Chapter 1:
Gilpin begins this piece by exploring two schools of thought on the relationship between international capital and the nation-state. One school believes that the state should be continuously eroded as it is both poorly suited for this differently structured world. The other school of thought argues that the nation should be bolstered and buttressed and act as a balance against the power of international capital. This debate, however, is not as novel as many have made it out to be.
"The argument of this study is that the relationship between economics and politics, at least in the modern world, is a reciprocal one. On the one hand, policies largely determines the framework of economic activity and channels it in directions intended to serve the interests of dominant groups, the exercise of power in all its forms is a major determinant of the nature of an economic system. On the other hand, the economic process itself tends to redistribute power and wealth; it transforms the power relationships among groups" (21-2). "thus, the dynamics of international relations in the modern world is largely a function of the reciprocal interaction between economics and politics" (22).
Gilpin then defines politics and economics. He uses Kindleberger's distinction in methods of distributing resources, either through the market or the budged. He then cited Keohane and Nye's work on the international political economy. "[They] define economics and politics in terms of two levels of analysis: those of structure and of process" (22).
"In this study, the issue of the relationship between economics and politics translates into that between wealth and power. According to this statement of the problem, economics takes as its province the creation and distribution of wealth; politics is the realm of power" (22). Gilpin goes on to acknowledge that the concept of power and wealth are complex, but attempts to provide operational definitions. Wealth: anything that can generate future income (23). Power: from Morgenthau: "Man's control over the minds and actions of other men" (24). While there is a separation between these two concepts, Gilpin argues that it is only analytical, and that they are practically always intertwined.
This chapter focuses on three major schools of thought in IPE: liberalism, Marxism and mercantilism. "Liberalism regards politics and economics as relatively separable and autonomous spheres of activities...Marxism refers to the radical critique of capitalism identified with Karl Marx and his contemporary disciples; according to this conception, economics determines politics and political structure. Mercantilism is a more questionable term because of its historical association with the desire of nation-states for a trade surplus and for treasury...One must distinguish, however, between the specific form mercantilism took in the seventeenth and eighteenth centuries and the general outlook of mercantilistic thought. The essence of the mercantilistic perspective...is the subservience of the economy to the state and its interests" (25).
Table 6: (27)
The author explores the differences in the above three schools of thought in more detail.
"My own perspective on political economy rests on what I regard as a fundamental difference in emphasis between economics and politics; namely, the distinction between absolute and relative gains. The emphasis of economic science...is on absolute gains; the ultimate defense of liberalism is that over the long run everyone gains" (33). "The essential fact of politics is that power is always relative; one state's gain in power is by necessity another's loss. Thus, even though two states may be gaining absolutely in wealth, in political terms it is the effect of those gains on relative power positions which is of primary importance" (34).
The author then expands upon the importance of relative power.
If, however, relative power is so important, why is there an international liberal economy? This is partially explained through hegemonic stability theory and the work of Kindleberger. "The argument of this study is that the modern world economy has evolved through the emergence of great national economies that have successively become dominant" (40). "An economic system, then, does not arise spontaneously owing to the operation of an invisible hand and in the absence of the exercise of power. Rather, every economic system rests on a particular political order; its nature cannot be understood aside from politics" (40-1).
"In brief, political economy in this study means the reciprocal and dynamic interaction in international relations of the pursuit of wealth and the pursuit of power" (43).
Chapter II:
"The thesis of this chapter is that foreign investment is a strategy employed by both rising and declining dominant capitalist economies--for quite different reasons. Although a strategy of foreign investment has been central to both the British and the American experience as alternately rising and declining industrial powers, there has been no analysis of foreign investment from the perspectives o fits role within the dynamics of international relations. For this reason, this study will examine British portfolio investment in the nineteenth century and American direct investment...in the context of international political change" (45).
Foreign investment is not, obviously, the only way that political power can be put forth through economic metrics, as the author rightly mentions.
Two phases of investment: The first requires foreign investment because rates of savings in the core are too large. The second is a response to a relative stagnation in industrial manufacturing in the core.
"Although foreign investment is not the primary cause of the shift in the locus of industrial power from core to periphery, it both accelerates this tendency and tends to abort any effort to reinvigorate the core's industrial base" (77). "In a world of competing nation-states, wherein power rests ultimately on an industrial base, foreign investment contributes to an international redistribution of power to the disadvantage of the core" (77).
