Hello again and welcome back. In the last lecture, we looked the artificial distinction made between states whose study is traditionally the preserve of political scientists, and the market whose study is claimed by economists. Now if we look for the start of the modern approach to the political economy from its earliest distinguished practitioner or, at least, someone who is still cited today, we should start with Adam Smith. In his famous book, The Wealth of Nations, 1776, he suggested that the pursuit of personal gain could also contribute to the common good, through the self-regulating mechanisms of the market. Another early favorite of mine is David Ricardo. In 1809, he observed the power relationship between the land owner and the tenant. This was such that any economic rent, any incomes gained by virtue of the control over a scarce resource, would lead to the landlord creaming off most of the benefits of productivity improvements made by the tenants. This idea of power was taken several steps further by Karl Marx, in 1867, in his publication Das Kapital. This contended that market capitalism was device by which the capital owning classes maintained their exploitative power of the industrial working class. Now it would never have occurred to Smith or any of those following him to disentangle the economy and society into separate areas of analysis. It was only with the appearance of Alfred Marshall's Principle of Economics, 1890, that economics started to define itself as a discipline on its own. Apart from the Marxists, this continued along a track of what was known as classical economics, which assumed that the economy was governed almost exclusively by markets and market forces. As a result, the state quickly lost its central position in economic analysis and it became instead one economic actor, one among others, consumers, enterprises, government. Economics experienced a major split in the 1930s, when a supposedly self-regulating world economy refused by itself to emerge from the Great Depression. In such circumstances, John Maynard Keynes argued that the government should intervene by increasing its own spending in order to compensate for the slump of demand. Now this new approach brought the state and its preferences more centrally into economic analysis and it also led to the search for statistical measures to track economic progress. As more economic statistics became available, economists began constructing models for economic forecasting. By the 1960s, this had led to the creation of a separate field known as econometrics. For example, economists employed international statistics to test the relationship between growth, inflation and unemployment. Or that between government deficits, the money supply and inflation. Now there's one final divide within the field of economics that deserves mentioning and that was the reassertion of the idea that institutions matter. Interest in them had never completely disappeared. But in 1937, Ronald Coase launched what would be called new institutional economics. He asserted that institutions assisted economic growth by reducing what was called transaction costs, the costs involved in gaining information and conducting transactions. Now we'll leave this economic strand of developments at this juncture, at the beginning of the 1970s, and turn our attention to what was happening in the field of political science since the 1890s. Relieved of the burden of contributing to or even incorporating economic analysis, political science quickly became a discipline in its own right. On one area of study that made an early attempt to achieve academic autonomy was that made by international relations. Now these were considered sufficiently important to be studied in their own right. This study and its terms split between realists who believe that states basically pursued their own self-interest and various groups of instuitionalists who thought that institutions could modify state behavior. And that particular feud still persists today. For much of this early period, economics was rigorously expunged from analysis. While we're under the influence of the old crisis and the breakdown of the international financial system, this began to change in the early 1970s. A group of American scholars started to concentrate on economic issues in international relations, and especially on international economic relations. Now one thing that characterized American scholarship was an increasing theoritization of the discipline. International relations had always been somewhat in awe of the status achieved by economics and started to emulate its intellectual rigor and later, its empirical approach. By contrast, possibly because of their imperialist past, scholars in European countries had always tried to embrace more historical and cultural factors. But partly as a result, tended to be really much more descriptive in their analysis. One exception to this were the Marxist scholars. But these were marginalized basically because their analysis tended always to follow an ideologically precast template. Economics determines politics, capital represses labor. Now all of these various schools were haughtily indifferent to each other's approaches and in fact, rarely engaged in academic discourse. But where you may ask now, were are the economists? Their world, too, have been altered by the collapse of the international monetary system, and by subsequent events. They, too, had been working on alternative policy responses to the recession, on the cause of exchange rate volatility, and on the nature of debt. Under the influence of a drive by the UN development agencies, they started trying to quantify social and government indices and to ask searching questions on the causes of prosperity and the persistence of poverty. Increasingly, they've been adopting and testing concepts framed by institutional economics, as well as those employed by political science. Their work is central to the debates of the interconnectedness of trust, governance and growth, which are at the core of this course. And a sad answer, too, is that they have also been ignored. If I sound annoyed, it's because I am. I love this literature. It's an eclectic mix, but there are gems and insights to be found in all of the genres, from the neoclassical to the traditional Marxist. We've talked here of classical and Marxist approaches to scientific investigation. Now I don't mind from which direction you started the course. And I've not got the slightest intention of steering you in any particular direction. What I hope though is that through this course, you get a feel for the issues discussed and the basis upon which judgements are made. The one field I've left out of this lecture is the international dimension, the field of international political economy, and this will be the subject of the next lecture. I look forward to seeing you there.
