International Political Economy in Theoretical Traditions

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They are mercantilism, liberalism, and Marxism.Admittedly, mercantilism advocates extensive state regulation of economic activity for the sake of national economy. That means mercantilism wants to have all economic activities subservient to the interests of the state. The theory argues that if there is no formal authority given to the state, the result will be a ‘state of nature’ which is marked by brutality. So, it is necessary to surrender individual preferences and likes to universal good. Thus, according to mercantilism, collectivism is more important than individualism, and strengthening of state’s power and wealth is the best way to ensure public welfare (Keegley and Blanton 2012, p.457).The early mercantilists took into consideration the fact that the wealth of a nation is measured in the form of the quantity of gold and silver in its public treasury. In order to strengthen the same, the government intervenes in the local and international economy. While the state activity in the domestic economy includes effective collection of revenues, the efforts in the international sphere appear in the form of protectionism. In other words, mercantilism argues that the solution to solve inequality for a state is to ensure balance of trade. In the words of Crane (1997, p. 35), a state is supposed to run a balance of trade surplus, maintain an inflow of specie, in order to retain its position in the international economy where all states are acting in self-interest.Later on, Adam Smith started criticising the claims of mercantilism, and developed a new line of thinking. According to him (cited in Sally 2002, p. 112), the market has an ‘invisible hand’ of itself, which is sufficient to meet the self-interests. In other words, when markets function freely, based upon division of labour, there will be maximum efficiency and growth.