The 'Public Sphere' and Public Life.

The notion of a ‘public sphere’, developed in the work of Jürgen Habermas (1974), is an important touchstone for social theorists of democracy and public life.   It has given rise to a critical literature that engages with the concept of a ‘public sphere’ and seeks to assess its historical validity and contemporary relevance. This discussion has developed parallel to wider debates on the public/private distinction, the interrelationship between the public realm and private life , and the organization of public and private spaces.  The present review will group the literature in terms of approach and delineate common points of analysis and areas of contestation, moving onto a detailed analysis of selected texts that can offer guidance for future research on the contemporary utility of the concept of the ‘public sphere’.

Human Rights and Cultural Relativism.

The modern view of human rights is the result of successive struggles within Western society. Hence, in historical terms, human rights are a ‘Western’ construct. However this does not undermine the claim of cross-cultural validity, but merely problematizes the issue of cultural rights and their relation to the universal claims of the human rights tradition. This tension and the normative variety of cultural relativism have been crucial points of contestation in human rights theory. Thus, the extent to which human rights are inherently ‘Western’ in character is of vital importance to their practical implantation across cultural divisions. To address this issue, the historical origins of human rights will be briefly sketched and their cross-cultural legitimacy will be evaluated to determine the appropriate cultural designation of human rights.

The question of historical origin, Micheline Ishay argues, is complicated because selection of this point ipso facto “privileges a specific status quo or value-system” and can be used to legitimize and delegitimize historical actors. Following this, the cultural antecedents of human rights and their compatibility with previous value-systems both within and outside Europe has caused considerable contention. However, the intellectual crystallization of both human rights and cultural relativism originate in Europe. The human rights tradition developed out of the intellectual, socio-economic and political transformations of the Enlightenment period and the antecedents of normative cultural relativism can be partially sourced from the birth of cultural nationalism with the consolidation of Germany and Italy in the early 1870s. In this sense, both human rights and cultural relativism are ‘Western’ constructs. However, Jack Donnelly contends that modern human rights are the product of and reaction to abuses prevalent in modernity.Ergo, the development capitalism and bureaucratic nation-state is the vital fulcrum in the evolution of human rights and not the special qualities inherent in pre-modern ‘Western’ value-systems. Furthermore, the spread of both capitalism and nation-states throughout the globe generalises a similar set of abuses that gave rise to the human rights tradition in Europe. Donnelly’s argument is an attempt to firmly ground universal human rights without reference to universal anthropological or ontological claims that he finds empirically indefensible.


The weakness of such universalisms can give credence to normative cultural relativism that is diametrically opposed to the modern conception of human rights. He argues, given a unique historical confluence, that human rights represent the best means to combat threats to human dignity, despite the fact of cultural relativity. In defence of universal human rights claims, Donnelly offers several criticisms of cultural relativism and empirical arguments that attempt to demonstrate the “relative universality” of human rights.


Cultural relativism can be conceptualized in two broad forms. The term cultural relativism was first employed within the discipline of anthropology and referred to a methodological approach to the problem of cultural relativity and ethnocentric biases that undermined objective analysis of different cultures and value systems. Thus, from this methodological approach cultural systems can be analysed in their own terms to ascertain the functional interplay of social practices. From a normative perspective, cultural relativity is given moral force and cross-cultural moral evaluation is reduced to the status of reproducing ethnocentrism. Moreover, claims to universal human right would represent a form of cultural imperialism and signpost the hegemony of the West. From a pragmatic standpoint, cultural relativism provides no means to arbitrate between competing rights claims in a cross-cultural international system. However, this does not imply that cultural relativism is false, per se, but empirically grounded arguments can demonstrate the widespread appeal of human rights and historical tendencies that propel universal human rights claims across cultural divisions.


There is prima facie evidence for the cross-cultural validity of human rights in the widespread adoption of human rights language throughout the globe and the development of non-western human rights organizations. In view of this, Michael Goodhart has argued that human rights need not be grounded in a conception of universality, the continued proliferation of human right’s influenced discourse and organizations testify to its cross-cultural validly beyond its origin in Western Europe. Donnelly moves beyond this prima facie evidence and attempts to ground human right in a “relative universality” that leaves space for “second order claims of relativism”.


Unlike traditional Enlightenment philosophy, that often based rights claims on an a priori conception of the autonomous individual, Donnelly’s appeal to universality is circumscribed by historical contingencies. With the development of capitalism, the nation-state and the rise of the bourgeoisie class rights claims were advanced to counter the traditional authority of the aristocracy and monarchy. The success of these initial claims to rights propagated further rights claims for the advancement of marginalized groups. Karl Marx noted that universal suffrage, a political right, was essentially a “socialistic” measure, so much more than political events on the continent. Thus, with the spread of capitalism and nation-states a case can be made for what Donnelly called “functional universality”, human rights amounting to the best functional response to these transformations. Moreover, the universalism of human rights allowed for the critique of existing conditions relative to normative standards. In fact, human rights discourse has been invoked to redress the excess of power exercised by Western powers in the international system.


The process of decolonization that occurred in the aftermath of the Second World War was often lead by figures educated in the Western tradition of rights. Thus, as Ishay notes, human rights has often been adopted as the language of resistance to power and cultural relativism is adopted to redress marginal groups inability to gain access to social, political and economic rights. In this sense, cultural relativism is one strategy to redress the failure to extend human rights to marginalized groups. Both the human rights tradition and cultural relativism are of European origin. However, both are adapted and adopted by non-western societies and therefore cannot be considered exclusively western.


The European origin of human rights is a historical fact, from the intellectual fervor of the Enlightenment and the socio-economic and political transformation that brought forth the capitalist market system and the nation-state, the human rights tradition developed to combat threats to human dignity and curb excesses of arbitrary power. However, as Donnelly argued, “cultures are immensely malleable” and the development of human rights stemmed more from the problems inherent in modernity than the uniqueness of pre-modern Western culture. The spread of capitalism and nation-state has led to similar threats to human dignity worldwide, in light of this, human rights as conceived of in the Western world have developed a level of functional universality and need not be grounded in universal anthropological and ontological claims. The fact of cultural relativity need not necessarily attain normative power; cultural relativism is often the maladaptive response to failures to extend human rights. Moreover, the use of human rights discourse to resist Western power and the spread of non-Western human rights organization further bolster the argument that human rights are not an inherently Western construct, despite their historical origins.

Written by Mathew Toll.

Bibliography.

Donnelly, Jack. (2007), “The Relative Universality of Human Rights”, Human Rights Quarterly, Vol. 29, No. 2, pp. 281-306.


Cmiel, Kenneth. (2004), “The Recent History of Human Rights”, American Historical Review, Vol. 109, No. 1, pp.117-135.


Goodhart, Michael. (2008), “Neither Relative nor Universal: A Response to Donnelly”, Human Rights Quarterly, Vol. 30, No.1, pp. 183-193.


Ishay, Micheline. (2004), “What Are Human Rights? Six Historical Controversies”, Journal of Human Rights, Vol. 3. No. 3, pp.359-371.



Pegram, Thomas. (2010), “Diffusion Across Political Systems: The Global Spread of National Human Rights Institutions”, Human Rights Quarterly, Vol. 32, No. 3., pp. 729-760.

Carbon, Tradable permits and Pigouvian Taxes.

The Stern Review of the Economics of Climate change has identified greenhouse gas emissions as the greatest market failure in history. Carbon dioxide (CO2) emissions are a leading cause of climate change and have been targeted by government and non-governmental organizations as an area of grave policy concern. Policy proposals to ameliorate CO2 emissions have centred around two broadly based methods: “ economic instruments” and “command and control regulations”. The adoption of economic instruments to regulate the problem of CO2 emissions can entail either the introduction of market mechanisms to price emissions and allocate the right to emit limited quantities of CO2, or price-based instruments such as tax regimes and subsidies. Command and control regulations are policies that involve direct government interventions into the forms of practices surrounding CO2 Emissions, from technological standards to performance targets. The mainstream economics literature on policy instruments has largely been couched in terms of economic efficiency according to marginalist principles. Ecological economics developed in opposition to the neoclassical approach and prioritizing the needs of the ecological system above short-run economic efficiencies. The environmental economics case for an emission trading system and carbon permits face two broad stumbling blocks. Firstly, from within neoclassical economics there is the case for command and control regulation or a hybrid policy that combines such regulation with economic instruments and secondly, theories developed outside of the neoclassical paradigm question its validity with regards to ecological sustainability.

In environmental economics, the problem of externalities and the issue of carbon emissions are often approached from two divergent perspectives influenced respectively by the work of Arthur Pigou and Roland Coase. Both advocated the use of economic instruments to reconcile social and private goods and overcome market failure. However, the tradition stemming from the work of Pigou heavily favoured price-based instruments (i.e. taxes) and the tradition that derives from the work of Coase favoured quantity-based instruments (i.e. tradeable permits). The relative merits of price and quantity based instruments have been a central nexus of environmental policy debates within neoclassical informed discourse. Prior to the work of Coase, Pigou’s position taken in The Economics of Welfare generally informed the discussion of environmental externalities.

Pigou’s approach to internalizing environmental externalities was by the imposition of a tax equal to the marginal social cost of the externality. The standard example of this, according to Coase, was of a factory emitting smoke that affected nearby residences. From the principle of polluter pay, central to Pigouvian taxes, the solution is to make the factory liable for the damages. However, from the perspective employed by Coase, this is not necessarily the most economically efficient solution to the problem of environmental externalities. The clear delineation between offender and victim that is exemplified in the polluter pay principle is therefore not unproblematic in Coase’s treatment of externalities. He argued that the problem was essentially reciprocal in nature. From Coase’s viewpoint, the above factory example is not merely a matter of the factories effect on the residences, but also the effect of the residences on the factory. Economic activity is often associated with positive and negative externalities; pollution from the Coasean perspective implies both utility and disutility. Therefore, with regards to externalities, the economic problem as conceived by neoclassical economics still applies: “how to maximise the value of production?” Coase’s proposed solution to the problem of externalities and imbalances between marginal costs and marginal benefits caused by such market failures is to introduce tradeable property rights to price and allocate resources efficiently. Emissions trading schemes are informed by the logic of Coase’s argument for tradable property rights and an economically efficient method to internalize environmental externalities.

The selection between quantity based and price based instruments to deal with environmental externalities is often defined by the nature of the externality. The cost associated with abetment and the social costs associated with the continued market failure at different levels of production have to be taken into account. Moreover, uncertainties with regards to the underlying scope of the externalities and information asymmetries within the market place and governmental bodies influence the policy instruments selected. Martin Weitzman’s work on the relative merit of price and quantity based instrument influenced the Stern Review on merit of adopting quantity based instrument such as emissions trading scheme to abate global climate change. Weitzman had concluded that price based instruments are beneficial when the price of mitigation is more pertinent than quantity of pollution. Conversely, when the cost of increased pollution levels outweigh the relative cost of abetment quantity based-instruments are preferable. The prospect of global climate change caused by the proliferation of greenhouse gasses and the resultant greenhouse effect renders the level of emissions crucial. Increased levels of CO2 emissions could lead to tipping points and feedback loops that could drastically increase global temperatures that would adversely impact numerous ecosystems. Consequently, given the cost of increasing emissions, quantity based instruments have been recommended to mitigate the market failure of CO2 emissions and other greenhouse gasses.

The economic arguments rendered by Coase and Weitzman in favour of quantity based instruments to that of Pigouian taxes are augmented by a theory of government failure. F.A. Hayek argued for the superiority of the market in conditions of imperfect information. When conditions of imperfect completion prevail, the determination of economic organization rests upon the ability to efficiently utilize information. From Hayek’s perspective, the implementation of Pigouvian taxes would require that governments have information of the individual production functions of firms. Whereas, by employing quantity based instruments, governments can set the level of desired outputs and allow the firms to find the most cost-efficient method of production. The economic rationale for the adoption of quantity based instrument, such as the tradable carbon emissions permit, is that they theoretically provide the most cost effective and least uncertain method of internalizing environmental externalities.

Tradable permit schemes have been successfully adopted to deal with negative environmental externalities in the past. In 1990, the United States’ legislature passed amendments to the clean air bill which established an emissions trading scheme for the emission of sulphur that had lead to widespread acid rain in the 1980s. The stated goal of the scheme was to reduce sulphur emission by 10 million tons annually through the gradual reduction of permit allowances. Before the introduction of the program, prices per allowance were predicted at $300 per permit, the actual average cost early in the program was $100 per allowance. This is evidence that the cost of emissions reduction was miscalculated by planner and that individual firms found a more cost efficient method to reduce emissions given the prospect of having to purchase permits. However, the problem of sulphur emissions and the issue of global climate change differ considerably in scope.

In mainstream environmental economics, the argument advanced either for quantity and price based instruments is crouched in the logic of the marginal principle and partial-equilibrium analysis. This is both a policy benefit and pitfall. Unlike local externalities, such as the smoke from a factory irritating local residences, carbon emissions and the prospect of global climate change affect the entire economy and ecological systems. Both Coase and Pigou’s analysis of the problem of social and private goods are subject to this weakness of scope. However, carbon permits could provide the intermediate means to signal the need to transform the economy to a low-carbon state. The economic case for carbon emission provides a rationale that preferences economic efficiency above that of ecological sustainability. Intuitively, there should be no divergence between these two goals, however, the problem of uncertainty remain whatever policy measures are adopted to address the issue of climate change and carbon emissions.

Written by Mathew Toll.

Bibliography.

Coase, R.H. (1960), “The Problem of Social Cost”, The Journal of Law and Economics, Vol. 3, pp. 1-44.

Harris, Jonathan M. (2006), Environmental and Natural Resource Economics: A Contemporary Approach, Boston; Houghtoni Mifflin Co.

Helm, Dieter. (2005), “Economic Instruments and Environmental Policy”, The Economic and Social Review, Vol. 36, No. 3, pp. 205-228

Hepburn , Cameron. (2006), “Regulation by Prices, Quantities, or Both: A Review of Instrument Choice”, Oxford Review of Economics Policy, Vol 22, No. 2, p. 226-247.

Koldstad, Charles D. (1999), Environmental Economics, New York; Oxford University press.

Mckibbin, Warwick J. and Wilcoxen, Peter J., “The Role of Economics in Climate change Policy”, The Journal of Economic Perspectives, Vol. 16, No. 2, pp. 107-129.

Stern, Nicholas. (2006), Stern Review of the Economics of Climate change, Cambridge; Cambridge University press.

Liberalism and Colonialism.

The first major wave of European colonization was initiated after the discovery of the Americas by Columbus in the late 15th century. The Colonization of these new lands was at first justified by the catholic nations as their duty to proselytize Christianity. Therefore their domination of the indigenous population was alleged to be of a great service to them, saving their souls from eternal damnation. This ‘Civilizing’ project was also used in an adapted form by British liberal political philosophers to justify their nation’s own colonization and empire building. Liberalism is a political philosophy that developed during the age of Enlightenment, noted for its ideals of individual freedom and rights. Two of Liberalism’s most prominent advocates; John Locke and John Stuart Mill supported the practice of colonialism. The rationalization of colonialism by Locke has been argued to represent the bankruptcy of western liberalism and its purported universal respect for human rights. To ascertain whether colonialism does demonstrate the bankruptcy of liberalism it first has to be established what colonialism constitutes and it’s development. Furthermore, liberalism needs to be more thoroughly elucidated with special attention paid to how Liberals justified colonial expansion.

Colonial expansion has a long history within European society. The Hellenic city states occupied a small territorial region. When population pressures increased, a segment of the populous established themselves in another area (Smith, 1991, p.493). The settlers were autonomous from their city of origin, declaring war independently and conducting its own administration. The Roman Republic implemented a modified form of colonial expansion, sending poor freeman to settle colonies with restricted autonomy (Smith, 1991, p. 495). The establishment of colonies gave poor Roman citizens economic opportunity. But they also functioned as garrisons in conquered localities, further expanding the Roman Republic’s sphere of influence. Colonialism came to denote an expansion of one nation’s territorial domination, through settling and displacing natives or directly administering the newly incorporated territory.

European Colonization was justified via ethnocentric conceptions of what is a human-being and how individuals and societies should function. Originally the Spaniard’s conceptualized the Native Americans as non-human; they had human form according to the Catholics but had the nature of beasts and consequently were “savages” (Parekh, 1997, p. 174). This distinction between Europeans and Native Americans, as human and non-human established a racist underpinnings of colonialism. Therefore under this racist ideological belief system the natives had no rights to life or property (Parekh, 1997, 175). During the initial period after European discovery of the Americas, the Spaniards technique for the expropriation of gold was to pillage it from the natives, a process which was totally completed within a decade (Smith, 1991, p. 499). Later Christians started to re-conceptualize the nature of the native population, observing that they had religious inclination and therefore had a human-essence however misguided and imperfect (Parekh, 1997, p. 175-6). The savage’s misguided and imperfect ways were cryptic-Christian. According to this logic, their conversion to Christianity in the proper sense would be an accomplishment of their “deepest aspirations” (Parekh, 1997, p. 177). This European enforcement of what constituted, the proper lifestyle on the natives marked the beginnings of the civilizing project, which was later adopted by liberalism.

A fundamental proposition of classic liberal philosophy is that human-beings are above all individuals, defined by this quality of individuality above collective identities (Heywood, 2002, p. 43). Liberals therefore insist upon the notion of individual rights and freedom to pursue their own ends as far as their action doesn’t impede another individual from doing the same. Governments which employ the tenets of liberalism must base their authority on “the consent of the governed” maintaining “equality before the law” (Heywood, 2002, p.44). When Good Government is instituted, each individual is therefore in accordance with their nature free to pursue their own development and self-actualization. This conceptualization of the optimal form of government is based upon a theory of the individual; Locke considered human-beings to be endowed with certain essential features (Parekh, 1997, p. 181).

The highest quality of human-beings, as postulated by Locke was their inheritance of reason, which differentiated them from animals (Parekh, 1995, p. 83). This hierarchy of beings, between those who have reason and beasts that don’t, was the basis of human dignity. As such human-beings have a duty to utilize their reason, to approach their interaction with nature and other individuals on a rational basis. To be rational according to Locke was to be productive and take advantage of natural resources to there full capacity. The application of this rationality was evaluated by Locke according to ethnocentric conceptualizations of society its notion of; private property, production optimization and political organization (Parekh, 1997, p.182).

For individuals to fulfil their rational duty they needed private property which leads, in the liberal view, towards individual freedom and industry. The Native Americans lacked private property, their land was left vacant and unenclosed, therefore it could be expropriated by civilized nations (Parekh, 1997, 183).The nature of enclosures were defined in a European sense with the use of fences and barriers that clearly marked the demarcation between properties. The Native Americans delineated between territories, but not in a way recognizable to Europeans (Parekh, 1995, p.85). Even in localities where properties were clearly defined with symbols recognizable to the European gaze, it was not adequate enough for Native American ownership to be respected. If they did not utilize their enclosed lands to maximum efficiency, they were guilty of not fulfilling their duty of rationality. The practice of letting crops decompose every three years, to enrich the soil was considered by Locke to be a waste of resources and consequently a violation of their duty (Parekh, 1995, p.85).

This same argument, of not utilizing land to its optimal efficiency, was used to justify the British colonization of Australia and displacement of the indigenous populations (Yarwood, Knowling, 1982, p. 15). Though even in Europe there were vast geographical regions left empty and vacant, which were not utilised to their maximum efficiency. Locke did not consider these areas as open for colonisation by other nations (Parekh, 1995, p. 86). The key distinction between an uncivilised and civilised nation’s vacant territory was the issue of political organisation and sovereignty. The Native Americans lacked a centralised form of authority in a European sense of a nation-state (Parekh, 1997, p. 183). The liberal argument that the Native Americans “state of nature” allowed for European intervention was couched in moralistic terms. The civilising project, would bring to the uncivilised population great benefits, and Locke thought in that the future the Native Americans would “Think themselves beholden” to the colonizers (quoted in Parekh, 1995, p 88). These notions of European superiority were often rooted in racism and the civilizing project was not always accepted as viable because of the postulated deficiency of non-European races (Jose, 1998, p. 42).

Concurrent with the claim of racism, colonialism and liberalism’s notion of a ‘civilizing’ project often neglects the harsh realities of European colonization. European intervention and colonization was not based on a moral duty, rather it resulted from unequal power-dynamics which enabled European states to appropriate the territories of political societies incapable of holding them. This is an extension of the European state-system, functioning around a “balance of power”, where the sovereignty of a nation was respected in so far as the central authority could maintain control over their territory, quelling internal strife or the incursion of another state (Jones, 1985, p.108).

The Native Americans and other populations displaced by European colonization did not have sufficient ability to resist the aggression and territorial incursion. In Locke’s evaluation British colonialism was in contradistinction to the earlier Spanish colonialism humane. The British respected the indigenous population’s natural rights, as Locke had conceived them. If indigenous people resisted the expropriation of their lands though, it automatically rendered their individual rights invalid (Parekh, 1997, p. 88). Liberalism’s dichotomy between individual and collective rights, of ‘respecting’ the former but not the later, in practice renders both defunct. Consequently the costs in human-lives incurred by non-European populations as a result of colonization were colossal. The Dutch controlled Banjuwangi in Java, which had a population larger then 80,000 in 1750 but by 1811 the area had been depopulated to such an extent that only 18,000 remained (Marx, 1986, p. 704). In India the British between the years of 1769 and 1770 “manufactured a famine” by buying the rice supplies in total, selling it again for exaggerated prices (Marx, 1986, p.705). This Tragedy arises from a system of thought, which tests forms of governance through economic experience (Foucault, 1997, p. 76). Locke’s notion of rationality, especially the optimization of production is symptomatic of this test.

Locke’s defence of Colonialism offers ample opportunity to evaluate Western Liberalism. Modern Colonialism was defined as having the key characteristics of one nation’s territorial domination of another locality through the displacement or rule of the indigenous population with the concurrent settling of the territory. European colonization of the new world and other territories was justified by ideological systems. Christianity and Liberalism, both holding in common the belief in European Superiority were used to rationalize colonialism. This ethnocentric belief in European superiority and the dichotomy between the civilized world and the savages has often been characterized as racist. The original Christians to inhabit the new world did not consider the natives human. This later belief was later abandoned but the belief in their inferiority continued. Liberalism sought to give an explanation and justification of colonialism. Locke, as a representative of this school considered human-beings as endowed with essential characteristics. The most important of which was reason. This separated humans from animals; and as such individuals have a duty to utilize reason which should inform their interaction with nature and other human-beings. A rational society according to Locke supported the rights of individuals above all, supporting private property as a means of self-actualization, the realization of humanity’s inherent nature. Non-European societies which did not conform to European notions of private property, production optimization and furthermore political organization forfeited their collective rights. Individuals retained their rights in so far as they did not defend their collective rights of ownership over land appropriated during colonization. Therefore though liberalism in theory supported native individual rights, in practice they had no rights. But Locke supposed that colonization, even if it undermined collective rights held benefits for the non-European populace through introducing rationality. This idyllic picture of colonization as a progressive force was merely a rationalization of European dominance and exploitation. Consequently Liberalism’s historical record in relation to colonialism has rendered it severely compromised, when it justified the authority of governments over basic human rights.

Written by Mathew Toll.

Bibliography.

Parekh, B. (1995), “Liberalism and Colonialism: A Critique of Locke & Mill”, Decolonization of Imagination: Culture, Knowledge and Power, Edited Pieterse, J.N. & Parekh, B. London, Zed Books, pp. 81-98.

Parekh, B. (1997), “The West and its Others”, Cultural Readings of Imperialism: Edward Said and the Gravity of History, Edited Parry, B. & Squires, London, Lawrence & Wishart, pp. 173-193.

Foucault, M. (1997), “The Birth of Biopolitics”, Ethics: Subjectivity and Truth, Edited Rabinow, P. St Ives, Penguin Books.

Heywood, A. (2002), Politics, (2ed), China, Palgrave Macmillan.

Jones, E.L. (1985), The European Miracle: Environments, economies and geopolitics in the history of Europe and Asia, USA, Cambridge University Press.

Jose, J. (1998), "Imperial Rule and the Ordering of Intellectual Space: The Formation of the Straits Philosophical Society.” Crossroads:An Interdisciplinary Journal of Southeast Asian Studies, 12(2) pp. 23-54.

Marx, K. (1986), Capital: A critique of political economy, Vol 1, Edited Engels, F. Trans Moore, S. & Aveling, E. Moscow, Progress Publishers.

Smith, A. (1991), The Wealth of Nations, London, Everyman's Library.

Yarwood, A. T. Knowling, M. J. (1982), Race Relations in Australia: A history, Singapore, Methuen Australia.

(Writte mid-2007).

A Quick Take on Ricardo’s Theory of Comparative Advantages.

Adam Smith’s famous analogy of the “invisible hand” was first articulated in regard to the superiority of the market in comparison with import tariffs to protect and augment the national economy. However, Smith’s discussion of the benefits associated with free trade between nations was limited to the theory of absolute advantage. Put simply, if another nation can produce a commodity more efficiently than your own, it is more advantageous to trade then to continue on with inefficient industry. It wasn’t until David Ricardo developed his theory of comparative advantages that free trade between countries came to be considered beneficial in a wider number of contexts. Even if there is no complementary absolute advantage, in terms of inverse production superiorities, Ricardo argued, it can still be more profitable for both parties to trade. The theory of comparative advantages, given its wider applicability, is often taken to be the strongest liberal argument in favour of free trade. Those opposed to the policy of free trade have to contend with Ricardo’s essential argument, updated and reiterated through the neoclassical paradigm.

An originator of the “neoclassical synthesis”, Paul Samuelson, has expressed the view that the theory comparative advantage is one theory which is true, but not immediately agreeable to intelligent observers of economic theory. Smith’s theory of absolute advantage appears manifestly self-evident, while the Ricardian model requires more explanation. Ricardo made the counter-intuitive argument that, even without absolute advantage, there is still an incentive for a nation to specialise its production and engage in international trade. For Smith, the inducement to trade was based on clear cut differences between productive capacities. He likened international trade to the transaction between a tailor and a shoemaker: if the tailor required new shoes, he is better suited to mend cloth and exchange a portion of his income for the shoemaker’s services, rather than attempt to make the shoes himself. For Ricardo, however, the inducement to trade can also be affirmed upon the basis of relative productivity. The classic example Ricardo used, was a two commodity model: trade between England and Portugal in cloth and wine.

In Ricardo’s example, Portugal has an absolute advantage in both the production of cloth and wine. In order to produce a standard quantity of wine, Portugal employ’s the labour of 80 men and for the same output England puts to work 120 men. England fares no better with cloth, to produce the set quantity of cloth she requires the labour of 100 men, compared to Portugal’s 90 men. According to the theory of absolute advantage, there would be no inducement to trade with England given Portugal’s superior productivity in both commodities. From the perspective of comparative advantage though, the motivation lies in relative productivity. If England were to specialize in the production of cloth, and Portugal in wine cultivation, both England and Portugal would make available 20 labours per standard unit of production, than if each had retained both wine and cloth production.

Without a doubt, Ricardo’s theory of comparative advantage is a clear advance upon Smith’s theory of absolute advantage. Nevertheless, doubt can be expressed as to if Ricardo’s theory is a conclusive argument in favour of free trade. The theory is limited in many aspects, two major flaws are that; the benefits of specialization are gained once, and therefore, Ricardo’s model neglects to calculate the long-term outcomes of economic restructuring, moreover, Ricardo assumed that capital was largely anchored to national economies, but in the current age of globalization (or perhaps, more accurately regionalization) capital is no longer fixed within national boundaries. These two concerns are related to the issue of economic power. One consistent criticism of free trade has been that it favours those with a dominant position in the international economy. The German economist Friedrich List went so are as to argue that, if free trade had been introduced in the heyday of the Hanseatic League, Germany and not Briton would have been the dominant economic power in the 19th century.

The history of industrialization and the experience of underdeveloped nation provide the context necessary to evaluate Ricardo’s theory of comparative advantages and the ostensive advantages of free trade. In light of his theory of comparative advantages, Ricardo recommended that countries specialize in the production of commodities that lead to an optimization of their labour productivity. In Ricardo’s example, Portugal had both an absolute advantage in wine and cloth, but given the ratios between Portugal’s and England’s productivity Portugal’s immediate advantage was to specialize in the cultivation of wine . Similarly, many nations endowed with great natural resources and therefore a comparative advantage in the production of agriculture and raw materials would be wise to specialize in such endeavours according to the theory of comparative advantage. However, as noted by H. W. Singer, there has been a tendency for the terms of trade for raw materials and agriculture to decline relative to manufactured goods. Specialization in agricultural production would provide an initial spurt of growth, but in the long run, such specialization would be inimical to the nation’s economic prospects.

Written by Mathew Toll.

-References-

Krugman, Paul R. and Obstfeld, Maurice. (2003), International Economics: Theory and Policy, sixth Ed, Boston; Addison Wesley.

List, Friedrich. (1885), The National System of Political Economy, Trans Sampson S. Lloyd, London; Longman, Greens and co.

Ricardo, David. (1933), The Principles of Political Economy and Taxation, London; J.M Dent & Sons LTD

Singer, H. W. (1950). "The Distribution of Gains between Investing and Borrowing Countries." The American Economic Review 4(2): 73-485.

Smith, Adam. (1991), The Wealth of Nations, London; Everyman’s Library.

Neoclassical Economics and the Problem of Realization.

The Neoclassical School of economic theory emerged from a dissatisfaction with classical political economy and the labour theory of value. Critics of capitalism, from the Marxian tradition, had hijacked the precepts of the classical school to analyze the historical tendencies of capital accumulation and the stumbling blocks inherent within the process. In a maneuver which ostensibly undermined the Marxian conception of exploitation and therefore capitalism, the neoclassical school sought to explain economic systems in terms of markets and the arbiter of economic allocation, the price mechanism. From this focus, the neoclassical economists developed the theory of general equilibrium, under which the price mechanism (within a condition of perfect competition) is conceived of as self-regulating, self-adjusting and therefore a stabilizing apparatus. In diametrical opposition, the Marxian tradition of political economy characterizes capitalism in terms of instability, structural contradictions and disequilibrium. The current financial crisis and burgeoning recession provide the empirical material necessary to weight and contrast the contrary claims of these two competing schools on the stability of the capitalist economy.

Before a comparison with Marxian theories of capitalism is possible, the nature of neoclassical economics needs to be further delineated. In essence, neoclassical theory is a re-articulation of Adam Smith’s notion of the “invisible hand” and the self-regulating nature of markets in a “system of nature liberty”, distinguished however by the abandonment of Smith’s labour theory of value. Instead, neoclassical theory based itself upon a conceptualization of individuals and market forces augmented with the theory of marginal utility. The crucial nexus of these ideas is the neoclassical assessment of individual psychology.

The simple psychology of neoclassical economics is akin to the rational-calculations of the Machiavellian prince. The ultimate goal of the individual is the optimal satisfaction of their interests. Smith prefigured this psychological impetus when he argued that benevolence was not the prime-mover of economic production, but rather the individual’s gratification of their own interests . This selfish motivation and rational calculation underpins the neoclassical principle of marginal utility.

In contrast to the labour theory of value, the utility of a good or service was not determined by the amount of labour employed in its production, but rather from the benefit derived from the last unit purchased. Alfred Marshal noted that while wants maybe unlimited, each particular wants has a definite limit. Marginal utility diminishes with each extra addition of a product. If an individual acquires a chair, the utility of that single unit is higher then if he or she acquires ten. The first chair allows him to sit and each subsequent chair he acquires becomes less valuable given his main need for one is sufficed. The decline in marginal utility for each subsequent unit decreases the desire for another unit and is manifested in the reduced willingness to buy a given unit at prices unreflective of the decease in demand.

The relationship between supply and demand within the market is the crux of the price mechanism and the nexus which is said to converge towards equilibrium. The principle of marginal utility highlights the importance of supply and demand in determining the utility and therefore the price of a commodity. If a product is over-supplied than its marginal utility will be reduced and therefore the price will also be reduced. Conversely, if a product is under-supplied in relation to strong demand its marginal utility will be high and therefore it will command a high price on the open market. The point at which demand and supply meet is said to be the equilibrium price, but as Marshall noted the market is rarely static. For Marshall and the neoclassical school in general, the market is not stable in the sense of being motionless, but rather the market exhibits a tendency towards equilibrium. This tendency towards equilibrium is the sense in which capitalism, or the free market, is said to be stable by the neoclassical school of economics.

In sharp contrast to neoclassical economics, the Marxian school of political economy developed a conception of capitalism that asserts its fundamental structural contradictions, disequilibrium and tendency towards insatiability and crisis. For Marx and Engels, capitalism was marked by its instability and uncertainty deriving from the “constant revolutionizing of production”. This process, whereby capitalism continually renews and develops its productive capacities has been called “creative destruction” by Joseph A. Schumpeter. Whilst Schumpeter thought the basis of creative destruction was technological innovation and the search for profit by entrepreneurs, Marx emphasized push factors inherent in the process of capital accumulation and intra-capitalist conflict for the realization of surplus-value.

Antonio Negri and Michael Hardt have argued that the central nexus of Marx’s analysis of the necessarily expansionary character of capital is the “quantitative relationship between worker as producer and power as consumer of commodities”. Marxian theory fundamentally asserts the asymmetry of class relations between the bourgeoisie and proletariat. This is manifest in production and consumption. In order to accumulate capital and realize a profit the capitalist must extract surplus-value and complete the capital circuit by selling the product of production. Surplus-value is only realized if the price of the commodity outstrips the cost of production. Labour-power is but one component of the cost of production, but it falls upon the working-classes to buy and consume commodities that cost more than their wages to sustain capitalist profit and capital accumulation. Therefore, there is a structural disequilibrium between production and consumption within the process of capital accumulation.

The problem of realization in the guise of under-consumption is but one of a multiple of Marxian theories of capitalism’s instability and crisis. David Laibman outlined five different forms of capitalist crisis, whilst Simon Clarke has argued that there are no comprehensive “Marxist” theories of crisis. However, it is clear that the Marxian conception of Capitalism’s inherent instability is at obvious variance with the general theory of equilibrium and school of neoclassical economics. The reasons for the divergence between Marxian and neoclassical school of thought are manifold: ideological inflection, scope of inquiry and methodological approach all markedly different.

Methodologically, the neoclassical school is grounded in abstract modeling, while Marxian conceptualization are often more sociological and historical in their prejudices. Marxists and Neo-Marxists have often criticized the ahistorical and abstract nature of neoclassical theories and moreover asserting that it does not reflect actual economic conditions. Milton Freidman has argued in turn that it is not the assumptions of a model that are important, but rather its significance rests in the accuracy of its predictions. The current financial crisis and global recession provides a basis for the evaluation of each school upon the stability of capitalism.

The major proximal cause of the current financial crisis and credit crunch was the sub-prime crisis of early 2007. Interest rate increases caused an increased rate of defaults upon subprime mortgages. In turn, this lead to the collapse of many mortgage brokerages and banks faced with overwhelming bad assets. Of course, a spark without a powder keg is a non-event – an interest rate increase was not the course of the financial collapse –the roots of the financial crisis lay much deeper. Ultimately, the financial crisis is the result of a credit glut caused by structural imbalances in the world-economy and unsound banking practices designed to profit from an excess of cheap credit. For neoclassical economics in the proper sense, the current financial crisis is merely a severe market correction. Mortgage backed assets and collateralized debt obligations were over-priced by the market and firms which over-valuated their worth. From this point of view, there is really no crisis in purely economic terms, but a market correction. Marxian economics, which its focus upon the structural imbalances would see the current turbulence within the world-economy as validation of their general paradigm. Debt played a central role in the current crisis, and this can be construed as deriving from capitalisms fundamental asymmetry and instability. In order to propel the growth and capital accumulation of the years preceding the crisis, debt was acquired by many house holds and individual to bridge the gap between their livelihoods and the price of commodities. The problem of realization, therefore, is at the forefront of the current goal financial crisis.

The current financial crisis seemly give credence to Marxian claims about the instability of process of capital accumulation. Neoclassical economics give no explanation of crisis in terms of its endogenous character; this is because neoclassical economics limits itself to the analysis of price-mechanisms and the importance of supply and demand for market equilibriums. The financial crisis in view of this school is not a crisis, but rather a market correction. Neoclassical economics presents a rather myopic view of social dynamics given the limited basis of its analysis. Marxian political economy on the other hand seeks to understand economic instability in terms of inherent structural imbalance. This does not necessarily imply that capitalism’s collapses is inevitable, but does contradict the notion that free markets tend toward equilibrium. Both schools of thought have valuable insights to offer on the nature of markets and capitalism, but the Marxian analysis is better suited to understanding economic instability and crisis.

Written by Mathew Toll.

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