Week 1
Economists Need to Add a Little History to Their Tool Kit
One reason is that economic history focuses economists on real events rather than allowing them to
live in theoretical fantasy worlds of their own creation.
But economic history functions as more than just the history of the economy. Because it uses
economic theory to analyse past events, it can help generate plausible explanations for some of the
biggest and hardest questions.
Economic history can also serve as a check on the more dramatic claims of mainstream historians.
Economic history’s power is more than simply theoretical and explanatory, however -- sometimes, it
can be used to predict the future.
=> In 2011, economists Barry Eichengreen, Donghyun Park and Kwanho Shin analysed the history of
economic slowdowns and came up with some heuristic rules to predict when fast-growing countries
can be expected to falter.
Finally, economic history can often help us understand broader social phenomena.
=> Economic historian Rob Gillezeau, for example, has found that welfare programs and legal
services for African-Americans decreased the severity of urban riots in the 1960s.
But the economics profession itself should realize that the field of economic history is neglected.
More classes on the subject, and more awards and recognition for economic historians, would be a
good thing for a discipline that too often ignores the lessons of the past.=
We should pay closer attention to the interactions between politics, economics, and other realms
https://www.imf.org/Publications/fandd/issues/2020/06/political-economy-of-economic-policy-jeff-fri
eden
Political economy is about how politics affects the economy and the economy affects politics
Adam Smith, David Ricardo, and John Stuart Mill are widely regarded as the originators of modern
economics.
Two trends divided the political from the economic analysis. First, governments began to reduce their
direct control over the economy. Second, different political forms emerged: Europe went from almost
exclusively monarchical to increasingly representative and highly varied forms of government.
It analyzes how political forces affect the economy. Voters and interest groups have a powerful impact
on virtually every possible economic policy.
It assesses how the economy affects politics. Macroeconomic trends can boost or ruin an incumbent’s
chances.
,It uses the tools of economics to study politics. Politicians can be thought of as analogous to firms,
with voters as consumers or governments as monopoly providers of goods and services to constituent
customers.
https://www.imf.org/Publications/fandd/issues/2020/06/political-economy-of-economic-policy-jeff-fri
eden
Lecture 1
What is political economy?
➢ Housing Prices
➢ Interest Rates
➢ Central Bank Policy
➢ Inflation
➢ States or Markets?
General propositions
➢ In order not to burden future generations with debt, the government should not run a budget
deficit
➢ Economic growth is mostly achieved by allowing companies to thrive in a lightly regulated,
low tax, and competitive environment
➢ The Amsterdam municipality should not restrict the sale of land
Policy propositions
➢ To combat the cost of living crisis the government needs to increase support for low income
families, even if that means running a budget deficit
➢ To limit the energy bill problems for Dutch families, the government needs to tax windfall
profits of the energy companies and put a cap on energy prices
➢ The Amsterdam municipality should make public transport free in order to limit the use of
cars in the city
Political economy
1. Studies the fundamental interconnection between states, society and markets
2. Understands economic politics as a means for states to achieve their objectives
(Strategies For development; Schwartz)
3. Considers today and tomorrow's political-economic relations and battles from a historical
perspective
➢ The economy is inherently political.
➢ And much of what is political is directly related to the economy.
➢ PE is everywhere, and everything is PE .
➢ But if that is true.... How can you study this?
POLITICAL ECONOMY I
The classic thinkers on state and market and their followers
They considered both states and markets, and integrated them into one academic debate
POLITICAL ECONOMY II
,The political science of economic policy fields
POLITICAL ECONOMY III
Political phenomena considered from an economic perspective
➢ What is economics?
○ oikos = the family, the family’s property; a large estate or even a village
○ nomos = greek term for law.
➢ The way we organise society to provide for our needs
1. “the branch of knowledge concerned with the production, consumption and transfer of wealth.”
2. “a branch of the science of a statesman or legislator with the objective of providing a plentiful
revenue or subsistence for the people.”
3. “combining the assumptions of maximising behaviour, stable preferences, and market equilibrium,
used relentlessly and unflinchingly” (Gary Becker)
Economics?
1. A domain
2. A perspective and approach to study social interaction
demand/supply, competition; rational behaviour; homo economicus; individualism
Taking an economic perspective on politics
POLITICAL ECONOMY IV
Markets and business considered from a political science perspective
Political economy as a course
PART I
The ingredients of Political Economy
PART II
Historical developments in Global Capitalism
PART III
Real World Economics in times of crisis
Lecture 2
Schwartz: Introduction, Chapter 1 & Chapter 3. (50p)
The roots of global capitalism:
Geographic expansion of trade goes hand in hand with state formation...
But this plays out differently in different across space and time
State vs Markets
Herman Mark Swartz
• American Political Economist / Political Geographer.
, • Empirical, historic, theoretically eclectic.
• ‘Political Economy IV’: economic history through a political science perspective
• ‘Political Economy II’: The political science of economic policy fields
• and ‘Political Economy I’: a lot of inspiration from classical political economy
Main argument
• Place and distance (space) are crucial to understand the development of states in the global
economy.
• Government policies are often crucial to understand if, and if so how countries and regions
develop.
• Economic development is a battlefield between political- economic actors: government,
entrepreneurs, employees.
• He synthesises a number of theoretical insights: Von Thünen, Ricardo, Kaldor, Gerschenkron,
Verdoorn.
Rise of the West?
Argument by Abu Lughod:
Takes 13th century as starting point
• Cultural differences are important but not sufficient explanations
• Internal and external explanations should be taken into account
• Importance of systemic geopolitical and demographic causes
Europe 1300-1700
• Private ownership
• Labour market
• Capital market
• Market for land
• Market for goods and services
• Rules and management for the protection of property, contracts and bankruptcy
• Focus on expansion and growth
It starts with a surplus
• Agriculture with production for own use (subsistence farming)
• Little trade, little technological innovation.
• But: division of labour + technological innovation surplus.
Who captures the surplus?
Nobility – successful robbers
King – main robber
Merchants
Trade (markets) < = = = = = = = = = > Political organisation (states)
Geography
• Natural protection
• Proximity to sea
• Rivers
• Fertile soil
• Climate
Economists Need to Add a Little History to Their Tool Kit
One reason is that economic history focuses economists on real events rather than allowing them to
live in theoretical fantasy worlds of their own creation.
But economic history functions as more than just the history of the economy. Because it uses
economic theory to analyse past events, it can help generate plausible explanations for some of the
biggest and hardest questions.
Economic history can also serve as a check on the more dramatic claims of mainstream historians.
Economic history’s power is more than simply theoretical and explanatory, however -- sometimes, it
can be used to predict the future.
=> In 2011, economists Barry Eichengreen, Donghyun Park and Kwanho Shin analysed the history of
economic slowdowns and came up with some heuristic rules to predict when fast-growing countries
can be expected to falter.
Finally, economic history can often help us understand broader social phenomena.
=> Economic historian Rob Gillezeau, for example, has found that welfare programs and legal
services for African-Americans decreased the severity of urban riots in the 1960s.
But the economics profession itself should realize that the field of economic history is neglected.
More classes on the subject, and more awards and recognition for economic historians, would be a
good thing for a discipline that too often ignores the lessons of the past.=
We should pay closer attention to the interactions between politics, economics, and other realms
https://www.imf.org/Publications/fandd/issues/2020/06/political-economy-of-economic-policy-jeff-fri
eden
Political economy is about how politics affects the economy and the economy affects politics
Adam Smith, David Ricardo, and John Stuart Mill are widely regarded as the originators of modern
economics.
Two trends divided the political from the economic analysis. First, governments began to reduce their
direct control over the economy. Second, different political forms emerged: Europe went from almost
exclusively monarchical to increasingly representative and highly varied forms of government.
It analyzes how political forces affect the economy. Voters and interest groups have a powerful impact
on virtually every possible economic policy.
It assesses how the economy affects politics. Macroeconomic trends can boost or ruin an incumbent’s
chances.
,It uses the tools of economics to study politics. Politicians can be thought of as analogous to firms,
with voters as consumers or governments as monopoly providers of goods and services to constituent
customers.
https://www.imf.org/Publications/fandd/issues/2020/06/political-economy-of-economic-policy-jeff-fri
eden
Lecture 1
What is political economy?
➢ Housing Prices
➢ Interest Rates
➢ Central Bank Policy
➢ Inflation
➢ States or Markets?
General propositions
➢ In order not to burden future generations with debt, the government should not run a budget
deficit
➢ Economic growth is mostly achieved by allowing companies to thrive in a lightly regulated,
low tax, and competitive environment
➢ The Amsterdam municipality should not restrict the sale of land
Policy propositions
➢ To combat the cost of living crisis the government needs to increase support for low income
families, even if that means running a budget deficit
➢ To limit the energy bill problems for Dutch families, the government needs to tax windfall
profits of the energy companies and put a cap on energy prices
➢ The Amsterdam municipality should make public transport free in order to limit the use of
cars in the city
Political economy
1. Studies the fundamental interconnection between states, society and markets
2. Understands economic politics as a means for states to achieve their objectives
(Strategies For development; Schwartz)
3. Considers today and tomorrow's political-economic relations and battles from a historical
perspective
➢ The economy is inherently political.
➢ And much of what is political is directly related to the economy.
➢ PE is everywhere, and everything is PE .
➢ But if that is true.... How can you study this?
POLITICAL ECONOMY I
The classic thinkers on state and market and their followers
They considered both states and markets, and integrated them into one academic debate
POLITICAL ECONOMY II
,The political science of economic policy fields
POLITICAL ECONOMY III
Political phenomena considered from an economic perspective
➢ What is economics?
○ oikos = the family, the family’s property; a large estate or even a village
○ nomos = greek term for law.
➢ The way we organise society to provide for our needs
1. “the branch of knowledge concerned with the production, consumption and transfer of wealth.”
2. “a branch of the science of a statesman or legislator with the objective of providing a plentiful
revenue or subsistence for the people.”
3. “combining the assumptions of maximising behaviour, stable preferences, and market equilibrium,
used relentlessly and unflinchingly” (Gary Becker)
Economics?
1. A domain
2. A perspective and approach to study social interaction
demand/supply, competition; rational behaviour; homo economicus; individualism
Taking an economic perspective on politics
POLITICAL ECONOMY IV
Markets and business considered from a political science perspective
Political economy as a course
PART I
The ingredients of Political Economy
PART II
Historical developments in Global Capitalism
PART III
Real World Economics in times of crisis
Lecture 2
Schwartz: Introduction, Chapter 1 & Chapter 3. (50p)
The roots of global capitalism:
Geographic expansion of trade goes hand in hand with state formation...
But this plays out differently in different across space and time
State vs Markets
Herman Mark Swartz
• American Political Economist / Political Geographer.
, • Empirical, historic, theoretically eclectic.
• ‘Political Economy IV’: economic history through a political science perspective
• ‘Political Economy II’: The political science of economic policy fields
• and ‘Political Economy I’: a lot of inspiration from classical political economy
Main argument
• Place and distance (space) are crucial to understand the development of states in the global
economy.
• Government policies are often crucial to understand if, and if so how countries and regions
develop.
• Economic development is a battlefield between political- economic actors: government,
entrepreneurs, employees.
• He synthesises a number of theoretical insights: Von Thünen, Ricardo, Kaldor, Gerschenkron,
Verdoorn.
Rise of the West?
Argument by Abu Lughod:
Takes 13th century as starting point
• Cultural differences are important but not sufficient explanations
• Internal and external explanations should be taken into account
• Importance of systemic geopolitical and demographic causes
Europe 1300-1700
• Private ownership
• Labour market
• Capital market
• Market for land
• Market for goods and services
• Rules and management for the protection of property, contracts and bankruptcy
• Focus on expansion and growth
It starts with a surplus
• Agriculture with production for own use (subsistence farming)
• Little trade, little technological innovation.
• But: division of labour + technological innovation surplus.
Who captures the surplus?
Nobility – successful robbers
King – main robber
Merchants
Trade (markets) < = = = = = = = = = > Political organisation (states)
Geography
• Natural protection
• Proximity to sea
• Rivers
• Fertile soil
• Climate
