The State and Market - "a Theoretical Perspective"

THE STATE AND MARKET - A THEORETICAL				used the term; and therefore in order to
PERSPECTIVE				understand the world as it is today, it is essential
A. Introduction				to begin by discussing MarxÃ‚'s
The 1960s marked an evolution of change in				characterisation of 19-Century capitalism.
world politics where the concept of global				The theory of the Modern World System (MWS)
diplomacy had become increasingly relevant. It				was strongly influenced by Marx, where the
seemed that the Euro-dollar system was the				Ã‚"world marketÃ‚" is essentially a
answer to many problems. The system				mechanism for the economic exploitation of the
constituted a great improvement on the				less developed countries by the advanced
international monetary mechanism, and for this				capitalist economies. This Modern World System
reason alone it was Ã‚"in keeping with the				position is based upon the classical Marxist analysis
basic trendÃ‚". It represented a most				that, both the nation-state of the nationalists and
important step in the progress towards				the market of the liberals are derivative from
overcoming national barriers that divide the				underlying and more fundamental social and
international financial system into separate				economic forces. Rather than being independent
compartments. Thanks to the new device, those				actors or variables, they are consequences of a
compartments were now much less isolated than				peculiar juncture of ideas, institutions, and material
they had over been before. What was strange				capabilities. The state and market are the
was not that it arose and developed, but that it				products of a Ã‚"historical epochÃ‚",
had not come into being many years earlier. The				and are firmly embedded in a larger social matrix.
Euro-dollar system had become familiar and				The central argument that the Ã‚"world
popular among Central Banks and Treasury				marketÃ‚" contains a dominant core
officials, bankers, merchants, and investors all				periphery and a dependent periphery that interact
over the world and most of them were very				and function as an integrated whole. It is clear
keen on maintaining it. It led to an				that the historical content of the MWS position is
Ã‚"international money marketÃ‚" with				crucial to the insight of the state and market. As
a structure of international interest rates. The				noted, the market system and the nation state
difficulty had been to establish the system. Once				are both products of modern society and of
it had come into existence, and had become a				profound changes in human consciousness,
going concern, no extraordinary influences were				productivity, and social forces. Using the analysis
needed for its maintenance in existence .				of the MWS theory, nation-states and the conflict
It can be reported that the international financial				among them are the foremost manifestation of
markets had borne witness to the largest				manÃ‚'s nature as a Ã‚"political
concentration of economic resources in the world.				animalÃ‚". Taking the notion, that far from
The Euro-dollar market represents a modern				being mere creatures of economic and historical
world system where the prime candidates (the				forces, states are independent actors in economic
economic actors) are independent forces whose				and political affairs. It should also be noted that
actors transcend the nation state. The Euro-dollar				the market and Ã‚"economic manÃ‚"
market being independent of specific national				have achieved an independent reality. Once having
capital markets, is held together by a web of				come into existence, the modern market cannot
supra-national institutions and conventions (such as				be reduced to sociological forces. The market, like
the IMF, BIS, inter-bank market discipline). As,				the modern state, has come to exercise a
since the market is not nationally based, no				powerful influence over historical developments.
national regulators have been able to impose the				Another factor worth noting is that, since
same restrictions on off-shore operations, that				Marxists hold that the state action can only be
they do on operations on home soil. Partly due to				understood in terms of historical trends, any
the fact that such action would only serve to				analysis must focus on the origins and basic
shrink the market, and thus seriously harm				motivations for state action over time. Another
international trade and payments. However,				common element in all Marxist theories, which
instead of disappearing, it had been going from				distinguishes them from all other theories, is the
strength to strength, throughout the 1960s. In				subservience of the state to the interests of
fact, there was much more to the system than				capital. To Marx, capital meant a social process,
was assumed, especially by those who regarded				which can include the hiring of labour, the
it as being a purely temporary outcome of				construction of machinery, the exchange of
fortuitous circumstances. What they failed to				products for money, and the re-investment of
realise is that it fulfils very important				that money into another round of the
requirements, and that its development is in				profit-generating process. Capitalism is the all
keeping with the trends of the market system.				embracing term that includes each of these
The international integration of the money				mechanisms. The British State viewed as a whole,
markets, the elimination or reduction of rigidities in				can best be understood, according to Marxists, as
deposit rates and loan rates, the circumvention of				defender of the capitalist system. It is argued
artificial obstacles, the freeing of competition				that British live in a class society where the basic
between lenders, and the improvement of the				divisions are drawn according to ownership and
automatic functioning of market-mechanism, had				control of the means of production. A minority
long been overdue.				capitalist class owns the means of production and
The relationship between Ã‚"the				exploits a wage-earning class. The stateÃ‚'s
stateÃ‚" and Ã‚"the marketÃ‚"				action in maintaining capitalism is an expression of
is fundamental to any understanding of the issues				the power of the dominant class. However, this
involved in economic and political change and the				does not imply that a tiny capitalist elite
ordering of human relationships. The changes of				manipulates the state Ã‚"behind the
the state in globalism brought with it a mix of				scenesÃ‚".
values (wealth, freedom, and justice) within a				The principal strength of the Marxist analysis, and
market-authority relationship that affected the				most other radical approaches to international
structures of power in the world economy. The				politics is that they focus precisely on the
purpose of this paper is to explore these very				connection between the social and economic
central concerns highlighting the impact of the				structures of the capitalist economic system, and
world economy on the relations of states, and				the exercise of political power in the international
the ways in which states had sought to influence				system, on the other. In the domestic political
market forces for their own advantage. The				system, the capitalist system of production
theoretical theme of this thesis is that, traditional				entrenches the dominance of one class over
political science approaches to the economic policy				another: the state is the capitalist state. As the
of the Ã‚"nation-stateÃ‚" are not				economy becomes internationalised, this class
enough in explaining the development of				dominance projects itself into international politics.
contemporary capitalism, and that, each state				The political organisation of the international
exists only as a political actor in the global flow of				system reflects the power relations of the global
capital. In that sense the world market constitutes				market economy. This manifests itself both in
the existence of the reproduction of capital.				competition among states in the international
This paper will assess the nation-state and the				system, and in the co-operative processes
concept of economic policy making in a globalised				represented by international economic regimes. In
economy by using three theories, Liberalism,				the perspective of some traditional Marxists, the
Marxism, and the Theory of Hegemonic Stability,				spread of capitalism touches off a process of
which will analyse the nature of the state and				economic and political development in less
market. The Marxism framework will be the				developed parts of the globe as capitalist firms,
chosen theoretical framework and will be referred				often supported by their home states, seek
upon throughout the thesis. However, all of the				profitable opportunities for investment abroad.
three theories investigate firstly, the economic				Dependency theorists saw the flaw of this
interests of actors/groups and the ideas they				approach and pointed instead to the likelihood of
espouse and secondly, the relationship between				core and periphery areas of the global economy
the political and economic domains in				remaining distinct despite incorporation into the
contemporary international society. Using this				capitalist world economy. Johann Galtung
framework, this paper will have explored, whether				developed a structural theory of imperialism,
the state was Ã‚"capturedÃ‚" by				proposing that the mutually beneficial political and
particular interests, by examining the role of the				economic relationships between elites in core and
state, by using the following argument:				periphery countries world maintain the structural
The concept of the state and market - Who				pattern of dependency in the global economy.
makes the rules for the market? Could it be that,				It is however difficult to generalise about these
it is industry itself, which makes the rules and the				diverse theories, but most do share some
state that, legitimises the rules?				essential characteristics. The approaches tend to
B. International Economic System				be based on analysis of the socio-political effects
Realist theories of international relations start from				of economic structure. In this sense, most are
the assumption that states are the fundamental				reductionist like the liberal approach. This is not
units of the international political system, in which,				surprising; Marx regarded his work as a critique of
states possess a Ã‚"national				the classical liberal political economists, and thus he
interestÃ‚" in maximising power, wealth or				focused on a similar set of intellectual problems.
both. Taking this analysis into account, realist				Politics in the domestic and international domains
theorists are able to develop rigorous systemic				tends to be reduced to a function of the capitalist
explanations of how the international political				production structure and the division of society
system is ordered. Kenneth Waltz has used				into classes, which is in turn a result of the
analytical tools grounded in neo-classical				individualÃ‚'s relationship to the means of
microeconomics to explore the underlying				production.
characteristics of the state system. Taking states				However, the theories are weak in explaining just
as the functional equivalent of firms, Waltz				how this relationship between political power and
develops a variety of insights about how, the				economic structure is expressed. There is an
number of states in the system affects the very				essential, missing ingredient Ã‚- a theory of
configuration of their interaction - much as an				how structures themselves originate, change,
oligopolistic market behaves differently than a				work, and reproduce themselves. Antonio
perfectly competitive one.				Gramsci, (and other theorists who used the
One of the more provocative outgrowths of this				Gramscian method in international relations, such
Realist theorising is called the Ã‚"Theory of				as Robert Cox , and Stephen Gill ), attempted to
Hegemonic StabilityÃ‚". Reviewing specifically				develop a more political explanation of the
the international economic system, scholars such				relationship between economic structure and
as Stephen Krasner and Robert Keohane ,				political processes at domestic and international
analyse the formation of stable economic relations				levels of analysis. They sought to avoid the
among states as a classic collective-action				problem of economic reductionism referred to
problem. They conclude that international				above, drawing on Gramsci himself as well as Karl
economic stability is best provided for in a system				Polanyi , Fernand Braudel , and other social
dominated by one actor capable of managing the				theorists, and in the process overcame many of
system more or less unilaterally. Such				the limitations of liberalism, Marxism and realism .
generalisations are solidified by analysing the				E. Theoretical Comparisons
Pre-World War One				Using the Euro-dollar market as an example, the
Ã‚"Pax-BritannicaÃ‚" and the				market system has become a major factor in
Post-World War Two				shaping modern society; market competition and
Ã‚"Pax-AmericanaÃ‚", as exercises in				the responsiveness of economic actors to relative
the stabilising nature of hegemonic leadership. It is				price changes. These issues propel society in the
often argued that such hegemonic systems will				direction of increased specialisation, greater
tend towards liberalisation of trade and capital				efficiency, and (if liberal and Marxist predictions
flows. However, even though Realists have				ultimately prove correct) the eventual economic
clarified and illustrated many issues in international				unification of the globe. Marx observed that the
relations, one very serious problem arises in				market, or capitalist system, was a revolutionary
attempting to apply their insights to the analysis				departure in world history and also argued that
of the real world. If the states are the crucial				traditional culture and political boundaries would
actors in the system, then it is of fundamental				crumble in its path as it moved inexorably toward
importance, to understand the goals that they				the full development and integration of the
pursue Ã‚- just as micro-economic analysis				globeÃ‚'s productive capabilities .
must understand the goals of all players in the				Although, the market system is driven largely by
market. Some realists simply assume state				its own internal dynamics, the pace and direction
interests, usually as some variant of survival or				of its forward movement are profoundly affected
power maximisation. Others believe state				by external factors. The interaction of the market
interests are derived from the relative position of				and environmental conditions account for much of
the state in the international system: hegemonic				the economic and political history of the modern
states have one set of interests, weak states				world. Among the so-called exogenous variables
another.				that affect the operation of markets are the
For realists then, state interests are essentially				structure of society, the political framework at
static and exogenous, given by the very nature				the domestic and the international levels, and the
of the international system. Yet, even the most				existing state of scientific theory and technological
rigorous of Realists realise that this is only part of				development, all of which constitute constraints or
the story. Kenneth Waltz claims that,				opportunities affecting the functioning of economic
Ã‚"each state arrives at policies and decides				actors. However, the market itself affects and
on actions according to its own internal processes,				transforms external factors in important ways: it
but its decisions are shaped by the very presence				dissolves social structures, alters political relations,
of other states as well as interactions with				and stimulates both scientific and technological
themÃ‚". Robert Gilpin, is even more explicit				advance. An understanding of the ways in which
about domestic pressures on foreign policies.				market forces and external factors affect one
Ã‚"The state Ã‚... may be conceived				another is essential to comprehension of the
as a coalition of coalitions whose objectives and				dynamics of the international political economy.
interests result from the powers and bargaining				On a general level, the Ã‚"stateÃ‚"
among the several coalitions composing the larger				covers a heterogeneous group of institutions
society and political elite Ã‚... The objectives				engaged in an active process of regulating and
and foreign policies of states are determined				directing society. It is these institutions in which
primarily by the interests of their dominant				Ã‚"state powerÃ‚" lies. The state also
members or ruling coalitionsÃ‚" .				serves to give society some unity, integration and
Another piece of work involves CoxÃ‚'s				coherence. However, when one asks what the
study of critical analysis, which develops the				role of the state is, or what it should be, one if
understanding of stateÃ‚'s rational choice,				faced with a number of sharply contrasting views
and the decision-making process, in international				or theories.
and domestic affairs. The state emerges as the				As, for the market, historically, markets have
political focus for the process of adjustment and				always existed in one form or another as
change. That, by understanding the state, by				economic exchange relationships (such as trade)
what it is, what it does, and where it fits in				among individuals, enterprises or communities. The
Robert CoxÃ‚'s state-society complex, lies				market system, has been characterised by
the theoretical issue. The notion of the state and				industrial capitalists, and Marx, where owners of
market, is an important step to understand the				capital, workers, and intermediaries are all linked in
broader context of thinking about order,				social relationships via a complex pattern of
addressing the basic underlying concern of the				political and market institutions. These facilitate the
ways through which Ã‚"governance without				circulation of money for the production and
government Ã‚" can be achieved in order to				purchase of commodities, services, land and
avoid undesirable outcomes in international and				labour. In the post-World War Two economic
transnational relations.				order, a market has been a political device used
One conclusion is that, financial market				to achieve certain outcomes, conferring relative
deregulation and re-regulation, in their various				benefits on some, and costs on others in both
disguises, have come to constitute a major				political and economic terms. It is in essence, a
developmental trend, not only in the world				political institution that plays a crucial role in
economy, but also in world politics. Processes of				structuring society and international politics. The
regulatory arbitrage, market expansion and the				changing market structure gives rise to new
development of the competition-state in a more				patterns of economic and political forces.
open world have led to a range of structural				The Euro-dollar market was focused and
changes which seems to be identifiable as an				developed in London at the initiative of the
Ã‚"integrated, 24-hour global financial				US-based banking industry. This development
market-placeÃ‚". A series of changes has				reflected the combination of the effects of
not only had an uneven impact upon different				former Eastern European bloc countries moving
states (and different kinds of state and market				their US dollar balances out of the United States
structures), but has also constrained the actions				to Western Europe (mainly to London) during the
of policy makers everywhere. In the context of				beginning of the middle 1960s, and of Regulation
political economy, much literature on international				Q, which put a ceiling on the interest rates that
macro-economic questions has been built, around				US banks could pay on deposits. It was also
the Ã‚"theory of hegemonic				worth noting that while the effects of Regulation
stabilityÃ‚". In the broadest terms, the				Q probably had the greatest effects, other
theory of hegemony stability suggests that a				countries through the 1960s (Canada, the
necessary condition for international economic				Netherlands and Germany being the exceptions)
stability and fruitful international economic				had ceilings on both borrowing and lending rates.
cooperation, especially in matters of money and				These controls distorted credit flows as well as
finance, is the existence of a hegemonic state.				well as the allocation process, which was
The hegemon is able and willing to lead others in				determined not by the market mechanisms, but
the system and to act, for example, as an				by bureaucratic hierarchies. Also, the industrial
international lender of last resort, and a lender of				activities of multinational corporations increased
cooperation in the event of a financial crisis or				demand for international banking services. At the
panic.				same time, international banking was dominated
The leadership of the hegemony is based on a				by US based institutions that further stimulated
general belief in its legitimacy at the same time				the Euro-dollar market. Moreover, the Euro-dollar
that it is constrained by the need to maintain it;				market was not subject to regulatory constraints
other states accept the rule of the hegemon				on interest rates. This characteristics gave US
because of its prestige and status in the				banks an opportunity to
international political system. A considerable degree				Ã‚"short-circuitÃ‚" Regulation Q and
of ideological consensus, or what Marxists				institutions from other countries to undertake
following Antonio Gramsci would call				activities in London, which they were prohibited
Ã‚"ideological hegemonyÃ‚", is required				from undertaking in their indigenous markets.
if the hegemon is to have the necessary support				However, each view will be found to rest on
of other states. If other states begin to regard				rather different assumptions about the nature of
the actions of the hegemon as self-serving and				human beings and their interests. In the liberal
contrary to their own political and economic				view, a personÃ‚'s interest is simply what a
interests, the hegemonic system will be greatly				person says it is. To a reformist however, this is
weakened. It will deteriorate if the citizenry of the				not realistic. People need help in identifying and
hegemonic power believes that other states are				articulating their interests. Also, liberalism, which
cheating, or if the costs of leadership begin to				emerged from the Enlightenment in the writings
exceed the perceived benefits. In such situations,				of Adam Smith and others, was a reaction to
powerful groups become less and less willing to				mercantilism and has become embodied in
subordinate their interests to the continuation of				orthodox economics. It assumes that politics and
the systems.				economics exist, at least ideally, in separate
A number of realist ideas about power and liberal				spheres. It argues that markets, in the interest of
ideas about the advantages of the market				efficiency, growth, and consumer choice, should
co-exist, in the theory of hegemony. As it is a				be free from political interference.
theory of international politics, based on a number				The Marxist view is rather more complex, but
of key realist assumptions, relating to the				argues what a person thinks - including how he
emergence of a liberal economy, to the				perceives his interest, is determined by the
configurations of power in international politics. The				particular society in which he lives. If the structure
idea that a hegemon might provide some of the				of the society works against a personÃ‚'s
political re-conditions for a liberal economic order				real interest, then what he thinks is in his best
was originally put forward by Charles Kindleberger.				interest may not be so after all. Also, Marxism
Much of the literature on hegemonic stability has				holds that economics drives politics. Political conflict
taken inspiration from the writings of Charles				arises from struggle among classes over the
Kindleberger, and in particular his arguments that				distribution of wealth. Therefore, political conflict
the great depression of the 1930s was in large				arises will cease with the elimination of the market
part due to the absence of hegemonic leadership				and of society of classes.
on the part of the United States . In the absence				The underlying assertion is that no state had a
of leadership or hegemon, the liberal international				Ã‚"grand planÃ‚" to reform the
economic order and its associated monetary				market, as for much of the period under
arrangements may disintegrate, unless other				consideration, states had provided the
leading capitalist nations are willing to share more				Ã‚"regulatory needsÃ‚" demanded by
of the burdens of its management and leadership.				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 political				the industry, the state could be seen to be acting
economy. Robert Keohane , states that if there is				contrary to the short-term interests of the
a solution, to the problem, it lies in the flexible				industry and its long-term interests. However, the
strengthening and extension of international				needs of the bureaucrats and elected officials
collective goods, regimes and institutions. Regimes				were also a factor in the character of the policy
can provide a more favorable environment for				implemented. In these latter situations it is argued
cooperation through enhancing communication and				that the state and its officials were acting in their
altering perceived pay-off structures for different				own interests. That, they behaved in this fashion
actors, and making them consider the longer-term				in order to preserve the indigenous financial
repercussions of their actions by extending				regime and the positive economic externalities
Ã‚"the shadow of the futureÃ‚". In				that go along with a rich financial infrastructure.
this context, there has been a growth in the use				Ignoring the global financial developments would
of game theory as a means of understanding the				risk erosion of the indigenous financial system and
conditions that best promote rational				the loss of the positive economic externalities of
self-interested cooperation and a lengthening of				this activity. It is this process that gave rise to
political time horizons.				the competitive deregulatory developments that
Present work by a range of scholars from				was experienced in the development of the
different perspectives , indicates that hegemony				Euro-dollar market in London, and the industrial
defined in realist terms, as the Ã‚"prevalent				democracies.
power of one state over others in the				This argument is the significant
systemÃ‚", is merely one variable in				Ã‚"baseÃ‚" of the thesis, as while
complex historical situations. A range of				some actors might have benefited from the tight
socio-historical forces need to be taken into				restrictions of the US in the 1960s (such as
account in any explanation.				Regulation Q, and the Interest Equalisation Tax),
However, to understand how states manage the				non-state actors had tended to argue for a
constraints of the domestic and international				relatively unregulated or liberal policy conditions,
domains, it is important to understand the politics				which allows a clear advantage to their market
of the individual state itself, situated as it is				power. International finance, has been a major
between domestic and international society. If the				force in integrating the modern world economy,
state is a prime decision-maker, this requires				nourishing the international economy in the form
some notion of how the economic interests				of loans and portfolio investment (stock and
involved in the global market economy became				bonds). In the contemporary period, foreign direct
articulated in the politics of the state.				investment by multinational corporations has
Nevertheless, the theory of hegemonic stability				augmented these traditional means of capital flow.
fails to comprehend the theoretical relationship				Governments and non-state actors have become
between the political and economic domains. As it				important sources of capital through the making
is important to understand the relationship of				of loans and the giving of official aid, particularly to
those with significant resources in the (domestic				less developed countries. Also, in the perspective
and international) market economy to political				of liberal economics, the primary function of
power. The hegemonic stability approach points to				international finance is to transfer accumulated
a political framework for the market provided by				capital to the location where its marginal rate of
the hegemon. As in the liberal case, the market is				return is highest, and where it can therefore be
a Ã‚"naturalÃ‚" institution fundamental				employed most efficiently. The flow of capital
to human interaction.				internationally is a powerful Ã‚"driving
The market is an institution, representing political				forceÃ‚" in the world economy, and the
and economic advantages for some social groups				transfer of capital from regions with capital
and economic actors, and relative costs to others.				surplus, where the rate of return is relatively low,
This is not always evident in the case of markets;				to potentially more productive regions is a major
their apparently self-regulating nature obscures				factor in the dynamics and expansion of the
the role of politics in their emergence and				world system.
development. What is important is the interaction				As international finance has significant political
of domestic and international factors mediated				consequences theoretically, as it can also be the
through the politics of the state in an international				weakest link in the international economy:
system characterized by both anarchy and a				speculative and volatile flows of capital can be a
global market economy. To understand				major source of global economic instability. In the
international politics it is important to theorize				words of Charles Kindleberger , the international
these connections between markets and politics,				financial system is inherently prone to
domestic and international, through our				Ã‚"manias, panics and crashesÃ‚". It is
understanding of the state. Interdependence				subject to periodic debt crises and destabilising
emerges as a central feature of international				international flows of investment, speculative, and
politics.				flight capital in search of higher rates of return or
C. Political Liberalism				safe havens.
The underlying assumption of political liberalism is				In a world divided among competitive states,
the intrinsic value of individuals as the primary				international finance and the exercise of influence
actors in the liberal system. Liberalism is thus				by the hegemonic power over international
embodied with a concern for enhancing the				economic and political affairs are closely related.
freedom and welfare of individuals. It proposes				The hegemon is both the manager and a primary
that human-kind can employ better reason to				beneficiary of the financial system. It is the
develop a sense of harmony of interest among				primary source of capital for developing
individuals and groups within the wider community,				economies, and its currency is the basis of global
domestic or international. Thus liberalism has, as a				financial relations. If a financial crisis occurs, the
goal the harmonisation of conceptions of				hegemon is the only actor that can play the role
self-interest Ã‚"through political				of what Charles Kindleberger has called the
actionÃ‚". Progress towards this goal is				Ã‚"lender of last resortÃ‚", and can
Ã‚"seen in terms of possibility rather than				take the necessary action to moderate the
certaintyÃ‚" .				threat to the system. Finally, the questions are
In the international sphere, these goals are realised				important as it investigates the
through the promotion of liberal democracy,				Ã‚"doctrineÃ‚" of political conflict, over
through international co-operation, law and				who gets what, where and when. Robert Cox has
institutions, and through social integration and				gone as far as the idea that: Ã‚"Theory is
technological development. It is fairly easy to see				always for someone, and always for some
how the economic variant fits in the general				purposeÃ‚" .
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				One question that arises from this theoretical
direct their policies towards this goal through				paper is; what is the relevance of all this, to the
co-operation to realise mutually beneficial				situation that was faced by the British
economic gains for their peoples. However, how				government in the 1960s? As there is no way in
successful is the liberal approach at addressing the				which Ã‚"CapitalÃ‚" can be taken as a
central theoretical question?				total and unambiguous guide to the detail of social
Firstly, the separation of markets from politics,				and political life a century after its publication.
from their political and institutional settings is				Whatever the status of Capital is, it proves to be
confusing. This is to misunderstand what a market				useful to the specification of the relationship
actually is. It is not a phenomenon resulting from				between theory and practice. After all,
spontaneous interactions among individuals; it is				MarxÃ‚'s writings contain a number of very
instead a complex political institution for producing				serious errors; not least his underestimation of the
and distributing material and political resources. As				degree of political stability which capitalism in
such, it is relatively advantageous for some, and				Western Europe and the United States would
rather bad news for others, depending on the				experience through the incorporation of the
historical circumstances of individuals in their				working class into the ruling political structures.
socio-economic context. In addition, if markets are				That, is the critical legacy with which present
properly understood as political institutions, the				Marxists have come to terms, a legacy that Marx
assumption that they are automatic or				certainly did not expect and to whose prevention
Ã‚"self-regulatingÃ‚" breaks down				his whole life work was dedicated. Nor did he
Ã‚- it becomes clear that markets, like any				anticipate that a revolution would be made in his
other political arrangements, are contestable and				name in the most backward of the major
open to manipulation by those who have the				capitalist nations in 1917, and that in its isolation,
power to do so.				that revolution would degenerate into a political
Secondly, it is difficult to understand the behaviour				dictatorship which would use his writings to justify
of economic agents, whether individuals or firms,				the consolidation of the very system of wage
outside their socio-political context. Economic				labour to whose transcendence he was so
agents do not just react to a series of market				dedicated. Today, both within and beyond the
incentives: markets differ from sector to sector,				Marxist tradition, unresolved debates continue on
or country to country. Socio-cultural institutions				the status and adequacy of the labour theory of
and political conflict shape the pattern of market				value, on the problem of translating
institutions, and vice-versa; and economic issues				MarxÃ‚'s analysis of value formation under
are intimately interconnected with other aspects				capitalism into an adequate theory of price
of human existence. In general, it is essentially a				determination, on the propensity of the rate of
motto to assert that economic agents interact as				profit to fall, and on the epistemological status of
members of a social whole that is greater than				MarxÃ‚'s categories and their susceptibility
the sum of its parts.				to empirical refutation .
The third point involves the limitation of the liberal				However, this Ã‚"celebrated failureÃ‚"
perspective itself, (the separation of markets				of Marxism is a failure not of economic theory
from politics leads to this). There have always				but rather of the social and political expectations
been markets in the sense of local exchanges of				based on it. In modern Western Europe, it was
goods and services, but the market system or				conventional among the vast majority of
economy is a relatively recent development .				practising economists (outside the Communist
Liberalism therefore fails to account for the				parties), to dismiss MarxÃ‚'s economic
history of political conflict that has altered the				writings as anachronistic, rendering redundant at
institutions of the market over time. The				the level of micro-economics by the rise of
institutions of nineteenth-century laissez-faire				marginalism, and at the level of the national
contrast greatly with those of the post war				economy by the writings of John Maynard
mixed economy, and since the 1970s rapid				Keynes. Also, these very developments, in the
changes have been under way. The changing				field of economic theory seemed to be matched
patterns of market institutions have altered the				by the very dynamism of capitalism to which
distribution of gains and losses, the pattern of				Marx attached such importance.
political resources, and the political preferences				One argument that had been identified in this
Ã‚"of players in the gameÃ‚".				paper in response towards the theory of the
Fourthly, the liberal perspective is an economic				relationship between states and the global
reductionist approach. Regarding this, the focus is				economy, is that the state form is a product of
that liberals ultimately focus on a feature of				the struggles which eventually secured the
economic structure, the pattern of comparative				dominance of capitalist social relations. Through
advantage among economic agents, as a source				history, capitalist states had developed on the
of explanation. The complexity and political				basis of the principle of territoriality of jurisdiction.
content of international economic relations are				The fragmentation of the
reduced to a reflection of the international division				Ã‚"politicalÃ‚" into national states,
of labour, or market structure, as utility				which from their very roots comprise an
maximisers interact within its confines. Hence, by				international system, had developed alongside the
separating the understanding of the state from				internationalisation of capital. The transition from
that of the economy, and of the individual from				the personal sovereign to a sovereignty of public
society, there can be no successful theory of				authorities over a defined territory was a key
politics or of the state.				element in the development of the capitalist
However, it is precisely a political theory of the				international system, as it provided a
market that is required. In the absence of a				multi-purpose framework which permitted and
theory of political conflict and the state, it is				facilitated the global circulation of commodities and
difficult to understand how the market structure				capital.
might change over time. LiberalismÃ‚'s basic				The Euro-dollar market inherently being a new
assumptions, concerning the existence of rational				phenomenon proved some uncertainty to the
economic actors, or a competitive market, are				British Labour government during the mid-1960s,
unrealistic. The structure of comparative				which had to approach the new market through
advantage certainly does shape and constrain the				an analysis of the world in which the Labour Party
interactions among actors, but the emergence				sought to govern. Such an analysis posed
and transformation of comparative advantage,				questions as to why particular institutions and
the structure itself requires explanation. Change is				processes posed such a set of problems for the
an open-ended political process that takes place				individual Labour governments? Why did particular
within a particular structural setting, but with the				issues come to preoccupy political debate in one
potential to alter structure itself.				period only to dwindle in importance in the next?
To conclude, the main critiques that arises signify				Why particular patterns of political and social
that, economics artificially separates the economy				cleavage prove so tenacious? With such
from other aspects of society, and accepts the				questions, and a new market developing, the
existing socio-political framework as a				British Labour Government had to respond with a
Ã‚"givenÃ‚", including: the distribution				set agenda in order to control specified targets
of power and property rights; the resource and				including the sequence of booms and slumps, the
endowments of individuals, groups, and national				differing strengths of the national economy, the
societies; and the framework of social, political,				rise and significance of multinational corporations,
and cultural institutions. The liberal world is viewed				the role of international financial agencies, and the
as one of homogeneous, rational, and equal				changing role of the government in economic and
individuals living in a world free from political				social life. Such a task seems a formidable one,
boundaries and social constraints. Its				but one that was not considered impossible. What
Ã‚"lawsÃ‚" prescribe a set of				holds the analysis together is the recognition that
maximising rules for economic actors regardless				the world during the 1960s was
of where and with what they start; yet in real				Ã‚"capitalistÃ‚" to the sense that Marx
life, oneÃ‚'s starting point, most frequently				used the term. The law of value still operated
determines where one finishes .				throughout the major economic and social
Liberalism is also limited by its assumption that				processes. Due to this reason, the preceding
exchange is always free and occurs in a				outline of MarxÃ‚'s analysis remains
competitive market between equals who possess				relevant, as it provides the means by which the
full information, and are thus enabled to gain				true nature of the British governmentÃ‚'s
mutually if they choose to exchange one value to				dilemmas can be explained and understood.
another. However, exchange is seldom free and				ENDNOTE
equal. Instead, the terms of an exchange can be				1. Einzig and Quinn, 1977
profoundly affected by coercion, differences in				2. Kenneth Waltz, Theory of International Politics,
bargaining power (monopoly), and other essentially				Reading Ã‚- Massachusetts: Addison-Wesley,
political factors. In effect, because it neglects both				1979.
the effects of non-economic factors on exchange				3. Stephen Krasner, State Power and the
and the effects of exchange on politics, liberalism				Structure of International Trade, World Politics, 28
lacks a true Ã‚"political economyÃ‚".				April 1976, pp 317-347. Robert Keohane, The
Hence to conclude, the liberal perspective is				Theory of Hegemonic Stability and Changes in
committed to free markets and minimal state				international economic Regimes, 1967-1977, in
intervention, that trade and economic intercourse				Change in the International System, Ed: Ole Holsti,
are a source of peaceful relations among nations,				Randolph Siverson and Alexander George, Boulder
because the mutual benefits of trade and				Ã‚- Westview, 1980, pp 131-162.
expanding interdependence among national				4. Robert Gilpin, War and Change in World Politics,
economies will tend to foster co-operative				Cambridge University Press, 1981, pp19.
relations. Whereas politics tends to divide,				5. J. Rosenau and E. Czempiel (eds), Governance
economics tends to unite peoples. A liberal				without Government: Order and Change in World
international economy will have a moderating				Politics, Cambridge, 1992.
influence on international politics, as it creates				6. Charles Kindleberger, The World in Depression,
bonds of mutual interests and a commitment to				1929-39, Berkeley, University of California Press,
the Ã‚"status quoÃ‚". However, it is				1973
important to emphasise that, although everyone				7. Robert Keohane, After Hegemony: Cooperation
will, or at least can, be better off in				and Discord in the World Political Economy,
Ã‚"absoluteÃ‚" terms under free				Princeton: Princeton University Press, 1984
exchange, the Ã‚"relativeÃ‚" gains will				8. Van der Pijl (The Making of an Atlantic Ruling
differ. It is precisely this issue of relative gains and				Class, London, Verso, 1984); Cox (Power,
the distribution of wealth generated by the				Production and World Order: Social Forces in the
market system that has given rise to economic				Making of History, New York, Columbia University
nationalism and Marxism as rival doctrines.				Press, 1987); Gill (American Hegemony and the
D. Marxism				Trilateral Commission, Cambridge University Press,
MarxÃ‚'s claimed that, Ã‚"the				1990); and Walter (World Power and World
abstraction of the state as such belongs only to				Money, New York, St MartinÃ‚'s Press,
modern times. The abstraction of the political				1991).
state is a modern productÃ‚" . The				9. Mark Zacher and Richard Mathew, Liberal
emergence of the capitalist state form was				International Theory: common threads, divergent
neither an automatic response to the				strands, in Charles Kegley, Realiam and the
development of the free world, nor a matter of				Neoliberal Challenge: Controversies in International
the transfer of power from one class to another.				Relations theory, New York, St MartinÃ‚'s
The historic change in the form of the state				Press, 1994.
occurred gradually as political revolutions				10. Polanyi, Karl, The Great Transformation,
overthrew sovereign power, and fundamental				Boston, Beacon Press, 1944
social struggles, which were both prompted by				11. Dahrendorf, Ralf, Life Chances, Chicago,
and were expressions of, changing social relations				University of Chicago Press, 1979.
of production, Ã‚"since they were all				12. Marx Karl, Contribution to the Critique of
manifestations of the separation of the people				HegelÃ‚'s Philosophy of Law, in Marx/Engels
from the communityÃ‚" . However, the				1975, vol: 3, p32.
Ã‚"classÃ‚" character of the capitalist				13. Galtung, Johann, A Structural Theory of
state, was not determined by a dominance of				Imperialism, International Journal of Peace
capitalists or the primacy of the economy. Rather				Research, vol: 8, 1971, p. 81-118.
it is the separation of the state from civil society				14. Cox, Robert, Production Power and World
and thus the political regulation of class antagonism				Order, New York, Columbia University Press, 1987
upon which the class character of the state rests.				15. Stephen Gill, Gramsci, Historical Materialism, and
However, from my readings from the theories				International Relations, Cambridge University
introduced there seems to be a conflict of				Press, 1993
termination, surrounding the public use of the				16. Fernand Braudel, (Capitalism and Material Life,
term Ã‚"capitalismÃ‚", almost that it is				London: Weidenfield and Nicolson, 1973), also (The
faced by those who would defend capitalist				Wheels of Commerce, London: Collins, 1982)
institutions. When challenged, the terminology				17. Marx, Karl, Karl Marx: Selected Writings, ed.
seemed to follow variations in economic				David McLellan, Oxford, Oxford University Press,
performance. In periods of social stability and				1977 (1859)
economic growth the limits of the possible under				18. Kindleberger, Charles, Manias, Panics, and
capitalism are rarely evident or tested, and few				Crashes: a history of financial crises, New York,
people need to use the term. It will be the				basic Books, 1978
argument of this thesis that the development of				19. Robert Cox, Social Forces, States and World
this Ã‚"capitalist economyÃ‚" requires				Orders: Beyond International Relations Theory,
a look at the writings of Karl Marx. The British				New York, Columbia University Press, 1987, p205
governmentÃ‚'s use of the Euro-dollar				20. Yaffe D, The Marxian theory of crisis, capital
market in order to achieve its policy objectives				and the state, Economy and Society, 2(2), May
flowed from its recognition that the world it faced				1973, pp203-213.
in the 1960s was capitalist, in the sense that Marx

Integrail

The State and Market - "a Theoretical Perspective"