Page 91 - Global Political Economy_Understanding The International Economic Order

CHA PTER F OUR
dividual states, states—especially powerful states—attempt to influ-
ence the design and functioning of institutions in order to advance
their own political, economic, and other interests. Thus, the study of
international political economy presumes that states, multinational
corporations, and other powerful actors attempt to use their power
to influence the nature of international regimes. 3

Distribution of Wealth and Economic Activities

Whereas the science of economics emphasizes the efficient allocation
of scarce resources and the absolute gains enjoyed by everyone from
economic activities, state-centric scholars of international political
economy emphasize the distributive consequences of economic activi-
ties. According to economics, exchange takes place because of mutual
gain; were it otherwise, the exchange would not occur. IPE’s state-
centric interpretation, on the other hand, argues that economic actors
are attentive not only to absolute but also to relative gains from eco-
nomic intercourse; that is, not merely to the absolute gain for them-
selves, but also to the size of their own gain relative to gains of other
actors. Governments are concerned about the terms of trade, the dis-
tribution of economic returns from foreign investment, and, in partic-
ular, the relative rates of economic growth among national econo-
mies. Indeed, the issue of relative gains is seldom far from the minds
of political leaders.
The significance of relative gains for economic behavior and in the
calculations of nation-states was recognized at least as early as the
economic writings of the eighteenth-century political philosopher Da-
vid Hume (1711–1776). Hume’s mercantilist contemporaries argued
that a nation should seek a trade and payments surplus, basing their
arguments on the assumption that it was only relative gains that re-
ally mattered. In today’s language of game theory, international com-
merce during the mercantilist era was considered to be a zero-sum
game in which the gain to one party necessarily meant a loss to an-
other. Hume himself demonstrated the folly and self-defeating nature
of this mercantilist argument by introducing the “price-specie flow
4
mechanism” into economic thought. Subsequently, formulation by
3
Stephen D. Krasner, ed., International Regimes (Ithaca: Cornell University Press,
1983).
4
In oversimplified terms, the “price-specie flow mechanism” states that the flow of
specie (gold or silver)into an economy as a consequence of a trade/payments surplus
increases the domestic money supply and raises prices of a country’s exports. This price
rise in turn decreases the country’s trade/payments surplus. In short, any attempt to
have a permanent trade/payments surplus is self-defeating. See David Hume, in Eugene
Rotwein, ed., Writings on Economics (London: Nelson, 1955).
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