Political Economy: integration of politics and economics

Conception of “political”:
- Politics means “who gets what, when, and how” (Lasswell, 1936)
- “The struggle for power” (morgenthau, 1948)
- The art and science of government
- “The socialization of conflict” (Schattschneider, 1960)
- Patterns of power, rule, and authority (Dalh, 1956)
- The science of the state
- The authoritative allocation of values (Easton, 1953)
- Pure conflict, as in us against them (Schmitt, 1976)
- The conciliation of conflicting interest through public policy (Crick, 1962)

Politics as Government
Government: formal political machinery of a country as a whole, its institutions, laws, public
policies, and key actors

Politics - the activities, processes, and structures of the government

Question: What happens in the society that is outside the government proper?
> not political

The politics of gov’t approach offers a definition of politics in terms of organization

- “Organization” = relatively concrete structures (formal organization)
- Might include courts, legislatures, bureaucracies, and political parties
- “Rules” rights and obligations, permissible procedures and strategies to be employed in
the political process

The meaning of “GOVERNMENT” can be clarified by distinguishing it from the state

- State = set of phenomena that are more inclusive than government
- Institutionalized authority, laws, and patterns of domination, including those
resting on force, politically manipulate incentives, and reigning class
- “Enduring structure of governance and rules in society” - Benjamin & Duvall
- The state is not an agent or actor, governments are
 - Government = agents, organizations and roles
-
What does state include that government doesn’t?
- The idea of state is tied to a broader conception of laws and rules than is usually
signifie3d by the term government, including informal rule embodied in customs, ideas,
and parapublic institutions,
- “policy networks” - Peter Katzenstein (1979)
- Public and private power made up of parts of the state bureaucracy and private
associations

Politics as the PUBLIC

- Economics is what is private, politics is public
- Private = affairs that are substantially limited to individuals or groups directly
involved
- Public = arena that involves others in a substantial way
- Includes collective identity and shared values reluctant for political
discourse
- In reference to self-interest: the public encompasses either pursuit of self-
interest that coincide (or commonly held interest) or responses to ways in
which the individuals pursuit of self-interest impinges on the welfare of
others
- The concept of public goods and externalities are the key terms within
this interpretation of public life
John Dewey
- His definition of public is considerably broader than externalities
- Closely related to neoclassical concept of externalities
- Example: a family resemblances does exist but so is differences (interest & preferences)
- Thus, public interest may be affected even while public preferences are not
- Example: People may be dying because of dirty air or a depletion of ozone in the
atmosphere but may be unaware of their connection. Their interest in clean air and
ozone have not become preferences
-
Hannah Arendt
- More traditional approach & gives evidence to classical origins
 - “public” = two distinct but closely connected phenomena.
1.) has to do with the importance of what she refers to as “appearing in public”
- Regarded the way in which we experience perceive, and construct the reality of our lives
individually, ad collectively
- The dependence of our sense of reality on the public purposes that our reality is already
intersubjective
- “Appearing in public” takes on special importance, as part of our effort to connect with
the social whole or to confirm the connection with the whole without which we lost our
sense of identity
2.) Common world (1958:52)
- Common world that binds us together public not only helps to satisfy our private wants, it
binds us into a larger whole, to do so, it must have its own objectively, it must be made
up of appropriate sort of things
- Makes politics the appearance in public needed to secure our sense of reality and
connectedness, both of which depend on our having in life common. But public and
political need not to be synonymous
- “The sense of common life, the reality we gain from participating in a common life, and
our need to participate in construction of the social artifacts of our life together.”
-

POLITICS AS AUTHORITATIVE ALLOCATION OF VALUES

- Politics & economics are both methods of allocation (scarce resources)
- Politics = distinctive way of making decisions about producing and distributing resources
- Involves authority
- Economies = juridically voluntary exchange
- Government does not equate politics = it is a structure within which politics take place
- Authority should be observed when voluntary exchange break downs or where the
structure of interests among actors do not spontaneously yield mutually beneficial and
self-enforcing results
- Authority is called for the for the institute and enfore rights or to achieve goals such as
equality, universal health care, and justice– ends that not assured by the markets
- Authority has to do with political enforcement of particular (special) wills against thers
such as capitalist against worker, Catholic against protestant & so on.
 - POLITICS CANNOT BE ABOUT COLLECTIVE MUTUAL GAINS & AUTHORITY
CANNOT BE WHAT EVERYONE APPROVES.

Politics as…
● Government - relies on a particular institution
● Public - affairs of the public - releis o nthe specification of a non-institutional realm
outside of the private exchange
● Authority - depends on certain ways of making decisions and of securing compliance

Politics defined (with the 3 concepts)

- Politics refers to the activities and institutions that relate to the making of authoritative
public decisions for society as a whole

Conceptions of Economics
ECONOMIC CALCULATION: Way of utilizing what is available, given want
- A way of judging institutional arrangements for using available means according to how
well they satisfy wants
- A way of understanding social actions, as the outcome of action on private want
satisfaction
- This approach is distinguished by its orientation, w/ emphasis placed on constraints and
allocation
- Broadly applicable for human affairs, it becomes a way of thinking about all of our
activities
MATERIAL PROVISIONING: Approach equates economic activity with the “material life
processes of society” (Sanlins, 1972: xii) and with concern for the “material, substantive, things
that sustained human beings” (Polony, 1957)
- Views economic life as a process of material reproduction
For Marx, “It is quite obvious that there exists a materialistic connection of men with one
another, which is determined by other needs and their mode of production, and which is as did
as men themselves.” (1964)
- Material life and material connection refer to the processes by which the members of the
social order participate in the activities that lead to their reproduction
Economic activity
- Produce the goods that satisfied the needs or more
“material correction”: depicts the relation of person to person and of the individual to social
institutions in a way different from what of economic calculation
Surplus: difference between output and the necessary costs of its production

THE ECONOMY
- When we speak of the economy, we already assume the existence of a separate entity:
a place (market), a sphere (as Marx would have it), a moment of the whole in the
Hegelian sense, a distinct set of relations between persons not in essence of political or
familial
- It is a separate sphere of pursuit of private interests
- It is potentially a set of relations between persons distinct from the social relations that
connect persons politically or personally
- FAMILY IS NOT PART OF ECONOMY

TO SUM IT UP…
- Economics in the sense of calculation, politics becomes one place to study and apply
such calculation
- Economics is a way of acting
- Politics is a place to act
- In politics, we may exhibit economics or not. If we do not, this poses a problem for those
who identity economics with a form of calculation
- The intelligibility of our action depends on the connection between means and ends. The
action becomes intelligible when we can show how it follows from a mean-ends calculus.
- If action does not make sense in this way, it does not make sense
- “If it is not ultimately economic, it does not make sense.”

The Economic approach explains what we do & why we do it. Politics describes the context.
- If we wish to explain politics, we need to think in terms of economics

Political Economy has been less about the interrelation of economics and politics understood as
separate endeavors, more about the subordinate of te political to the economic
● Economics in the sense of calculation tends to expound in the terrain of application of
economics beyond its traditional boundaries
 ● Material provisioning tend to limit the economics and thus allow for a meaningful
separation of the economic activity from political
- In some systems, it takes place within a political system and in some it takes
place through family relations
- “Economic relations were also familial relations” = this statement makes sense
within the provisioning definition of the economy
● Economy allows us to focus on attention on the implications of 1.) the modern penchant
for diminishing the separateness of the spheres of social life, 2.) the associated
tendency to make one or the other dominant

“Economics is the science of studying human behavior as a relationship between ends and
scarce means that have alternative uses.” (Lionel Robbins, 1932)
- Political Economy begins with the political nature of decision-making and is concerned
with how politics affect the economic choices in society
Power - ability to achieve outcomes which reflects one’s will
Authority - “exists whenever one, several, or many people explicitly or tacitly permit someone
else to make decisions for them in some category or acts” (Lindborn, 1977)
- Politics is the struggle over authority
- “In an untidy process called politics, people who want authority struggle to get it while
others try to control those who hold it”

“Conventional economics is irrelevant.” - Hellbroner (1970)

- Failure to predict the structure for tendencies of modern economic society
- Failute to serve as a guide to improve the status quo in 1970

^
The missing element of conventional economics
^
Systematic consideration that man is a product and producer of social forces
^
POLITICAL

Conventional economists so obsessed with empiricism, statistics, numbers, mathematical

outcome
REALITY = HARD FACTS
Empiricism = empirical observation
SOCIAL FACTS = cannot be exactly represented by numbers
- Eg. behavior: humans are dynamic beings

Weakness of conventional economics: focuses on what is going on

- Only answers the question “what” and not “how” and “why”

Reasons for its Irrelevance

1.) Lack of interest on the end of academia economists to deeply interpret & examining
social and political realities
- Teaching of economies in 1970
2.) Thralldom of technique => Empiricism
- Imitation of reducing everything to numbers
3.) Conservative political leanings: preserving the status quo
- Does not want to change status quo
- Won’t challene the status quo
- Won’t change the reality
4.) Feared valued judgement or normative understanding
- Subjective understanding
- Doesn’t want to be subjective
- Because valued judgement bends on norms and they just want to stick w/
objective reality
5.) Predictive limitations
- They didn’t see that human behavior & technology can create modern economic
society
- Limited capacity to produce

6.) Utilization of non-holistic theory

- Excluded political
- Treated economics as an isolated phenomenon
WHAT SHOULD BE… (Economics)
- Economics should not be seen as a functional arrangements of production & distribution
only. Rather it must be seen as a [di ko mabasa] for divisions of social prestige, power,
mechanism for the attainment of socially postulated destinations (Hellbroner, 1970)
HOW?
1. Inclusion of what is political
2. Extend the scope of a theory to capture the political
3. Replate the pevailing paradigm which is empiricism

Focus of Production
- Land
- Labor
- Capital
- Entrepreneurship
- Technology

Laisse Faire System = Limited intervention of the governmetn

Law of Supply and Demand = explains interaction of buyers and sellers
Businesses lead produciton/profit driven

CSR manifestation
1. Provide employment for nearby residents
2. Green initiatives
 Typology of Social Processes

Economies Political Science Sociology

Factor of governance Social

Production organization
Consumer

Role of “Factor of production” Citizen Role Actor

Individuals consumers Voter

Role of State Regulator of econ Source of force and authority Source of

process and activities to Enforce obedience for peace bureaucracy
maintain peace and and order
order Legit use of force

Role of firms Agency of Production lobbying/political influence Locus of industrial

discipline
Prescribed
industrial discipline
Corp social
responsibility

Problems of Intersectoral relations planning/agenda Changes to

Growth motivation due to
affluences

Technologica Change in the structure Control over externalities Change in work

l changes of demand/profiting (either positive/negative) pattern or lifestyle
POLITICS
1. As gov’t
2. As Public
3. As authoritative

Government
Elemens to utilize to make use of politics
- Organization
- Rules
- Agency

Public
1. Private
- Economics=>neloliberal perspective
- Private (indivs/groups)
- Public (include others)
2. Public
- Politics => neoclassical
- Private (externalities)
- Public

ECONOMICS
1. Economic calculation
- Private individuals is the unit of analysis
- Work within the means
Man=>preferences/wants=.>scarcity=>
limited resources=> choice/decision=>
efficient=>getting a minimum satisfaction w/ lesser means (economizer/economining)=>
Get more with what you have but not more

10 Economic Principles (by George Mankiw)

Opportunity cost: the cost of something is what you give up to get it

“YOUR SATISFACTION IS A RESPONSIBILITY OF YOUR DECISION”

2. Material provisioning - state or people providing materials
- distribution/allocation of materials
- Gov’t => people [social services] => needs of the people [priority is needs]
- Government is an agency that serves and protects the people
- Economics is an extension of the government to save the people
3. Economy: entirely, where economic calculations and material provisioning takes place
WHO IS THE PRACTITIONER OF POL ECON (David Klein)
The practitioner of PolEcon=> everyman
- Everyman => public officials and ordinary voters

6 REALMS OF PRACTICE FOR POL ECON

1. 1st Realm: ordinary indiv forming attributes toward economic and social affairs of his or
own environment
- Pol econ play a crucial role in fomration of indivs moral and personal philosophy
- Ordinary life
2. 2nd Realm: political economy is practiced in talking about public affaies or even in
simply following events
3. 3rd Real: Using PolEcon to advance one’s career in worldy affairs (Eg merchant,
accountant, banker)
4. 4th Realm: foundation of public policy
- An Everyman must hold a PhD in economics as a requirement for public office
and be a practitioner in this realm
- Policy-research think thanks that are best meeting this need
Vocational Realm:
5. 5th Realm: Use PolEcon to enhance their participation and effectiveness in public
discourse as public commentators and teachers
- Could be journalists, grade school, high school, or graduate school teachers, by
studying PolEcon, they can perform their jobs better and advance their career
6. 6th Realm: Practitioners use political economy to advance their position in academic
circles
- Practitioners show competence in at least one of the profession’s two dominant
modes of discourse, equilibrium model building and econometric exploration of
data sets
- Epistemic Community
POL ECON AND GLOBALIZATION (Heywood)
● Pol Econ - study their interaction of politics and economies [broad definition]
● Focuses on the relationship between states and market
○ Encompases a variety of approaches [as a topic]
● The use of theories and approaches developed within economics to analyze politics [as
a method]

Mercantilism: an economic philosophy that takes the state to be the most significant actor,
highlighting the event to which economic relations are determined by political power.
Protectionism: import restrictions by imposing tariffs to protect domestic producers

Beggar-thy-neighbor: policies pursued at the expense of other staes but are believed to be their
country’s short-term best interest

State-centric Pol Econ

- Developed out of mercantilism (economic nationalism)
- States are the key actors, economic relations are determined by state power/pol power
- Economic markets are not “natural but exist wihtin a social context largely shaped by the
exercise of state power

Classic Mercantilism: build up state power and prestige by developing favorable trading balance
through producing goods for exports while keeping imports low
- Through protectionism
1.) Defensive Mercantilism - “protect” infant industries and weaker economies from
“unfair” competition from stronger countries
2.) Aggressive Mercantilism - aimed to strengthen national economy in order to
provide the basis for expansionism and war
I PENCIL: make or buy decision
- It is the buyer’s responsibility
- “The market system & the economically efficient consumers”
- People will choose a decision with immediate satisfaction (utility) at a lower cost
(economizing)
- Satisfaction in a short period of time (efficiency)

BROKEN WINDOW FALLACY: distractor or disaster destroy prosperity

- Owner of glass/window shouldn’t be mad because it will create an employment
opportunity to produce more windows
- Supply, material, and labor
- Disaster creates prosperity
-
Keynesian
- Gout spending: debt is never healthy for the economy
Healthy government spending creates opportunities for the people
Ceteris paribus: everything is held at constant

Candlemaker’s petition
- Producers => profit
- Takpan yung araw para kumita kami
POLITICAL ECONOMY
General Definition: Study of the interaction between politics and economy
- All inclusive but it is a vague because it does not give sense to what is being studied

Drazen’s definition of economics

- Lionel Robbins: “Economics is the science that studies human behavior as a relationship
between ends and scarce means which have alternative uses”
- “Economics is the study of the optimal use of resources”// Efficient resource allocation
- Universal science of decision-making
- However, PolEcon is about the political nature of decision-making and how politics will
influence the economic choices of society
- Pol Econ: politics is the tool, economies is the outcome
- Politics Is the study of power and authority, and the exercise of power and authority

Policymaking
- Legislator = social welfare maximizer if there is an opportunity for optimal policy, it will
automatically be implemented
- Maximum satisfaction
- Optimal Policies => Maximum satisfaction => society
IS NOT THE SAME AS
- Actual policies => political constraints that start with conflicting interests (collective
choices_

Pareto efficiency: higher benefit with lower cost (choosing the best among other choices)
PolEcon understands that optimal policies are different from actual policies

Public Economics
- Economics of the public Sector
- Now economic choices of the government affect economic sector

Public Choice (application of economic tools to pol sci)

Both utilizes economic tools
To explore political realities
Pol Econ (interaction between politics and economics)
Weingest & Wittman (2006)
- Endogenous institution = legislative

Institution
1. Take institution as given and focus on the effect
- Parliamentary institutions
2. Comparative institutional analysis
3. Institution of endogenous
a. Legislature preferences
b. Committee as commitment devices
c. Party as transaction cost reducer
d. Committee as info structurer

Heterogeneity of Interests
- Political constraints that start with conflicting interests
1. HOI is necessary
2. HOI => political constraints

Economic [di ko mabasa] of analyzing political behavior

● Legislator preferences: goal is to win
● |-------------||-------------|
● Line represents the voters
● New proposal (left line)
● Median (start in the middle to be fair with the voters)
● Change status quo (right line)

WHAT DOES IT TELL US?

- Preference of the legislator is easy to be mapped out
● Committees as commitment devices: legislator deals w/ multiple issues/concerns
- Committee solve problem w/ swapping/trading
● Policy as transaction cost reducer: legislators face a common problem & one of this is to
win the election

Party promotes…
 1. Coordinated behavior
2. Introduction of legislators that’s attractive to party members
3. Create national reputation
4. Reelection

Optimal Saving Problem

- Consumption or solve decision
- Optimal = maximum
Committee as information provider
Legislator-vis-a-vis-committee staff: provides information for their legislators

Information Aggregation and Revelation - Voting

1. Traditional Belief on Democracy
2. Voters & Government [Election]
3. Pressure Group: Influence Candidates
Candidates: win votes/office
Votes: to vote, choose, and elect
4. Ve, Vi, & Vc
Ve = Voter (apathetic, irrational)
Vi = Infomed voter
Vu = Uninformed voter
Hall & Elliot (1999)
Methodological Controversies
1. Adam Smith - Historical Account
2. David Ricardo - Income distribution/Comparative Advantage
3. JJ Mill
a. Economics is an exact science
b. “ an essential deductive
c. “ a separate and distinct discipline
4. Auguste Comte
a. Positivism
i. Theological
ii. Methaphysical
iii. Positivistic
5. Immanuel Kant - Enlightenment, Logical Positivism
● Classical Economic thinkers were highly empirical

Orthodox Methodology
1. Karl Popper: Theory
2. Milton Friedman: Hypothesis
3. Alfred Eichner: Econ is not science
4. Peter WIles: Econ as an ideology
5. Waren Samgules: econ is an ideology and science

Heterodox Methodology
1. Radical methodological
2. Max Weber
3. J. Schomper
4. Institutionalism
- Old
- New
● Heterodox is Political Economy

“Everyone is a national actor, everyone calculates everything. Actors calculate the ations of
other and so on.”
Pressure group
- Economic actors that cound fund a candidate
Gilpin
What is the relationship between new political economy and international political economy

How did the perception…

- Neoclassical economics is concerned w/ efficiency and mutual benefits (Market-centered
perspective)
- IPE: also interested with market-centered perspective but with broader issus (whole
economy has considerable impact on the values of the pol econ of states)
- Presumes that states, multinational corps, & other actors exert influence international
regimes

Changing/Development of Economic Interests of State

● Mercantilism
● Modern period
● 21st Century

Money has to expand geographically to cover domestic aspect

National Economy is at risk if there is economic globalization

Regimes: new institutions (according to Gilpin)

- Institutions are created by self-interested states or people (political motives)
Regime Theory - Robert Keohane

Gilpin: Global Econ would not work at its best if there is strong leadership and effective
governance structure

International Monetary and Financial System is important to the Pol Econ

Absolute gains: accumulating more regardless of the accumulation of others
Relative gains: focus on one’s self, accumulation of gains
Relative gains: a country will gain at the expense of others
Positive-sum: two countries could gain
Jeffrey Frieden
INTERNATIONAL MONETARY AND FINANCIAL SYSTEM
- most important role in the modern pol econ
- Went through several transformations as a response to changing domestic and intl
conditions

3 major transformation
- collapse of the pre-1914 monetary and financial system
- Establishment of the Bretton woods system
- Stabilization of finance and the collapse of the Bretton Woods System

Ottoman Empire
- controlled Mediterranean
- Drove to Atlantic and search alternative trade route
- Discover new world (Asia and africa)

For nearly 4 centuries (mid 1400 and 1800) the rest of the world was drown into an economic
and political order dominated by European Capitalism (Spain, Portugal, Netherlands, England
and France, and the Atlantic Forces
- First true international economy
- This is called MERCANTILISM

Mercantilism
Characteristics:
`1.) There’s a strong government intervention in the economy
- Considered their economic policies to be part of broader national goals, especially in the
continuing struggle of diplomatic and military supremacy.
2.) Mercantilism “enriched” the country and the Crown and used their riches to build up military
forces.
- Thomas Hobbes: “Wealth is power and power is wealth”
- “Foreign trade produces riches, riches power, power presences our trade and religion.”
Colonies vs Colonial Power
- Colonies were required to sell their products to the crown, only at given/certain prices
- The colonies were also required to buy products to the mother country at a certain price
 - This benefited metropolitan produces who purchase raw materials at low prices,
and sell products at high prices
- Zero-sum game: the gain of one is at the expense of another
3.) The Crown worked closely with merchants or other economic giants (merchant princes)
– the manufacturers and merchants’ alliance w/ the Crown characterized the pol econ

2 DIMENSION THROUGHOUT CAPITALISM

1. International: national dimension=> conflicting desire for integration w/ & isolation from
the world economy
2. State market dimension - conflicting desire for government involvement in markets and
market freedom from government

THE GOLD STANDARD SYSTEM: Exchanging its currency for gold at a pre-established rate
- 1717: Great Britain (Gold Rate)
- 1870 = adopted by almost all countries
- Early 1900s: China and Persia were not on gold

Characteristics
1. Fixed system
2. Provides an important degree of “predictability” in terms of lending, trade, investment,
and payments
3. Participation is a measure of reliability & economic stability

Failure of the Gold Standard System

1. Political rights were limited even in industrial countries
a. Limited political voice for farmers which disabled economic openness.
i. Democracy is not practiced by many states
2. Economic dislocations because of economic integration rich vs poor countries
a. “Exploitation, dependency, unequal income distribution”
b. Foreign competition harmed traditional produces (in the developing world) who
could not compete with inexpensive or cheap factory products
3. Rise of middle class

The US had a commendable performance

 - Form being the world’s biggest “debtor” to the world’s biggest lender
- Assumed leadership
- Pursued isolationism
- Countries didn’t find an alternative economic order so everyone adopted
Protectionism
Protectionism: import tariffs, restrictions, such as quotas to protect domestic procedures

During WWI, the power center is moved from Europe to US

- WWII: US finally assumed leadership and was expected to introduce alternatives

THE BRETTON WOOD SYSTEM

- 44 countries, New Hampshire (July 1944)
- Gold = dollar system/gold dollar system
- `1 gold = $35

Characteristics
1. Dominant currency: starting economic glory
2. Flexible system
3. International economic institutions
a. IERD: International Bank for Reconstruction and and Development (Also known
as World Bank)
b. IMF: International Monetary Fund
c. GATT: General Agreement on Tariffs and Trade

Failure of Bretton Woods

1. Globalization of Finance
2. Floating Exchange Rate System
a. Law of supply and demand
3. Digital currency
a. Crypto currency

McGrew - LOGICS OF GLOBALIZATION

Globalization
1. Increasing interconnectedness
 2. High intensification of worldwide social relations
3. Compressions of time and space
Logic
1. Techniques - technology - ICT - physical infrastructure
2. Economics - rule of the game
3. Politics - normative infrastructure

Globalization of Technology
- Cultural Globalization (3 critics)
- Global Village
- Economic Globalization
- Int’l trading system
- Int’l monetary & financial system
- Market integration (International Economies)
- Political Globalization
- Global interstate system
- Contemporary global governance

Globalization as Globaloney (3 critics)

1. Rejectionist: contradicts the validity & usefulness of globalization as an analytical
concept
2. Modifiers: disagree w/ understanding that this process is a recent phenomenon (since it
happened since silk road)
3. Skeptic: Creates uncertainty on the creation and application of regulations that challenge
the ability of the global firms to design and implement their current strategies

Globalist - supporters of globalization

- World Gov’t = department
- World Governance = organization

Gilpin (p.77-102) THE STUDY OF INTERNATIONAL POLITICAL ECONOMY

Economics - concerned with efficiency and mutual benefits of economic change, not interested
in the distribution of gains form market activities
Regard market as self-regulating
IPE: interested in distribution of gains form market activities, interested in broader issues
- The world econ has considerable impact on the power, values, pol econ of national
societies

Distribution of Wealth and Economics Activities

- Science of Economics: emphasizes an efficient allocation of scarce resources and the
absolute gains enjoyed by everyone from economic activities
- Exchange takes place because of mutual gaine; were it otherwise; the exchange
would not occur
- IPE: emphasizes the distributive consequences of economic activities
- Economic actors are attentive not only to absolute but also to relative gains from
economic intercourse, that is, not merely to the absoulute gain for themselves,
but also to the size of their own gain relative to gain of other actors
- Government: concerned w/ the terms of trade, the distribution of economic returns from
the foreign investment, the relative rates of economic growth among national economies

Humes Mercantilist contemporaries: believes that a nation should seek a trade and payments
surplus, basing their agreements on the assumption that it was only relative gains that really
mattered
- “pre-specific flow mechanism”

David Ricardo
- Every nation could gain in absolute terms from free trade and from an international
decision of labor based on territorial specialization

Subsequent modifications
- States were also interested in relative gains form trade
- Demonstration that international economic exchange was not a zero-sum-game, but a
positive sum game in which everyone could gain

Paul Samuelson: law of competitive exchange is “the most beautiful idea” in economic science

Joseph Grieco: states are concerned with relative gains that makes it hard to achieve
cooperation