Midterm 1 Notes: Pols 303

Part 2: Mercantilism; War Making, State Making

 Combination of guns, money, lawyers, and God.

 The origins of the modern globalized political economy lie in the
origins of the Europeans state and state system and its related
global markets around the 15th century.
 Violence as state-making and capitalism.
 Mercantilism: Emphasis on the centrality of the state. Primacy of
state over other domestic actors. Mercantilism along with liberalism
was an answer to medieval political economy.
 Modern nations-state: organization, legitimization, and monopoly of
violence over one territory.
 Market Side:
1. Wealth derives from luxury goods and precious metals.
2. Trade was zero-sum.
3. Longer trade routes.
 Europe’ peculiar states emerged from a three-sided conflict among
kings, noble, and merchants for control of the resources that could
be extracted from the peasant-based agricultural economy.
 Poor transport systems led to hard conditions to concentrate in the
hands of the state. The nature of the agriculture thus sets limits on
the forms state organization.
 Because of the difficulties in extracting resources from agriculture,
most European states pursued a policy known as mercantilism.
 Microeconomics doesn’t allow the division of the market offered by
Adam Smith  low productivity and low economic growth
 Mercantilism usually described as an externally oriented policy by
which states tried to create inflows of bullion. However,
mercantilism’s external policy was also a means to an internal end:
the creation of homogenous, monetized internal economy,
dominated by a central authority capable of defining property rights.
This homogeneous and monetized economy provided the state
stable internal resources that states needed.  By emphasizing
exports and limiting imports, mercantilist policies generated wealth
that strengthened the state’s control over the economy. This wealth
allowed states to build a centralized, unified economy where
currency replaced bartering, and the government could impose and
enforce uniform property rights.
 In pre-capitalist states, there was a unity of economic and
political power, meaning that those who controlled political
authority also directly controlled the means of economic
exploitation.
 In these societies, wealth was often accumulated not through market
mechanisms or production (as in capitalism), but through "extra-
economic" means that is, by using political, judicial, or military
power to extract wealth from the population.
 Nobility:
1. Direct coercion for surplus grain and control of local economy.
2. Inflation due to American silver and gold undermined their
control over peasants.
3. Kings monetized their microeconomies by excluding nobles for
peasants’ surplus.
4. But nobles and monarchs also have a common: the peasantry
under control and fending off other states.
 Europe’s would-be kings sought to subordinate the nobility by
connecting all the microeconomies via under a single administrative
hierarchy. Nobles linked discrete microeconomies through a
horizontal and social network. Kings wanted to link microeconomies
together with a vertical bureaucracy.
 Vertical Bureaucracy:
1. Flows of Information: Orders down to bureaucrats and reports
up to king.
2. Flows of Money: Salaries down to bureaucrats and taxes up to
the king.
 Monetization: Extract resources without nobility. Support of
merchants. However, conflict with other kings, limited king’s efforts
to subordinate nobles.
 One group of merchants controlled inland trade of the market towns
in microeconomy. The other group of merchants conducted long-
distance trade. They constituted a third network, based on
contractual obligation.
 Merchants linked communities on the coast and navigable rivers
through flows of money and goods; kings liked mostly inland
microeconomies through flows of information, money, and violence.
 Modern States:
1. Property rights, creation of bureaucracy, political obligation,
monopoly of violence taxation.
2. Formation of parliaments: King’s ability to raise and finance a
central military. Compromise for taking revenue and the
mobility of violence to the mobility.
3. Regular taxes allowed kings to generate the steady flow of
money that their new bureaucracies of violence and
administration required.
4. The intersection between kings and merchants produced the
public debt as an institution. Merchants support kings’ effort to
 build more powerful militaries with loans. Public debt as an
institution. (Money)
5. The intersection of nobles and merchants conflicting, and
common interests produced lawyers. (Lawyer)
 The conflict between opposing kings give birth to strong and central
armies. (Guns)
 Mercantilism is viewed as the use of state power (organized
violence) in the pursuit of plenty (economic wealth). Boost exports
and limit imports, trade surpluses and accumulation of specie.
 Spain: Large initial financial and military advantages turned into
long-term disadvantages. Relied too heavily on parasitic and
despotic sources of revenue rather than more reliable and
sustainable commercial sources and never developed a durable
national myth.
 France:
1. Tax-farmer method: Creating and selling offices in his fiscal
bureaucracy to merchants.
2. Kings lowered his own administrative apparatus to raise funds,
inventing offices and undoing the centralization and
bureaucratization that supported absolutism until Napoleon.
 England:
1. Geographic peculiarities and overseas trade.
2. England’s powerful kings tried to rule without forging the
nobility over taxation.
3. One central parliament.   the political and economic
unification of England during the early modern period was a
product of a centralized state.
4. Unlike Spain and France, England drew its tax revenue from
regularized exactions from a productive base, not a parasitic
collection of other people’s treasure.
5. Long-distance trade in bulk goods rather than luxuries.
6. Monarchy and aristocracy worked together, creating a division
of labor between political and economic powers rather than
competing against each other for dominance
 Portugal’s comparative advantage lay in the use of organized
violence.
 Trade with VOC: The EIC first allied with the Dutch against the
Portuguese, and then reversed the alliance, using the shift to
consolidate control over Portuguese exports back to Europe.
 The EIC in effect became the king of the Indian microeconomics,
squeezing taxes out of a massive peasant population.
 One path out of feudalism was absolutism. Instead of producing a
capitalist, it reproduced the pre-capitalist political and economic
 power at the level of the central state, while never completely
overcoming the parcellization of feudalism (as in France).
 Centralized Feudal Rent: French bureaucracy represented a structure
of offices used as a form of private property. In the form of taxation.
 England never had the same degree of parcellization that existed in
the rest of feudal Europe, and the fragmentation of both economy
and polity were overcome first and most completely here.
1. Lordship did not carry the same autonomous political power
that it had elsewhere.
2. Monarchy developed in alongside, rather than in competition
with the aristocracy.
3. The centralization of the state in England was not based on a
feudal unity of economic and political power.
4. State formation took the form of cooperative project, a kind of
division of labor between political and economic power.
5. Inward development and the growth of a unique domestic
economy.
6. Single large and integrated national market, increasingly
uniting the country into one economic unit.
7. Surplus value is created in production as distinct from profit in
the sphere of circulation, on economic growth based on
increasing productivity and competition within a single market,
capitalism.
8. only in England did the necessary conditions for the
spontaneous, indigenous, and self-sustaining development of
capitalism exist.
 Global capital, no less than national capital, relies on nation states to
maintain local conditions favorable to accumulation as well as to
help it navigate the global economy.
 Capitalist exploitation is characterized by a division of labor between
the economic moment of appropriation and the extra economic
moment of coercion.
 Relationship between capitalism and the nation-state is complex.
While the modern state was not a direct product of capitalism, the
rise of capitalism significantly shaped and transformed the state,
leading to a situation where political sovereignty was redefined and
integrated with the emerging national economy.
 Capitalism's expansion occurred through two primary avenues:
imperialism and economic imperatives.
 Capitalism introduced a key distinction: the separation between
economic and political power. Appropriating surplus labor
(exploitation) is not achieved through direct political coercion, but
through market relations.
 The Origins of a World Economy:
1. Industrialization is characterized by the change in an economy
from being primarily agrarian to being more capital intensive.
2. British Industrialization: Sale of cotton, exports became the
engine of growth.
3. Importance of manufactured goods, interdependence among
nations, and economic gains from world trade have increased.
4. From protectionist mercantilist views to freer trade ideas.
5. The Corn Law in British: Tariffs on imported grain  Repeal of
the Corn Law: Britain’s agriculture declined and became
unable to feed the growing population.
6. The Anti-Corn Law: First special interest groups to advocate for
freer trade in Britain.
7. The Perils of Interdependence (1873-1914): A growing
interdependence has seen in this period. The broad base of
growth is best understood as a result of freer trade. 
Extraordinary technological changes and declining the costs of
production, transportation, and communication.
8. Even at the beginning of 20th century, Britain remained the
dominant force in international trade, but it couldn’t keep the
same position later against US (raw material) and Germany
(scientific education).
9. By 1890, many countries led by France and Germany, reversed
the system of freer trade because of the agricultural and
industrial producers’ demands for protection (protective tariffs
to shield their domestic producers from foreign competition).
This shift was largely due to increased competition from
imported goods, which negatively impacted local farmers and
manufacturers. The major exception for these countries was
Britain. Britain continued to adhere to its free trade policies,
rooted in the belief that open markets benefited the economy
overall.
10. Even though protectionist policies became more common
as countries tried to shield their economies from international
competition, the global economy remained interconnected.
11. Latecomers (Japan) to the global capitalist economic
system must overcome some disadvantages and this
happened through state support. (The Meiji Restoration)
12. Most unusual about Japan was the extraordinary
cooperation of private and public actors.
13. Before the WWI the interdependence of world economy
was the highest of ever before.
 14. World War I highlighted the inability of nations to achieve
security and prosperity despite their deepening economic
interdependence. In the years leading up to the war, countries
had become increasingly connected through trade,
investments, and financial systems. However, instead of
fostering cooperation, this interdependence created
vulnerabilities. Nations sought to protect their own interests
through alliances and militarization, ultimately leading to
conflict rather than collective security.
15. After the war, the global economic system was left in
disarray.
16. The Treaty of Versailles imposed heavy reparations on
Germany, creating economic strain and resentment.
17. Meanwhile, countries faced significant debt and inflation
from wartime spending.
18. Efforts to rebuild a stable world economy, such as the
formation of the League of Nations, were undermined by
conflicting national interests and protectionist policies, as
countries focused on self-sufficiency over collaboration.
19. This failure to establish a cooperative economic
framework led to further economic instability, contributing to
crises like the Great Depression and setting the stage for
future conflicts.  Declining world trade, falling prices, bank
failures, rising loans…
20. After the economic devastation of WWI and the Great
Depression, many countries attempted to recover by raising
tariffs and adopting protectionist policies to shield their
domestic industries.  Autarchy (or autarky) is an economic
policy or condition where a country or region seeks to be
entirely self-sufficient, minimizing or eliminating reliance on
imports and external trade.
21. US shifted away from strict protectionism by passing the
Reciprocal Trade Agreements Act (RTAA). The RTAA
allowed the US reducing tariffs on a reciprocal basis with other
countries. This was a significant departure from previous
isolationist policies, as it aimed to promote international trade
and economic cooperation.  But not very effective.

Part 3: Commerce or Capitalism

 Capitalism did not emerge in the West because of specific conditions

or developments within these cities, but rather because of what was
 absent. external constraints or restrictions on urban economic
practices.
 Capitalism is not an inevitable or "natural" form of economic
organization but rather a historically specific system with a unique
beginning and potentially an end.
 What set capitalism apart was not merely the existence of trade or
profit-seeking, but rather the development of specific social property
relations that imposed market-driven imperatives on production.
These property relations created capitalist "laws of motion," which
drove competition, profit maximization, reinvestment of surpluses,
and the constant improvement of labor productivity.
 The critical factor in the divergence of capitalism from all other
forms of commercial society: The development of certain social
property relations that generated market imperatives and capitalist
laws of motion, which imposed themselves on production.
 Pre-Capitalism:
1. The simple logic of trade is the exchange of reciprocal
requirements.
2. Their strategies were based on making profits from trade
between fragmented markets, not by increasing efficiency or
transforming production itself.
3. The dominant principle of trade was not surplus value derived
from production but profit on alienation and buying cheap
and selling dear.
4. The main vocation of the merchants was circulation rather
than production  The geographic separation between the
production of grain and its consumption by countries whose
wealth derived from trade in other commodities.
5. The main commercial advantages were extra economic (i.e.
monopoly privileges, superior shipping…).
 Dutch Fail: Dutch economy dominated by the commercial interests
of merchants whose primary goal was circulation rather than
production (commercial mediator).  Market seen as an opportunity
rather than imperative (i.e. Florence)
 Dutch had much in common with other non-capitalist societies that
relied on 'extra-economic' exploitation or 'politically constituted
property', such as the 'tax office' state of French absolutism, in which
office was a means of extracting surplus labor from peasants by
means of taxation.
 The disjunction between commercial power in Europe and trade in
grain: The real economic powerhouses, like Dutch, gained their
wealth not from grain but from their dominant role in trading luxury
goods, which were consumed mostly by other rich regions.
 Difference between all pre-capitalist societies and capitalism: Only in
capitalism is the dominant mode of appropriation based on the
complete dispossession of direct producers, who are legally free and
whose surplus labor is appropriated by purely economic means.
 Transition to capitalism: This transformation involved a fundamental
change in social property relations, whereby both producers and
appropriators became dependent on the market for their economic
reproduction. In capitalist societies, both production and the
appropriation of surplus labor are mediated by the market. Market is
the principal determinant and regulator of social reproduction.
Mutual dependence between capital and labor, but more
importantly, it makes the market the central mechanism through
which both parties reproduce their livelihoods.
 Market dependence has specific systemic requirements shared by no
other mode of production:
1. The imperatives of competition
2. Accumulation
3. Profit maximization
4. Constant systemic need to develop the productive forces
 English state used a variety of judicious industrial policies to propel
its merchants into a more competitive position.
 While other European countries, like Spain and France, also had
powerful monarchies, they were more fragmented and had
"parcellized sovereignty." In contrast, England's monarchy
successfully concentrated political power in a more unified central
state.
 There was a trade-off between the centralization of state power and
the aristocracy’s control of the land.
 The English aristocracy was unique in two ways: Demilitarization
and Political Centralization + Concentration of Land
Ownership
 Agrarian landlords had a strong incentive to encourage their tenants
to find ways of reducing costs by increasing labor productivity.
Tenants subject not only the direct pressures from landlords but also
to market imperatives that compelled them to enhance their
productivity.
 The unique combination of centralized political power and
concentrated landownership in England created the conditions for
the development of a more market-oriented agricultural system. This
productivity-driven system was a key material foundation for the
emergence of capitalism in England.
 British Capitalism: Relentless compulsion to compete, producing
cost-effectively, maximizing profits, reinvest surplus, increasing
labor productivity.
 The development of a national market was a consequence, not a
cause, of capitalism. In England, the capitalist mode of production
and integrated state allowed for the formation of a competitive
national market. By contrast, in France, the persistence of extra-
economic exploitation and fragmented jurisdictions delayed the
integration of a national economy.
 Locke: The issue is not the labor of a human being but the
productivity of property, to exchange value and its application to
commercial profit. The emphasis on the creation of exchange value
as the basis of property is a critical move in the theorization of
capitalist property.
 Different part of the colonialization story: First cultivate the land. You
have both capital problem and you need to have people working on
this land. Large labor sources were needed. Slaving indigenous
people very costly process because you must take care of them it is
your responsibility.
 The root cause of the slavery: Importation of people to solve the
labor problem. If you don’t find enough people, labor problem
occurred, and importation is necessary at this point.
 Buying and selling labor as a commodity.
 Bringing people is the first cycle of institutialization of slavery.
 Imported labor solve the labor scarcity problem.
 The manpower problem is the major phenomena for very long time.
 What brought the end of the slavery? -Demographic shift, increase in
population. Another form of cheap labor become available which is
increasing population.
 Zolsberg suggests that as demographic changes occur globally,
labor becomes abundant, which reduces the necessity for slavery. In
such conditions, rather than relying on enslaved labor, employers
can hire workers at low wages through labor contracts, as a large
labor supply drives down the cost of labor. This shift enables
employers to obtain labor cheaply without the social and moral
complications of slavery, relying instead on contractual agreements
that are more cost-effective and less politically contentious.
 Migrant labor  wanted but not welcomed.
 Migration solves the labor problem even though they are very
unwelcomed.
 They work for cheaper wages because of the lack of legal/social
protection.
 Imported labor as alien in deep sense  Undesirable otherness for
the receiving society, their alienation also continues long afterwards
due to the roles they are confined to.
 Slavery did not exist in the Europe: Due to demographic scarcity in
early medieval Europe, peasants gained bargaining power, leading
to serfdom, a limited form of bondage where peasants were bound
to the land but retained some rights, instead of outright slavery.
 Christians as ones who deserve human rights, the others did not.
 Enslaved labor was integral to the plantation system because it
offered a cheap, controlled, and permanent workforce that could be
forced into hard, repetitive tasks over long hours. The Middle Eastern
model of plantations had been structured around maximizing output
and catering to the demands of global markets, so when Europeans
took it over, they adopted its core aspects without major
modifications. The enormous human cost of sustaining systems of
slavery and exploitation. ***Sugar***
 Use of external labor force much more sense because enslaving
indigenous people result in high costs and they were familiar with
their territory, therefore they could defend themselves against
slavery.
 Social death imposed upon the slaves, permanent non-subjects.
 Since there was abundance of land, any free worker would start their
agricultural enterprise of their own. To acquire surplus, there must
be some kind of restriction on the workforce.
 Indentured Labor: An indenture is an agreement between two parts.
The most common type in the past between employee and
employer. Indentured labor is generally associated with colonialism.
Labors were bound to work for their employer for several years, they
were poorly paid, work conditions were terrible, and discipline was
severe.
 Substitutes for slaves:
1. Asians were used as free labor but in different way, a new form
of slavery.
2. Ex-slaves or indentured migrants were prevented from taking
advantage of the abundant land and taking part in subsistence
agriculture.
3. Chinese in America were used as cheap labors in California in
worse conditions and lower wages.
4. Shift and concentration of ownership, a growth of peasant debt
and poverty  deindustrialized India.
 Capitalists used migrant labor since they were easily disposable.
  The Irish in Britain: Home builder Irish. Foreign migrant labor can be
disposed when it is not needed. English saw them as they are the
reason of poverty.
 Less developed areas as a source for manpower in the developed
areas, use of external labor bought with itself lower labor costs. The
migrants who accept lower living standards also cause a decrease in
minimum wage.
 The freedom of migrants significantly constrained; limited contracts
to reduce their competitiveness in the labor market, political
regulations that prevent them from engaging in collective
bargaining, and institutional barriers preventing them from
incorporation.
 Why global economy still has the cheap labor system? Despite all
innovations world still needs cheap labor especially in labor intensive
industries. Global corporate structure normalized current cheap
labor. It is very difficult to shape this corporate structure. Semi-
institutionalize slavery. Normalization of this kind of slavery for profit
maximization.
 Global Cities and Survival Circuits:
1. Basically, talked about big cities ultimately create labor needs.
Global cities require significant survival circuits that would be
able to maintain the city.

Part 4: Classical Liberalism and Self-Regulating Markets, Adam Smith

 Liberalism is an individual based approach. Containing the power of

the government  The idea of limited government.
 The Role of The Government: Protect the society from other nations,
maintain the individual protection, built certain public institutions for
great society…
 Self-regulating market:
1. Markets will create their own imperatives and dynamics.
2. The idea that if you leave the market by themselves, if you
don’t intertwine to the market politically or economically,
market adjust its own conditions based on price mechanisms.
 Free from intervention.
3. Most of the problems of political economy occurred because
intertwining. Governments is the problem here because it
never leaves the markets alone. There is too much political
intervention that creates inability to separate economics from
politics. Location of the problem as the government
intervention.
 4. Ancient, classic, and contemporary liberalism defend this
argument: Individuals should be free from government
intervention for the self-regulating market.
5. The more trade barriers are eliminated, the more countries
specialize in what they do best, leading to increased
competition and the more efficient functioning of market
dynamics. This ensures that resources are allocated in the
best way possible, maximizing productivity and economic
welfare. This process lies at the heart of Adam Smith’s vision
of a self-regulating market, driven by the invisible hand of
competition and specialization.
6. Market adjustment mechanism is self-adjust depending on the
demand and supply (Invisible hand). If it is not there must be a
reason which is likely the government intervention and
mercantilism.
 Harmony of interest principle: Interest of the individual and society
overlaps at some point.
 Adam Smith emphasizes self-interest as a primary driving force 
what is good for me is good for the society.
 The self-interest makes this division of labor possible because of the
propensity of exchange. Self-interested individuals pushing for
market expansion.
 Wealth of Nations based on Adam Smith’s frustration about political
corruption. According to him, states are corrupted because they
serve to monopolistic powers like mercantilists.
 Division of labor: The breaking down of production into specific,
specialized tasks. When workers focus on a narrow set of tasks, they
become more skilled and efficient, leading to an overall increase in
production.
 Division of labor brings higher production through the
professionalization.
The central idea is that the specialization of tasks allows for
greater efficiency and skill in production, ultimately leading to
economic growth.
 Specialization results in division of labor and it causes efficiency,
labor productivity.
 However, specialization has some negative effects on workers: the
alienation of workers.
 According to Adam Smith, DoL developed from the very nature of
human: truck, barter, and exchange.
 The essence of human becomes his dexterity on labor for Adam
Smith.
 The critique of mercantilism: Wealth of a country is not gold/silver
accumulation.
1. Mercantilism believes that wealth consists of money; however,
what is truly valuable is what money can purchase.
2. Countries should increase its productivity rather than its stock
of money through decreases in import and increases in export
relations.
3. Governments should be out of these processes and shouldn’t
regulate the economy.
4. Monopolization cannot be accepted, since it creates further
poverty and inequality.
 Wealth of a country is found in growth of productive capacity of
national economy.
 Since if you allocate resources with the political logic and use
protectionism, export but not import, (economic nationalism/
mercantilism) international trade and global economy are not
possible.
 Increasing trade, barter, and markets are the road to wealth;
however, mercantilism is the barrier to the wealth expansion.
Markets are solution to wealth creation.
 The more you expand the production and market size there is going
to be more need for division of labor and increase the productivity.
 The more trade you have the more wealth you have.
 Celebration of market in liberalism. Market expansion!
 Labor theory of value: Adam smith also argue that the value of
anything comes from the amount of labor.
 Ultimate Value: Trade, market expansion, and exchange.
 Negative freedom: You need to be free from any type of intervention.
 Positive freedom: Freedom is only possible thought participation to a
larger society. You must be a part of society. You can only be free if
your community is free.
 According to mercantilists, function of tariffs is building your own
national economy.
 Liberalism is against to putting too many tariffs because these
prevents market expansion. They disturb the market size and create
a more privileged market. In addition to tariffs, there were extra-
economic coercion. Liberalism is against also this because the
market cannot expand under these conditions.
 How does government intervention disturb the competition? In
addition to the tariffs and taxes they can also create monopolies.
Mercantilism distorts the market and consolidates the state power.
 Adam Smith engaged in a holistic political economy, focusing on how
to eliminate poverty which will lead to greater happiness.
  Exogeneous Invention: Innovations that come from outside the
economic system. Driven by external factors like scientific
discoveries. Education gives rise to exogeneous invention.
 Endogenous Invention: Innovations that arise from within the
economic system itself. Driven by internal factors like market
demand, competition…
 The idea of specialization drives the trade theory (comparative
advantage theory) Countries should specialize at their best jobs.
 The idea of machine producing staff is fascinating for Adam Smith.
Increase productivity, dexterity, and saving time.
 The value of product: Labor, land (capital)…  Natural price.
Even though the market price of any product based on labor, he says
that the actual price can be below or above the natural price.
Acknowledging the labor value of product but the market price clear
that.
 Actual price is market price for Adam Smith. What happens if market
price (exchange value) does not match with natural price (labor,
land…)? Market will start clearing itself which is likely to create
scarcity. Until both the market price and natural price being equal
market will self-regulate.
 General equilibrium theory: Market prices always determining the
ultimate price of product. Demands and supply what determines the
value of product.
 Adam Smith keen on division of labor because that saves time,
increases productivity, and allows specialization. But to be able to
sell the product, people need to integrate to the markets.
 Morals, competition, and justice. These 3 self-interests would
operate to promote general welfare of society.  Laissez-faire!
 Rate of profit cannot be increased only by reducing wages, but by
productivity.
 Free Commerce: Each country devotes its capital and labor on what
it is best. Distributing labor most effectively then it increases the
mass production which triggers development.
 Use Value: The utility of a commodity to satisfy human needs or
wants. (i.e. diamond has a lower use value)
 Exchange Value: The market value of a commodity, what it can be
traded or exchanged for, typically in money or other goods. It equals
to amount of labor that attributed to it. (i.e. water has a lower
exchange value)

Part 4: Classical Nationalism, Friedrich List

 At the end of the mercantilism Britain was industrialized, how to get
Britain’s level? Classical liberals recommended free trade, limited
government.
 Hamilton:
1. He rejects classical liberalism, he defends industries because
manufacturing boosts employment, attracts migrants,
diversifies national economy and reduces dependence on
foreign markets, and it makes better use of diverse talents of
the nation.
2. Hamilton’s vision laid the groundwork for what would become
the American system of economic protectionism, aimed at
fostering self-sufficiency and independence by nurturing
domestic industries.
3. Active state encouragement is necessary for a manufacturing
economy.
4. Positive balance of trade (exports more than it imports) and
inflow of wealth = positive economic outcomes.

 Friedrich List:
1. He claims that free trade is a mask for English competitive
interests to keep all other countries in a dependence.
2. He argued that while free trade might theoretically benefit all
nations, in practice it served primarily the interests of already
industrialized powers like England.
3. List believed that developing nations needed to adopt
protectionist policies to foster their industries and build
economic strength before engaging in open competition on the
global stage.
4. Both List and Hamilton agree with the core of liberalism: free
trade. But they say that the world is not just there yet.
5. Not anti-liberal but pre-liberal: Until every nation becomes
equally developed world will be pre-liberal state.
 List argues that classical liberalism suffers for 3 reasons:
1. Boundless Cosmopolitanism: t classical liberalism embraced a
universalist or "cosmopolitan" perspective. Not recognized the
principle of nationality and doesn’t take into consideration the
satisfaction of interests.  The idea that each nation has
unique cultural, political, and economic interests
2. Dead Materialism: List criticized classical liberalism for
focusing solely on material wealth (goods, resources, money)
without considering the mental, political, and future
interests of a nation. He believed that true national wealth
 wasn’t just about producing goods and accumulating capital
but also about developing a nation’s "productive powers,"
including education, culture, and institutions.
3. Disorganizing Particularism and Individualism: Classical
liberalism placed too much emphasis on individualism and
private industry, neglecting the importance of social labor
and national cooperation. Classical liberalism assumed that
private industry could naturally flourish through individual
pursuits if left unregulated, leading to a healthy economy. It
ignored the role of collective efforts and the benefits of
national solidarity.
 Civilization of humans only conceivable and possible by means of
the development of individual nations. Civilization is best
advanced when nations are strong, self-sufficient, and developed
according to their unique needs and characteristics.
 Task of Politics: Civilize barbarous nationalities, make small and weak
states great and strong to secure their existence and continuance.
 Task of National Economy: Accomplish the economic development of
the nation, prepare it for admission into universal society of the
future.
 Stages of Development: Original barbarism – pastoral condition –
agricultural condition – agricultural, manufacturing condition –
agricultural, manufacturing, commercial condition.
 Agricultural Nation:
1. Always economically and politically dependent on those
foreign nations which take from agricultural products in
exchange for manufactured goods.
2. Danger of being totally ruined in their trading with foreign
manufacturing nations by wars or foreign tariffs.
3. They suffer double disadvantages: finding no buyers and
failing to obtain supplies of the manufactured goods.
 The fundamental error of the liberals: Their oversimplification of the
role of protectionism in economic policy, viewing it as an artificial
construct of self-serving politicians rather than recognizing it as a
potentially necessary and legitimate strategy for developing a
nation’s industrial base and ensuring long-term economic stability.
 The idea of independence and power originates the idea of nation.
Liberals never take into consideration. The critique points out that
liberals tend to prioritize a broader, more abstract concept of society
rather than needs of individual nations.
 Internal markets of a nation are ten times more important than its
external one. Cultivating and securing the home market rather than
 to seek for wealth abroad. Only nations which have developed their
internal industry to high degree can prioritize the foreign trade.

Part 4: Modern Liberalism, Milton Friedman – Hayek

 There is an intimate relationship between economics and politics.

Economic freedom brings political freedom.
 His basic argument is competitive capitalism is essential to political
freedom.
 Friedman: How do we prevent the state from becoming a monster?
 The great threat to individual freedom is the concentration of
power. However, state is necessary to protect individual freedom at
the same time.
 The scope of the government must be limited. Its major function
must be to protect our freedom both from enemies outside and from
fellow citizens. Preserve law and order, enforce private contracts,
foster competitive markets.
 Governments must be dispersed  No concentration of power!
 Great advances of civilization had never come from centralized
government but from individual genius.
 Imposing uniform standards ends progress and causes stagnation.
 Economic freedom is extremely important for total freedom. It
separates the economic power from political power by creating a
power that can oppose the ones who hold the political power.
 Political freedom as a means to economic freedom (if they are free,
they will vote for laisses faire). Hayek says the reverse.
 Absolute freedom is impossible. The government is essential both for
determining the rules of the game and as an umpire to interpret and
enforce the rules decided on. Determine the property rights,
promote competition, provide monetary framework…
 The market should reduce the range of issues that must be decided
through political means and thereby to minimize the extent to which
the government needs to participate directly in the game. It provides
economic freedom that checks and balances political power.
 2 ways of controlling the economic activity of masses: Central
direction with coercion and voluntary cooperation which is free
private exchange economy. Exchange should be mutually
acceptable. The enterprises are private, and individuals are free to
enter or do not enter.
 Justified Government Interventions: Law and order, defining property
rights, promoting competition, providing a monetary framework,
engaging in activities to counter technical monopolies, overcome
neighborhood effects…
 Hayek: Modern version of liberalism  combining economic and
political liberalism.
 Political Liberalism: Freedom of association, expression, and
participation.
 Hayek claims that as state expands its interventions, it goes all the
way to totalitarianism.
 In socialism you cannot advocate for capitalism, but the opposite is
possible.
 Impersonal markets separate economic activities from political views
and prevents discrimination.
 Monopoly: Absence of alternatives.
 Planners vs Liberals: They claim that a central organization
controlling economic activities may favor the society as whole. Such
an approach would cause damage to competition under fair
circumstances stated by Hayek.
 Whit the existence of central planned state, goods are produced to
serve particular purposes. That conflicts with freedom of market and
economic life, individuals are left to decisions made by this central
authority.
 Formal Justice: Individuals equal before law for unknown time. It
understood as laws having a legal frame in accordance with Rule of
Law.
 Substantive Justice: Authority holders are in charge of designating
which rules are applied to whom and compares that with the
production process conducted by central planning state.
 Shortly, decisions valid for everyone for an unknown duration vs for
particular individuals in particular instances.
 Liberalism derives from the discovery of a self-generating or
spontaneous order in social affairs, an order which made it possible
to utilize the knowledge and skill of all members of society to a
much greater extent than would be possible in any order created by
central direction and the consequent desire to make as full use of
these powerful spontaneous ordering forces as possible.
 Spontaneous Order: Free to use your own knowledge for your own
purposes.
 The order of the market rests no on common purposes but on
reciprocity, that is on the reconciliation of different purposes for the
mutual benefit of the participants.
 Nomocratic: Law-governed, free society.
 Telocratic: purpose-governed, unfree society.
 Catallaxy: Spontaneous order of the market, uncertainty of future…
 Liberalism is inseparable from private property.
 The basic principles of a liberal society may be summed up by
saying that in such a society all coercive functions of government
must be guided by the overruling importance of what Hayek calls
the 3 great negatives: Peace, justice, and liberty.
 True vs False Individualism: Hayek argues that "true" individualism
fosters freedom and spontaneous order, while "false" individualism
leads to excessive rationalism, centralization, and ultimately
threatens liberty.
1. Hayek's True Individualism: Rooted in classical liberal thought,
drawing from thinkers like John Locke, David Hume, and Adam
Smith.
a) It emphasizes that individuals should be free to pursue
their own interests within a framework of general rules
that enable society to function.
b) True individualism rejects a society that independent
from individuals.
c) Spontaneous collaboration of free man.
d) Unforeseen result of individual actions.
e) Everyone tries to find their own good. It minimized the
harms of bad people.
f) Individualism requires strict limitation of all coercive or
exclusive powers, minimizes the total coercion. Also,
voluntary collaboration!
g) Individualistic State: Construct a suitable legal
framework and improve the institutions which grown up
spontaneously.
h) Opposition to centralization is the main concern!
i) True individualism believes democracy. Even,
individualism produced the democratic ideas.
j) It doesn’t make people equal; it treats people equally.
2. Hayek’s False Individualism: Rooted in a more rationalistic and
constructivist approach (Rousseau). False individualism
attempts to redesign society based on rigid, idealized concepts
rather than the organic realities of human interaction.
a) Rationalistic, cartesian.
b) This approach underestimates the complexity of society
and overvalues human rationality.
c) It tries to remove people from families etc. and tries to
atomizing people.
