UNIVERSITY OF GHANA

POLITICAL ECONOMY

COMPARE AND CONTRAST ECONOMIC

LIBERALISM AND MERCANTILIST ASSUMPTION
ABOUT THE GLOBAL POLITICAL ECONOMY.

Jubert-Henry Adumuah. University of Ghana, Political Science Department. (2017)

Abstract

Every phenomenon has ever occurred throughout the recent and continues history that the
international community has encountered have been a subject of different theoretical
interpretations and explanations for why they have happened, who were the actors involved in
the development of their occurrence, and most importantly what do these “phenomenon” tell
us about the future. Theories have helped us to understand the world we live in in a more
systematic manner, providing different views of a high record of the main aspects of our lives.
Two of the main theoretical approaches in IPE, which were essential in structuring the methods
of which states used to develop their economical and political powers throughout history till
nowadays are Liberalism with its free-trade approach, and Mercantilism with the protectionism
approach. After establishing a basis for each of the theories, this paper will try to describe the
implementation of these two theories in the aspect of trade in International Political Economy.
For doing that, I will start out by drawing lines around the main key element and features of
Liberalism and Mercantilism providing a structural interpretation of their view on trade during
the last decades. I will provide their interpretation on whether free trade is good or bad for both
the international community and for singular states. The conclusion, which the paper is building
towards, will sum the discussion and offer my approach on whether any of these two
theories can be considered the best and which one has the best explanation for the economical
events.

POLITICAL ECONOMY THEORIES

In the sphere of political economy, a question may emerge toward specific economic policies
choice made by a government, for instance, why do some governments keep the currencies
floating whereas others uphold fixed exchange rates? In answering such a question, it is
important to come back to the three traditional schools of thought of political economy;
Mercantilism, Liberalism, and Marxism. Mercantilism is a system of political and economic
policy, evolving with the modern national state and seeking to secure a nation’s political and
economic supremacy in its rivalry with other states. Economic liberalism on the other hand is
the ideological believe in organising the economy on individualist lines, meaning that the
greatest possible number of economic decisions made by individuals and not by the collective
institutions or organisation. . These differences have become a debating matter when they are
brought into comparison. Particularly, when it comes to comparison between Liberalism and
Mercantilism, there are contrary viewpoints. From one point of view, Mercantilism is a
political economy paradigm that was later overtaken by Liberalism at the end of the 18 th
century. On the other point of view, however, the Mercantilist thought is still being
implemented today. In this essay, I will compare and contrast economic liberalism and
mercantilist assumption about the global political economy.
First, mercantilist view on the international scene is anarchic and chaotic while the economic
liberals view the international scene as orderly and corporative. They assume it is cooperative
because there are a lot of actors; NGO’s, states, individuals etc. Mercantilists believe that since
a nation wealth and power is determined by the amount of precious metals possessed by that
country, states are brutal when it comes to trade in the international scene. Thus, government

Jubert-Henry Adumuah. University of Ghana, Political Science Department. (2017)

will do anything to gain more precious metals (preferably gold and silver) while maintaining
what they already have. In order for them to gain more wealth, they need a favourable balance
of trade that is, export more and import less. Since export must exceed import, states have to
be able to depend on produced products; the goal of this is to promote self-sufficiency and the
backbone for self-sufficiency is the colonies where mother states extract raw materials from
the colonies, process them into finish goods and sell it back to the colonies and other states for
higher prices. For this to take place, states must be independent off other states and since there
is no “stand by” force in the international scene, there is a scramble of power and only the
strongest can win which motivates states to go ahead and carry out aggressive policies in the
international scene.
On the other hand, economic liberals view the international scene to be orderly and corporative.
They believe that international scene is structured in an orderly manner thus, there are
mechanisms and institutions put in place to ensure peace and corporation amongst states and
not chaotic and anarchic as the mercantilist approach towards the international scene.
Economic liberals believe that, states cooperating with each other will promote peaceful trade
and interdependence among states where states may reply on other states for good they do not
have and due to this, it makes it difficult for such states to go into conflict of any form of
conflict. For instance, Burkina Faso cannot pursue aggressive and hostile policies towards
Ghana because they depend on Ghana’s port to get goods imported in the state. This will ensure
that Burkina Faso maintains friendly relations with Ghana in order for them to get what they
want. Therefore, there is some sort of unity and harmony amongst such states because of
similarities of policies pursued which makes them cooperate with each other peacefully.
Secondly, mercantilists consider the state as the dominant and rational actor whilst economic
liberals consider the market to be the dominant actor. Mercantilists assume that, the state is
supposed to be in charge of regulating the flow of revenue in the in the market. Mercantilists
aregue that, economic activities is too critical that should be made through a thorough process
to decide how and where society’s resources should be located. According to mercantilists, an
“uncoordinated “process would result in an “inappropriate “economic structure; therefore, the
state should play an important role in economic policy making. Mercantilist policies
discourage imports, which were seen as threatening domestic industries. The government
therefore offers incentives, subsidies etc. to domestic producers and they also implement
protective tariffs (Protectionism) which eventually grants the government control over the
economy. International trade is determined by the interests and power of states acting to
maximize nationals. They therefore assume that, the inter-state system is anarchical and it is
therefore the duty of the each state to protect its own interest. Mercantilists also assume that,
the state is the only instrument through which people can fulfil their goals and aspirations.
However, economic liberals believe otherwise. They believe that the market is the most
dominant actor in the international scene but not alone because there are other actors such as
individuals, non-governmental organisation (NGO’s) etc. Herein lay the great statement of
Adam Smith in his writing of “The Wealth of Nations” that, “the wealth of nations will better
to be served by policies of free trade”. Smith added that economic growth is a function of the
extent of the division of labour, which is then dependent on the scale of the market. They
believe that, individuals in the pursuit of self-interest will maximize the benefits of economic
exchanges for society. For economic liberals, the market lies at the heart of economic life. They
acknowledge that, market relations may not necessarily produce good results, yet they disagree
with the state interfering with forces that govern the economy. Therefore according to
economic liberals, governments should take minimal intervention in economic activities to
achieve maximum efficiency; that is to say, the government should take a laissez-faire
approach to the economy.

Jubert-Henry Adumuah. University of Ghana, Political Science Department. (2017)

Thirdly, in the international scene, mercantilists believe economic activities is a zero-sum game
while economic liberals believe economic activities is a positive-sum-game. A zero-sum game
refers to situation in which the total of wins and losses add up to zero, thus one party benefits
at the expense of the other. For mercantilist, in a zero-sum game, it is impossible for one state
to advance its position without the other state suffering a corresponding loss. For instance, two
states are splitting a fixed amount of money, the more one gets, the less available to the other.
To mercantilists, in the zero-sum game, there is competition and economic rivalry between
states and states will do anything in their power to gain what other states have.
Contrary to this, economic liberals believe economic activities in the international scene is a
positive-sum game unlike the mercantilist approach. The positive-sum game refers to situations
in which the total gains and loses is greater than zero. A positive-sum occurs when resources
are somehow increased and an approach is formulated in which the desires and needs of all
concerned are satisfied. For instance, when two parties both gain financially by participating
in a contest, no matter who wins or loses the contest. Positive-sum can also occur in instances
of distributive bargaining where different interest are negotiated so that everyone’s needs are
met. Economic liberals assume that, because they operate in trade system where the market is
the dominant actor, there will always be gains, no matter who wins or loses.
Furthermore, mercantilists argue that, political affairs of the state are more important than the
economic affairs of the state while economic liberals think otherwise. Mercantilists, believe
that mercantilism provides a framework that emphasise the critical issues of security and
political interest, in so doing, they provide the security (military power) for the state which is
viewed as the essential precondition for its economy and political stability in the competitive
state system. To illustrate this in the mercantilist view is the case of the Dutch East India
Company to see how mercantilism had been successful in economic activities. The Dutch
gained independence from Spain and established the Dutch East India Company and since they
has the sea-way operation created by the Portuguese, they used it for economic activities with
political will, later which England followed the route. They used their ship technology to
engage in trade and colonisation in various parts of the world. Dutch was equipped with its
own army and Navy at that time. It is clear that the economic activities of the Dutch was based
on the political framework performed to be the most effective economic cooperation within s
world of competitive group and states.
In contrast, economic liberals argues that, the economic affairs of a state are more important
than the political aspects of the state. They believe that, the backbone of a state is the economics
of the state. To economic liberals, implementation of better economic policies can lead to the
success of the economy. For instance the Unites States is the hegemony in contemporary global
system because of its strong economy. It is believed that, without its economy, it will be
considered as a super power but not necessarily a hegemony.
Nevertheless, it is important to note that, irrespective of the differences between both
mercantilism and economic liberalism, they both agreed on certain key areas which I will
highlight. First, they both mercantilists and economic liberals believe that, there are limited
resources and unlimited wants in the international global economy. They both agree that, there
are restricted amounts of inputs required by businesses or the economy such as raw materials
and therefore, the social and business environment has to deal with a scarcity situation and
involving limited resources and unlimited wants tends to put pressure on the international
economy. However, they both seek to find a preferable way for resources to be distributed
equally.
Also, another similarity between mercantilism and economic liberalism is that, they both agree
that there are actors in the international political economy. They believe that actors such as

Jubert-Henry Adumuah. University of Ghana, Political Science Department. (2017)

states, Multinational corporations, non-governmental organisations, and individuals exist in the
global political system. However, it must be noted that, mercantilists regard states as the
dominant and most important actor in the global political economy while on the other hand,
economic liberals regard the market as the dominant actor in global political economy rather
than other alternative actors.
In conclusion, both mercantilism and liberalism agreed upon the issue that, economic activities
enhance power and security of states. However, the two ideologies have different approaches
towards economic market. While mercantilism considers the state as an important instrument
to conduct and develop national economy, economic liberalism advocates for free market
trading. It is to be noted that, both mercantilism and economic liberalism have shortcomings
which begs the question, “is there a better way to influence the global political system
positively with any flaw?” Fusing these two ideas together may help boost the global political
economy in diverse ways but practising both of them are not exactly bad because states have
practiced this two ideologies and have developed significantly.

REFERENCES

1. Smith. A (1964), the Wealth of Nations. New York. NY. Pp 401

2. Balaam. N David & Veseth. M. (2008) Introduction to International Political Economy.
New Jersay. Pp 22.
3. Blang, M. Economic Theory in retrospect. 5th Edition. Cambridge: Cambridge
University Press, 1996,Pp 11.
4. Oatley. T. (2004). International Political Economy. New York: Pearson Pp 25.
5. Giplin, R. (1987) the Political Economy of International Relations. Princeton
University Press: New Jersay. Pp 47.
6. Dutch Wars: War of 1672-78. Retrieved from
http://factmonster.com/encyclopedia/history/dutchwars-war-17672-78-html.

Jubert-Henry Adumuah. University of Ghana, Political Science Department. (2017)