Lenin and Rosa Luxemburg. Later, theorists of the left developed dependency theory and world systems theory. Among these are Andre Gunder Frank and Immanuel Wallerstein. The world is seen to be increasingly infused with the capitalist system of production in every corner of the globe. While the US is the most powerful country at the center, the third world countries are a periphery, lacking access to capital for successful development.

Radicals see the global political economy as rigged in favor of the rich and powerful countries, with the poor countries trapped in poverty from which they cannot escape.  The powerful countries, corporations and currencies rule the world.


Thinkers have attempted to understand the economy since the Ancient Greeks. As society began to shift from feudalism after the Middle Ages and trade and commerce developed on an international scale, more systematic attempts were made to understand how the economy of a nation works. The mercantilists needed to understand more systematically trade between countries. This gave rise to mercantilism in the sixteenth and seventeenth centuries. As capitalism emerged in the industrial revolution, Adam Smith and John Locke began to construct an ideology of free trade and liberalism.

The Utopian Socialists challenged the emerging system of capitalism and imagined how society could be organized to serve the entire community and not just the capitalists. A more systematic radical critique emerged with Karl Marx in the middle of the nineteenth century.

In fact, Karl Marx’s deconstruction of the workings of capitalism became a powerful tool for the working class. It became necessary to reconstruct the ideology to better serve capital. This was the historical task of the political economists of the marginalist revolution, such as Carl Menger, William Stanley Jevons and Leon Walras. Alfred Marshall completed the task with his treatise on economics in l890. Mainstream political economy would be narrowed, use a great deal of mathematics, focus upon the individual, and become just economics, not political economy.

Nevertheless, the radicals continued to analyze the economy in the Marxian world view.

Historical thinking has resulted in three major theoretical perspectives upon political economy, the liberal, the realist, and the radical views. Liberals, following Adam Smith see the economy as based on individuals and the free market. The state should allow the economy to function in a natural way. Realists, or mercantilists, believe that the economy should serve the needs of the state and make the state more powerful. Radicals are critical of capitalism as they believe that it is based upon the exploitation of the working classes. They believe that the system is irrational, due to contradictions in the system which produce crises. The attempt to overcome the contradictions of the capitalist system leads to imperialism and war. They believe that society should be reorganized to serve the majority of the people, rather than only the one percent of society which owns capital.

Key Terms:




British East India Company




The Physiocrats

John Locke

Adam Smith

David Ricardo

Classical Political Economy

Neoclassical Political Economy

Radical Critique of Political Economy

Karl Marx

The Wealth of Nations

Laissez Faire

Utopian Socialists

Saint Simon

Alfred Marshall

John Maynard Keynes

The Liberal Perspective

The Realist Perspective

The Radical Perspective



Laissez Faire

Rational Choice

Labor Theory of Value

Comparative advantage

Free market

Friedrich Hayek

The Road to Serfdom (1944)

The Marginalist Revolution


Class Cleavage

Capital Accumulation



The Bretton Woods System

Dependency Theory

World Systems Theory


Give ’em Hell, Bernie

Give ‘em Hell, Bernie

So Bernie Sanders has announced that he will run for President of the  United States. He is a Senator from Vermont and a democratic socialist.

Unfortunately, he does not have a snowball’s chance in hell of getting anywhere. That is, in the presidential race. Not in the American political business corporate system. However, he might be able to make some people more politically aware. He says that what is needed is a “political revolution.” He wants to help start a “grass-roots movement” of millions of Americans.

He calls for expanding social security benefits, a single-payer health system, free tuition for public colleges and universities, and relief for those burdened by student debt. Everyone should have the opportunity to go to a university if they want. Bernie Sanders wants to break up the big financial institutions.

He says that saving the big banks that are too big to fail is not what America is about. Unfortunately, it is exactly what America has been about in the last three decades.

Bernie Sanders is saying the right things about what needs to be done in the country. But that is the problem. They are things that would help the people, not big business corporations. That approach goes against the corporate-capitalist-military-political system in the United States. We cannot have that! What a weird guy! He thinks people should have jobs and houses and be able to get a university education with the help of the government. He is some sort of “crank.” Right!

If Bernie Sander’s ideas did start catching on, the big press in America would come down on him like a ton of bricks and smear him terribly. As long as he is just a lone voice crying in the wilderness, he can be tolerated. Let him wail and ignore him. Of course his ideas are already popular. They are generally what people want. But the system and the press keeps telling the people that it is no longer possible to have them. Of course, they can have three trillion dollar wars. No problem. But not jobs, houses, education and health care. The press will treat him like a “crank.” They are already using this term. What a cranky guy to want to give people what they want! Now that is cranky. Can’t have a cranky idea like that. After all, America is a democracy!

The press will treat him as some kind of freak, and indeed, a dangerous socialist! The lies and distortions will go on endlessly until he is hounded out. Most Americans do not realize how normal such a political party is in other parts of the world, such as Europe. America’s reaction is just a laugh in Europe. Sorry, America, you think you are the cutting edge. But the rest of the world is just laughing at your politics.

There are other difficulties with the American political system. First, as a democratic socialist, the two-party political system in the United States cannot accommodate such a political tendency which is outside the mainstream. One needs a European type proportional representation system where a left party with ten to twenty percent of the vote can gain seats in the legislature. It cannot gain any traction in the US two party system where every winning candidate must win a plurality in the district. The American political system is a closed, rigged, system that is far from being democratic. It is, in fact an oligarchy, run by the rich. By the powerful corporations. The most that a third party can do in the United States is to contribute new ideas which may gain popularity.

Most Americans do not realize that most government provisions that help common people have come from the left, historically. For example, things that people take for granted were first left programs. Among these: universal free education, voting rights for women, government health care, unemployment pay, minimum wages, paid holidays, the right to trade unions, and regulation of big business. Unfortunately even government health care, accepted almost universally, is still not accepted in the US.

The type of social welfare that Bernie Sanders advocates, and most people in the USA need, is contradictory to neoliberalism. This economic system has been imposed on the US and Western Europe in the last thirty years. It is basically austerity for the people, cutting back government programs, while serving the needs and guaranteeing the profits of big corporations. This is called the “free market” but has nothing to do with a free market. It is right-wing University of Chicago economics. Through so-called free trade agreements it is being imposed on the whole world. It is for the purpose of ensuring corporate profits. The people lose.

Obviously, programs that serve the people militate against profits for big business. It is considered very bad taste in the US to criticize Wall Street! They have a right to their profits, no matter how huge!

A Bernie Sander’s type political movement as a political party can easily succeed in getting enough votes in a European political system to be represented in the legislature. It might even win the most votes, as happened recently in Greece. But the US has an old-fashioned dysfunctional electoral system. Sorry, Americans. You just as well admit it. Your political system is an antiquated horse and buggy system in the twenty-first century. Many other political systems around the world are far more modern. Forget what you learned or did not learn in High School civics class. But since you think that everything is best in America, there is not much chance of any change to modernize the system any time soon.

With the so-called two-party system in the US, what one gets is actually a sort of one-party system dominated by big business. This is pointed out often by many people. It is so obvious if one just thinks about how the system works. A candidate generally needs money from big business to win. The real economic issues are generally not even discussed in presidential campaigns.

It would be nice if America was more progressive and would join the rest of the world. Stop being the ruler of the world and impoverishing its people to fight wars so that corporations can keep making profits. But it will not happen until the US Empire collapses.

I personally support Bernie Sanders all the way.

American politics is such a sleepy backwoods from an international perspective. The system needs to be shaken up. There is no reason why the American people should be so politically challenged. That politically challenged! They have access to all the information but sometimes act and vote like some of the dumbest people in the universe. They are nice people but it seems like they need to be hit over the head by a Zen master to knock some sense into their heads.

Good luck! Give ‘em hell, Bernie!