Monday, April 28, 2014

Understanding Liberalism

The study of International Relations has made us know many the perspectives and using them to understand and analyze the global events. In market world, we know the famous perspective like mercantilism. Mercantilism said that countries do trading simply to accumulate wealth so power could be achieved. They focused on the cycle of war and power. But, there was Adam Smith to oppose this idea of mercantilism.

Adam Smith being the forerunner of liberalism with his famous term “invisible hand” although it was just said once in his book “The Wealth of Nation”. Adam Smith was carrying Laissez-faire as his theme in which the state should not interfere market and its involvement in their market is very limited. They believe that market could find and determine their own price (equilibrium) without the help of the government. This is what “invisible hand” means. Adam Smith explained in his book that the state’s welfare could be reached if every people pursue their own interests. If you are a farmer, do that heartily. If you are a student, live it diligently.

 He also came with the idea of absolute advantage that later developed by David Ricardo’s comparative advantage. In absolute advantage, there are two countries with two commodities in which one country picks one commodity they could produce many than the latter country. While comparative advantage requires each country to compare two goods they can produce in their own country in terms of efficiency before they choose what to export and what to import. Because of that, while mercantilism believes that if one side gains a benefit means the loss for others (zero-sum game), liberalism chooses to see the life as a positive-sum game. In which it still possible for each countries to gain benefit or advantage in trading even though the amount they get is different.

To sum it up, we can conclude that mercantilism do trading to accumulate wealth and turn it into power so that the power can be used to produce wealth and turn it to power again. On the other hand, liberalism believes in freedom of individual in the marketplace to organize economic activity rather than government and view life as a positive-sum game.

Balaam, David. N, & Dillman, B. (2014). In Introduction to International Political Econom. Ch.4. United Kingdom: Pearson Education Limited.

Posted by,
Salwa Ni'matul Maula

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