Liberalism and Mercantilism

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Liberalism and Mercantilism

International political economy is an important subdiscipline of international relation. It has three main ideologies, Liberalism, Mercantilism and Marxism. In this essay there will be three parts, first part is to demonstrate what the Liberalism and Mercantilism are on the perspective of international political economy and then the second part is to compare and contrast these two ideologies of political economy. At last, give a conclusion to the Liberalism and Mercantilism.


The liberal perspective on political economy is embodied in the discipline of the Western economics (Gilpin, 1987). It emphasizes the individual interests, the freedom and the maximization of economic benefit. Economic liberalism is based on the theory of “invisible hand” of Adam Smith and founded by David Ricardo in the seventeenth century. In the 1940s, Friedrich August von Hayek made a renaissance and a new explanation to it. Moreover, Milton Friedman made great contribution to the economic Liberalism in the 1970s. The basic standpoints of economic Liberalism are that people should be treated as the “rational economic animal” and market emerges spontaneously to satisfy human need. When the market running it develops according to its internal logical rule, rather than people’s will. Even through economic activity can enhance national power, the core of it is to bring beneficial to each consumer. Due to each person are both consumer and producer, so every action of each person should be a rational choice in the market.

Because resources are scarce, every decision involves an opportunity cost, a tradeoff among alternative uses of available resource (Samuelson, 1980, p.27). Get something at the cost of giving up something else. Hence everyone’s rational choices contribute to a balance among various powers in the market. The balance of these various powers makes the market have its intrinsic stability. That means the market is not only an automatic operation system, but also an autocorrection equilibrium system.

Any intervention, especially from the government, is helpless to market development and destroys the intrinsic stability of market. Therefore, economic Liberalism opposes any form of government intervention strongly. Economic liberals claim that politics makes people separation while economy makes people solidarity. A liberal international economy will have a moderation influence on international politics as it creates bonds of mutual interests and a commitment to the status quo. (Gilpin, 1987)


According to Viner (1994), Mercantilism is a theory that state uses its economic interests widespreadly to regulate its economic activities. It emphasizes economic activities should serve for the interests of state and goal of state building (Gilpin, 1975). There are three theoretical points of Mercantilism (Magnusson, 1993). Firstly, Mercantilism pays attention to the currency and development of commerce. It regards the amount of currency (mainly gold and silver) as an important symbol to measure the degree of state’s affluence. Secondly, Mercantilism pays attention to foreign trade and seeks for trade surplus. It has no faith in market mechanism for state building. Thirdly, Mercantilism pays attention to the development of domestic industry, at the same time cultivates and protects the infant industry.

According to Sen (1984), Mercantilism believes that industry has spillover effects and it associates the possession of industry with economic self-sufficiency and political autonomy. The most important, industry is prized because it is basic of military power and central to national security in the modern world. Actually, Mercantilism can be divided into two parts, “benign” Mercantilism and “malevolent” Mercantilism. The “benign” Mercantilism considers the safeguarding of national economic interests as the minimum essential to the security and survival of the state.

It hopes to develop and protect domestic industry with the state power (like tariff, exchange rate, etc) and to prevent foreign product competition, for example, monetary policy. While “malevolent” Mercantilism advocates to build a powerful state and to ensure foreign trade unblocked with using of state power and regards the international economy as an arena for imperialist expansion (Hirschman, 1969). Even through there are differences between these two Mercantilisms, the goal of Mercantilism that makes state rich and powerful is clear and unified. (Magnusson, 1987)

Compare and contrast of Liberalism and Mercantilism.
The debate between Liberalism and Mercantilism has a long history. There are three main differences between these two ideologies of political economy according to Goddard (2003). Firstly, Liberalism focuses on the market mechanism and believes that the economic role of government is limited. However, Mercantilism pays attention to the role of state and considers politics decide the economic activity. Secondly, Mercantilism regards world economy as a zero-sum game which means one country’s loss is as the prerequisite to another country’s gain. Moreover, Mercantilism thinks conflict between different countries is inevitable. Each country can only rely on its own resources to protect itself eventually.

However, Liberalism opposes the zero-sum game. It believes the only consequence of the zero-sum game is war. Liberalism stresses the mutual benefit and a win-win situation which lead to international cooperation and interedependency. That is, dividing an existing cake is inferior to make a bigger cake (By promoting economy growth). Finally, Mercantilism focuses on the importance of military power and regards political and economic power as a way to ensure the security of state. Liberalism thinks accumulation of military power and other powers reduces the economic efficiency. Peace is more effective than war. The following table coming from Frederic shows the specific difference between Liberalism and Mercantilism (1999).


Even through the most of viewpoints of Liberalism and Mercantilism are different, these two ideologies of political economy have the value of existence respectively and are worth to research. In addition, Liberalism and Mercantilism have their own advantage and disadvantage. When begin to research them, people should have a critique view to accept their viewpoints. In summary, Liberalism and Mercantilism are two important ideologies of political economy

1. Frederic S. Pearson and Simon Payaslian. International Political Economy: Conflict and Cooperation in the Global System. The Mcgraw-Hill Companies, 1999, P.33

2. Gilpin, Robert. 1975 U.S Power and the Multionational Corporation: The Political Economy of Foreign Direct Investment. New York: Basic Books

3. Gilpin, Robert 1987. The Political Economy of International Relations. Oxford: Princeton University Press. Chapters 2 P.33-P.79

4. Goddard, C. Roe; Cronin, Patrick and Dash, Kishore C. (eds.) (2003). International Political Economy: State-Market Relations in a Changing Global Order. Boulder, CO: Lynne Rienner Publishers (chapters 2-4, 6, 11-13).

5. Hirschman Albert.O 1969 “Effects of Industrialization on the Market of Industrial Countries” In bert F. Hoselitz, cd. The Progress of Underdeveloped Areas. Chicago: University of Chicago press. pp. 83-270.

6. Magnusson Lars. 1987. “Mercantilism and Reform-mercantilism: The Rise of Economic Discourse in Sweden During the Eighteenth Century” History of Political Economy 19: 3.

7. Magnusson Lars. 1993. Mercantilism. The Shaping of Economic Language. London: Routledge

8. Samuelson Paul A. 1980. Economics. With the Assistance in Statistical
Updating of William Samuelson. New York: Mcgraw-Hill.

9. Sen, Gautam. 1984 The Military Origins of Industrialization and International Trade Rivalry. New York: St. Martin’s Press

10. Viner, Jacob. 1994. Power versus plenty as objectives of foreign policy in the seventeenth and eighteenth centuries, World Politics, No.1 p.11


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