The State and Market - "a Theoretical Perspective"

THE STATE AND MARKET - A THEORETICAL				mechanism for the economic exploitation of
PERSPECTIVE				the less developed countries by the advanced
				capitalist economies. This Modern World
A. Introduction				System position is based upon the classical
				Marxist analysis that, both the nation-state
The 1960s marked an evolution of change in				of the nationalists and the market of the
world politics where the concept of global				liberals are derivative from underlying and
diplomacy had become increasingly relevant.				more fundamental social and economic forces.
It seemed that the Euro-dollar system was the				Rather than being independent actors or
answer to many problems. The system				variables, they are consequences of a
constituted a great improvement on the				peculiar juncture of ideas, institutions, and
international monetary mechanism, and for				material capabilities. The state and market
this reason alone it was Ã‚"in keeping				are the products of a Ã‚"historical
with the basic trendÃ‚". It represented a				epochÃ‚", and are firmly embedded in a
most important step in the progress towards				larger social matrix. The central argument
overcoming national barriers that divide the				that the Ã‚"world marketÃ‚" contains a
international financial system into separate				dominant core periphery and a dependent
compartments. Thanks to the new device, those				periphery that interact and function as an
compartments were now much less isolated than				integrated whole. It is clear that the
they had over been before. What was strange				historical content of the MWS position is
was not that it arose and developed, but that				crucial to the insight of the state and
it had not come into being many years				market. As noted, the market system and the
earlier. The Euro-dollar system had become				nation state are both products of modern
familiar and popular among Central Banks and				society and of profound changes in human
Treasury officials, bankers, merchants, and				consciousness, productivity, and social
investors all over the world and most of them				forces. Using the analysis of the MWS theory,
were very keen on maintaining it. It led to				nation-states and the conflict among them are
an Ã‚"international money marketÃ‚"				the foremost manifestation of manÃ‚'s
with a structure of international interest				nature as a Ã‚"political animalÃ‚".
rates. The difficulty had been to establish				Taking the notion, that far from being mere
the system. Once it had come into existence,				creatures of economic and historical forces,
and had become a going concern, no				states are independent actors in economic and
extraordinary influences were needed for its				political affairs. It should also be noted
maintenance in existence .				that the market and Ã‚"economic manÃ‚"
				have achieved an independent reality. Once
It can be reported that the international				having come into existence, the modern market
financial markets had borne witness to the				cannot be reduced to sociological forces. The
largest concentration of economic resources				market, like the modern state, has come to
in the world. The Euro-dollar market				exercise a powerful influence over historical
represents a modern world system where the				developments.
prime candidates (the economic actors) are
independent forces whose actors transcend the				Another factor worth noting is that, since
nation state. The Euro-dollar market being				Marxists hold that the state action can only
independent of specific national capital				be understood in terms of historical trends,
markets, is held together by a web of				any analysis must focus on the origins and
supra-national institutions and conventions				basic motivations for state action over time.
(such as the IMF, BIS, inter-bank market				Another common element in all Marxist
discipline). As, since the market is not				theories, which distinguishes them from all
nationally based, no national regulators have				other theories, is the subservience of the
been able to impose the same restrictions on				state to the interests of capital. To Marx,
off-shore operations, that they do on				capital meant a social process, which can
operations on home soil. Partly due to the				include the hiring of labour, the
fact that such action would only serve to				construction of machinery, the exchange of
shrink the market, and thus seriously harm				products for money, and the re-investment of
international trade and payments. However,				that money into another round of the
instead of disappearing, it had been going				profit-generating process. Capitalism is the
from strength to strength, throughout the				all embracing term that includes each of
1960s. In fact, there was much more to the				these mechanisms. The British State viewed as
system than was assumed, especially by those				a whole, can best be understood, according to
who regarded it as being a purely temporary				Marxists, as defender of the capitalist
outcome of fortuitous circumstances. What				system. It is argued that British live in a
they failed to realise is that it fulfils				class society where the basic divisions are
very important requirements, and that its				drawn according to ownership and control of
development is in keeping with the trends of				the means of production. A minority
the market system. The international				capitalist class owns the means of production
integration of the money markets, the				and exploits a wage-earning class. The
elimination or reduction of rigidities in				stateÃ‚'s action in maintaining capitalism
deposit rates and loan rates, the				is an expression of the power of the dominant
circumvention of artificial obstacles, the				class. However, this does not imply that a
freeing of competition between lenders, and				tiny capitalist elite manipulates the state
the improvement of the automatic functioning				Ã‚"behind the scenesÃ‚".
of market-mechanism, had long been overdue.
				The principal strength of the Marxist
The relationship between Ã‚"the				analysis, and most other radical approaches
stateÃ‚" and Ã‚"the marketÃ‚" is				to international politics is that they focus
fundamental to any understanding of the				precisely on the connection between the
issues involved in economic and political				social and economic structures of the
change and the ordering of human				capitalist economic system, and the exercise
relationships. The changes of the state in				of political power in the international
globalism brought with it a mix of values				system, on the other. In the domestic
(wealth, freedom, and justice) within a				political system, the capitalist system of
market-authority relationship that affected				production entrenches the dominance of one
the structures of power in the world economy.				class over another: the state is the
The purpose of this paper is to explore these				capitalist state. As the economy becomes
very central concerns highlighting the impact				internationalised, this class dominance
of the world economy on the relations of				projects itself into international politics.
states, and the ways in which states had				The political organisation of the
sought to influence market forces for their				international system reflects the power
own advantage. The theoretical theme of this				relations of the global market economy. This
thesis is that, traditional political science				manifests itself both in competition among
approaches to the economic policy of the				states in the international system, and in
Ã‚"nation-stateÃ‚" are not enough in				the co-operative processes represented by
explaining the development of contemporary				international economic regimes. In the
capitalism, and that, each state exists only				perspective of some traditional Marxists, the
as a political actor in the global flow of				spread of capitalism touches off a process of
capital. In that sense the world market				economic and political development in less
constitutes the existence of the reproduction				developed parts of the globe as capitalist
of capital.				firms, often supported by their home states,
				seek profitable opportunities for investment
This paper will assess the nation-state and				abroad.
the concept of economic policy making in a
globalised economy by using three theories,				Dependency theorists saw the flaw of this
Liberalism, Marxism, and the Theory of				approach and pointed instead to the
Hegemonic Stability, which will analyse the				likelihood of core and periphery areas of the
nature of the state and market. The Marxism				global economy remaining distinct despite
framework will be the chosen theoretical				incorporation into the capitalist world
framework and will be referred upon				economy. Johann Galtung developed a
throughout the thesis. However, all of the				structural theory of imperialism, proposing
three theories investigate firstly, the				that the mutually beneficial political and
economic interests of actors/groups and the				economic relationships between elites in core
ideas they espouse and secondly, the				and periphery countries world maintain the
relationship between the political and				structural pattern of dependency in the
economic domains in contemporary				global economy.
international society. Using this framework,
this paper will have explored, whether the				It is however difficult to generalise about
state was Ã‚"capturedÃ‚" by particular				these diverse theories, but most do share
interests, by examining the role of the				some essential characteristics. The
state, by using the following argument:				approaches tend to be based on analysis of
				the socio-political effects of economic
The concept of the state and market - Who				structure. In this sense, most are
makes the rules for the market? Could it be				reductionist like the liberal approach. This
that, it is industry itself, which makes the				is not surprising; Marx regarded his work as
rules and the state that, legitimises the				a critique of the classical liberal political
rules?				economists, and thus he focused on a similar
				set of intellectual problems. Politics in the
B. International Economic System				domestic and international domains tends to
				be reduced to a function of the capitalist
Realist theories of international relations				production structure and the division of
start from the assumption that states are the				society into classes, which is in turn a
fundamental units of the international				result of the individualÃ‚'s relationship
political system, in which, states possess a				to the means of production.
Ã‚"national interestÃ‚" in maximising
power, wealth or both. Taking this analysis				However, the theories are weak in explaining
into account, realist theorists are able to				just how this relationship between political
develop rigorous systemic explanations of how				power and economic structure is expressed.
the international political system is				There is an essential, missing ingredient
ordered. Kenneth Waltz has used analytical				Ã‚- a theory of how structures themselves
tools grounded in neo-classical				originate, change, work, and reproduce
microeconomics to explore the underlying				themselves. Antonio Gramsci, (and other
characteristics of the state system. Taking				theorists who used the Gramscian method in
states as the functional equivalent of firms,				international relations, such as Robert Cox ,
Waltz develops a variety of insights about				and Stephen Gill ), attempted to develop a
how, the number of states in the system				more political explanation of the
affects the very configuration of their				relationship between economic structure and
interaction - much as an oligopolistic market				political processes at domestic and
behaves differently than a perfectly				international levels of analysis. They sought
competitive one.				to avoid the problem of economic reductionism
				referred to above, drawing on Gramsci himself
One of the more provocative outgrowths of				as well as Karl Polanyi , Fernand Braudel ,
this Realist theorising is called the				and other social theorists, and in the
Ã‚"Theory of Hegemonic StabilityÃ‚".				process overcame many of the limitations of
Reviewing specifically the international				liberalism, Marxism and realism .
economic system, scholars such as Stephen
Krasner and Robert Keohane , analyse the				E. Theoretical Comparisons
formation of stable economic relations among
states as a classic collective-action				Using the Euro-dollar market as an example,
problem. They conclude that international				the market system has become a major factor
economic stability is best provided for in a				in shaping modern society; market competition
system dominated by one actor capable of				and the responsiveness of economic actors to
managing the system more or less				relative price changes. These issues propel
unilaterally. Such generalisations are				society in the direction of increased
solidified by analysing the Pre-World War One				specialisation, greater efficiency, and (if
Ã‚"Pax-BritannicaÃ‚" and the Post-World				liberal and Marxist predictions ultimately
War Two Ã‚"Pax-AmericanaÃ‚", as				prove correct) the eventual economic
exercises in the stabilising nature of				unification of the globe. Marx observed that
hegemonic leadership. It is often argued that				the market, or capitalist system, was a
such hegemonic systems will tend towards				revolutionary departure in world history and
liberalisation of trade and capital flows.				also argued that traditional culture and
However, even though Realists have clarified				political boundaries would crumble in its
and illustrated many issues in international				path as it moved inexorably toward the full
relations, one very serious problem arises in				development and integration of the
attempting to apply their insights to the				globeÃ‚'s productive capabilities .
analysis of the real world. If the states are
the crucial actors in the system, then it is				Although, the market system is driven largely
of fundamental importance, to understand the				by its own internal dynamics, the pace and
goals that they pursue Ã‚- just as				direction of its forward movement are
micro-economic analysis must understand the				profoundly affected by external factors. The
goals of all players in the market. Some				interaction of the market and environmental
realists simply assume state interests,				conditions account for much of the economic
usually as some variant of survival or power				and political history of the modern world.
maximisation. Others believe state interests				Among the so-called exogenous variables that
are derived from the relative position of the				affect the operation of markets are the
state in the international system: hegemonic				structure of society, the political framework
states have one set of interests, weak states				at the domestic and the international levels,
another.				and the existing state of scientific theory
				and technological development, all of which
For realists then, state interests are				constitute constraints or opportunities
essentially static and exogenous, given by				affecting the functioning of economic actors.
the very nature of the international system.				However, the market itself affects and
Yet, even the most rigorous of Realists				transforms external factors in important
realise that this is only part of the story.				ways: it dissolves social structures, alters
Kenneth Waltz claims that, Ã‚"each state				political relations, and stimulates both
arrives at policies and decides on actions				scientific and technological advance. An
according to its own internal processes, but				understanding of the ways in which market
its decisions are shaped by the very presence				forces and external factors affect one
of other states as well as interactions with				another is essential to comprehension of the
themÃ‚". Robert Gilpin, is even more				dynamics of the international political
explicit about domestic pressures on foreign				economy.
policies. Ã‚"The state Ã‚... may be
conceived as a coalition of coalitions whose				On a general level, the Ã‚"stateÃ‚"
objectives and interests result from the				covers a heterogeneous group of institutions
powers and bargaining among the several				engaged in an active process of regulating
coalitions composing the larger society and				and directing society. It is these
political elite Ã‚... The objectives and				institutions in which Ã‚"state powerÃ‚"
foreign policies of states are determined				lies. The state also serves to give society
primarily by the interests of their dominant				some unity, integration and coherence.
members or ruling coalitionsÃ‚" .				However, when one asks what the role of the
				state is, or what it should be, one if faced
Another piece of work involves CoxÃ‚'s				with a number of sharply contrasting views or
study of critical analysis, which develops				theories.
the understanding of stateÃ‚'s rational
choice, and the decision-making process, in				As, for the market, historically, markets
international and domestic affairs. The state				have always existed in one form or another as
emerges as the political focus for the				economic exchange relationships (such as
process of adjustment and change. That, by				trade) among individuals, enterprises or
understanding the state, by what it is, what				communities. The market system, has been
it does, and where it fits in Robert				characterised by industrial capitalists, and
CoxÃ‚'s state-society complex, lies the				Marx, where owners of capital, workers, and
theoretical issue. The notion of the state				intermediaries are all linked in social
and market, is an important step to				relationships via a complex pattern of
understand the broader context of thinking				political and market institutions. These
about order, addressing the basic underlying				facilitate the circulation of money for the
concern of the ways through which				production and purchase of commodities,
Ã‚"governance without government Ã‚"				services, land and labour. In the post-World
can be achieved in order to avoid undesirable				War Two economic order, a market has been a
outcomes in international and transnational				political device used to achieve certain
relations.				outcomes, conferring relative benefits on
				some, and costs on others in both political
One conclusion is that, financial market				and economic terms. It is in essence, a
deregulation and re-regulation, in their				political institution that plays a crucial
various disguises, have come to constitute a				role in structuring society and international
major developmental trend, not only in the				politics. The changing market structure gives
world economy, but also in world politics.				rise to new patterns of economic and
Processes of regulatory arbitrage, market				political forces.
expansion and the development of the
competition-state in a more open world have				The Euro-dollar market was focused and
led to a range of structural changes which				developed in London at the initiative of the
seems to be identifiable as an				US-based banking industry. This development
Ã‚"integrated, 24-hour global financial				reflected the combination of the effects of
market-placeÃ‚". A series of changes has				former Eastern European bloc countries moving
not only had an uneven impact upon different				their US dollar balances out of the United
states (and different kinds of state and				States to Western Europe (mainly to London)
market structures), but has also constrained				during the beginning of the middle 1960s, and
the actions of policy makers everywhere. In				of Regulation Q, which put a ceiling on the
the context of political economy, much				interest rates that US banks could pay on
literature on international macro-economic				deposits. It was also worth noting that while
questions has been built, around the				the effects of Regulation Q probably had the
Ã‚"theory of hegemonic stabilityÃ‚". In				greatest effects, other countries through the
the broadest terms, the theory of hegemony				1960s (Canada, the Netherlands and Germany
stability suggests that a necessary condition				being the exceptions) had ceilings on both
for international economic stability and				borrowing and lending rates. These controls
fruitful international economic cooperation,				distorted credit flows as well as well as the
especially in matters of money and finance,				allocation process, which was determined not
is the existence of a hegemonic state. The				by the market mechanisms, but by bureaucratic
hegemon is able and willing to lead others in				hierarchies. Also, the industrial activities
the system and to act, for example, as an				of multinational corporations increased
international lender of last resort, and a				demand for international banking services. At
lender of cooperation in the event of a				the same time, international banking was
financial crisis or panic.				dominated by US based institutions that
				further stimulated the Euro-dollar market.
The leadership of the hegemony is based on a				Moreover, the Euro-dollar market was not
general belief in its legitimacy at the same				subject to regulatory constraints on interest
time that it is constrained by the need to				rates. This characteristics gave US banks an
maintain it; other states accept the rule of				opportunity to Ã‚"short-circuitÃ‚"
the hegemon because of its prestige and				Regulation Q and institutions from other
status in the international political system.				countries to undertake activities in London,
A considerable degree of ideological				which they were prohibited from undertaking
consensus, or what Marxists following Antonio				in their indigenous markets.
Gramsci would call Ã‚"ideological
hegemonyÃ‚", is required if the hegemon is				However, each view will be found to rest on
to have the necessary support of other				rather different assumptions about the nature
states. If other states begin to regard the				of human beings and their interests. In the
actions of the hegemon as self-serving and				liberal view, a personÃ‚'s interest is
contrary to their own political and economic				simply what a person says it is. To a
interests, the hegemonic system will be				reformist however, this is not realistic.
greatly weakened. It will deteriorate if the				People need help in identifying and
citizenry of the hegemonic power believes				articulating their interests. Also,
that other states are cheating, or if the				liberalism, which emerged from the
costs of leadership begin to exceed the				Enlightenment in the writings of Adam Smith
perceived benefits. In such situations,				and others, was a reaction to mercantilism
powerful groups become less and less willing				and has become embodied in orthodox
to subordinate their interests to the				economics. It assumes that politics and
continuation of the systems.				economics exist, at least ideally, in
				separate spheres. It argues that markets, in
A number of realist ideas about power and				the interest of efficiency, growth, and
liberal ideas about the advantages of the				consumer choice, should be free from
market co-exist, in the theory of hegemony.				political interference.
As it is a theory of international politics,
based on a number of key realist assumptions,				The Marxist view is rather more complex, but
relating to the emergence of a liberal				argues what a person thinks - including how
economy, to the configurations of power in				he perceives his interest, is determined by
international politics. The idea that a				the particular society in which he lives. If
hegemon might provide some of the political				the structure of the society works against a
re-conditions for a liberal economic order				personÃ‚'s real interest, then what he
was originally put forward by Charles				thinks is in his best interest may not be so
Kindleberger. Much of the literature on				after all. Also, Marxism holds that economics
hegemonic stability has taken inspiration				drives politics. Political conflict arises
from the writings of Charles Kindleberger,				from struggle among classes over the
and in particular his arguments that the				distribution of wealth. Therefore, political
great depression of the 1930s was in large				conflict arises will cease with the
part due to the absence of hegemonic				elimination of the market and of society of
leadership on the part of the United States .				classes.
In the absence of leadership or hegemon, the
liberal international economic order and its				The underlying assertion is that no state had
associated monetary arrangements may				a Ã‚"grand planÃ‚" to reform the
disintegrate, unless other leading capitalist				market, as for much of the period under
nations are willing to share more of the				consideration, states had provided the
burdens of its management and leadership.				Ã‚"regulatory needsÃ‚" demanded by the
				industry. That, from time to time when there
Thus, after, US hegemony there may be more				was sufficient autonomy between the state and
conflict and disorder in the international				the industry, the state could be seen to be
political economy. Robert Keohane , states				acting contrary to the short-term interests
that if there is a solution, to the problem,				of the industry and its long-term interests.
it lies in the flexible strengthening and				However, the needs of the bureaucrats and
extension of international collective goods,				elected officials were also a factor in the
regimes and institutions. Regimes can provide				character of the policy implemented. In these
a more favorable environment for cooperation				latter situations it is argued that the state
through enhancing communication and altering				and its officials were acting in their own
perceived pay-off structures for different				interests. That, they behaved in this fashion
actors, and making them consider the				in order to preserve the indigenous financial
longer-term repercussions of their actions by				regime and the positive economic
extending Ã‚"the shadow of the				externalities that go along with a rich
futureÃ‚". In this context, there has been				financial infrastructure. Ignoring the global
a growth in the use of game theory as a means				financial developments would risk erosion of
of understanding the conditions that best				the indigenous financial system and the loss
promote rational self-interested cooperation				of the positive economic externalities of
and a lengthening of political time horizons.				this activity. It is this process that gave
				rise to the competitive deregulatory
Present work by a range of scholars from				developments that was experienced in the
different perspectives , indicates that				development of the Euro-dollar market in
hegemony defined in realist terms, as the				London, and the industrial democracies.
Ã‚"prevalent power of one state over
others in the systemÃ‚", is merely one				This argument is the significant
variable in complex historical situations. A				Ã‚"baseÃ‚" of the thesis, as while some
range of socio-historical forces need to be				actors might have benefited from the tight
taken into account in any explanation.				restrictions of the US in the 1960s (such as
				Regulation Q, and the Interest Equalisation
However, to understand how states manage the				Tax), non-state actors had tended to argue
constraints of the domestic and international				for a relatively unregulated or liberal
domains, it is important to understand the				policy conditions, which allows a clear
politics of the individual state itself,				advantage to their market power.
situated as it is between domestic and				International finance, has been a major force
international society. If the state is a				in integrating the modern world economy,
prime decision-maker, this requires some				nourishing the international economy in the
notion of how the economic interests involved				form of loans and portfolio investment (stock
in the global market economy became				and bonds). In the contemporary period,
articulated in the politics of the state.				foreign direct investment by multinational
Nevertheless, the theory of hegemonic				corporations has augmented these traditional
stability fails to comprehend the theoretical				means of capital flow.
relationship between the political and
economic domains. As it is important to				Governments and non-state actors have become
understand the relationship of those with				important sources of capital through the
significant resources in the (domestic and				making of loans and the giving of official
international) market economy to political				aid, particularly to less developed
power. The hegemonic stability approach				countries. Also, in the perspective of
points to a political framework for the				liberal economics, the primary function of
market provided by the hegemon. As in the				international finance is to transfer
liberal case, the market is a				accumulated capital to the location where its
Ã‚"naturalÃ‚" institution fundamental				marginal rate of return is highest, and where
to human interaction.				it can therefore be employed most
				efficiently. The flow of capital
The market is an institution, representing				internationally is a powerful Ã‚"driving
political and economic advantages for some				forceÃ‚" in the world economy, and the
social groups and economic actors, and				transfer of capital from regions with capital
relative costs to others. This is not always				surplus, where the rate of return is
evident in the case of markets; their				relatively low, to potentially more
apparently self-regulating nature obscures				productive regions is a major factor in the
the role of politics in their emergence and				dynamics and expansion of the world system.
development. What is important is the
interaction of domestic and international				As international finance has significant
factors mediated through the politics of the				political consequences theoretically, as it
state in an international system				can also be the weakest link in the
characterized by both anarchy and a global				international economy: speculative and
market economy. To understand international				volatile flows of capital can be a major
politics it is important to theorize these				source of global economic instability. In the
connections between markets and politics,				words of Charles Kindleberger , the
domestic and international, through our				international financial system is inherently
understanding of the state. Interdependence				prone to Ã‚"manias, panics and
emerges as a central feature of international				crashesÃ‚". It is subject to periodic debt
politics.				crises and destabilising international flows
				of investment, speculative, and flight
C. Political Liberalism				capital in search of higher rates of return
				or safe havens.
The underlying assumption of political
liberalism is the intrinsic value of				In a world divided among competitive states,
individuals as the primary actors in the				international finance and the exercise of
liberal system. Liberalism is thus embodied				influence by the hegemonic power over
with a concern for enhancing the freedom and				international economic and political affairs
welfare of individuals. It proposes that				are closely related. The hegemon is both the
human-kind can employ better reason to				manager and a primary beneficiary of the
develop a sense of harmony of interest among				financial system. It is the primary source of
individuals and groups within the wider				capital for developing economies, and its
community, domestic or international. Thus				currency is the basis of global financial
liberalism has, as a goal the harmonisation				relations. If a financial crisis occurs, the
of conceptions of self-interest Ã‚"through				hegemon is the only actor that can play the
political actionÃ‚". Progress towards this				role of what Charles Kindleberger has called
goal is Ã‚"seen in terms of possibility				the Ã‚"lender of last resortÃ‚", and
rather than certaintyÃ‚" .				can take the necessary action to moderate the
				threat to the system. Finally, the questions
In the international sphere, these goals are				are important as it investigates the
realised through the promotion of liberal				Ã‚"doctrineÃ‚" of political conflict,
democracy, through international				over who gets what, where and when. Robert
co-operation, law and institutions, and				Cox has gone as far as the idea that:
through social integration and technological				Ã‚"Theory is always for someone, and
development. It is fairly easy to see how the				always for some purposeÃ‚" .
economic variant fits in the general picture.
The maximisation of individual economic				F. Conclusion Ã‚- Ã‚"national states,
welfare is a very important aspect of the				capitalism and the global economyÃ‚"
enhancement of individual freedoms. States
can direct their policies towards this goal				One question that arises from this
through co-operation to realise mutually				theoretical paper is; what is the relevance
beneficial economic gains for their peoples.				of all this, to the situation that was faced
However, how successful is the liberal				by the British government in the 1960s? As
approach at addressing the central				there is no way in which Ã‚"CapitalÃ‚"
theoretical question?				can be taken as a total and unambiguous guide
				to the detail of social and political life a
Firstly, the separation of markets from				century after its publication. Whatever the
politics, from their political and				status of Capital is, it proves to be useful
institutional settings is confusing. This is				to the specification of the relationship
to misunderstand what a market actually is.				between theory and practice. After all,
It is not a phenomenon resulting from				MarxÃ‚'s writings contain a number of very
spontaneous interactions among individuals;				serious errors; not least his underestimation
it is instead a complex political institution				of the degree of political stability which
for producing and distributing material and				capitalism in Western Europe and the United
political resources. As such, it is				States would experience through the
relatively advantageous for some, and rather				incorporation of the working class into the
bad news for others, depending on the				ruling political structures. That, is the
historical circumstances of individuals in				critical legacy with which present Marxists
their socio-economic context. In addition, if				have come to terms, a legacy that Marx
markets are properly understood as political				certainly did not expect and to whose
institutions, the assumption that they are				prevention his whole life work was dedicated.
automatic or Ã‚"self-regulatingÃ‚"				Nor did he anticipate that a revolution would
breaks down Ã‚- it becomes clear that				be made in his name in the most backward of
markets, like any other political				the major capitalist nations in 1917, and
arrangements, are contestable and open to				that in its isolation, that revolution would
manipulation by those who have the power to				degenerate into a political dictatorship
do so.				which would use his writings to justify the
				consolidation of the very system of wage
Secondly, it is difficult to understand the				labour to whose transcendence he was so
behaviour of economic agents, whether				dedicated. Today, both within and beyond the
individuals or firms, outside their				Marxist tradition, unresolved debates
socio-political context. Economic agents do				continue on the status and adequacy of the
not just react to a series of market				labour theory of value, on the problem of
incentives: markets differ from sector to				translating MarxÃ‚'s analysis of value
sector, or country to country. Socio-cultural				formation under capitalism into an adequate
institutions and political conflict shape the				theory of price determination, on the
pattern of market institutions, and				propensity of the rate of profit to fall, and
vice-versa; and economic issues are				on the epistemological status of MarxÃ‚'s
intimately interconnected with other aspects				categories and their susceptibility to
of human existence. In general, it is				empirical refutation .
essentially a motto to assert that economic
agents interact as members of a social whole				However, this Ã‚"celebrated failureÃ‚"
that is greater than the sum of its parts.				of Marxism is a failure not of economic
				theory but rather of the social and political
The third point involves the limitation of				expectations based on it. In modern Western
the liberal perspective itself, (the				Europe, it was conventional among the vast
separation of markets from politics leads to				majority of practising economists (outside
this). There have always been markets in the				the Communist parties), to dismiss
sense of local exchanges of goods and				MarxÃ‚'s economic writings as
services, but the market system or economy is				anachronistic, rendering redundant at the
a relatively recent development . Liberalism				level of micro-economics by the rise of
therefore fails to account for the history of				marginalism, and at the level of the national
political conflict that has altered the				economy by the writings of John Maynard
institutions of the market over time. The				Keynes. Also, these very developments, in the
institutions of nineteenth-century				field of economic theory seemed to be matched
laissez-faire contrast greatly with those of				by the very dynamism of capitalism to which
the post war mixed economy, and since the				Marx attached such importance.
1970s rapid changes have been under way. The
changing patterns of market institutions have				One argument that had been identified in this
altered the distribution of gains and losses,				paper in response towards the theory of the
the pattern of political resources, and the				relationship between states and the global
political preferences Ã‚"of players in the				economy, is that the state form is a product
gameÃ‚".				of the struggles which eventually secured the
				dominance of capitalist social relations.
Fourthly, the liberal perspective is an				Through history, capitalist states had
economic reductionist approach. Regarding				developed on the basis of the principle of
this, the focus is that liberals ultimately				territoriality of jurisdiction. The
focus on a feature of economic structure, the				fragmentation of the Ã‚"politicalÃ‚"
pattern of comparative advantage among				into national states, which from their very
economic agents, as a source of explanation.				roots comprise an international system, had
The complexity and political content of				developed alongside the internationalisation
international economic relations are reduced				of capital. The transition from the personal
to a reflection of the international division				sovereign to a sovereignty of public
of labour, or market structure, as utility				authorities over a defined territory was a
maximisers interact within its confines.				key element in the development of the
Hence, by separating the understanding of the				capitalist international system, as it
state from that of the economy, and of the				provided a multi-purpose framework which
individual from society, there can be no				permitted and facilitated the global
successful theory of politics or of the				circulation of commodities and capital.
state.
				The Euro-dollar market inherently being a new
However, it is precisely a political theory				phenomenon proved some uncertainty to the
of the market that is required. In the				British Labour government during the
absence of a theory of political conflict and				mid-1960s, which had to approach the new
the state, it is difficult to understand how				market through an analysis of the world in
the market structure might change over time.				which the Labour Party sought to govern. Such
LiberalismÃ‚'s basic assumptions,				an analysis posed questions as to why
concerning the existence of rational economic				particular institutions and processes posed
actors, or a competitive market, are				such a set of problems for the individual
unrealistic. The structure of comparative				Labour governments? Why did particular issues
advantage certainly does shape and constrain				come to preoccupy political debate in one
the interactions among actors, but the				period only to dwindle in importance in the
emergence and transformation of comparative				next? Why particular patterns of political
advantage, the structure itself requires				and social cleavage prove so tenacious? With
explanation. Change is an open-ended				such questions, and a new market developing,
political process that takes place within a				the British Labour Government had to respond
particular structural setting, but with the				with a set agenda in order to control
potential to alter structure itself.				specified targets including the sequence of
				booms and slumps, the differing strengths of
To conclude, the main critiques that arises				the national economy, the rise and
signify that, economics artificially				significance of multinational corporations,
separates the economy from other aspects of				the role of international financial agencies,
society, and accepts the existing				and the changing role of the government in
socio-political framework as a				economic and social life. Such a task seems a
Ã‚"givenÃ‚", including: the				formidable one, but one that was not
distribution of power and property rights;				considered impossible. What holds the
the resource and endowments of individuals,				analysis together is the recognition that the
groups, and national societies; and the				world during the 1960s was
framework of social, political, and cultural				Ã‚"capitalistÃ‚" to the sense that Marx
institutions. The liberal world is viewed as				used the term. The law of value still
one of homogeneous, rational, and equal				operated throughout the major economic and
individuals living in a world free from				social processes. Due to this reason, the
political boundaries and social constraints.				preceding outline of MarxÃ‚'s analysis
Its Ã‚"lawsÃ‚" prescribe a set of				remains relevant, as it provides the means by
maximising rules for economic actors				which the true nature of the British
regardless of where and with what they start;				governmentÃ‚'s dilemmas can be explained
yet in real life, oneÃ‚'s starting point,				and understood.
most frequently determines where one finishes
.				ENDNOTE

Liberalism is also limited by its assumption				1. Einzig and Quinn, 1977
that exchange is always free and occurs in a
competitive market between equals who possess				2. Kenneth Waltz, Theory of International
full information, and are thus enabled to				Politics, Reading Ã‚- Massachusetts:
gain mutually if they choose to exchange one				Addison-Wesley, 1979.
value to another. However, exchange is seldom
free and equal. Instead, the terms of an				3. Stephen Krasner, State Power and the
exchange can be profoundly affected by				Structure of International Trade, World
coercion, differences in bargaining power				Politics, 28 April 1976, pp 317-347. Robert
(monopoly), and other essentially political				Keohane, The Theory of Hegemonic Stability
factors. In effect, because it neglects both				and Changes in international economic
the effects of non-economic factors on				Regimes, 1967-1977, in Change in the
exchange and the effects of exchange on				International System, Ed: Ole Holsti,
politics, liberalism lacks a true				Randolph Siverson and Alexander George,
Ã‚"political economyÃ‚".				Boulder Ã‚- Westview, 1980, pp 131-162.

Hence to conclude, the liberal perspective is				4. Robert Gilpin, War and Change in World
committed to free markets and minimal state				Politics, Cambridge University Press, 1981,
intervention, that trade and economic				pp19.
intercourse are a source of peaceful
relations among nations, because the mutual				5. J. Rosenau and E. Czempiel (eds),
benefits of trade and expanding				Governance without Government: Order and
interdependence among national economies will				Change in World Politics, Cambridge, 1992.
tend to foster co-operative relations.
Whereas politics tends to divide, economics				6. Charles Kindleberger, The World in
tends to unite peoples. A liberal				Depression, 1929-39, Berkeley, University of
international economy will have a moderating				California Press, 1973
influence on international politics, as it
creates bonds of mutual interests and a				7. Robert Keohane, After Hegemony:
commitment to the Ã‚"status quoÃ‚".				Cooperation and Discord in the World
However, it is important to emphasise that,				Political Economy, Princeton: Princeton
although everyone will, or at least can, be				University Press, 1984
better off in Ã‚"absoluteÃ‚" terms
under free exchange, the Ã‚"relativeÃ‚"				8. Van der Pijl (The Making of an Atlantic
gains will differ. It is precisely this issue				Ruling Class, London, Verso, 1984); Cox
of relative gains and the distribution of				(Power, Production and World Order: Social
wealth generated by the market system that				Forces in the Making of History, New York,
has given rise to economic nationalism and				Columbia University Press, 1987); Gill
Marxism as rival doctrines.				(American Hegemony and the Trilateral
				Commission, Cambridge University Press,
D. Marxism				1990); and Walter (World Power and World
				Money, New York, St MartinÃ‚'s Press,
MarxÃ‚'s claimed that, Ã‚"the				1991).
abstraction of the state as such belongs only
to modern times. The abstraction of the				9. Mark Zacher and Richard Mathew, Liberal
political state is a modern productÃ‚" .				International Theory: common threads,
The emergence of the capitalist state form				divergent strands, in Charles Kegley, Realiam
was neither an automatic response to the				and the Neoliberal Challenge: Controversies
development of the free world, nor a matter				in International Relations theory, New York,
of the transfer of power from one class to				St MartinÃ‚'s Press, 1994.
another. The historic change in the form of
the state occurred gradually as political				10. Polanyi, Karl, The Great
revolutions overthrew sovereign power, and				Transformation, Boston, Beacon Press, 1944
fundamental social struggles, which were both
prompted by and were expressions of, changing				11. Dahrendorf, Ralf, Life Chances,
social relations of production, Ã‚"since				Chicago, University of Chicago Press, 1979.
they were all manifestations of the
separation of the people from the				12. Marx Karl, Contribution to the Critique
communityÃ‚" . However, the				of HegelÃ‚'s Philosophy of Law, in Marx
Ã‚"classÃ‚" character of the capitalist				Engels 1975, vol: 3, p32.
state, was not determined by a dominance of
capitalists or the primacy of the economy.				13. Galtung, Johann, A Structural Theory of
Rather it is the separation of the state from				Imperialism, International Journal of Peace
civil society and thus the political				Research, vol: 8, 1971, p. 81-118.
regulation of class antagonism upon which the
class character of the state rests.				14. Cox, Robert, Production Power and World
				Order, New York, Columbia University Press,
However, from my readings from the theories				1987
introduced there seems to be a conflict of
termination, surrounding the public use of				15. Stephen Gill, Gramsci, Historical
the term Ã‚"capitalismÃ‚", almost that				Materialism, and International Relations,
it is faced by those who would defend				Cambridge University Press, 1993
capitalist institutions. When challenged, the
terminology seemed to follow variations in				16. Fernand Braudel, (Capitalism and
economic performance. In periods of social				Material Life, London: Weidenfield and
stability and economic growth the limits of				Nicolson, 1973), also (The Wheels of
the possible under capitalism are rarely				Commerce, London: Collins, 1982)
evident or tested, and few people need to use
the term. It will be the argument of this				17. Marx, Karl, Karl Marx: Selected
thesis that the development of this				Writings, ed. David McLellan, Oxford, Oxford
Ã‚"capitalist economyÃ‚" requires a				University Press, 1977 (1859)
look at the writings of Karl Marx. The
British governmentÃ‚'s use of the				18. Kindleberger, Charles, Manias, Panics,
Euro-dollar market in order to achieve its				and Crashes: a history of financial crises,
policy objectives flowed from its recognition				New York, basic Books, 1978
that the world it faced in the 1960s was
capitalist, in the sense that Marx used the				19. Robert Cox, Social Forces, States and
term; and therefore in order to understand				World Orders: Beyond International Relations
the world as it is today, it is essential to				Theory, New York, Columbia University Press,
begin by discussing MarxÃ‚'s				1987, p205
characterisation of 19-Century capitalism.
				20. Yaffe D, The Marxian theory of crisis,
The theory of the Modern World System (MWS)				capital and the state, Economy and Society,
was strongly influenced by Marx, where the				2(2), May 1973, pp203-213.
Ã‚"world marketÃ‚" is essentially a

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