Download Economic Thought: Orthodoxies and their Discontents

Background Stuff:
Main Themes and Thinkers in Economic Theory and Political Economy
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Compiled and written by M. I. Franklin
Introductory Comment
Whilst mainstream economic theories maintain the separation between the political
(institutions and power relations) and economic (functioning and nature of material wellbeing) sphere, critics over several centuries counter that they are, rather, historically
intertwined. Economic processes and decisions are inherently political (about power
relations) and political processes and decisions are embedded in economic relationships.
The term political economy stresses this notion of there being an inherent relationship.
Classical political economy, based on Liberal political philosophy, argues that economic
relations are 'naturally" progressive, political relations regressive. This is an argument for
minimal “state intervention” based on letting the “invisible hand” of the market regulate the
natural dynamics of “supply and demand” i.e. that political institutions – governments and
leaders in other words – should not meddle with economic processes.
Marxist political economy begins with Karl Marx's critique of the latter claims and is the
most thorough analysis of how capitalism works in early industrialising Europe. It is also an
unremitting condemnation of the effects of these economic relationships on everyday life,
communities, and human relations. Since then and into the 21st century, these two streams
– Marxist/Marxian and (Neo-)Classical/Liberal economic theory - have evolved into various
theoretical streams and geopolitical affinities; refined and critiqued from within their
respective traditions and, inevitably, in contradistinction to one another.
In recent years, there have been overlapping counter-streams that refine certain aspects of,
or take issue with these traditions and their key thinkers; World Systems theory, neoMarxist Political Economy, Neo-Gramscian frameworks, Dependency theory, Feminist
economic theory, Human Development and Capability approaches. See the bibliography
below for a selection of texts.
Mainstream Economic Theories
Core Terms
™ Capital
™ Labour
™ Production
™ Trade
™ Finance
Main Actors
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‘homo economicus’- rational human agents
States - national fiscal regimes; trade tariffs; interest rates, banks et al
Markets - the “free market”; the “global market; “market forces”
Non-State Actors e.g. the United Nations, NGO’s, Think Tanks, mafias et al
Intergovernmental Organizations - multilateral institutions e.g. Bretton Woods
financial institutions
Last updated 24 October 2007
20th Century Themes and Debates
‰ Globalization / Neoliberal Economic Restructuring - Process, Project, Problem
‰ From an "Embedded Liberal", to "Neo-Liberal", to "Imperial" political economic order
‰ Continued rise in scope and depth of transnational corporations’ (TNC’s) interests
and activities together with liberalization of national investment regimes, explosion in
volume of cross-border financial flows
‰ "Development” Issues for non-industrialised or non-Hi-Tech societies: Definitions,
Indices of “development” - Economic, Human, Sustainable, Human
‰ Nomenclature for dividing the world along economic ideological lines:
capitalist/democratic West vs. communist/authoritarian East; First/Second
(industrial) vs (undeveloped) Third World; Global North vs. Global South;
Christian/Civilized/modern West vs. Muslim/uncivilized/pre-capitalist Orient
Theoretical Precursors: The Godfathers (sic) of Present-day Economic Debates
Classical/Liberal theories
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Adam Smith (The Wealth of Nations, 1776) - argued for "laissez-faire" in
government: self-interest and competition are "natural" forces in economic activities
and should be left to their own devices in the marketplace : the "invisible hand" of
"perfect competition" would eventually lead to an equilibrium between prices and
incomes : pursuit of individual gain is in the best interests of the wider community.
Malthus, Thomas Robert (An Essay on the Principle of Population, 1798/ 1803;
Principles of Political Economy, 1820) - economist/sociologist/pioneer in population
studies and spokesperson for economics as “the dismal science”. Main arguments
he's known for is that poverty and distress are unavoidable because population
increases outstrip productive capacities; i.e. he accepted the "necessity" of war,
famine, disease (pandemics incl.) but also advocated “moral restraint” to offset this
natural state of affairs - his work was very influential on classical economists like
David Ricardo and also echoes in certain renditions of (neo-) Darwinian thought.
David Ricardo (Principles of Political Economy and Taxation, 1817) - Famous for his
analysis of rent and his theory of labour value (used by both Marxist and no-classical
economists). Ricardo's “iron law of wages”, a response to Malthus's pessimistic
prognoses i.e. downward spiral stops before total destruction in that (low/nonexistent) wages tend to stabilize at the subsistence level; Best known for his theory
of international trade i.e. states should export those goods they produce best, and
import those goods they do not/cannot produce in order to enhance their
"comparative advantage"; trade between states must be "free" of intervention.
John Stuart Mill (A System of Logic (1843); Principles of Political Economy, 1848, On
Liberty, 1859; Utilitarianism, 1863) - a follower of Ricardo and contributed to the
study of international trade and economics of industrial expansion. His work is a
mixture of classical economics, empiricist research methods (inductive vs.
deductive), humanitarian utilitarianism (ref; Jeremy Bentham et al); Famous for his
advocacy of political and social reforms at the time; e.g. proportional representation,
women's emancipation, labour organizations/unionisation.
Marxist Political Economy - the Capitalist mode of production produces ‘surplus value’ on
the basis of a top-down power hierarchy between Capital (owners of and resources) and
Labour (workers, colonies); capitalism is not only an economic system but also a
particularly inequitable social relation. Industrialised nation-states perpetuate and are
subject to this system. .
™ Karl Marx (Paris Manuscripts - 1844, Wage, Labour and Capital - 1849,
Grundisse - 1857-8, Capital - 1867) - capitalist mode of production essentially
an unequal social relationship based on ability of capital to exploit labour :
economic relations (of production) "in the last analysis" determine a society :
"free" markets and international trade cannot be peaceful or equitable as they
are based on the export of surplus capital generated by alienated labour at
home and abroad (through colonial relationships), and military might (war is
profitable).
Social Democratic/Liberal Economic Theory
™ John Maynard Keynes (influence 1930's - 1970's) - a critique of classical
belief in the "invisible hand" : not feasible as market systems influenced by
perceptions : governments' role is to counter market swings - increase
spending/decrease taxation during depression to stimulate investment and
consumption and protect employment - decrease spending and increase
taxation at times of inflation : main aim is to ensure full employment through
government intervention ("demand management") : trade-off for low
unemployment is high, stable, levels of inflation : people do not always make
rational economic choices. Key figure in Bretton Woods institution-building
™ John Kenneth Galbraith - aide to R.D. Roosevelt (architect of the New Deal)
and key aide to John F. Kennedy - concerned with the distributive problems of
The Affluent Society (1958) where private sector gain does not necessarily
lead to the public good.
Neo-Classical - levels of unemployment inevitable for low inflation - retreat of the state a
"must" - basic principles of classical economists revisited and revamped in the 1980's as
response to crisis of the 1970's
¾ Rational Expectations School (1970's) - "economic agents" do make rational
decisions, based on all available information: people will anticipate government
policies (see above) and respond accordingly (companies raise prices, unions
demand more pay): fiscal and monetary policy must be unpredictable in order to
counter these behaviours
¾ Neoliberal/Monetarists (Milton Friedman, Hayek, inter alia) - prices, wages, economic
activity basically determined by money supply i.e. too much money leads to inflation.
Critical of Keynesian theories i.e. unemployment is inevitable vs. undesirable; free
markets and competition are ultimately efficient is “left alone” i.e. money supply, not
government fiscal policy determines growth. Governments should lower, not raise
taxes on capital flows and corporate profits; deregulate, liberalize, privatize
Background Reading
Stephen Gill and David Law, The Global Political Economy : Perspectives, Problems, and
Policies, New York, London, Toronto, Sydney, Tokyo, Singapore : Harvester - Wheatsheaf,
1988
André Gunder Frank, Capitalism and Underdevelopment in Latin America: Historical Studies
of Chile and Brazil, New York and London: Monthly Review Press, 1969
Geoffrey M. Hodgson, "Varieties of Capitalism and Varieties of Economic Theory" in Review
of International Political Economy, 3:3, Autumn 1996 : 380-433
Mies, Maria, Patriarchy and Accumulation on a World Scale : Women and the International
Division of Labour, London : Zed Books, 1986/1998
Sassen, Saskia, 1988, The Mobility of Labour and Capital, Cambridge: Cambridge University
Press
Herman M. Schwartz, 1994, States versus Markets: History, Geography, and the
Development of the International Political Economy, New York : St Martin's Press, (see also
the second edition)
Sen, Amartya, 1984, Resources, Values, and Development, Cambridge, MA : Harvard
University Press
Waring, Marilyn, 1998, If Women Counted: A New Feminist Economics, San Francisco:
Harper