Page 78 - Global Political Economy_Understanding The International Economic Order

NEO CLASS ICAL C ONCEP T OF AN ECONO MY
unfortunate example of economists’ failures to comprehendlocal social
and political conditions. An understanding of the international political
economy must be basedon appreciation of state policies, social norms
and institutions, andhistorical legacies, andalso of the ways in which
economic outcomes are shapedby such external factors.
Although neoclassical economists claim that economics is an objec-
tive science like physics, economics is actually built upon a number
of normative assumptions or value judgments accepted by most econ-
omists. These normative assumptions influence the choice of subjects
that economists study and the answers they will accept. Economics
offers many conflicting explanations of the causes of trade flows and
the determinants of exchange rates; indeed, value preferences fre-
quently play a significant role in determining which model a particu-
lar economist accepts or rejects. In this way, normative assumptions
sometimes influence economists’ policy prescriptions. Although one
may share some of their assumptions, as I do, including the desirabil-
ity of free trade and of open economies, these assumptions can have
a distorting effect on analysis and resulting policy recommendations.
Modern economics, based on the philosophy of political liberalism,
assumes that the individual rather than groups or classes is the basic
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unit of society, andthat there is a harmony of interests among indi-
viduals, at least over the long term, with this harmony accounting for
social andpolitical stability. The underlying harmony in a market
system is the result of what Adam Smith called “the invisible hand,”
which means that the actions of each individual, as he or she pursues
selfish interests, leadautomatically to betterment of the human race.
Belief in the harmony of interests among individuals also constitutes
the basis of the liberal belief in moral andsocial progress. Liberals
argue that, despite frequent setbacks, history is moving toward
achievement of the greatest goodfor the greatest number.
Liberalism incorporates a normative commitment to individual
rights, the free market, andpolitical democracy. Or, to put the point
differently, liberal thought tends to believe that all good things go
together. As Charles E. Lindblom has pointed out, political democ-
racy andeconomic liberalism have tendedgenerally to accompany
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one another in the modern world. Tension does exist, however, be-
tween liberalism’s commitment to equality (equity) andits commit-
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The idea that society is composed of conflict groups, of which the state is the
principal example, was set forth by Ralf Dahrendorf, Class and Class Conflict in Indus-
trial Society (Stanford: Stanford University Press, 1959).
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Charles E. Lindblom, Politics and Markets: The World’s Political Economic Sys-
tems (New York: Basic Books, 1977).
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