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date: 25 February 2021

Mercantilist and Realist Perspectives on the Global Political Economyfree

  • Daniel W. DreznerDaniel W. DreznerThe Fletcher School of Law and Diplomacy, Tufts University


Mercantilism and realism would appear to go hand in glove with each other. If realism represents both a systemic worldview and explanatory model for world politics, then mercantilism would appear to be the paradigm’s default foreign economic policy doctrine. And, to be sure, there are obvious and strong areas of overlap. Both paradigms stress the autonomous role of the state—and warn against capture by particularistic interests. Both also stress the conditioning effects of the distribution of power in defining national economic interests. Despite these constants, however, over time, the two approaches diverged more and more. Most modern-day writers who sympathize with mercantilism do so from perspectives ranging from left-leaning social democracy to more radical Gramscian critiques. Realists, on the other hand, have tended to gravitate towards the conservative, Burkean side of the political spectrum. While realists and mercantilists might agree on the role that power plays in the global economy, they do not necessarily agree on the normative implications of that insight. Paradoxically, as realism has acquired a more “scientific” cast, it has become less influential in international political economy (IPE) scholarship. For realism to maintain its relevancy in IPE, it must reacquire its deftness in incorporating nonstructural variables into its explanatory framework. The paradigm retains some useful predictive power for how systemic political variables affect global economic outcomes, but it is of little use in discussing the reverse causal effects.


At first glance, a survey of mercantilist and realist perspectives of the international political economy (IPE) would appear to be more an exercise in intellectual history than an analysis of relevant and current ideas. One would be hard pressed to find a living economist who self-identified as a mercantilist. By and large, economists deride mercantilism as an outmoded, outdated doctrine of “bad economics” and “lethal politics.” (Wolf 2005:33) Realism remains a vital force in security studies, and realist scholars were present at the creation of the “modern” subfield of IPE (Cohen 2008). The paradigm has done less well in maintaining its relevance, however. In a survey of journal publications and citations, Maliniak and Tierney (2009:16) find realist IPE scholarship to be “non-existent” in recent decades. (As McNamara (2009:77) observes, this somewhat understates realist IPE scholarship, as much of it is published in university press books instead of journals.) Kirshner (2009:40) concludes in his recent review of the literature that “realist scholars have stumbled on the question of globalization.” One can legitimately question whether, to use Lakatos’ (1971) criteria, realism remains a progressive research paradigm within the IPE subfield.

This is problematic, because current events suggest the continuing relevance of mercantilist and realist approaches. In the past decade, prominent mainstream econom-ists have warned about the negative distributional effects of offshore outsourcing for the established great powers (Gomory and Baumol 2000; Samuelson 2004; Blinder 2006). Public opinion surveys reveal persistent mercantilist attitudes about the global economy in the United States (Drezner 2008a) and elsewhere (Scheve and Slaughter 2004). The growth of sovereign wealth funds has triggered heated policy debates about the possibility of governments using these funds to advance their long term strategic interests (Cognato 2008; Drezner 2008b; Cohen 2009). The rise of China has fuelled debate about whether Beijing is pursuing a mercantilist foreign economic policy (Aizenman and Lee 2007, 2008; Bowles and Wang 2008). The growth of global macroeconomic imbalances has generated a discussion about the geopolitical effects of these imbalances (Thompson 2007; Setser 2008). The 2008 financial crisis and ensuing recession is reviving debate about the virtues of neoclassical economics and what a post-hegemonic economic order will look like (Hayes 2008; Mastanduno 2009). Many policy advocates within these debates are using the language of mercantilism and realism to motivate their arguments about the global political economy.

Clearly, the times call for a deeper understanding of what realists and mercantilists actually say about the global political economy. This review essay surveys both strains of thought since the emergence of mercantilist policies in seventeenth century England, and finds some constants that run through both schools of thought. Both paradigms stress the autonomous role of the state – and warn against capture by particularistic interests. Both also stress the conditioning effects of the distribution of power in defining national economic interests. Despite these constants, however, realism and mercantilism have not always intellectually fit hand in glove. Indeed, over time, the two approaches diverged more and more. Paradoxically, as realism has acquired a more “scientific” cast, it has become less influential in IPE scholarship. For realism to maintain its relevancy in IPE, it must reacquire its deftness in incorporating nonstructural variables into its explanatory framework. The paradigm retains some useful predictive power for how systemic political variables affect global economic outcomes, but it is of little use in discussing the reverse causal effects.

The history and historiography of mercantilism

Mercantilism originated in a series of sixteenth, seventeenth and eighteenth century writings in England that had their origins in policy pamphlets, and evolved into larger disquisitions and debates on trade policy (Malynes 1601; Mun 1664; Misselden 1622; Coke 1670; Child 1693; Steuart 1767). Mercantilists frequently disagreed with each other on actual policy, but there was a common core to their writings. In many ways, the content of mercantilism itself is less interesting than the historiography of mercantilism over the subsequent two centuries. Because economists have long rejected its tenets, mercantilism has been defined more by its adversaries than its proponents (Schumpeter 1956:336; Irwin 1996). It was Adam Smith (1976 [1776]:159) who famously labeled the pre-existing set of trade restrictions and prescriptions as the “Mercantile System” in Book IV of The Wealth of Nations. During the Great Depression, Eli Heckscher (1935) wrote a two-volume evisceration of mercantilist thought and practice.

While some current scholars offer a more sympathetic take on mercantilist thought (Magnusson 1994; Harlen 1999), most mainstream economists have scorned mercantilism for quite some time (Irwin 1996). Indeed, the term “mercantilist,” like “protectionist,” is strictly used as a pejorative in modern economic discourse. Krugman (1997:114), for example, laments: “The implicit mercantilist theory that underlies trade negotiations does not make sense on any level…but it nonetheless governs actual policy.” To be sure, this scorn has some intellectual validity, but it also emanates from two additional factors. First, neoclassical economics is uncomfortable with factoring in the pursuit of non-economic objectives – an essential feature of mercantilist thought (Maneschi 2004). Second, there is an unresolved debate over placing mercantilism in the proper historical context.

The policy prescriptions of mercantilists were hardly uniform, but there was consensus on three points. First, in the absence of domestic mines, states should secure a favorable balance of trade in order to acquire as much specie – gold and silver bullion – as possible. To affect the increase in bullion, states should secure a positive balance of trade. In a typical passage, Thomas Mun (1664:7) wrote, “the ordinary means…to increase our wealth and treasure is by foreign trade wherein we must ever observe this rule: to sell more to strangers yearly than we consume of theirs in value.” Smith (1776:159) noted that, “the encouragement of exportation, and the discouragement of importation, are the two great engines by which the mercantile system proposes to enrich every country.” Mercantilists proffered multiple reasons for this policy preference – increasing the amount of money in domestic circulation, boosting domestic employment, raising prices – but the first reason was almost always the hoarding of money in the form of specie. Indeed, as Wilson (1950:152) points out, even the motivation to boost employment appears to have been “seen as a means to increase bullion supplies rather than vice versa.” Viner observed that, “statements involving…the attribution of value to the precious metals alone…abound in the mercantilist literature.” (1930:266)

Second, mercantilists preferred a particular composition of traded goods. Manufactures were to be exported, because they contained more embodied labor and value-added, while commodities were to be imported. Again, this flowed naturally from the mercantilist effort to secure a positive balance of trade; In his Report on Manufactures, Alexander Hamilton observed a positive correlation between the “abundance of specie” and a “flourishing state of manufacture.” The growth of domestic manufactures also had a direct effect on power and plenty. Hamilton wrote, “Not only the wealth but the independence and security of a country appear to be materially connected with the prosperity of manufactures. Every nation, with a view to these great objects, ought to endeavor to possess within itself all the essentials of national supply.” (1791[1913]:33)

Third, and most important, mercantilists held that commerce was supposed to augment state power. The rise of mercantilism as a doctrine matched the rise of the nation–state as the primary political unit in Europe. Mercantilist ideas supplanted older feudal and scholastic doctrines, serving to overcome the “medieval particularism” of prior doctrines (Heckscher 1935; De Roover 1955). Heckscher observes that, “the state was both the subject and object of mercantilist economic policy.” (1935:21). Mercantilists believed that the creation of a favorable balance of trade would increase state power. The hoarding of specie, for example, was primarily useful for paying the large standing armies that became the norm in seventeenth century Europe. Viner (1948:15) and others quote Josiah Child’s aphorism on this point: “foreign trade produces riches, riches power, power preserves our trade and religion.”

As Viner famously has argued, this did not mean that mercantilists abjured plenty for power:

I believe that practically all mercantilists, whatever the period, country, or status of the particular individual, would have subscribed to all of the following propositions: (1) wealth is an absolutely essential means to power, whether for security or for aggression; (2) power is essential or valuable as a means to the acquisition or retention of wealth; (3) wealth and power are each proper ultimate ends of national policy; (4) there is long-run harmony between these ends, although in particular circumstances it may be necessary for a time to make economic sacrifices in the interest of military security and therefore also of long run prosperity. (1948:10)

Many of the ideas that made up classical mercantilism have been discredited. The equation of specie with wealth represented a clear flaw of economic logic. Similarly, the emphasis on production overlooks the role that domestic consumption plays as a key source of modern economic growth (Smith 1976[1776]) – as well as modern economic power (Drezner 2007).

There has been a fierce debate within the history of economic thought over the precise motivations of the mercantilists. Smith (1776[1976]:180) accused mercantilist writers of developing policy prescriptions based on the interests of producers at the expense of consumers. Viner (1937:59) concurs, noting that, “the great bulk of the mercantilist literature consists of tracts which were partly or wholly, frankly or disguisedly, special pleas for special economic interests.” Ekelund and Tollison (1981) characterize mercantilism as a rent-seeking strategy by its proponents. This would suggest that mercantilism functioned primarily as an intellectual “hook” for ideas that served particularistic interests (Krasner 1993).

This assertion is far from clear, however. Schumpeter (1954:347) dismisses the claim that mercantilists were only making self-serving arguments as “bad sociology.” He points out that at various times mercantilists acknowledged either the short-term economic costs of their policy prescriptions, or argued against narrow self-interest. Even skeptics (Viner 1937:117–8) acknowledge that mercantilist ideas had an autonomous effect on policy. Other powerful interests – such as the landed gentry – were unable to develop ideas that rebutted the ideas of mercantilists. In part this was because the policy prescriptions of mercantilists – thrift and security – resonated with the sentiments of the era (Appleby 1976; Coleman 1980). At a minimum, these ideas were powerful enough to keep the British economy closed off from France following the 1713 Treaty of Utrecht. Economic, political, and intellectual historians of the era have observed that the mercantilist doctrines independently affected both foreign economic policy and grand strategy (Appleby 1976; Sofka 2001; Nye 2007).

Given the economic and political realities of the era, there was an inherent logic to mercantilism. Heckscher (1935:25) observes that mercantilism “was bound up with a static conception of the total economic resources of the world.” Recent research in economic history (Clark 2007) suggests that in fact the size of the English economy had been stagnant for much of the previous two millennia. In a world in which the total size of the economic pie appeared to be fixed, the pursuit of both power and plenty demanded a relative gains calculus. Even if one does not accept such a strong assertion about pre-1800 growth, the logic is still compelling. The discovery of new colonies, resources and markets in Asia and the Western hemisphere appeared to be the primary impetus for growth during the mercantilist era. With a one-off increase in wealth available to those states with the power to control the trade, mercantilist writers like William Petty (1690:82) still believed “there is but a certain proportion of trade in the World.” Josiah Child (1693:160) urged the government to expand its share of trade, to the detriment of other great powers. Clearly, both relative and absolute gains logics led to mercantilist policy prescriptions (Irwin 1991; 1992).

Many economists do acknowledge that the political conditions made mercantilist policies a natural equilibrium (Schumpeter 1954:339; Hirschman 1977:79). War, imperialism, colonization and conquest were constant features of the sixteenth, seventeenth and eighteenth centuries. Monarchs across the continent were engaged in a sustained effort to consolidate the power of the state and develop a monopoly over coercive force (Tilly 1992). In such a climate, the need for reserves and the pursuit of power were hardly noneconomic objectives (Wilson 1950). It is not surprising that mercantilist tracts in England focused on the Netherlands during the seventeenth century and the French in the eighteenth century (Viner 1937). This corresponded to when those states challenged England for primacy in Europe and elsewhere. Similarly, Hamilton (1791) focused on the myriad ways in which European states blocked manufacturing imports from the United States. On the other hand, the effect was likely reciprocal; mercantilist attitudes undoubtedly contributed to the trade wars of the time (Sofka 2001).

In this kind of international environment, deviation from mercantile policies was not necessarily the rational course of action (Schmoller 1897:73; Sofka 2001). Findlay and O’Rourke (2007:239) point out the incentive incompatibility of unilaterally attempting to apply the doctrine of free trade during the mercantilist era: “One has to ask, what was a realistic counterfactual for an individual European nation state choosing to unilaterally embrace peaceful free trade? In the absence of anything resembling an effective collective security mechanism, or a clearly defined hegemonic power, military defeat and exclusion from foreign markets seems to us as plausible an answer as any.”

Mercantilism lost its intellectual vitality during the first half of the nineteenth century. David Hume (1997 [1752]) had already attacked the monetary dimension of mercantilism, with the development of the price–specie–flow mechanism. Smith’s Wealth of Nations attacked the trade dimension of mercantilism. With the publication of David Ricardo’s (1817) Principles of Political Economy and Taxation, mercantilism’s intellectual credibility in England collapsed – though it took another generation for laissez-faire ideas to seep into Britain’s economic culture and British foreign economic policy (Rohrlich 1987). Since then, mercantilist ideas have re-emerged in two situations. Rising and developing powers have occasionally embraced the doctrine as a pathway to accelerate political and economic development. Great powers in perceived decline have also been receptive to the idea as a possible means to reverse their fall.

The German Historical School was premised on the belief that national economic policies should flow from the verstehen that builds up within nation–states (Swedberg 1991). Modern scholars of economic nationalism (Helleiner 2002; Pickel 2003; Nakano 2004) argue that this approach differed from classical mercantilism, focusing more o development than trade or finance. It is certainly true that the German Historical School was less concerned about specie than the English and continental mercantilists. Still, beginning with Friedrich List, this school of thought shared many traits with classic mercantilism, including the emphasis on using trade policies and tariffs as a means to promote domestic economic development. List (1841[1856]:354) stressed that the anarchical structure profoundly affected the patterns of international economic exchange: “The imports and exports of independent nations…depend mostly on commercial policy and the power of a country, on its importance in the world, its influence over foreign nations, its colonial possessions and institutions of credit, finally, on peace and war.”

The younger generation of the German Historical School was less interested in the policy particulars of mercantilism and more interested in the statebuilding dimension of the doctrine. Schmoller (1897:50–51) observed that mercantilism “in its innermost kernel, it is nothing but state making – not state making in the narrow sense, but state making and national economy making at the same time; state making in the modern sense, which creates out of the political community an economic community, and so gives it a heightened meaning.” Schmoller, like List, was not implacably opposed to free trade. Both writers, however, pointed out the correlation between a nation–state’s position in the international distribution of power and its economic policy preferences. Only after the United Kingdom achieved economic primacy did official British policy switch to laissez-faire. This observation is thoroughly consistent with realist takes on how a state’s position in the international system structures their preferences in the global political economy (Krasner 1976; Grieco 1990).

During the Great Depression, mercantilist thought and policy made a partial comeback. Several of the advanced industrialized economies responded to the depression by replicating the mix of trade and currency policies that held sway during the classical mercantile system (Hirschman 1945; Frieden 2006:206). On the theoretical side, John Maynard Keynes became increasingly attracted to mercantilist ideas as the depression worsened (Irwin 1996:189–206). He devoted a chapter to mercantilism in his General Theory of Employment, Interest and Money. Keynes argued that in a world of fixed exchange rates and wage rigidities, mercantilist trade policies made economic sense as a means of boosting domestic employment: “For a favorable balance, provided it is not too large, will prove extremely stimulating; whilst an unfavorable balance may soon produce a state of persistent depression.” Keynes was under no illusions, however, about the systemic effects of every country pursuing such mercantilist policies: “a senseless international competition for a favorable balance which injures all alike.” Such policies, he allowed, would also lead to a greater likelihood of war (1936:338).

Keynes’ fondness for mercantilism was connected to his desire for governments to retain the ability to promote full employment at home. He recognized that a combination of trade liberalization, capital market liberalization, and fixed exchange rates would impose severe macroeconomic policy restrictions on most national governments. Keynes preferred an open trading system, but he also preferred domestic policy autonomy over unregulated capital flows. As globalization has imposed stronger strictures on national policymakers, Keynes’ arguments about mercantilism resonated over the decades for social democrats attached to the notion of “embedded liberalism.” (Ruggie 1982; Guerrieri and Padoan 1986; Kirshner 1999; Rodrik 2007).

The Great Depression also marked the moment when economists in the developing world embraced mercantilist policy prescriptions. During the 1930s, Raúl Prebisch began developing the ideas that would form his “doctrine of unequal exchange” (Prebisch 1950). Like the mercantilists, Prebisch believed that the composition of trade mattered for economic development. He posited that, over time, commodity exporters faced worsening terms of trade vis-à-vis industrialized economies. Intellectual historians point out that earlier generations of mercantilist doctrine were a clear inspiration for Prebisch’s development of dependency theory (Love 1980:60).

The final, disjointed wave of “neomercantilist” writings appeared in the 1970s and 1980s due to a combination of real-world events and theoretical challenges to neoclassical trade theory. On the policy front, the collapse of the Bretton Woods system and OPEC oil embargoes led to a renewed appreciation for the role of the state in the global economy, creating the modern field of international political economy (Cohen 2008). The emergence of U.S. trade deficits and the perceived rise of Japan as a challenger to U.S. hegemony led to a concomitant increase in non-tariff barriers and other protectionist measures in the OECD economies. At the same time, the developing world proposed a New International Economic Order that would have dramatically increased state control over the global economy.

On the theoretical front, quasi-mercantilist ideas began to appear in both political science and economics. In political science, Gilpin (1975) did describe his approach as mercantilist in U.S. Power and the Multinational Corporation. He evinced concern that the outward flow of foreign direct investment would lead to a relative decline in American power. Sylvan (1981) labeled the first realist wave of IPE studies as merely the latest wave of mercantilism. Beyond the realist approach, Immanuel Wallerstein’s (1980) world systems theory built on both classical mercantilism and Prebisch’s dependency theory to develop a macrosociological theory of political and social change (Chirot and Hall 1982:87).

In economics, the emergence of strategic trade theory (Brander and Spencer 1985; Krugman 1986) provided some mercantilist policies with a formal theoretical foundation. In sectors with increasing returns to scale, export bounties and domestic protection could increase national income. It is interesting to note that in Brander and Spencer’s original model, utility was derived strictly from production and not consumption – much like the mercantilists of the sixteenth century. Indeed, Irwin (1991; 1992) used strategic trade theory to explain the trade wars of the seventeenth century. The chartered trading companies of the mercantilist era shared some of the qualities of posited firms in the strategic trade model. Nevertheless, strategic trade theory had a short half-life, as other economists highlighted the fragility of the model’s assumptions. (Horstmann and Markusen 1986) By the early nineties, even sympathizers like Paul Krugman (1992) acknowledged that the policy applications of the theory were exceptionally narrow.

Mercantilist thought has clearly evolved over the centuries. The obsession with specie faded away. The emphasis on the balance of trade lessened, though not disappeared. The composition of the trade balance has waxed and waned and waxed in importance. As Gilpin (1975:25) concludes:

One must distinguish…between the specific form mercantilism took in the seventeenth and eighteenth centuries and the general outlook of mercantilistic thought. The essence of the mercantilist perspective, whether it is labeled economic nationalism, protectionism, or the doctrine of the German Historical School, is the subservience of the economy to the state and its interests – interests that range from matters of domestic welfare to those of international security.

In other words, the one common thread through all the various iterations of mercantilist thought was a realpolitik perspective.

The odd relationship between realism and mercantilism

Mercantilism and realism would appear to go hand in glove with each other. If realism represents both a systemic worldview and explanatory model for world politics, then mercantilism would appear to be the paradigm’s default foreign economic policy doctrine (Gilpin 1975). And, to be sure, there are obvious and strong areas of overlap. Nevertheless, realism and mercantilism are not as automatically conjoined as is commonly believed. Classical liberal thought is also consistent with the realist paradigm. Indeed, the realist balance of power mechanism is very similar to the equilibrating mechanism espoused by free market liberals (Boucoyannis 2007).

More generally, classical liberal thought is more variegated than the caricature of it that appears in List and Schmoller. Several components of classical liberal thought overlaps with realism. John Locke, the father of classical liberal thought, held views about the special value of specie that were identical to mercantilists. Heckscher (1935:23) quotes John Locke’s bullionist beliefs: “riches do not consist in having more Gold and Silver, but in having more in proportion, than the rest of the World, or than our Neighbors.” Despite his criticism of the mercantile system, Adam Smith’s writings echoed mercantilist or nationalist beliefs in a number of areas (Wyatt-Walter 1996; Harlen 1999; Helleiner 2002:312). Like the mercantilists, Smith factored power into his set of preferred policies. He supported the Navigation Acts, famously commenting that, “defence is of more importance than opulence.” (Smith 1976[1776]:487). Smith also believed that the content of exports and imports were important; like the mercantilists, he preferred the export of manufactures and the import of commodities. Later neoclassical economists were also more comfortable with nationalist views than is commonly thought (Nakano 2007). Classical liberals were never as blind to power politics as some modern critics allege.

At the same time, as realists have imbibed the shifts in economic thought, they have been more willing to part ways with mercantilist policy prescriptions. Beginning in the 1970s, economists and policymakers increasingly embraced trade liberalization as a means to promote economic growth (Yergin and Stanislaw 1998). As this ideational shift took place, realists also became more comfortable with liberal economic thought. Robert Gilpin personifies this evolution in realist scholarship. In U.S. Power and the Multinational Corporation, Gilpin (1975:33–43) showed considerable sympathy to the relative gains worldview of mercantilism. In The Political Economy of International Relations, Gilpin (1987:31–34, 46–50) renamed this school as “nationalist,” and adopted a more detached view of the relative merits and demerits of the approach. While he supported the state-centric nature of economic nationalism, he was also wary of some of its policy prescriptions: “a strong and interventionist state does not guarantee economic development; indeed, it might retard it.” (1987:49)

With the end of the Cold War and the heyday of the Washington Consensus, realists were firmer in rejecting the tenets of mercantilism. Realists remained comfortable with a strong state, the economic performance of governments that nationalized strategic sectors – like the rentier oil-exporting states – made it clear that too much state intervention could have disastrous consequences. Mearsheimer (1994/95:20) characterized strategic trade theory as a “non-realist” argument. In Global Political Economy, Gilpin (2001) clarified his own intellectual position:

Although I accept “economic nationalism” or what I now call a “state-centric” approach, as an analytic perspective, I do not subscribe to the normative commitment and policy prescriptions associated with economic nationalism. My own normative commitment is to economic liberalism; that is, to free trade and minimal barriers to the flow of goods, services and capital across national boundaries, although, under certain restricted circumstances, nationalist policies such as trade protection and industrial policy may be justified. (2001, 14)

As Kirshner (2009:38) puts it, “The realist dissent is with liberal politics, not liberal economics.” This hints at another possible reason for the modern separation between realism and mercantilism. As previously noted, most modern-day writers who sympathize with mercantilism do so from perspectives ranging from left-leaning social democracy to more radical Gramscian critiques (Levi-Faur 1997; Kirshner 1999; Graz 2004). Realists, on the other hand, have tended to gravitate towards the conservative, Burkean side of the political spectrum (Guzzini 2004). While realists and mercantilists might agree on the role that power plays in the global economy, they do not necessarily agree on the normative implications of that insight.

Realist approaches to the global political economy

Classical realists had little to say about matters of political economy. Thucydides (1996:7) did note the relationship between Athenian wealth and power, observing that, “the possession of capital enabled the more powerful to reduce the smaller cities into subjection.” Machiavelli, however, was less impressed with the importance of plenty as a means of augmenting power. In the Discourses, he rejected the concept that “money is the sinews of war,” arguing that military power came first: “gold alone will not procure good soldiers, but good soldiers will always produce gold” (quoted in Baldwin 1985:75). Hirschman (1945) and Morgenthau (1962) discussed the ways in which great powers could use economic statecraft to advance their national interests – but not the ways in which states affected the global political economy writ large. The one exception to this general silence was E.H. Carr (1939[1964]:117), who deplored the laissez-faire doctrines of the nineteenth century, observing that, “the science of economics presupposes a given political order, and cannot be profitably studied in isolation from politics.”

IPE emerged as a distinct subfield of international relations in the wake of two contradictory trends: the rise of economic interdependence and the cracking of the political foundations that supported it (Lake 2006; Cohen 2008). The reductions of trade and capital controls caused political scientists to pay greater attention to the effects of interdependence on world politics (Cooper 1968; Keohane and Nye 1978). At the same time, the perceived decline in American hegemonic power, combined with the use of state power by OPEC countries to raise energy prices, caused international relations theorists to take a greater interest in international political economy.

IR scholars responded by decomposing the state into a mélange of transnational and domestic actors. Kindleberger (1969:207) declared that “the nation–state is just about through as an economic unit.” Keohane and Nye (1978) argued that the economic shocks of the early seventies demonstrated the ways in which transnational actors and complex interdependence could constrain governments. Krasner (1976:317) opened up his seminal article by lamenting that, “students of international relations have multinationalized, transnationalized, bureaucratized, and transgovernmentalized the state until it has virtually ceased to exist as an analytic construct.”

Given this context, the initial wave of realist scholarship in IPE rested on two tenets: the importance of the autonomous state in international relations, and the ways that the distribution of power affected international economic structures. Realist scholarship in IPE represented an effort to bring the state back in. As Gilpin (1975:4) put it, “transnational powers have been able to play an important role in world affairs because it has been in the interest of the predominant or hegemonic powers for them to do so.” Krasner (1976) argued that, even in economic matters, states had national interests that were autonomous from societal pressures. He articulated a mixture of economic and non-economic goals for the state with regard to foreign economic policy: maximizing national income and economic growth, and promoting social stability and political power.

Both Gilpin and Krasner argued that the distribution of power directly affected the relative “openness” of the international economic system. Consistent with Kindleberger’s (1973) hegemonic stability theory, they argued that the existence of a hegemonic power dramatically increased the likelihood of economic openness. For Gilpin, British hegemony allowed their massive capital exports in the nineteenth century, and facilitated U.S. foreign direct investment in the twentieth century. Krasner (1976) argued that a multipolar world of great powers was likely to produce an economic system with low levels of openness. In a hegemonic system, however, the most powerful state will prefer an open system because openness increases its national income, economic growth, and relative political power. The gap in power between the hegemon and other states will be great enough for other governments to also prefer openness. Lake (1983) developed a follow-on model to explain fluctuations in economic openness, arguing that some rising powers have an incentive to play a “spoiler” role in the system.

The first generation of realist scholarship was successful in shifting the IPE debate away from questions about the effects of interdependence on state behavior to questions about state power and state strength (Katzenstein 1978). However, the institutionalist response posed both empirical and theoretical challenges to realism. Numerous scholars (Keohane 1980; McKeown 1983; Stein 1984) pointed out empirical inconsistencies with the hegemonic stability approach. Given the greater degree of observed cooperation in international economic affairs than in the security arena, Lipson (1984) suggested that realist concerns about defection under anarchy were misplaced in the global economy. Neoliberal institutionalism presented a theoretical challenge to realist arguments (Keohane 1984; Axelrod 1984; Axelrod and Keohane 1985; Snidal 1985). These authors observed that even if one adopted realist assumptions about anarchy and the autonomy of the state, hegemony was not a necessary condition for cooperation in international economic affairs. International regimes, institutions or great power concerts could act as a substitute for hegemonic power.

Realist scholarship responded in two ways to the institutionalist challenge. The more prominent response was to stress relative gains concern as an additional impediment to economic cooperation (Gowa 1986; Grieco 1988; 1990; Mearsheimer 1994/95). Realists embraced Kenneth Waltz’s (1979:105) argument in Theory of International Politics: “When faced with the possibility of cooperating for mutual gain, states that feel insecure must ask how the gain will be divided. They are compelled to ask not ‘Will both of us gain?’ but ‘Who will gain more?’” This led to an extended theoretical debate over the salience and significance of relative gains concern (Baldwin 1993; Grieco, Powell, and Snidal 1993). Realists argued that the presence of relative gains concern made cooperation much less likely, even in economic affairs. Critics responded that the degree of relative gains concern had to be extremely high for these effects to kick in. This debate petered out in the early 1990s.

While the theoretical debate about absolute and relative gains captured much of the scholarly attention, it overlooked empirical work that bolstered support for the realist argument. Both statistical analyses (Pollins 1989a, 1989b; Gowa 1989, 1994; Gowa and Mansfield 1993) and case studies (Holsti 1986) investigated the ways in which the distribution of power and alliance relationships affected bilateral trade flows. These studies concluded that states are more likely to create free-trade areas with their allies, and are more likely to do so under bipolarity than multipolarity. Mastanduno (1991) demonstrated that relative gains concern did impinge upon the Japanese–American bilateral economic relationship when Japan was at the peak of its economic power. Busch (2001) argued that, contrary to the rent-seeking argument, states applied strategic trade theory only when they believed that the benefits from such interventions would not cross borders. Skålnes (2000) demonstrated how the grand strategy of great powers affected their foreign economic policies.

The second realist response to institutionalism has been to point out the ways in which state power influenced the policy outcomes of international economic institutions. Scholars have demonstrated the myriad ways in which great powers – particularly the United States as the hegemon – use their influence within international economic institutions. A host of econometric studies demonstrate considerable U.S. influence over IMF lending practices (Oatley and Yackee 2004; Dreher and Jensen 2007; Steinwand and Stone 2008). Similar studies demonstrate the same kind of influence in World Bank lending (Andersen, Hansen and Markussen 2006; Fleck and Kilby 2006) as well as the regional development banks (Kilby 2006). Woods (2003) examines both formal and informal levers of influence in the Bank and Fund and finds considerable U.S. influence, ranging from the distribution of loans to the training of staff economists. Sen (2003) reaches a similar conclusion with regard to the influence of the United States over the WTO secretariat.

Realists have also observed how great powers can use strategic forum-shopping among competing international regimes to alter institutionalist outcomes. There is an extensive literature in trade politics suggesting that a key source of U.S. influence within the GATT/WTO was its ability to act outside of the multilateral trade rules (Gawande and Hansen 1999). Kapstein (1989) and Simmons (2001) demonstrated how market power enabled the United States and United Kingdom to act outside of existing international financial institutions to advance their preferred set of financial codes and standards. Krasner (1991) showed how the United States picked and chose among different telecommunications regimes. Gruber (2000) discussed how “go-it-alone” power allowed major economies to dictate terms for regional integration agreements. Drezner (2004; 2007) performed a similar analysis for Internet governance and international regulatory regimes. Busch (2007) examined how the United States’ has forum-shopped across different trade dispute settlement mechanisms to advance its economic interests. Benvenisti and Downs (2007:627) conclude, “[T]he existence of multiple contesting institutions removes the need for [great powers] to commit themselves irrevocably to any given one. This helps them to manage risk, and it increases their already substantial bargaining power.”

This response has generated greater IPE interest in the effects of nested and overlapping regimes. (Aggarwal 1998; Raustiala and Victor 2004; Alter and Meunier 2009) There has also been some pushback on the long-term utility of realist analysis. Institutionalists pointed out the ways in which less powerful states could outperform hegemons within international organizations (Bach and Newman 2007). Other scholarship suggested that non-state actors could strategically manipulate norms or ideas to blunt the effectiveness of market power (Keck and Sikkink 1998; Prakash and Sell 2004). Stone (2008) argues that there is a costly tradeoff between the exercise of hegemonic power and the legitimacy of international regimes. Because the U.S. insisted on repeated deviations from IMF practices to help out key allies during the late 1990s, the credibility of the IMF as an institution has eroded. Similarly, despite unrivalled hegemonic power during the past decade, the United States tactic of “competitive deliberalization” provided no impetus for either the Doha Round or the FTAA (Evenett and Meier 2008).

The scholarly trend over the past decade or two has been mutual neglect between realist scholarship and the study of the global political economy (Guzzini 1998; Kirshner 2009). When Lake (1993:460) wrote an article about hegemonic stability theory, he intended it to “clarify and reinvigorate the research agenda.” Instead, Cohen (2008:78) characterizes Lake’s essay as HST’s epitaph. A few realist texts remain highly relevant for global political economy (Gilpin 2001). Maliniak and Tierney (2009:17) observe, however, most IPE researchers who cite realist scholarship do so largely to use it as a straw man for their own theoretical arguments. The next section explores why this is so.

Globalization, realism, and IPE

It is an exaggeration to say that realism is extinct in studying the global political economy – but realists do appear to be an endangered species in the subfield. Why is this the case? There are four interrelated reasons why realism and IPE appear to have parted ways. First, realism offers an incomplete explanation for the variables of interest to international political economy scholars. Second, realism has not coped well with the second era of economic globalization. Third, realists have been by and large unwilling to factor in second image variables into their IPE analyses – in sharp contrast to what the paradigm has done in security studies. Fourth, the development of formal and quantitative methodologies within the IPE subfield has alienated many realist scholars – and the feeling is mutual.

Realism has provided some important insights about defining the state as an actor, and articulating the ways in which the distribution of power can affect international economic structures. At this level, realism is a remarkably parsimonious model. However, its predictive power is somewhat limited. When Eichengreen (1989) tested hegemonic stability theory on the international monetary system, he found that while it could explain the board brush strokes of variation, significant elements of the historical narrative were left unexplained. When Krasner (1976) tested this approach for six historical periods, he found that his theory could only predict the result in half of the cases. Social science theories need to do better than a coin flip.

In these cases, however, at least there was variation in both the independent and dependent variables. Part of the problem with realist models of IPE is that the key variables are either constant (an autonomous state) or very slow moving (the distribution of power). For “big picture” questions, this can be a valuable perspective. Helleiner (1996), for example, has demonstrated the crucial role that states have played in enabling financial globalization. For IPE scholars interested in more fine-tuned variations in variables, however, realist causal mechanisms provide little explanatory power. Structural realists like Waltz are primarily interested in explaining persistent regularities in the international system. Variation on key dimensions of the global political economy – trade liberalization, regional integration, exchange rate regimes, foreign direct investment flows – remain largely unexplained. Realism, as it currently stands, is an underspecified theory in the global political economy.

A contributing factor is realism’s lack of interest in many variables of serious interest to IPE scholars. Realists have mostly ignored the study of transnational regulatory arrangements, overlooking a burgeoning area of IPE research (Vogel 1995; Braithwaite and Drahos 1999; Mattli and Woods 2009). Realism has also failed to respond to either constructivist IPE scholarship (McNamara 1998; Chwieroth 2007) or work on non-state actors (Cutler, Haufler and Porter 1999).

Part of the realist disregard for IPE is grounded in the belief that the world economy is only salient to world politics as a dependent variable. The realist paradigm believes that systemic variables do affect patterns in the global economy; for them, the causality runs in only one direction, however. Realists of most stripes argue that international economic exchange has no impact upon the international political system. (Gilpin (1981), as always, is an obvious and important exception.) Historically, this belief emanates from debates about the effects of economic interdependence on state behavior (Buzan 1984; Gowa 1986; Kirshner 2009). Over time, however, the refusal to acknowledge economic factors as an independent variable has morphed into caricature. Robert Pape (1997), for example, argues that economic coercion is futile in world politics because of the robust ability of states to resist external pressure. This argument succeeded in attracting attention and debate (Elliott 1998; Baldwin and Pape 1998). It also ignored more careful scholarship that examined precisely when economic power can affect politico-military outcomes (Knorr 1975; Baldwin 1985; Kirshner 1995; Drezner 1997).

Perhaps the best example of realist disdain comes from the paradigm’s take on economic globalization. To be sure, some realist scholars have engaged in nuanced studies of the phenomenon (Gilpin 2001; Kirshner 2008). By and large, however, structural realists and offensive realists have either ignored or trivialized globalization’s salience. A decade ago, Waltz (1999:694, 696) wrote that, “globalization is the fad of the 1990s….What I found to be true in 1970 remains true today: the world is less interdependent than is usually supposed.”

Waltz’s statement reveals one empirical and one conceptual flaw. The empirical flaw is the failure to recognize how the world has changed in the past four decades. By any metric, the globalization process has intensified during that time, imposing real constraints on the autonomy of the state (Goodman and Pauly 1993; Mosley 2003). Both the 1997 Asian financial crisis and the 2008 world financial crisis plainly demonstrated the global interconnectedness of national markets. Conceptually, this statement confuses interdependence, which is a relational concept between states, and globalization, which refers to a more systemic effect that encompasses non-state actors and factors. While other scholars have also committed this conceptual sin (Keohane and Nye 2000), realists have been particularly guilty (Kirshner 2009). An approach that concedes the significance of globalization but asks how states try to maximize their relative advantage in such a world is more fruitful than the current realist gambit of assuming the phenomenon away.

With some notable exceptions (Ikenberry, Lake and Mastanduno 1988; Gilpin 2001; Abdelal 2001; Brooks and Wohlforth 2000/01; Helleiner 2002), realist research has also failed to incorporate domestic politics, or other non-third image variables, into its analysis of foreign economic policy. This is curious for several reasons. First, the overlap between international political economy and comparative political economy has undoubtedly increased over time. The rest of IPE scholarship has certainly embraced the use of second image variables (Frieden and Martin 2002). Second, realists have had no trouble incorporating second image variables into their work on security studies. Multiple variants of realism have factored in domestic interests, domestic institutions, bureaucratic politics, and ideational variables in order to explain national security policies (Snyder 1991; Rose 1998; Mearsheimer and Walt 2007). They have incorporated so many of these variables into their security work that some scholars have questioned the internal consistency of the realist paradigm (Legro and Moravcsik 1999).

This is especially puzzling because the first generation of realist IPE scholarship was quite comfortable with the inclusion of domestic politics within their explanations. Krasner (1976) posited that powerful domestic interests could act as a constraint to prevent great powers from altering their foreign economic policies in response to shifts in the distribution of power. Gilpin (1981) identified citizen resistance to lowering consumption rates as one factor that contributes to the rising costs of hegemony. In the 1970s, there was interest in idea of treating state strength as a variable rather than a constant (Katzenstein 1978). Gilpin (2001:3) acknowledges the need to consider the domestic dimension in explaining the foreign economic policies of great powers; few realists have followed his lead.

The final reason for the failure of realism to maintain interest in IPE has been the reluctance to embrace the methodologies currently used in the subfield. As Maliniak and Tierney (2009:19) observe, an increasing fraction of IPE journal publications have used the now-standard techniques of economics: formal models and econometric tests. Lake (2006) hails the dominant paradigm of “open economy politics,” built on the foundations of microeconomics. These intellectual currents mirror the shift in the training of graduate students in IPE towards rigorous quantitative and formal methodologies (Farrell and Finnemore 2009). Realists have been far more skeptical about the utility of rational choice models (Walt 1999). They place a greater value on qualitative research into “big” case studies (Van Evera 1997). In looking at the IPE literature, realists have lamented the ways in which IPE scholarship has adopted the methodological tropes of economics – what Cohen (2008) labels “economism.” Kirshner (2002:165) argues that, “it is time to ask ourselves why more and more dissertations and books now begin with predictable methodological incantations, without always making clear the role of such methodological pirouettes, impressive at times as they may be, in helping the author make his or her case.”

To be sure, the disdain is mutual. Economists have treated non-formal international relations scholarship with condescension (Eichengreen 1989). Some rational choice scholars have written about realism with undisguised contempt (Niou and Ordeshook 1999). Non-realist scholars in IPE have also expressed concerns about methodological narrowness in the field. They concur with realists that the study of IPE has moved towards a “monoculture” of formal models and econometric techniques (Farrell and Finnemore 2009; McNamara 2009). The degree of mutual hostility has led to a breakdown in the exchange of ideas and criticism across paradigms. The resulting dialogue of the deaf serves neither the subfield in particular nor social science in general particularly well.

The future of realism and mercantilism

Realist IPE scholarship is perceived as endangered at precisely the moment when scholarly interest in the global political economy is on the increase. As a general rule, the study of global political economy gets more interesting during downturns. If that rule continues to hold, then the study of IPE is suddenly very interesting indeed. There are ongoing debates over the future of U.S. hegemonic power in the global economy, and how the rise of China and other BRIC economies will alter the current rules of the global economic game (Brooks and Wohlforth 2008; Mahbubani 2008; Bowles and Wang 2008; Mastanduno 2009). Debates are raging about the future of the dollar as the world’s reserve currency, and the nature of monetary power in a globalized economy (Andrews 2005; Kirshner 2008). Real world conditions are demanding efforts to answer “big questions” in IPE (Keohane 2009). The time would seem to be propitious for a realist revival in the study of the global political economy.

At the same time, realist scholarship will need to make some intellectual adjustments in order to avoid being perceived as a degenerative research program. Obviously, realists cannot and should not get rid of their core assumptions. Nevertheless, when trying to explain foreign economic policies, the paradigm needs to pay greater attention to state-level variables that emanate comparative political economy. Gilpin (2001) has pointed the way, building on List’s (1856[1841]) “national systems of political economy” in order to derive state preferences. If realists could incorporate insights from historical institutionalism (Thelen 1999) and the varieties of capitalism literature (Hall and Soskice 2001) into their models, they would likely develop more fruitful lines of inquiry in IPE. Helleiner (2002) also gets at this in his discussion of economic nationalism.

Integrating this research would also allow realists greater comfort with economic methodologies, without being subsumed by them. The realist paradigm and rational choice methodologies are not incompatible. While realists are unlikely to ever be significant producers of formal and econometric research, they must be intelligent consumers of these methods. Similarly, if realists took a greater interest in the history of economic thought – particularly the ebbs and flows of mercantilism – they might be better placed to engage constructivist scholarship on the role that ideas and norms play in the global economy.

In reconsidering their research agenda going forward, realists might need to find ways to link up to modern mercantilism. As previously noted, current work on economic nationalism largely operates in the Keynesian vein of promoting domestic autonomy. Ironically, the best way for realism to maintain its relevancy might be to reconsider the relationship with its much older conceptual cousin.


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Links to Digital Materials

Google Books. The copyright on most original mercantilist texts has long expired, and Google has uploaded many of these books. They are freely available for quick access and downloading, and are searchable by keyword. At http:/


I am grateful to Benjamin J. Cohen, Henry Farrell, Douglas Irwin, and Renee Marlin-Bennett for their feedback on a prior draft. The usual caveat applies.