1
Harmonic and Conflict Views in International Economic
Relations: a Sraffian view
Sergio Cesaratto
Dipartimento di Economia politica – Università di Siena
[email protected]
Paper prepared for the conference Sraffa’s Production of Commodities by Means of Commodities
1960–2010: Critique and reconstruction of economic theory, 2-4th December 2010, Rome*
Introduction
Recent teaching and research commitments led me to touch upon the field of international
economic relations, an expression deliberately wider than International Economics. Dealing with
the global and European imbalances and crisis and, particularly with the behaviour of Germany
(Cesaratto 2011a, 2011b), it was natural to look for analytical approaches that went beyond the
political rhetoric of international cooperation reinforced by the economic mainstream beliefs on the
harmonic virtues of international laissez-faire. Some Sraffian contributions to the demolition of
those beliefs were, of course, well known to me – although, unfortunately, less known to students of
international economic relations, let alone of International Economics. The pre-laissez-faire age,
mercantilist tradition was another natural candidate to my attention. This was also suggested by the
frequent accusation of mercantilist behaviour moved to Germany examined in my works.
Mercantilism, the world of non-harmony, may be envisaged as an underground tradition – that a
group of north-European economists has denominated ‘the other canon’ (www.othercanon.org) –
parallel to the laissez-faire tradition, both classical and neoclassical. Kalecki’s view of net exports
as a way to realise profits also leads to a conflict view of inter-bourgeoisies relations. Finally, a
cynical view springs also from Political Realism, a major tradition in Science Policy. One
intellectual father of Political Realism is Thomas Hobbes, contemporaneous of many British
mercantilists. In this view, a social contract is possible at the domestic level by attributing the
authority to the Prince, but not at the international level where no sovereign state would recognise a
higher authority. Mercantilism and Political Realism converge in one main tradition within
International Political Economy (IPE), a field born at the beginning of the early 1970s as an attempt
to bridge the gap between International Economics and the science policy field of International
*
Given the preliminary status of this paper, the English has not yet been revised by a professional translator.
2
Relations (Strange 1970). Let us call this particular approach within IPE ‘International Political
Realism’. This is traditionally opposed to a liberal tradition that holds a more harmonic view of the
international economic relations. International Political Economy has recently begun to be
colonised by neoclassical-trained policy scientists. The Sraffian criticism of neoclassical economics,
especially in the field of International Economics, would therefore appear remarkably precious to
meet the neoclassical imperialism. The nation-state is at the centre of both the mercantilist and
International Political Realism’ traditions. The Classical, Marxist and the modern surplus approach
are not in easy terms with the notion of nation-state - Capital is cosmopolitan, although capitalists
likely not -, so that to touch upon this topic was unavoidable.
The paper will explore this intellectual track as a suggestion to further developments and
contaminations among different traditions proposing disharmonic views of domestic and
international economic relations in opposition to the harmonic beliefs of the marginalist school. The
big question here is the narrow space left in the economic profession in Italy and elsewhere to this
sort of intellectual perspectives.
1. European imbalances in the global crisis: which theoretical lessons?
The recent European experience shows how the most doctrinaire versions of mainstream
theory and policies can jeopardise the welfare of one of the wealthier parts of the globe. Known
under the label of Washington Consensus in developing countries, in the new century those policies
were largely discredited and abandoned by those countries, where they had led to one economic and
social disaster after another. On the opposite they have been adapted and adopted by the European
countries embarking in one of the worse experiment in economics, the European Monetary Union
(EMU).1 In pursuing this experiment, that in some cases shows an impressive resemblance to the
Argentinean experience, the European ruling classes were not, of course, totally blind, that is guided
by economic ideology only. The participation to the European Monetary Union (EMU) by the
European dominant economy marks indeed a considerable degree of continuity with her post World
War 2 policy stance that defined by a leading German economic historian, ‘monetary mercantilism’
(cf. Cesaratto e Stirati 2011). The involvement of the other countries in the enterprise, leaving aside
foreign policy motivations, has to be found in the idea of ‘importing the German discipline’. The
main difference with the European Monetary System that preceded the EMU is that the latter
1
‘[T]he euro is one of the most exciting experiments in monetary history’ trumpeted a working paper titled
“The euro: It can’t happen, It’s a bad idea, It won’t last. US economists on the EMU’ (Jonung e Drea, 2009)
for the European Commission-Directorate-General for Economic and Financial Affairs, making fun of the
American economists scepticism with regard to the EMU. The sightless of this statement is striking.
3
included an exit clause insofar as the member countries retained their own currency. Within the
EMU all countries boarded the same boat sinking the lifeboats once left the port. The exit clause
thus precluded, the voice clause within the monetary union has been ineffective. In particular any
timid attempt by France to change the union policy stance has met a firm German rebuff.
The fiscal clauses envisaged by the Maastricht Treaty took preventively care of the possible
opportunistic behaviour of governments in peripheral countries that could use the monetary union to
finance public spending by issuing public debt at lower interest rates. At the price of giving a large
degree of inflexibility and recessive bias to the European economic policy framework, this part of
the Treaty worked: only the centre-right government of a marginal country, Greece, used this
opportunity in a fraudulent way to expand her nepotistic expenditure. The ultimate causes of the
current European crisis cannot therefore be found in the European government profligacy, although
now, disgustingly, the economic adversity is used to attack the welfare states.
The main cause can be found in the easier access to the European financial markets at low
nominal interest rates for a number of peripheral UMU countries that followed the participation to
the EMU (European Commission 2009, 2010). Access to credit at easier terms than in the past
determined a growth of domestic demand in these countries and a nominal wage dynamics both
above the central EMU participants. The growth of domestic demand was associated to a housing
bubble in Spain and Ireland,2 and to the growth of public spending in Greece. According to standard
theory, periphery countries were importing capital to ‘catch up’ the core members. However,
growth based on the construction sector is not such to generate significant productivity and export
growth. Anyway, sluggish productivity growth and, more importantly, the above-average wage
dynamic, led those countries to a progressive loose of international competitiveness. The
combination of bubbly imports and slothful exports led those members to persistent current account
deficits and to the accumulation of foreign debt. Core Europe’s exports benefited most from these
events and saved them from negative growth rates. Symmetrically to the deficit countries, Germany
has shown a structural weakness of domestic demand due to the feeble dynamics of nominal wages,
following the labour market reforms, the restrictive fiscal policies, adopted in previous years, and
the relatively high real interest rates associated to the low domestic inflation.3 The combination of
2
But also in the Baltic countries and in some Eastern European countries that pegged their currencies to the
euro.
3
It is relevant to note that official think tanks do not attribute the German competitive gains to above average
productivity gains (e.g. European Commission 2009: 25). In this regard, the International Herald Tribune
(October 18, 2010, on line edition) reports the following declarations by top OECD economists: ‘Mr. Padoan
of the O.E.C.D., in a conversation, contended that although Germany is often chided for low domestic
consumption, “its real problem is that it invests too little at home. And there is no movement in terms of
productivity.” (O.E.C.D. figures from the period 1999 to 2009 for the Group of 7 industrial nations show
German productivity growth just ahead of last-place Italy at 0.4 percent, compared with the United States’
4
competitive gains, the weak dynamics of imports and the stronger demand dynamics in peripheral
Europe generated persistent trade surpluses, particularly with the European partners. One main
difference with past experiences in the 1970s and 1980s is the persistency of the current European
imbalances (European Commission 2009: 19), clearly related to the impossibility of exchange rate
adjustments. Also the absolute dimension of the current account deficits appears conspicuous if
compared, as a share of the GDP, to that of the US, Australia or New Zealand (ibid: 22).
This experience makes justice of many neoclassical precepts in International Economics,
although the scepticism expressed particularly by American mainstream economists mainly on the
basis of the ‘optimal currency areas’ argument must be recognised.4 To begin with, this is a
negative test for the Hekchscher-Ohlin-Samuelson theorem according to which in the long run
countries would specialise in the industries that use more of the factor they are endowed relatively
more. In this view, in the long run countries would enjoy both full employment and an equilibrium
balance of trade. Using the results of the capital theory controversy, Sraffian economists have long
time ago demolished the analytical basis of this theorem. We shall return on this.
Secondly, according to conventional theory, international trade and factors’ mobility are
substitutes (Mundell 1957). An advanced country, for instance, might export goods and services
produced with relative high capita/labour intensity, and import labour-intensive commodities or,
alternatively, export capital and import labour. In both the events, factors’ marginal products would
globally level off. In principle, ‘[t]hanks to the euro and the EU financial integration converging
economies in the euro area generally benefited from large capital inflows over the past decade’
(European Commission 2009: 34). Standard theory suggests indeed that capital would move from
industrialised to catching up countries, from countries were capital is relatively abundant and its
marginal product relatively low to countries were the opposite is true (e.g. Blanchard e Giavazzi
2002).5 Alas, however, ‘foreign capital was not always channelled to the most productive uses and
therefore not always very conducive to growth… Consumption obviously has no impact on
production potential’ (European Commission 2009: 31).
leading 1.8 percent rate). Felix Hüfner, an economist who heads the O.E.C.D.’s German desk, took the
contrarian critique a step further. He argues — controversially, he admits — that German success comes
thanks to price competitiveness via static wages and enforced by industry’s occasional threats to unions to
move production out of the country. Indeed, Mr. Hüfner says there is strong evidence that so-called “German
quality” is not an essential factor’.
4
5
See footnote 1 above.
Low interest rates would not only encourage investment, but expectations of economic growth would also
make rational to households to finance higher current spending by credit, expecting to be able to return the
debt once per-capita income will materialise, the so called ‘consumption smoothing’ (European Commission
2009: 28).
5
Conventional economists and pundits often present moralistic arguments to condemn
supposedly profligate countries that dissipate foreign resources instead of investing them.6 In so
doing they neglect the very fact that the events they are condemning took place in a laissez-faire
framework, without any state intervention. It seems then they hold a wishful thinking theory of
market behaviour, whereas real markets, if left free to operate, lead in a direction opposed to the
desired one. The theory should be blamed, not disobedient market-led behaviours and results.
More specifically, the idea that there is something called marginal product of capital
relatively higher in catching up countries, where the capital-labour ratio is lower, and vice versa in
developed countries, is wrong. It should be appreciated that in the case of foreign investment, no
less than in the domestic case, the idea that domestic saving may find an automatic debouche in
investment in periphery countries depends on the neoclassical saving – investment relationship and
it is therefore subject to the Keynesian and capital theory critiques. In the non-orthodox context
there is no automatic mechanism that would translate the larger (potential) saving supply into
domestic or foreign investment since a fall in the rate of interest does not affect investment either in
the domestic economy or in that of other countries (see Garegnani 1983 and, on the savinginvestment relation in the open economy, Dalziel and Harcourt, 1997).
The conventional approach to international capital flows, according to which surplus
countries - those which present an excess of domestic saving over domestic investment - lend this
excess to borrowing countries (those who invest more than the domestic saving supply) should be
so re-expressed. In absence of controls over capital inflows, the international private financial
institutions are able to create credit facilities to periphery countries that use them to increase their
imports – only in the most fortunate cases of investment goods, more often of consumption goods,
as open minded mainstream economists have also shown (Prasad et al. 2007). It is this increasing
demand of exports in favour of the ‘core’ countries that generates the ‘twin surpluses’ in these
countries (a excess domestic excess of savings over public and/or private consumption and a current
account surplus), in which the increasing exports determines a rise of income and saving, and the
corresponding ‘twin deficits’ in the periphery countries. In this alternative account, ‘credit precedes
investment and both precede savings’, as Kriesler and Halevi (1996, p.309) effectively put it, and
the saving-investment gap is ‘nothing but the ex post accounting result of the operation’.7 The issue
will be touched upon again in section 6.
6
German politicians, opinion makers and standard economists have traditionally been champions in blaming
the ‘profligate’ countries way of not using capital imports in productive manner using them ‘to live beyond
their means’ (Wadebrook 1972: 255; see also Cesaratto, Stirati 2010).
7
For an application of a similar approach to the ‘saving glut’ versus ‘dollar glut’ debate, popularised by the
Financial Times commentator Martin Wolf, in the determination of so-called global imbalances, see Bibow
6
We have learnt from the dismal history of tens of financial liberalisations in periphery
countries that they have never promoted development, quite the opposite they have – fortunately
only temporarily – sabotaged successful national growth experiences as well illustrated by the
Asian crisis of 1997-98. According to non orthodox economists the foreign liquidity constraint – the
availability of hard currencies to finance imports of embodied and disembodied technologies - is the
main obstacle to development for those fortunate countries that possess growth oriented ruling
classes and social coalitions. State intervention has then been historically necessary to channel
scarce foreign liquidity to industrialisation, so creating ‘financial repression’ of consumption.
Financial liberalisation and state retrenchment lead the market to a ‘wrong’ foreign liquidity
allocation, contrary to the conventional economists’ expectations based on a theory that is plainly
wrong. The similitude of the recent events in the European periphery countries to the Argentina’s
currency board experience in the 1990s is impressive, with the difference that countries in the EMU
cannot devalue to get out from it. Dismissed neoclassical theory, the behaviour of core capitalist
countries is better explained by recalling Michael Kalecki (1971) argument that net exports
financed by credit are a way to find a market the social surplus and realize profits (in the sense of
Marx’s realisation of the surplus).
Of course, the recent European experience makes also justice of the rhetorical argument
about the European cooperation. The current new trends of the German European policy stance,
more openly oriented to care of her national interests, have probably begun to open the eyes to those
obliterated by that rhetoric reminding them that the international field is composed by nation-states,
each caring of its own concerns. Not that Germany, as others, did not pay attention to her national
interests before, as the traditional accusation of mercantilist behaviour witnesses. Neoclassical
economics and, although on a much lesser degree, also the classical and Marxian traditions, are not
bestowed to deal with the international economic arena as a field of inter-state conflict. It is
(2010) who in this regard argues: ‘outside classical “corn economies” the saving-first vision and related
neoclassical loanable funds theory of interest are deeply flawed (…). Simply put, in the context of monetary
production economies the supposed excess saving (or: saving glut) can only arise together with the
corresponding excess spending being done by someone else, somewhere. Just as spending in general
presupposes money to be effectuated, any spending in excess of income in particular requires advance
“financing,” too (financing in the sense of “command over money,” not saving, that is). In this particular
case, U.S. spending in excess of income required dollar liquidity to be effectuated, dollar liquidity which
may then perhaps partly “spill out” of the United States, only to “return” in the form of Treasury purchases
(as foreign monetary authorities use the excess dollars collected from their exporters to purchase U.S.
Treasuries while issuing national debt instruments to mop up the liquidity thereby created). So it is not any
“saving glut,” but dollar liquidity, in the first instance, which allows spending to go ahead, and global
spending (and saving or current account) imbalances to arise in the process. The idea of a global saving glut
depressing interest rates in global capital markets and thereby stimulating a U.S. housing boom is not a
sound one’ (ibid: 6-7). Mutatis mutandis, Germans banks created loans in euros to periphery countries that
returned to Germany by stimulating German exports thus creating the German twin surpluses.
7
therefore natural to look at other traditions to complement the Sraffian and Keynesian criticism of
neoclassical International Economics and support non rhetoric visions of international economic
relations.
2. Mercantilism and laissez-faire
Classic treatises on Mercantilism, Furniss (1920), Suviranta (1923) and Heckscher (19552)
regard it as a first systematic attempt to understand the economic phenomena.8 All trained in
neoclassical economics, these economists find Mercantilism profoundly different from laissez-faire
doctrines, classical and marginalist.
Assessing Adam Smith’s famous criticism of Mercantilism, to which Smith devoted a
quarter of the Wealth of Nations, Suviranta (1923: 160) notes that ‘[t]he difference between the
mercantile and the liberal point of view was not accidental, arising merely from confusion in
thought, but it was deep-rooted in the different character of these economic systems’. For the
second point of view the purpose of economic activity is ‘[p]roducing wealth for satisfying human
wants, i.e. the ultimate end is consumption’. On the opposite, for Mercantilism ‘[t]he logical
consequence of the fact that the people were primarily thought of as a capital material, was that
consumption also came primarily to be servant of production, and not a means of satisfying human
wants’ (ibid: 162).
On a similar vwein, according to Heckscher (1955: 285) Mercantilism was amoral, breaking
in this with the middle age: ‘The welfare of society or, in actual fact, the welfare of the state was
substituted in place of the amelioration of the individual. This was a perfectly simple corollary of
the raison d’état, or pure Machiavellism. …In addition the raison d’état was conceived emphatically
as materialistic or economic’ (ibid: 286). Mercantilism was amoral also with regard to the means. In
particular, the pursuing of the individual interest was seen as functional to the state welfare,
although it might have to be regulated to that purpose (ibid: 298 and passim). Heckscher regards
such a vision as opposite to that of the laissez-faire economists influenced by the Utilitarian goal of
improving social happiness, seen as the summation of the individual welfare (ibidem). In this view
both the individual and the state serve the ‘community’, whereas the mercantilists held a more
cynical view in which both the individual and the community served the state (ibid: 328-9).
8
I will base my discussion of Mercantilism on those treatises and the original sources there quoted. Among
the historian of economic thought, Coleman (1957) rejected the idea of Mercantilism as a systematic body of
ideas while Bob Coats (1992) defended this view. I regard the mentioned treatises as very representative of
the subsequent reception of mercantilist ideas. They were indeed written in an age that saw the affirmation of
nationalism.
8
According to Heckscher mercantilists thought in terms of nation-states, and did not regard the
individuals within the nation as equal.
Rational thought pervaded Mercantilism: ‘Rationalism characterized mercantilism to so high
a degree. There was little mysticism in the arguments. …this rationalism expressed itself in
references to nature. Nature was conceived as a factor which also influenced the social sphere,
social life being placed parallel to physical life of the individual; and society was regarded as a
body with functions similar to those of the physical body’ (ibid: 308). The mercantilists, therefore,
as well as laissez-faire theories believed in the possibility of discovering natural laws. The
difference with the laissez-faire theorists is that mercantilists did not regard public intervention as
interference to the benign working of those laws, but as their natural complement. Mercantilists did
not believe in a ‘immanent social rationality’ (Heckscher: 321), that is in an objective economic
harmony, whereas the laissez-fair ‘went so far in its belief in the domination of natural laws in
society that it believed in an immanent reason in the free play of forces’ (ibid: 323).9
Heckscher regarded the victory of laissez-faire theories over mercantilism as temporary.
During the nineteenth century they were submerged by the historicist and nationalistic doctrines:
‘Society was regarded as a growth in the highest degree naturally determined, to be changed only
by slow and gently progressive treatment, bound to tradition, each individual nation containing
inherent and more or less ineradicable peculiarities’ (ibid: 334). According to the Swedish
economist, laissez-faire doctrines also failed in their alleged humanitarian aims. Indeed what they
did, Heckscher argues, was to support measures that protected the individual against the state, but
they failed to protect it against the market, ‘against the pressure of social conditions, which did not
have their origins in definite measures of the state but which, on the contrary, demanded such
measures if they were to be abolished. On this point – Heckscher continues – laissez-faire was
obstructed by its belief in natural rights, i.e. its belief in a predetermined harmony, to which was
added in practical policy the influence of employer and capitalist interests’ (ibid: 337). Heckscher
observes that, paradoxically but not incidentally, social reforms were supported and adopted by the
conservatives: ‘economic policy being bound to with the duty of the patriarchal state to care for the
welfare of its subjects” while “the fear of …socialism also goaded politicians into finding remedies’
(ibid: 337).
9
Importantly, Heckscher points out that Ricardo and Malthus perceive an objective disharmony, although
they did not believe that the public interference would have improved things too much (…).
9
3. The domestic social surplus and the foreign trade surplus
Talking of James Steuart, the last great mercantilist, Marx argues that although he represents
the clearer expression of the theory of ‘profits upon alienation’, he ‘does not share the illusion that
the surplus-value which accrues to the individual capitalist from selling the commodity above its
value is a creation of new wealth’ (Theories of Surplus Value, 1861-3, quotation from
www.marxists.org/archive), that is there is the idea that the surplus value is the result of one side
taking advantage of another, although the ‘unequal exchange’ that gives place to a surplus value
takes place, for Marx, in the labour not in the commodity market. The classic treaties on
mercantilism also underline the clash between the mercantilists’ view of distribution and that of the
‘modern’ marginal theory.
Furniss regards wage determination in Mercantilism as affected by the interests of the
dominant classes, something far removed from the marginalist notion of wages as the natural
reward of labour linked to its (marginal) contribution to production (1923: 198-203). The contrast
between the latter view of labour as ‘the source of national wealth’ and the mercantilist
recommendation of low wages led Furniss to read in mercantilism ‘the germs of the socialist
doctrine’ (ibid: 25), term by which he denotes the classical surplus approach. Indeed, only few
mercantilists clearly anticipated the classical concept of surplus, and almost none came close to see
the origin of a foreign surplus in the existence of a domestic surplus of production over
consumption.10 But the concept was, so to speak, there when, for instance, they regarded the
unemployed as a burden to the nation, implicitly alluding that they lived out of a surplus produced
by the employed population, and argued that their productive utilisation would have increased the
riches of the nation (e.g. ibid:.41-47 and 89-95).11 In a famous example, Petty alludes to the ability
of one section of the population to sustain the rest, including those that produce export goods (e.g.
10
See the authors quoted by Furniss (1923: 25-6), for instance Chamberlen (1649): ‘This may be a note to all
man, especially to statesmen to look no more upon the poor as a burden but as the richest treasure of a
nation, if orderly and well-employed. Which is the more manifest if we consider first, that though they
multiply more than the rich they do not only feed and clothe themselves but the rich men are fed and clothed
and grow rich by what they get out of the poor’s labor over and above their maintenance. Secondly, that the
poor bear a greater burden of taxes in the city and elsewhere. For the rich either abate what they get out of
the poor’s labor or (which is worse) permit them to starve for want of employment. (quoted by Furniss: 25,
italics added). And Bellers: ‘Regularly laboring people are the kingdom’s greatest treasure and strength, for
without laborers there can be no lords; and if the poor laborers did not raise much food and manufacture
than what did subsist themselves, every gentleman must be a labourer and every idle man must starve (cit. da
Furniss: 25 italics added). Johnson (1937: 240) quotes Dudley North (1691) who also advances a clear idea
of social surplus: “[Some labourers] are more provident, other more profuse…[some] raise more fruits from
the earth, than they consume in supplying their own occasions; and a surplus remains with them and is
property of the riches”.
11
Mercantilists oscillate between conceiving unemployment as involuntary, as Davenant: ‘a defect in our
constitution that many continue in wretched poverty for want of employment, thug willing enough to under
take it’ (quoted by Furniss 1920: 82); and the idea of unemployment as a sin (ibid; Chapt. 4).
10
Aspromourgos 1996: 23). Davenant is worth quoting: ‘If all hands in this Kingdom that are able
were employed in useful labour our manufactures would be so increased that the commonwealth
could be thereby greatly enriched and the poor, instead of being a charge, would be a benefit to the
Kingdom’ (quoted by Furniss: 91).
Suppose that the social product just consists of necessities: P = N + N ' , where N and N’
represent the necessities of the L workers and of the U unemployed, respectively, both receiving a
real wage equal to w, so that P = Lw + Uw . Defining per capita output π = P L , we get:
L(π − w) = Uw . In other words, the unemployed survive out of the surplus produced by each
worker above its own subsistence (it must be π > w otherwise the unemployed would have already
died). If the unemployed are put to work, the social product would become: P ' = ( L + U )π = L' π ,
and the social surplus: S = P '− L' w = L' (π − w) . Now a larger surplus can be used to sustain an
unproductive class (not consisting of unemployed, this time) or exported.
However, only in a late mercantilist quoted by Furniss, William Hay - an author likely
influenced by Petty – we find a clear coordination between the existence of a domestic social
surplus and that of a foreign trade surplus:12 “The source of wealth is from the number of its
inhabitants; …the more populous a country is, the richer it is or may be … For the earth is grateful
and repays their labour not only with enough but with an abundance…Now whatever they have
more than they consume, the surplus is the riches of the nation. This surplus is sent to other nations
and is there exchanged or sold, and this is the trade of the nation. If the nation to which it is sent
cannot give goods in exchange to the same value they must pay for the remainder in money; which
is the balance of trade; and the nation that hath that balance in her favour must increase in wealth”
(1751, quoted by Furniss 19-20, italics in Furniss).
Using the same symbols employed above, the coordination between the two surpluses can
thus be synthesised. In a surplus-producing economy we have: P = N + S . The social surplus can
have a number of destinations: capitalists’ consumption C c , capital accumulation I and net exports
X – M, that is: S = C c + I + X − M . If, for simplicity C c e I are zero, we obtain: S = X − M .
12
As noted above, according to Petty the necessities produced by one section of the population also sustain
those employed in the export sector. We find here a clear coordination between the internal and of the
external surpluses.
11
4. The centrality of the national output and employment and of the trade surplus
As seen, Mercantilism appears to have accorded primacy to production rather than to
consumption, as in later laissez-faire theories.13 The goal of maximising domestic production and
employment, accompanied by the minimisation of domestic consumption and imports of
superfluous goods, was finalised to obtain the larger possible foreign trade surplus, famously seen
by many mercantilists as the origin on net wealth for the nation. Influenced by Kalecki’s lesson we
may now interpret a foreign trade surplus as a way capitalists realise the domestic social surplus
they do not consume or invest. As seen, however, although somehow close to coordinate the
internal and external surpluses, it cannot be said that the mercantilists were successful in this regard.
So, what we are left with is, on the one hand, some hints especially by later mercantilists to the
social surplus as the origin of net wealth (intended as that part of the social surplus that can be
consumed or accumulated without endangering the reproduction of the system on at least the same
scale) and, on the other, the idea that the origin of net wealth is in the foreign trade surplus. How
did they justify this second origin of net wealth or, anyway, the importance they attributed to the
trade surplus?
(i) Supposing with Marx that most Mercantilists held a theory of ‘profit upon alienation’, the
conclusion would naturally follow that net gains for the nation as a whole can only be obtained by
foreign trade (Heckscher 1955: 193). One of the clearest expressions of this view is in widely
quoted passages by Charles Davenant:
‘It is the Interest of all Trading Nations, whatsoever, that their Home Consumption should
be little, of a Cheap and Foreign Growth and that their own manufacturers should be Sold at the
highest Markets, and spent Abroad; Since by what is Consumed at Home, one loseth only what
another gets, and the Nation in General is not at all the Richer; but all Foreign Consumption is a
Clear and Certain Profit’ (1697, quoted by Heckscher: II-115).
So, there are no profits if the product is sold at home, but positive profits if consumption is
kept at a minimum (by importing cheap foreign commodities) and output sold abroad. This is
certainly not Kalecki: profits means here revenues for the nation, not for capitalists14 and, as seen
above, almost without exceptions mercantilists did not clearly perceive the existence of a domestic
surplus as the basis for a foreign surplus. Nonetheless a Kaleckian flavour might still be perceived,
as if they were pointing into the right direction.
13
Suviranta 1923: 122-23, 161; Heckscher (1955 II-124): ‘the power of creating wealth is more important
than the wealth itself”.
14
Mercantilists had not a clear notion of profits as the income accruing to capital.
12
(ii) the importance attributed by the mercantilists to the trade surplus may be linked to the
importance that they seem to have attributed to the maximisation of domestic output and
employment by minimizing imports and maximising exports, and vice versa, to the maximisation of
domestic employment to reduce imports and increase exports.15 In this regard Johnson (1937: 302)
talks of a ‘balance of work’, the difference between the labour content of exports and imports,
respectively (see also Furniss 1920: 13-4, Suviranta 1923: 142; Heckscher 1955: 366). Imports were
seen as a subtraction to domestic employment, and exports as labour ‘paid by foreigners’.
Low wages were seen by mercantilists - although not unanimously – as a way to keep
domestic consumption and imports at bay (Heckscher 1955: 364), keep production costs low (ibid
152-53), and encourage hard work (Furniss 1920: Chapt. 4). A low wage economy was thus a
central objective for a typical mercantilist (Furniss, 1920, 8, 40; Heckscher 1955, pp.46, 163-5, 121153/4, 365).
A reflection might be timely here. We might distinguish a policy of import substitution from
an export-led economy. The mercantilist position is evocative of both.
(a) In Keynesian terms, a policy of import substitution that, say, decreases the marginal
propensity to import, has (ceteris paribus) a positive effect on the domestic output and employment
and, given the level of exports, on the trade balance. In addition to the initial benefit on output and
employment, by relaxing the foreign balance of trade constraint, an import substitution policy can
thus also leave more space to growth policies based on the growth of the domestic market. So, in
this case, the improvement in foreign trade is functional to the development of the domestic market,
not an objective per se.
(b) A low wage economy would also keep imports at bay – assuming that imports of
superior goods are linked to the level of real wages. This policy, however, is hardly functional to the
development of a domestic market, but rather conducive to an export-led model. Once a policy
decision to depress the domestic market is taken as a consequence of a low wage policy, then an
export-led model is the only game in town, sustained in turn by the low labour costs. The ensuing
trade surplus depends on the one hand on sustained exports and on the other on the compression of
imports, also due to low wages. This description of a low-wages, export-led economy would suit
the mercantilist idea of imports as paying foreign labour, and exports as domestic labour paid by
foreigners. In the light of the Kakeckian/surplus approach theory, in this economy capitalists
15
‘Once people had once arrived at the view that a surplus of goods was something undesirable, the
connection between this and the amount of employment followed inevitably’ (Heckscher 1955 (II):122.
Notoriously, in Heckscher a foreign trade surplus was necessary to get rid of what he named ‘fear of goods’
or ‘fear of redundant stocks’ (ibid: 59).
13
maximise the domestic surplus they extract from workers, and get rid of it by net exports. This case
seems to suit the German post-ww2 case, on which I shall briefly return below.
(iii) Although a popular interpretation of mercantilism regards the mere accumulation of
species as the object of a trade surplus, mercantilists seems to have maintained that a net influx of
precious metals would be functional to the growth of the domestic money supply, lowered the
interest rate and favoured economic activity (Heckscher 1955: 204, 208-9, 217-8 and passim).
Heckscher notes that the idea that savings finances investment was absent in this literature, and
capital was identified with money (ibid: 198-99), something that would not sound strange to
modern non-conventional monetary economists. This was of course Keynes’s favourite explanation
of mercantilism expressed in Chapter 23 of the General Theory.
(iv) Finally, the goal of a foreign trade surplus can be interpreted as a way to generate
international relative political power.16 Famously, the relative importance of power and wealth was
object of a controversy between Heckscher (1955: I24 and passim) and Viner (1948), both
acknowledging that the two objective were mutually sustaining each other, but with Heckscher
giving primacy to power and Viner to wealth.
The mercantilist tradition has indeed been perceived as putting the reasons of the nationstate at the centre of the analysis, contrary to the cosmopolitan views of individualistic laissez-faire
theories, but also of Marx’s stateless capital: ‘the state stood at the centre of mercantilist endeavours
as they developed historically: the state was both the subject and the object of mercantilistic
economic policy’ (Heckscher 1955: I 21).In short, mercantilism is ‘the economic system of
nationalism’ (ibid: 13).17 The political importance of relative economic and political power for the
national dominant elites’ interests embodied in a persistent trade surplus, indicator of enduring
competitive and financial strength cannot be easily dismissed. The notion of nation-state is
discussed again in section 7.
In my view, the later reception of the mercantile tradition is as much important as the precise
interpretation of their original thought. In my discussion of the presumed German mercantilism
(Cesaratto 2011; Cesaratto e Stirati 2011) I see the pursue of an export-led growth – and of the trade
16
Heckscher (1955: II, 317) argues that the ‘obsession with power also had this result, that the interest was
taken not in the absolute total of commerce nor in the utility which it represented to the inhabitants of a
particular country, but only in the superiority gained over other countries, irrespective of whether there was
no absolute increase at all or perhaps even an absolute decline.’ The best quotation he provides is from an
important German mercantilist: ‘Whether a nation be to-day mighty and rich or not depends not on the
abundance or scarcity of its powers or riches, but principally on whether its neighbours possess more or less
than it. For power and riches have become a relative matter, dependent on being weaker and poorer than
others’ (II, 22). Locke would hold similar thesis (II, 22-23)
17
Heckscher distinguishes between the Romanticist notion of nationalism concerned with traditions,
ethnicity etc., and the secular Mercantilist identification of it with the State interest.
14
surplus as the yardstick of the working of the model – as a growth policy choice alternative to
domestic-demand-led growth. In Germany, the latter was rejected by the influential ordo-liberal
school as conducive to social indiscipline and inflation, regarded in turn as a disturbance to the
market-led resource allocation. In this context, although not explicitly acknowledged, export-led
growth remained the only game in town - a model that is conducive to, and is at the same time
supported by, social discipline and wage restraint. As Ludwig Erhard (1897-1977), the economic
ministry widely considered and designer of the German post-WW2 economic miracle, stated in
1953: ‘foreign trade is not a specialized activity for a few who might engage in it, but the very core
and even precondition of our economic and social order.’ (quoted by Cronin 1996). This model, as
said, does perfectly fit the Kaleckian view of net exports as a way to realise the domestic surplus,
and of financial capital flows as a way to finance expenditure by trade deficit countries.
5. The mercantilist tradition and the International Political Economy
Mercantilism was deemed death in the late-XVIIIth century, when Adam Smith was self
confident enough to pass under silence the contribution of the last quasi-contemporaneous great
mercantilist, James Steuart.18 Nonetheless the mercantilist received wisdom survived as a
underground stream of thought parallel to mainstream laissez-faire economics, for instance in the
protectionists, Alexander Hamilton and Friedrich List, the German Historical School, up to modern
Developmentalism and in some versions of International Political Economy (IPE) that will be
briefly considered here.19
IPE was born circa in the early seventies in the Anglo-Saxon countries as an attempt to
bridge the gap between the field of International Relations in Political Sciences and International
Economics (see Cohen 2008). Economists Albert Hirschman and Charles Kindleberger are regarded
as forerunners of this field. Simplifying, there are two competing political philosophy inspirations
in IPE, liberalism and political realism, which respectively hold harmonic and conflict views of the
international relations. Not surprisingly, the liberal (in the European sense) view refers to the
standard neoclassical theorems on international trade.
The intellectual fathers of political realisms are considered Thucydides, Machiavelli and
Hobbes (e.g. Donnelly 2000). All held a pessimistic view of the human nature as moved by greed,
suspicion, and ambition. As a result, there is a conservative element in political realism – the human
18
It is sad to say that the same tactic conventional economists adopt nowadays with regard to dissenting
schools.
19
Mercantilism has also not disappeared in the lay(wo)men’s and politicians’ preoccupation with foreign
competition. Krugman (1997) devoted a book to disprove these preoccupations. We shall neglect here other
important traditions in economic international relations, for instance that of Wallerstein.
15
soul cannot change – but also a healthy reaction against easy utopias seen as an obstacle to real
change.20 The international arena is regarded as an anarchic field governed by power rules: no
Hobbesian social contract that delegates power to a super-national authority is acceptable, if not for
contingent convenience, to sovereign states.21 The modern recovery and application of this
approach to the international relations is due to Edward Carr (the British Marxist), Hans
Morgenthau, and Kenneth Waltz. On the opposite, the liberal tradition sustains that the affirmation
of the market economy is a solution both to domestic and international conflicts as a consequence of
the mutual advantage of free trade (on this cf. the critical analysis by Albert Hirschman, 1977).
Not in contrast with the mentioned competing influences on IPE, an influential member of
IPE, Robert Gilpin, identifies a liberal, a nationalistic and a Marxist tradition. ‘Economic liberals –
he writes - believe that the benefits of an international division of labor based on the principle of
comparative advantage cause markets to arise spontaneously and foster harmony among the states;
they also believe that expanding webs of economic interdependence create he basis for peace and
cooperation in the competitive and anarchic state system’ (Gilpin 1987: 12-13). On the opposite,
‘Economic nationalists… stress the role of power in the rise of a market and the conflictual nature
of international economic relations; they argue that economic interdependences must have a
political foundation and that it creates yet another arena of interstate conflict, increases national
vulnerability, and constitutes a mechanism that one society can employ to dominate another’ (ibid:
13). Gilpin identifies this approach with the mercantilist tradition.22 Finally, the Marxist tradition
regards the international relations as a field of imperial conflict and of exploitation of periphery
countries.
Comparing the three approaches, Gilpin points out that similarly to the liberals, Marxists
tends to regard international trade as a modernisation force against the scepticism of nationalists
(ibid: 14).
23
The nationalists support the primacy of politics over economics, the Marxists the
20
The progressive nature of political realism has been defended by the American and criticised by the British
political scientists in the symposium: ‘American Realism and the Real World’, Review of International
Studies, vol.29, 2003.
21
One of the inspiring figures of International political realism, Reinhold Niebuhr (1892-1971), an American
Protestant priest, wrote in a book by the suggestive title: Moral Man and Immoral Society wrote: ‘Power
sacrifices justice to peace within the community and destroy peace between communities’ (quoted by
Donnely 2000: 27).
22
Elsewhere Gilpin (1984: 290) identifies three characteristics of the mercantilist/political realist approach:
(i) ‘the conflictual nature of international affairs’; (ii) ‘The building blocks and ultimate units of social and
political life are not the individuals of liberal thought nor the classes of Marxism’ précising, however, that
“in certain circumstances "class" may in fact be the basis of group solidarity’; (iii) ‘power and security’ as
the main human motivation.
23
“[L]iberals believe that trade and economic intercourse are a source of peaceful relations among nations.
Because of their mutual benefits of trade and expanding interdependence among national economies will
16
opposite, while the liberals sustain that the two spheres should keep relatively autonomous (ibid:
26). Finally Liberals and Marxists share an optimistic view of the human fate, the opposite of the
nationalists which, at the international level, base this stance on a conflict view of the international
relations (ibid: 43).
The sympathies of the realist Gilpin go to the nationalists and to the Marxists, his personal
liberal beliefs notwithstanding (ibid: 25). He is also critical of the neoclassical foundations of the
liberal view, but his criticism is the rather feeble one that accuses the dominant theory of being
based on unrealistic assumptions (e.g. perfect competition, rationality, perfect information and the
like).24 Any theory must indeed make simplifications as long as they can be removed without
altering the substance of the theory, and this is what mainstream economists have largely done with
respect to the alleged unrealistic assumptions. In view of this frail criticism, the realist tradition of
IPE represented by Gilpin appears quite exposed to the liberal and neoclassical criticism. Not
surprisingly, in the recent years the youngest generation of American IPE students has increasingly
recurred to neoclassical propositions and mainstream research methods. In this regard Benjamin
Cohen’s intellectual history of IPE (Cohen 2008) sparked off some debate on the evolution of this
field hosted by the (British) Review of International Political Economy. Cohen underlined the
increasing divergence between the American and British IPE, observing that ‘the American school
has become increasingly standardized, it has come to resemble nothing so much as the methodology
of neoclassical economics, featuring the same penchant for positivist analysis, formal modelling,
and where possible, the systematic collection and evaluation of empirical data’ (ibid: 41-2). He also
notes that political scientists ‘have an inferiority complex when it comes to economics’ (ibid: 42).
The new trend in IPE is called Open Economic Policy (OEP) and its methods are clearly those of
standard neoclassical economists, as one leading member states:
OEP begins with sets of individuals – firms, sectors, factors of production – that can be
reasonably assumed to share (nearly) identical interests. Relevant units of analysis vary by
technology, institutions, and other factors. …units are not ontologically given nor are states
the primary unit of analysis, although state policy is often the object to be explained.
Deducing interests from economic theory was the essential innovation of OEP. … The
movement of OEP towards economics is not driven, in my view, by disciplinary envy but by
the insights that economic theory provides for political interpretations of policy choice.
Building on established theories and models of economics also promotes the use of formal
models and existing economic data sets in IPE. After specifying the interests of differing
units, OEP turns to how these interests are aggregated through domestic political institutions.
Institutions serve to define what political power means in a particular society,
largely by setting the reversion point for policy in the absence of agreement between units. …
tend to foster cooperative relations. Whereas politics tends to divide, economics tends to unite people
(Gilpin, 1987: 31).
24
Unfortunately, this sort of criticism is also shared by many non-conventional economists.
17
With domestic interests specified and aggregated through varying sets of institutions, OEP
then understands states as bargaining to influence one another’s behavior and, in turn, the joint
outcome of their interactions. In focusing on bargaining, OEP once again emphasizes
institutions, but now at the international level. …scholars sharing this epistemology are
willing to sacrifice empirical richness and context for (1) more parsimonious, but therefore
more fully specifiable theories, and (2) more narrow, but therefore more easily controlled
empirical tests. (Lake 2009: 50, 52)
Similarly to Gilpin, defences of traditional IPE point in the first place to the limitations of
starting the analysis from the economic choices of rational individuals. As another leading old
guard IPE member points out, a high price is paid by ‘making preferences and interests exogenous,
assuming that interests can be derived only from a rationalist model of human behaviour, excluding
from analysis the constitutive aspects of institutional life, committing to an exclusively materialist
conception of preferences and interests, and importing reductionist economic theories of politics’
(Katznestein 2009:127; see also Coahane 2009: 37-8, another founding member of IPE). I do not
regard this criticism to the assumption of rational choices taken by materialistic agents that is agents
that care their own interest only, as particularly diriment. As I said, I do not see how the
introduction of maverick behaviours and not self-interested choices could improve the analysis of
market economies. The question is rather the lack of analysis, in methodological individualism, of
the reasons behind those rational and materialist choices, how individuals and collectives perceive
interests and how choices are formed. In other words, the single individual, rational or not, cannot
be the brick on which to build, by successive assemblages, a theory of domestic and international
institutions, as proposed by Lake. But a non individualistic theory of society calls for an alternative
view of its economic constitution.
We cannot but to refer to Marx to criticise methodological individualism. To Marx the
methodological individualism of the early bourgeois economists was not surprising; after all they
represent the ideology of a new form of society in which individuals broke the preceding
institutional ties – feudal, religious etc. - with other individuals. This of course does not imply that
ties have disappeared: they have just been superseded by more anonymous, market- dominated
relations, what gives the illusion of being able to start the analysis from the isolated individual.25
25
Although well known, some passages from the Grundrisse are worth quoting: “Individuals producing in a
society - hence socially determined individual production – is, of course, the point of departure. The
individual and isolated hunter or fisherman, with whom Smith and Ricardo begin, belongs among the
unimaginative conceits of the eighteenth-century Robinsonades, which in no way express merely a reaction
against over-sophistication and a return to a misunderstood natural life, as cultural historian imagine. As little
as Rousseau's contrat social, which brings naturally independent, autonomous subjects into relation and
connection by contract, rests on such naturalism.. This is the semblance, the merely aesthetic semblance of
the Robinsonades, great and small. It is, rather, the anticipation of ‘civil society’, in preparation since the
sixteenth century and making giant strides towards maturity in the eighteenth. In this society of free
competition, the individual appears detached from the natural bonds etc., which in earlier historical periods
18
The production and reproduction of social life is a collective fact for Marx, although in history the
modalities in which the social surplus is produced and distributed have deeply changed.26 The
individual’s interests and choices are moulded by its position within each mode of production (cf.
Marx 1859). Note how much the forgivable ‘robinsonades’ of Smith and Ricardo, ‘forgivable’
because their distribution theories hinted to a non-individualistic, class-based constitution of
society, become the very foundations of economic and social theory with marginalism. In this
theory production is the ex post result of the (marginal) apportion of individual endowments of
production factors, an unhistorical view where socio-economic relation of production are not the
result of the evolution of the modes in which humans produce and distribute the social output and
surplus. We note that the Sraffian criticism of the marginal theory has been accompanied by the
recovery of the classical, more historically oriented standpoint.
Traditional IPE is also interested in studying how interests and preferences are formed, a
field of research in IPE called ‘constructivism’.27 Farrel and Finnemore (2009: 59-60) links the
different ‘ontology’ of OPE’s rational choice and ‘constructivism’ to their methodologies,
quantitative and qualitative, respectively:
make him the accessory of a definite and limited human conglomerate. Smith and Ricardo still stand with
both feet on the shoulders of the eighteenth-century prophets, in whose imaginations this eighteenth-century
individual – the product on the one side of the dissolution of the feudal forms of society, on the other side of
the new forces of production developed since the sixteenth century – appears as an ideal, whose existence
they project into the past. Not as a historic result but as history’s point of departure. As the Natural
Individual appropriate to their notion of human nature, not arising historically, but posited by nature. This
illusion has been common to each new epoch to this day. Steuart avoided this simple-mindness because as an
aristocrat and in antithesis to the eighteen century, he had in some respects a more historical footing. The
more deeply we go back to history , the more does the individual, and hence the producing individual, appear
as dependent, as belonging to a greater whole: in a still quite natural way in the family and in the family
expanded into the clan; then later in the various forms of communal society arising out of the antithesis and
fusions of the clans. Only in the eighteen century, in ‘civil society’, do the various forms of social
connectedness confront the individual as a mere means towards his private purposes, as external necessity.
But the epoch which produces this standpoint, that of the isolated individual, is also precisely that of the
hitherto most developed social (…) relations. The human being is in the most literal sense a political
animal, not merely a gregarious animal, but an animal which can individuate itself only in the midst of
society. Production by an isolated individual outside society – a rare exception which may well occur when a
civilized person in whom the social forces are already dynamically present is cast by accident into the
wilderness – is as much of an absurdity as is the development of language without individuals living together
and talking to each other” (Marx 1957 [1973]: 82-3; italics in the original). To note the exception that Marx
does with James Steuart (1712-80) defined elsewhere as 'the rational expression of the Monetary and
Mercantile System' (Theories of Surplus Value, 1861-3, present quotation from www.marxists.org/archive).
On the concept of social classes in James Steuart see Anderson and Tollison 1984: 458.
26
In a widely famous book, biologist Jared Diamond regards the production of an economic surplus as the
trigger of the human civilisation. He presents a theory of the human evolution that recall that of the ‘four
stages’ found in classical authors as Turgot and Smith (Meek 1971).
27
Cf. Cohen (2008: 131-32). The most important contribution in Marxism to the analysis of the formation of
ideologies is that of Antonio Gramsci.
19
In order better to understand the relationship between ontology and methodology in the study
of international political economy, we would ideally like to examine the relationship between
the ontological assumptions (that is, the basic understandings of how the world works) of the
two main theoretical approaches to international political economy – rational choice and
constructivism – and the methodological approaches and associated methodologies –
statistical or qualitative – that proponents of each ontology use to investigate the
world….While we do not have space to provide a complete account of these ontologies and
methodologies, we note that constructivism and rational choice accounts start from quite
different accounts of how the world operates. Typically, constructivists employ ontologies that
invoke mutual constitution and transformation, while rationalists, whether materialist or
ideationalist, work from models in which actors’ understandings of the world are complete
and fixed…. On the basis of non-systematic observation, we suspected that there would be a
strong and obvious relationship between ontology and methodology in IPE scholarship. IPE
scholars adopting a rational choice (or, in our proxy, liberal …) ontology would be more
likely to use quantitative methodology, and IPE scholars using a constructivist ontology
would be more likely to use qualitative methodological techniques.
Similarly, the OPE exponent Lake (2009: 53) distinguishes between a more ‘holistic’,
history oriented perspective, from the ‘partial equilibrium’ approach, but with little hope of a
convergence:
Holistic analyses capture feedback effects necessarily ignored by the partial equilibrium
approach, and generate insights into historical contingencies – those dimensions of context
that are unique to particular events. Each type of explanation generates important but
complementary insights into political events that, taken together, are undoubtedly more
insightful and complete than either alone. Yet, it is unlikely that a large number of partial
equilibrium analyses will ever sum to a holistic account, or that a holistic explanation can be
broken down and tested as a series of comparative static propositions. Given the emphasis on
feedback effects and contingency in holistic accounts, and their absence in partial equilibrium
models, we have no reason to expect that either type of explanation scales up or down easily
into the other. Thus, I am skeptical whether a seamless and sturdy bridge can be built across
the epistemological divide identified by Cohen in transatlantic terms.
These two methodologies should not be regarded as a radically opposed. No doubt that what
Lake defines as the more parsimonious and testable strategy derived from standard economics too
often correspond to the neglect historical specificities in favour of simplistic hypothesis tested
through exoteric statistical packages over large data bases. However, this does not preclude non
neoclassical scholars to use, whenever useful, the same method, hopefully in a more careful way –
and in principle also the opposite may be true, neoclassical economists looking at historical
specificities through the lens of their theory. This is to say that it is to the substance of the theory
that we should pay attention to, and only subordinately to research strategies. The relevance of the
Sraffian criticism to the neoclassical foundations of methodological individualism, and its
vindication of many aspects of the Marxian view has already been mentioned. The neoclassical
20
offensive against a conflict view of international relations can also be rebuffed once a more rigorous
criticism of neoclassical theory is acknowledged. To this we shall devote the next section.
The centrality attributed by International Political Realism to the State as the unit of analysis
is also a troubled aspect. On the one hand the importance of the state as a guarantee of economic
activities is correctly emphasised: ‘as Carr has argued, every economic system must rest on a secure
political base’ (Gilpin: 47).28 On the other hand, Gilpin points out, in most IPE it is less
convincingly, ‘assumed that society and the State form a unitary identity and that foreign policy is
determined by objective national interest’, whereas, more correctly, ‘foreign policy (including
foreign economic policy) is in large measure the outcome of the conflicts among dominant groups
within each society (ibid: 48). We refer to Cohen (2008: 125) for the debate in IPE (see also
Katzenstein 1977: 604). In the final section we shall visit this topic by comparing the view of Marx
and List.
6. Comparative disadvantages?
The discussion about the presumed advantages of free trade actually begun with Adam
Smith criticism of Mercantilism. As known, he accused the mercantile doctrine of looking after the
interests of merchants and producers, while sacrificing those of consumers (1776: 661-2) and
asserted the advantages of international trade for all participating nations through exchange of
surplus products, market expansion and thereby extension of the division of labour (1776: 446-7).
Smith held a theory of absolute advantages from trade which is very different from the theory of
comparative advantages attributed to David Ricardo. A theory of absolute advantages is in principle
consistent with the pursuit of mercantilist policies, e.g. trade policies aimed at developing and
safeguarding national absolute advantages. In other words, despite his attack on mercantilism,
Smith’s theory of international trade is not inconsistent with a disharmonic view of international
political relations. Ricardo’s theory of comparative advantages is commonly regarded as the final
challenge to Mercantilism: an harmonic view of international relations was seen to prevail over a
conflict one, although Ricardo was very clear in circumscribing the validity of his celebrated
theorem to the case of absence of capital mobility, on which we shall return.
28
Carr (1939 [1981]) wrote: “Economic forces are in fact political forces. Economics can be treated neither
as a minor accessory of history, nor as an independent science in the light of which history can be
interpreted. Much confusion would have saved by a general return to the term ‘political economy’, which
was given the new science by Adam Smith himself and not abandoned in favour of the abstract ‘economics’,
even in Great Britain itself, till the closing years of the nineteenth century. The science of economics
presupposes a given political order, and cannot be profitably studied in isolation from politics” (ibid., p.108).
21
Whereas the Ricardian theory found the origin of comparative advantages in technological
differences, the basic marginalist explanation of international trade usually named HeckscherOhlin-Samuelson (H-O-S) theory would explain specialisation on the basis of the different factors’
endowments of countries. The international specialisation of fully employed freely trading countries
would then depend on relative factors’ scarcity. The contribution of Sraffian authors, such as
Parrinello and Steedman, has been into two directions. On the one hand, the results of the capital
theory controversy have been used to show the limited validity of the (H-O-S) theory to the case in
which only land and labour are used as inputs. On the other hand modern extensions of Ricardo’s
analysis have confirmed the limitations of comparative advantages that Ricardo’s himself pointed
out.
Beginning from the first aspect, the H-O-S theorem may be rigorously expressed in terms of
given endowment of non-produced production factors, say land and labour. On this basis the theory
predicts that the country with the higher ratio of land to labour will export the land intensive
commodity. The inclusion of ‘capital’ would, however, undermine the prediction that the country
with the larger ‘capital supply’, and the lower interest rate, will export the most capital-intensive
commodity. To begin with, there is the standard problem of measuring the ‘given amount of capital’
independently of distribution. Secondly, results in capital theory show that (supposing two sectors)
the capital intensity ordering of the sectors may change with the fall of the interest rate; and that the
price of a more capital-intensive commodity will not monotonically falls with the fall of the interest
rate.29
Steedman also hint to the troubles in the neoclassical vision of capital flows already
mentioned in section 2. The international mobility of ‘production factors’ is seen by conventional
theory as alternative to international trade: at the end of the day it is the same whether a relatively
29
Steedman (1979a: 4-5) provides an exemplary clear summary of these results: “It cannot be taken for
granted…that the properties of the HOS analysis with a given endowment of capital value are precisely
analogous to the properties of the basic version with a given endowment of homogenous land. This for the
simple reason that a ‘capital value’ cannot be defined other than in terms of relative prices, which are to be
determined within the analysis. It is thus less transparent what is to be meant by saying that a country has a
given endowment of capital value: in what units is this endowment measured? How does it come to be given
in terms of, say, rice but not given in terms of, say, sunflower oil (for the relative price of rice and sunflower
oil are to be determined within the analysis)? Even were these puzzles resolved, the question would remain
whether, by analogy with the properties of the land-based analysis, the capital-labour intensity of production
in each sector is inversely related to the rate of profit and whether the price of a more capital-intensive
commodity always rises relative to that of a less capital-intensive commodity when the rate of profit
increases. The question is critical, for the monotonic relations at issue together constitute the very heart of
the HOS theory. Now it has been demonstrated conclusively…that the capital-labour ratio in any sector need
not be inversely related to the rate of profit (…). Nor need the relative price of the more capital-intensive of
two commodities rises as the rate of profit increases’ (italics in the original).
always rises relative to that of a less capital-intensive commodity
22
‘capital rich’ country exports capital intensive commodities or, directly, ‘capital’. Steedman points
out that the idea of ‘capital’ as an aggregate value leads neoclassical economists to confuse capital
flows as exports of physical equipment – something belonging to trade theory - and capital flows as
financial flows.30 The idea that capital flows correspond to capital rich countries lending savings to
capital-poor countries is subject to the capital theory criticism as much as the domestic savinginvestment nexus (Garegnani 1983). A Kaleckian view would lead us to regard financial flows to
trade deficit countries as dissociated from real capital trade. Experience from the 1970s in
developing countries and more recently in Europe, as seen in section 2, suggests they are indeed
likely more associated with imports of consumption goods.
Whereas marginal theory focuses to the different factors’ endowments of countries, Ricardo
suggested that countries could differ because of their respective technological level and, in the
absence of capital mobility, specialise in producing the commodity where they possess the greater
comparative advantage, or the smaller comparative disadvantage. Brewer (1985) and Parrinello
(e.g. 2009) show that once the real wages in the two potentially trading countries are taken as
given31 and there is capital mobility, absolute and not comparative advantages determine the
location of production. A too high wage rate, or a too low productivity level may make a country
uncompetitive inducing capital to flow to the other country: “We can say that a whole capitalist
economy is not competitive, if all its capital using techniques are unprofitable at the international
equilibrium prices. This result overrules the claim that ‘a country must always possess a
comparative advantage in something’ and vindicates ‘the intuitive idea that national
competitiveness can be a source of possible economic conflict among the national economies of a
global economy’ (Parrinello 2009: 6, 3 mimeo version). 32
7. Mercantilism, Classical economists and Marx on the nation state
30
“[S]ome analysis of the ‘international mobility of capital’ proceed as if a country’s endowment of ‘capital’
were a quantity of a homogenous, physical input, part of which may be used in domestic production, while
the remainder is ‘hired out’ for use in another country! It is, perhaps, not entirely clear to what real world
process such an analysis is supposed to correspond, unless it be the leasing of ships and aircraft. In the real
world, international investment flows are, in themselves, financial flows. The latter will, of course, often lead
directly to trade flows of the specific capital goods to be used in, say, equipping a factory but it is
nevertheless crucial to keep the two types of flow conceptually distinct. That distinction is, however, always
in danger of being lost in an analysis based on the conception of an aggregate ‘factor’ called ‘capital’, since,
as is now widely recognised, that conception has fused – and confused – the concept of ‘capital as finance’
and ‘capital as a specific means of production’ (Steedman 1979b: 9-10).
31
For instance assuming that with unemployed labour wages are close to the subsistence level determined on
the basis of historically determined social norms.
32
In this light, the anti-Ricardianism of the colleagues of ‘the other canon’, mentioned at the beginning of
this essay, appears particularly misplaced.
23
As seen, both mercantilism and Marxism reject the approach typical of laissez-faire
economics of
considering the individual as the core analytical anchor, what Marx called
‘robinsonades’, although Marx saw in this the defeat of preceding social relations and the
affirmation of the free market economy. The social relations of production represent Marx’s
analytical anchor, considered as the way a society organises the production and distribution of the
social output and surplus. The mercantilist tradition does not arrive to the sophistications of Marx’s
historical materialism, but nonetheless share with Marx the rejection of the market as the locus in
which the free choices of a variety of individuals are recomposed in an harmonic way. National
communities and States, rather than Marx’s social relations of production and social classes, are the
reference categories for the mercantilist tradition. In an important unpublished work, Marx (1845)
fiercely criticises Friedrich List, an author that we can well insert in the mercantilist traditions of
national political economy and developmental state. Marx’s stance is not surprising, as Szporluk
(1988: 4-5) explains:
‘ When it finally took shape, Marxism was simultaneously a theory of history, economics, politics,
and philosophy—and a program for the liberation of man that extended to all those areas. Marx
postulated a connection between all spheres of human life, and his program dealt accordingly with
all of them in a dialectical unity. Indeed, Marx claimed that his theory, while the result of his own
intellectual endeavour, was also the reflection of objectively working historical forces and would
therefore be carried out as a predestined outcome of historical development. Marx further thought
that the proletariat was that "material force" whose historical task was to realize his philosophy.
When one bears all of this in mind, it is easy to see why Marx found the theories of List,
particularly his view of history and his program for the future, not only objectionable but aberrant.
The doctrine of List, Marx was convinced, contradicted everything then taking place in the
development of society—before his, and List's, eyes. It was axiomatic to Marx that industrial
progress intensified and sharpened the antagonism between the bourgeoisie and the proletariat, an
antagonism that would in the immediate future explode in a violent revolution. List, in the
meantime, preached class cooperation and solidarity in the building of a nation's power. Marx
thought that the Industrial Revolution, and the concomitant rule of the bourgeoisie, promoted the
unification of the world and obliterated national differences. (Communism, he thought, would
abolish nations themselves.) List claimed that the same phenomenon, the Industrial Revolution,
intensified national differences and exacerbated conflicts among nations. While Marx saw the
necessity of workers uniting across nations against the bourgeoisie, List called for the unification of
all segments of a nation against other nations. ‘
There are indeed similarities and complementarities between the two approaches. Both see
the market as a locus of conflict – among classes according to Marx, among nation-states for
mercantilism. Behind modern economic nationalism there are the national bourgeoisies, but in
many cases the working class may support nationalistic policies as far as they sustain domestic
employment and wages: in this sense the two views overlaps and complement each other. Some
further specifications are timely here.
24
(a) As widely acknowledged by Marx, a conflict view of income distribution based on the
concept of the social surplus, that part of the social output that remains after the labourers’
necessities are paid and that is appropriated by the dominant classes, was proper to the Classical
economists too, particularly to Ricardo (Sraffa 1951; Garegnani 1984). As said, this concept is only
sporadically present in the mercantilist literature. Rather than to class conflict, mercantilist referred
to international relations as a field of discord, given that no super-national authority would be
recognised by sovereign states - whereas individual citizens would acknowledge the superior
authority of the prince to sedate domestic conflicts. As said, classical economists tended, on the
opposite, to hold an harmonic view of international trade since Smith dismissal of Mercantilism and
Ricardo demonstration of the existence of comparative advantages in international trade. As seen,
taking advantage of recent development of Classical theory, Parrinello (2009) and others have
confirmed that once capital mobility is allowed – as the same Ricardo had clearly suggested absolute advantages may dominate to the point that, in absence of restrictions to foreign trade and
of national industrial policies, deindustrialisation may take place in disadvantaged countries. In
addition, the Kaleckian view of the trade surplus as a way to realise the social (domestic) surplus
both include the Classical origins of profits and the mercantile conflict view of foreign trade. These
developments may vindicate the Mercantilist point of view.
(b) The belief in free trade and comparative advantages may have led Classical economists
to overlook the role of the state (there are, of course, exceptions e.g. in The Wealth of Nations, and
also Ricardo’s belief in capital immobility can be taken as a reference to a nationalist element, but
not such to disconfirm the general attitude). Marx too did not attributed much space to nation-states
either and dismissed List’s criticism to Classical economists in this regard. According to List the
Classical economists’ defence of free trade was functional to the commercial interests of Britain of
having open access to foreign markets (paraphrasing Joan Robinson [1966] and Carl Schmitt it may
be argued that List regarded free trade ‘as the continuation of mercantilism in other forms’).
According to Marx, on the opposite, the Classical economists were actually decoding the secular
and cosmopolitan characteristics of capitalism (Marx 1845; Szporluk, 1988, p.66 and passim), in
particular the conflicting interests of capital and labour that, in his opinion, went beyond the
provincial boundaries of national states. Marx’s criticism of List also uncovers the German national
bourgeoisie’s interests behind List’s vivid description of national identities (there is a similarity
with Adam Smith’s criticism of mercantilist writers as prejudiced defenders of merchants’ own
interest). The expectation of a forthcoming revolution in Britain and its generalisation elsewhere
likely led Marx to dismiss the importance of development of backward nations and to regard
nationalism as an impediment to revolution rather than as necessary historical passage to developed
25
capitalism. Like religion, to Marx the notions of political community and national identity are
illusions and false consciousness (Szporluk, 1988: 58). Without discarding Marx’s criticism to the
reactionary aspects of nationalism and to the global nature of capitalism (the first part of Il
Manifesto is a praise of global capitalism), history very soon vindicated the factual relevance of
List’s arguments about the nation states in the economic and political fields. Most socialist
revolutions indeed overlapped with national independence fights.
In this respect the role played by the German Historical School is exemplary. The most
representative exponent of the Young Historical School, Gustav Schmoller in his famous ‘The
Mercantile System’ (1897) takes distance from methodological individualism: ‘The idea that
economic life has ever been a process mainly dependent on individual action, - an idea based on the
impression that it is concerned merely with methods of satisfying individual needs, - is mistaken
with regard to all stages of human civilisation, and in some respect it is more mistaken the further
we go back’ (ibid: 4). Schmoller’s perspective is, of course, much different and somehow opposite
to Marx’s own. Having its roots in Cameralism, in the German Historicism and Romantic
movements, according to the Historical School in modern times the nation state is the supreme
expression of the human belonging to superior organisms (cf. Riha 1985, chapters 4 and 5).
Schmoller talks of ‘real political economies as unified organisms, the centre of which should be, not
merely a state policy reaching out in all directions, but rather the living heart-beat of a united
sentiment’ (50, italics in the original). And here we find the famous definition of mercantilism, later
adopted by Heckscher: ‘in its innermost kernel [mercantilism] is nothing but state making – not
state making in a narrow sense, but state making and national-economy making at the same time;
state making in the modern sense. ... The essence of the system lies not in tariff barriers, protective
duties, or navigation laws; but in something far greater: - namely, in the total transformation of
society and its organisation, as well as of the state and its institutions, in the replacing of a local and
territorial economic policy by that of the national state.’ (ibid: 50-1). This is ideology, of course, but
development economists, particularly Gerschenkron (1962: 24), have later underlined the
importance of nationalist ideologies ‘igniting the imaginations’ of people for the mobilisation of
national resources at the early stages of industrialisation. Why in some nation/state a developmental
bourgeoisies emerges from the previous social relations of productions, or perhaps the opposite
question: how some pre-industrial social relation of production generate progressive pro-growth
dominant classes, interested in a developmental state, is a little explored field. Neoclassical
Institutionalists seems unable to go beyond the mantra of the central role played by the protection of
26
property rights in igniting growth. While this may somehow be part of the story, the best of it is still
to be written.33
Conclusions
The recent European imbalances and crisis, an aspect of the global imbalances and crisis,
gave us the occasion to compare the harmonic and disharmonic views of the international economic
relations. The former, more liberal view is based on the neoclassical trade theory, with a frequent
reference to the Ricardian theory of comparative advantages. The second tradition derives from the
pre-Smithian mercantilist conflict views of international trade. We investigated the contribution that
Sraffian theory can offer to the second stream of thought. This contribution cannot be
underestimated since it provides a rigorous analytical rebuttal of the neoclassical theory of
international trade and capital flows and support the existence of absolute advantages, source of
potential trade conflicts among nations. Having said so, the paper opens more questions than it
solves. More research is needed, for instance, on the contribution that mercantilist thought can bring
to the Classical point of view. An alternative view of international capital flows also needs further
developments, and this is also the case of the nature and role of the nation-state both within the
domestic and the international conflicts. What is at stake is the space left in the economic profession
by the dominant theory to these promising fields of research.
33
Meek (1976) points out that both Turgot and Smith regarded the protection of property rights as a result of
development rather than a cause of it.
27
References
G.M. Anderson, R.D. Tollison, Sir James Steuart as the Apotheosis of Mercantilism and His
Relation to Adam Smith Source, Southern Economic Journal, 51, 456-468.
Aspromourgos A. (1996) On the origins of classical economics: Distribution and value from
William Petty to Adam Smith, Routledge, London and New York
Blanchard, O., Giavazzi F. (2002) ‘Current Account Deficits in the Euro Area: The End of
the Feldstein-Horioka Puzzle?’, Brookings Paper on Economic Activity, 2: 147-209.
Brancaccio E., Fontana G. (eds) (2011) The Global Economic Crisis. New Perspectives on
the Critique of Economic Theory and Policy, Routledge, London, forthcoming.
Brewer, A., 1985. Trade with Fixed Real Wages and Mobile Capital. Journal of
International Economics 18, 177-186.
Carr E.H. (1939 [1981], The Twenty Years’ Crisis – 1919-1939, London: Macmillan.
Cesaratto S. (2011) Europe, German Mercantilism and the Current Crisis, forthcoming in
Brancaccio E., Fontana G. (eds.), The Global Economic Crisis. New Perspectives on the Critique of
Economic Theory and Policy, Routledge, London.
Cesaratto S., Stirati A. (2011) Is Germany a mercantilist country? Germany in the European and
Global Crises, International Journal of Political Economy, forthcoming.
Coats A.W.. (1958) In Defence of Heckscher and the Idea of Mercantilism, Scandinavian
Economic History Review, 5: 173-87 (repr. in ID, On the History of Economic Thought, vol. I,
London: Routledge, 1992).
Cohen B.J. (2008) International Political Economy: An Intellectual History, Princeton
University Press, Princeton, 2008.
Coleman D.C. (1957) Eli Heckscher and the Idea of Mercantilism, Scandinavian Economic
History Review, 5: 1-25 (repr. in ID (ed.) Revisions in Mercantilism (1969).
Cronin J.E. (1996) The world the Cold War made: order, chaos and the return of history,
Routledge, London.
Dalziel, P.C. and Harcourt, G.C. (1997), A Note on ‘Mr Meade’s Relation’ and
International Capital Movements, Cambridge Journal of Economics, 21, 621-631.
Donnelly J. (2000) Realism and International Relations, Cambridge: CUP.
European Commission (2009), Competitiveness developments within the euro area,
Quarterly Report on the Euro Area, vol.8, n.1.
European Commission (2010) The impact of the global crisis on competitiveness and
current accounts divergences in the euro area, Quarterly Report on the Euro Area, vol.9, n.1.
28
Farrell, H. and Finnemore, M. (2009) Ontology, methodology, and causation in the
American school of international political economy, Review of International Political Economy,
16:1, 58-71.
Furniss, E. (1920) The Position of the Laborer in a System of Nationalism: a Study in the
Labor Theories of the later English Mercantilists, Boston: Houghton Mifflin Company.
Garegnani, P. (1983), Notes on Consumption, Investment and Effective Demand, in Eatwell
J. and M.Milgate (eds.) (1983), Keynes’s Economics and the Theory of Value and Distribution,
London: Duckworth.
Garegnani, P. (1984) Value and Distribution in the Classical Economists and Marx
Oxford Economic Papers, 36, 291-325
Gerschenkron, Alexander (1962), Economic backwardness in historical perspective, a book
of essays, Cambridge, Massachusetts: Belknap Press of Harvard University Press.
Gilpin R.G., Richness of the Tradition of Political Realism, International Organization, 38,
287-304.
Gilpin R.G., The Political Economy of International Relations, Princeton University Press,
Princeton, 1987
Heckscher, E. (1955) Mercantilism, 2nd end, London George Allen & Unwin.
Hirschman A. (1977) The Passions and the Interests: Political Arguments For Capitalism
Before Its Triumph. Princeton, NJ: Princeton University Press.
Johnson, E.A.J. (1937) Predecessors of Adam Smith, London: P.S.King & Son.
Jonung L. e Drea E. (2009), The euro: It can’t happen, It’s a bad idea, It won’t last. US
economists on the EMU (www.ec.europa.eu/economy_finance/publications).
Kalecki, M. (1971) ‘The Problem of Effective Demand with Tugan-Baranovski and Rosa
Luxemburg’, in Selected Essays on the Dynamics of the Capitalist Economy, Cambridge:
Cambridge University Press.
Katzenstein P.J. (1977) Domestic and International Forces and Strategies of Foreign Economic,
International Organization, 31 (4: Between Power and Plenty: Foreign Economic Policies of Advanced
Industrial States) 587-606.
Katzenstein, P. J. (2009) Mid-Atlantic: Sitting on the knife's sharp edge, Review of
International Political Economy, 16:1, 122-135.
Keohane, R.O. (2009) The old IPE and the new, Review of International Political Economy,
16:1, 34-46
29
Kindleberger, C.P. (1981) ‘Dominance and Leadership in the International Economy’,
International Studies Quarterly, 25: 242-254.
Kriesler, P. and J.Halevi (1996), Asia, Japan and the Internalization of Effective Demand,
Economies and Sociétés - Monnaie et production, n°10, 301-320.
Lake D.A. (2009) TRIPs across the Atlantic: Theory and epistemology in IPE, Review of
International Political Economy, 16:1, 47 — 57
Marx 1945, Draft of an Article on Friedrich List’s book: Das Nationale System der
Politischen Oekonomie, www.marxists.org (source: MECW Volume 4).
Marx K. 1857 [1973] Grundrisse – Foundations of the Critique of Political Economy
(Rough Draft), Penguin Books: Harmondsworth.
Marx K. 1859 [1977] A Contribution to the Critique of Political Economy, Progress
Publishers, Moscow (http://www.marxists.org).
Meek R. (1971) Smith, Turgot and the Four Stages Theory, History of Political Economy, 3,
9-27.
Meek, R. L. (1976) Social Science and the Ignoble Savage. Cambridge: Cambridge University Press.
Mundell R.A. (1957) International Trade and Factor Mobility, American Economic Review,
47: 321-335.
Parrinello, S. (2009) ‘The Notion of National Competitiveness in a Global Economy’, in D.
Vint, S. Metcalfe, H. Kurz, P. Samuelson and N. Salvadori (eds) Essays in Honour of Ian
Steedman, London: Routledge.
Prasad E.S., Rajan R.G., Subramanian A. (2007) Foreign Capital and Economic Growth,
National Bureau of Economic Research, Working Paper 13619.
Riha T. (1985) German Political Economy: The History of an Alternative Economics, MCB
University Press, Bradford.
Robinson, J. (1966) The New Mercantilism, Cambridge: Cambridge University Press.
Schmoller G. (1897), The Mercantile System and Its Historical Significance, New York:
Macmillan.
Sraffa, P. (1951) Introduction to Ricardo's Principles in Sraffa P. and M.H. Dobb (eds.) The
Works and Correspondence of David Ricardo. Cambridge University Press, vol.1.
Steedman I. (1979a) Trade amongst Growing Economies, Cambridge: CUP.
Steedman I. (ed.) (1979b) Fundamental Issues in Trade Theory, Macmillan, London.
30
Susan Strange (1970) International Economics and International Relations: A Case of
Mutual Neglect, International Affairs, 46, 304-15.
Smith A. (1776 [1979]), An Inquiry into the Nature and Causes of the Wealth of Nations,
Oxford: Clarendon Press.
Suviranta B. 1923 The Theory of Balance of Trade in England – A Study in Mercantilism,
Annales Academiae Scientiarum Fennicae, B-XVII, Helsinki.
Szporluk R. (1988), Communism and Nationalism: Karl Marx Versus Friedrich List, Oxford
University Press, Oxford
Viner, J. (1948) ‘Power and Plenty as Objectives of Foreign Policy in the Seventeenth and
Eighteenth Centuries’, World Politics, 1: 1-29.
Wadbrook, W.P. (1972) West German Balance-of-Payments Policy – The prelude to
European Monetary Integration, Praeger Publishers, New York
Wood J.E. (1990) The Production of Commodities. An Introduction to Sraffa, Macmillan,
Basinstoke.