Q: Example question: openness to international trade can have positive and negative
economic consequences for a country. Discuss at least three measures – at the national
or international level – that can ensure that the positive effects are maximized, and the
negative ones minimized. Incorporate both theoretical insights and empirical examples
in your answer.
A (initial draft):
- First, the positive effects are maximized is by setting fixed exchange rates. This was the
case when the gold standard was applied during the British hegemony
- Second, people should not save too much, because that would lead to a decrease in
demand which often results in countries tampering with their exchange rates which in turn
leads to deflation and more problems such as fierce competition which leads to decreasing
international trade.
- Third, innovations in the industrial sector can accelerate developments in transport and
increased scale of production which is a driver for international trade.
,Europe, China, India beginnings
Argument by Abu Lughod (from the article):
Takes 13th century as starting point
- Cultural differences are important but not sufficient explanations
- Internal and external explanations should be taken into account
- Importance of systematic geopolitical and demographic causes
Europe 1300-1700
- Private ownership becomes more important
- Labor market emerges
- Capital market emerges (not huge, but definitely is happening)
- Market for land (not in hands of kings, but the possibility to sell and buy land
arises)
- Market for goods and services emerges
- Rules and management for the protection of property, contracts and bankruptcy
emerges. (Example, if you buy something from someone a contract now has to
be set up)
- Focus on expansion and growth, competition.
Other parts of the world
Effect geography: one group dominates within the triangle
China
- Emperor dominates nobility and merchants
o Result: no incentives for trade needed to increase tax revenues.
Indian ocean:
- Merchants on various islands trade
o Result: Kings get no grip, there is no king to deal with. Downside: they
had a weak position to deal with Europe.
, Maffia analogy
Working method:
- Forcing trade with violence
- Force monopoly with violence
- Stealing
- Establish control over territory through force and violence
- Specialize in addictive products
The main policy of these mafias on route to statehood was mercantilism: trade surpluses by
boosting exports, and the accumulation of metallic money in order to monetize their realms.
Because of limits in transporting commodities, money allowed for gathering of surplus from
microeconomies, and by opening up trade the power of nobility reduced. Monarchs who
couldn’t tap internal resources went looking for it outside, increasing their dependence on
merchants.
State formation ultimately requires ‘demaffiazation’
De-criminalize
Within states:
- Government system with anonymous bureaucrats, with interchangeable and
predictable tasks
- Growing number of rules determines playing field, independent judicial system
- Institutions arise to mediate conflicts
Between states the development of:
- Diplomacy
- Ideas about law to warfare/principles of combat
- Rights to land and sea (Mare Liberium, Hugo de Groot, 1609)
Recap
- Development of markets and states happens in interaction
- Geography, political context, and trade matters
- Different groups have different interests
- Therefore: development is uneven and unequal across time and space
Mercantilism
Classical Political Economy: This strand of thinking developed as the market was also
developing – in the 1700s. In those days, the organizing principle was mercantilism where
countries tried to increase their export in order to gainwealth (inflow of gold).
Different economies
- Classical political economy: the economic character of the society in which they
lived. The analysis of an economic system based on market exchange, rather
than customary relationship or state management, to increase national wealth.
o Such a system opened up opportunities for individual initiative, increased
productivity, and aided growth of trade.
- Neoclassical economy: built on the foundations of classical political economy,
they have been a consistently strong source for the view that free markets
produce efficient outcomes.
economic consequences for a country. Discuss at least three measures – at the national
or international level – that can ensure that the positive effects are maximized, and the
negative ones minimized. Incorporate both theoretical insights and empirical examples
in your answer.
A (initial draft):
- First, the positive effects are maximized is by setting fixed exchange rates. This was the
case when the gold standard was applied during the British hegemony
- Second, people should not save too much, because that would lead to a decrease in
demand which often results in countries tampering with their exchange rates which in turn
leads to deflation and more problems such as fierce competition which leads to decreasing
international trade.
- Third, innovations in the industrial sector can accelerate developments in transport and
increased scale of production which is a driver for international trade.
,Europe, China, India beginnings
Argument by Abu Lughod (from the article):
Takes 13th century as starting point
- Cultural differences are important but not sufficient explanations
- Internal and external explanations should be taken into account
- Importance of systematic geopolitical and demographic causes
Europe 1300-1700
- Private ownership becomes more important
- Labor market emerges
- Capital market emerges (not huge, but definitely is happening)
- Market for land (not in hands of kings, but the possibility to sell and buy land
arises)
- Market for goods and services emerges
- Rules and management for the protection of property, contracts and bankruptcy
emerges. (Example, if you buy something from someone a contract now has to
be set up)
- Focus on expansion and growth, competition.
Other parts of the world
Effect geography: one group dominates within the triangle
China
- Emperor dominates nobility and merchants
o Result: no incentives for trade needed to increase tax revenues.
Indian ocean:
- Merchants on various islands trade
o Result: Kings get no grip, there is no king to deal with. Downside: they
had a weak position to deal with Europe.
, Maffia analogy
Working method:
- Forcing trade with violence
- Force monopoly with violence
- Stealing
- Establish control over territory through force and violence
- Specialize in addictive products
The main policy of these mafias on route to statehood was mercantilism: trade surpluses by
boosting exports, and the accumulation of metallic money in order to monetize their realms.
Because of limits in transporting commodities, money allowed for gathering of surplus from
microeconomies, and by opening up trade the power of nobility reduced. Monarchs who
couldn’t tap internal resources went looking for it outside, increasing their dependence on
merchants.
State formation ultimately requires ‘demaffiazation’
De-criminalize
Within states:
- Government system with anonymous bureaucrats, with interchangeable and
predictable tasks
- Growing number of rules determines playing field, independent judicial system
- Institutions arise to mediate conflicts
Between states the development of:
- Diplomacy
- Ideas about law to warfare/principles of combat
- Rights to land and sea (Mare Liberium, Hugo de Groot, 1609)
Recap
- Development of markets and states happens in interaction
- Geography, political context, and trade matters
- Different groups have different interests
- Therefore: development is uneven and unequal across time and space
Mercantilism
Classical Political Economy: This strand of thinking developed as the market was also
developing – in the 1700s. In those days, the organizing principle was mercantilism where
countries tried to increase their export in order to gainwealth (inflow of gold).
Different economies
- Classical political economy: the economic character of the society in which they
lived. The analysis of an economic system based on market exchange, rather
than customary relationship or state management, to increase national wealth.
o Such a system opened up opportunities for individual initiative, increased
productivity, and aided growth of trade.
- Neoclassical economy: built on the foundations of classical political economy,
they have been a consistently strong source for the view that free markets
produce efficient outcomes.
