Political Regimes and Economic Markets

The world political economy established at the conclusion of the Second World War was built upon the primacy of the United States. This system has been gradually displaced by new world economic arrangements with multiple centers of power. Political economists have recently focused upon the factors influencing the emergence of such new “regimes.”¹ A “regime” may be defined as any set of arrangements which regulates the behavior of important actors in a given political or economic arena. Regimes reflect the realities of power and direct the patterns of political bargaining. Regimes may be more or less explicit in their rules and more or less institutionalized. For example, where the postwar Bretton Woods system represented a regime of explicit rules governing exchange rates, the current international economic regime relies on less formal coordination.

There has been a welcome shift in American foreign economic policy toward amore market-oriented, “laissez faire”approachwhich would reduce levels of state intervention in capital, currency, and trading markets. Nevetheless, in a “second best” world with mercantilist predispositions, the need for political agreements to forge a regime compatible as far as possible with the marketplace has become urgent. Students of this subject are particularly concerned with how a framework of rules and norms—more or less formalized and institutionalized—represents a type of constitutional order within which liberalized market relations can proceed. The rules of a regime help ensure stability of expectations and predictability of behavior, without which markets may deteriorate into monopolistic abuses or anarchic competitiveness.

Concern with the relationship between political order and economic markets is by no means a new field of inquiry. Political economists have long been aware of the inextricable relationship between regimes and markets in a less-than-perfect world. Certain variants of liberal economic thought, by contrast, have denied any necessary connection between political regimes and the operation of the marketplace. This essay will review several major insights of classical and contemporary theorists concerning the interrelations of regimes and markets in order to illustrate the urgent need for new arrangements and rules of good conduct in the modern world political economy. Inthe process, a list of features which are important for stabilizing expectations and conditioning economic exchange will emerge.

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A. Classical Political Economy and Market Regimes

During the period of unchallenged Keynesianism, the naiveté of classical political economy was frequently disparaged. The classical authors had, it was argued, clung tenaciously to the hopelessly simplistic optimism of the doctrine of a spontaneous “harmony of interests.” A contrary interpretation of classical political economy has emphasized the vital importance of the political regime as a precondition to any harmony of interests. A regime of social regulation—national, regional or international—may be the prerequisite for harmony. Karl de Schwcinitz has noted:

Unlike neo-classical economics, classical economics never was far removed from the social and political institutions which formed the framework of economic activity . . . the classical economists could not take the institutional framework of the economy for granted, simply because it too was being transformed. Especially could they not take for granted the maintenance of social order, so severe were the strains imposed on the community by the industrial revolution. The classical economists, therefore, were very much aware of the coercive relationships of economic and social organizations, and not inclined to apply freedom to the former indiscriminately. Adam Smith, for example, was not so far convinced of the harmony of interests in society that he lost sight of the coerciverole of the State.²

The State’s responsibility for guaranteeing order and for preserving the social fabric was potentially quite large within classical theory. The state’s role went beyond the very narrowly defined responsibilities of defense, the administration of justice and the provision of public works noted in The Wealth of Nations.

Much of the scholarship on Adam Smith focuses upon his role as the founding father of economic liberalism. Such studies emphasize the benefits which economic liberty can bring to a commercial polity. Only recently has more attention been devoted to the obverse, i.e.the effects of a commercial society in fostering a regime of economic liberty and justice.³ Smith was not an enthusiastic optimist in his vision of the likely consequences of commerce upon society. Indeed, his attention to the social and political consequences of economic progress and his insights into the necessarily political content of any stable regime for managing economic exchange, has occasionally earned him the labels of “historical pessimist” and “historical realist.”⁴ Smith’s predecessors—particularly David Hume and C.S. Montesquieu—also posited the close interdependence of political order, rule of law, social improvement and economic liberty, but for those authors the political and cultural conditions favorable to commercial progress arose naturally and spontaneously from the pacific and beneficent operation of free commercial enterprise.⁵

For Smith, on the other hand, order and good government must be constructedby political actors if capitalism is to thrive. For example, in his discussion of the “four stages” of historical evolution (hunter, shepherd, ancient republics and modern commercial-parliamentary regimes), the primacy of political factors over natural economic forces is a recurring theme. The evolution of commercial society out of feudalism requires that towns be established which enjoy autonomy from the feudal barons and allodial lords. This autonomy evolves as the sovereign grants various corporate privileges in return for political and military support against rival barons.

Once order and good government are established in the towns, the security which this affords encourages the accumulation of capital and more ambitious economic activities, especially in those towns with easy access to foreign markets and sources of raw material.⁶

Adam Smith, like Hume and Montesquieu, saw economic exchanges fostering desirable social character traits, due in part to the independence and sense of autonomy of town life. Nevertheless, he frequently warned that commercial society held a dangerous potential for new forms of social conflict, tensions and conspiracies pitting private interests against the public good.⁷ Manufacturing laborers experience a deterioration in mental capacity. Any sense of patriotism or public weal is corrupted. Martial and heroic virtues disappear, and even physical faculties are impaired. The proper agency for moderating this alarming degeneracy is the political regime.⁸

Smith’s definition of welfare went beyond mere income and consumption objectives to embrace as well more qualitative, cultural concerns such as character development and moral progress. In general, Smith’s treatment of the function of the State proceeds from a minimalist definition in abstracto to a much more extensive role, once empirical reality is taken into account. The Wealth of Nations as an abstract, partial equilibrium analysis suggests a harmony of interests and a minimal governmental role; but this minimalist position is revised considerably when the model is applied to actual historical realities.

For example, a critical component of any progressive commercial society for Smith is the security afforded by the impartial administration of laws. As property is accumulated, and the range and frequency of economic contacts grow, a judicial-legal regime creates a sense of predictability and alleviates those uncertainties which might otherwise jeopardize commercial market arrangements.⁹ Smith’s consistent attempt to differentiate his views of political economy from abstract, ahistorical Lockean “liberalism” resulted in Smith’s frequent reference to the concrete, political, legal, and social context governing market relations and ensuring property rights. Where Locke sees property rights in the abstract existing before the evolution of political regimes, for Smith property rights are bound up inextricably with the political-legal order, however rudimentary. In this Smith followed his mentor Hutcheson in adopting the distinction—familiar in Roman Law—between natural (or personal) rights and “adventitious rights” which come into existence only under regularized political and legal orders.

In short, State intervention to encourage predictability, ensure personal security and reduce entrenched privileges was acceptable, as was intervention wherever the market mechanism broke down. Beyond these provisions, the field of State responsibility broadened still more. Andrew Skinner recently noted in his discussion of Smith, that “There can be little doubt that a potentially wide field of activity opens up once it is admitted that the State should offset the social costs of economic growth.”¹⁰

Contrary to the charge that classical economy embraced an almost mystical faith in the spontaneous harmony of interests, the evidence clearly points to the need for state intervention to achieve an identity of interests. For example, the belief that Bentham had incorporated a theory of spontaneous identity of interests into his economics, while clearly providing for a substantial State role in the area of jurisprudence, has been revised under the impetus of Jacob Viner and Lord Robbins. Viner notes in his criticism of Halevy’s study of Bentham:

He (Bentham) did prescribe limits for the field of government intervention in economic matters, but these limits were not . . . very narrow ones, and in any case were not so narrow as to give scope for a doctrine of natural harmony of interests, in the sense of a harmony preordained or inherent in the nature of man living in a society unregulated by government. Of explicit formulation by Bentham of adoctrine of natural harmony, I can find not the slightest trace in his writings, and such a doctrine would be in basic conflict not only with his juristic theories but with his whole cosmological outlook.¹¹

Bentham also shows his historical sense in his observation (in the Manual of Political Economy) that the agenda of governmental action and responsibility will differ according to historical circumstances. In no case did Bentham rule out governmental interference on an a priori basis. Instead, as Lord Robbins has noted:

According to the principle of utility, as distinct from the Naturrecht, the expediency of any act of government must be judged solely out in advance by some metaphysical system of rights.¹²

The principle of utility then (as opposed to the more extreme natural rights theories of dogmatic free trade proponents such as Bastiat, Spencer, and Cobden) has proved to be more open to experimentation, and therefore more amenable to an expansive conception of the role of the State when circumstances require.

This basic contrast was noted by John Stuart Mill in his essay on Comte, wherein Mill drew a clear distinction between the English and the Continental theories of economic policy. Mill was, of course, a leading exponent of a broader role for the State in assuring the conformity of individual utilitarian behavior with general social utility. There persists throughout his work a qualified libertarianism which, in fact, is compatible with considerable governmental pressure to guide and cajole individuals to behave in accordance with the progressive development of the general public welfare. Like his mentors Smith and Bentham, and in opposition to the more extreme laissez fairepropositions of the followers of Benthamism (including his father), John Stuart Mill perceived the close interconnections between “self-regarding” and “other-regarding” behavior. He refused to embrace a hedonistic utilitarianism in vacuo which would minimize the role of the State in fostering socially responsible behavior by “individuals.” Mill’s libertarianism did not include a rejection of rules or laws per se,but only of such rules and laws as were grounded upon irrational custom or habit. (It should be remembered that the essay On Liberty was inspired by Mill’s outrage at the actions of would-be censors covering the exposed sexual organs of classical sculptures.) A body of regulations propounded by the State and internalized by State-directed educational indoctrination was quite compatible with, and, indeed, indispensable for, John Stuart Mill’s vision of a desirable system of economic liberty. Furthermore, in Mill’s view, the fostering of a cohesive and supportive fabric of national character was critical in the development of responsible, moral individuality. Indeed, a key criterion in Mill for gauging the consequences of any action in accordance with a utilitarian calculus was the tendency of that action to contribute to or detract from the objective of developing national character.

Some have quite properly perceived in this rather extensive potential role for the State the seeds of an unsettling “authoritarian democracy” in John Stuart Mill.¹³ It is not necessary to take a position on this debate in order to agree that the tradition of classical political economy from Smith to Mill reflects a continuing concern with the necessity of ordering economic relationships within a regime which guarantees the security and assists the full development of its participants. The protection of cultural and community values and national character was an integral component of the overall strategy of economic liberty in classical political economy, at least insofar as the domestic exchange process was concerned. Far from advocating hedonistic atomism, the classical economists clearly promoted the values of order, social cohesion, “national integration” and even patriotic democratic socialization as indispensable to the regime and to their laissez faireprescriptions.

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B. The Problem of Order and Security in Classical Political Economy: International Markets in the Manchester Tradition

While it is clear that liberal political economy theorists had accepted the notion that equality and liberty may advance in the context of State-supported agencies of order, education and guidance, this belief contains in itself no clear implications for the evolution of liberty and equality in the internationalsystem. Liberalism had from its earliest nineteenth-century origins accepted the State as an important agent for development, and the result of this acceptance of the State is a genuine ambiguity regarding the benefits of liberal free trade internationally. To what extent can principles of laissez faire, originally formulated in reference to individuals acting in a domestic framework of order and security, be applied as well to an international system which lacks precisely these essential preconditions of order and security? Guido de Ruggiero concludes his study of The History of European Liberalism by addressing the problem of applying principles derived from one set of domestic contextual assumptions to the quite different international arena:

There is a point beyond which the principles of liberty and equality, in their extension from the individual to the nation, cannot be applied. Above the individual there is a State, guaranteeing by its force the legal equality and freedom of all; above nations organized into States, there is no higher safeguarding power. Hence the freedom which with individuals takes the shape of rights, in the case of States undergoes no such transformation, and may be converted by the absence of any superior sanction into arbitrary action and the victory of the stronger. International society, with its liberal and moral convictions, certainly exercises a restraining influence upon outbreaks of license; yet the lack of a legal standard, and an authority expressly destined to enforce respect for it, renders the rights of nations precarious and often results in an appeal to the uncertain arbitration of the sword.¹⁴

One avenue toward the resolution of this tension between liberalism in its domestic and its international applications was simply to favor the interests of the nation and to question the applicability of free trade in a world of nation-States. Other solutions to the problem were, however, more typical. One could ignore the implicit tension between nationalism and internationalism or try to remove the tension by dissolving the nation in the solvent of international society, blurring any distinction between domestic and foreign policies. It is this latter trend which characterized many of the adherents of laissez faire of the Manchester School, and it is this trend which has exerted a continuing influence on contemporary analyses of international relations. This cosmopolitan tradition sees the facts of interdependence per se as constitutive of order and presumes the existence of an ordered and secure regime for the pursuit of mutually beneficial international economic intercourse.

The classical solution to the tension between communitarian values associated with the State and cosmopolitan values associated with free trade frequently and consistently favored the former. Lionel Robbins has emphasized that the consumption values which classical writers defended were always conceived in nationalistic, as opposed to cosmopolitan, terms. Robbins has refuted the charge that the classical writers professed an anti-national cosmopolitanism:

This consumption which was regarded as the end of economic activity was the consumption of a limited community, the members of the nation-State. To the extent to which they repudiated former maxims of economic warfare and assumed mutual advantage in international exchange, it is true that the outlook of the Classical Economists seems, and indeed is, more spacious and pacific than that of their antagonists. But there is little evidence that they often went beyond the test of national advantage as a criterion of policy, still less that they were prepared to contemplate the dissolution of national bonds.¹⁵

The enthusiastic recommendations of free trade in the classical economic schemes always appeal to the beneficent effects of free trade on the utilization of national resources. As a corollary, the possibility that free trade might pose dangers to national order and regime stability was clearly acknowledged in classical political economy. The classical writers developed a body of exceptions to international free trade which would eventually provoke a rupture between the classical school and the Manchesterian purists. For example, both Smith and Ricardo qualified their support of free trade in the light of possible adverse effects of such trade on domestic sectors. Smith’s support of the value of defense as prior to opulence, and his support of the Navigation Acts which followed, are well-known. Less well-known but of equal significance is Smith’s contention that, if a domestically produced good is taxed, so too should be any import of a similar good. Smith favored only very cautious and gradual removal of duties which had been imposed to foster infant industries, and he accepted national defense as a justification for any duties, whether or not the domestic production of the articles was subject to a tax or was fostered as part of an infant industry incentive program.

Ricardo also qualified his support of free trade by reference to its potentially destabilizing impact on nationalistic values. He opposed complete free trade because of his fear that the labor and capital of the country would be withdrawn from agriculture and transferred to manufacturing at a great cost in efficiency and in the size of national output.

Similarly, Malthus opposed the repeal of the Corn Laws and broke with the Manchesterians because of what he saw as the potentially negative impact of repeal on the interests of the British laboring classes. John Stuart Mill followed Malthus in offering only very qualified support of free trade, depending upon the effect which such trade would have upon the interests of the workers. The net result of these qualifications of laissez fairein the light of national and regime considerations was a curious breach in the ranks of liberalism. The free trade advocates of the Manchester School could claim the support of none of the famous economists. Rather, as W.D. Grampp has noted, a close reading of the classical writers reveals the extent to which they qualified their advocacy of free trade:

They opposed it when, in their opinion, it would weaken the military power of Great Britain, which is to be expected from economists who placed the national interest in power above that in wealth. They were opposed to free trade in those circumstances in which they believed it would work an injustice to legitimate vested interests, which is not surprising in men whose subject came out of moral philosophy. What is unusual is that they sometimes opposed free trade on grounds of economic logic alone; that is, they believed it would cause a reduction in the national output and wealth.¹⁶

The classical position admitted a seemingly endless array of qualifications to free trade once the accommodation of free trade to considerations of regime stability was accepted as necessary. Thus, Ricardo prescribed an optimum tax system as a prerequisite for free trade. The purists dissented:

If that condition be laid down, why cannot others, such as full employment, or the internal mobility of resources, or a particular monetary standard which will establish the proper exchange rates? And if economic prerequisites can be asked, then why not those of justice, the national interest or some other normative requirement also?¹⁷

In a similar vein, Lionel Robbins concludes with a warning to students of the classical economists:

All I contend is that we get our picture wrong if we suppose that the English Classical Economists would have recommended, because it was good for the world at large, a measure which they thought would be harmful to their own community. It was the consumption of the national economy which they regarded as the end of economic activity.¹⁸

Liberalism of the classical variety thus clearly has stood for free international exchange only in a cautious, circumspect, and qualified sense. Indeed, in his own attempt to find a common ground of consensus among the “liberals” of the classical period, Grampp has concluded that “[t]he only premise on which all of them can be brought together is the premise that policy must have the rational consent of the persons who are affected by it.”¹⁹

However, even this definition of liberalism invites a broad construction of the role of the State once it is conceded, as in Mill, that rational consensus is the product of education. Education is the vital prerequisite without which the greatest happiness can never be attained. For John Stuart Mill, who built upon many of Bentham’s juridical ideas, the interests of the general good demand higher levels of cultivation. Maurice Cowling notes in this regard:

The sort of social or governmental pressure which might, therefore, be admissible on this principle is more searching than superficial attention to the principle suggests. For, if interference with individual liberty can be justified on the ground that interference is in the interests of others, and if the interest of others is taken to lie in producing the greatest amount of higher happiness possible, then the injunction is no less vague than before in defining the amountof legitimate social (or governmental) pressure, but much more specific in determining the purpose to which interference should be put.²⁰

Just asthe qualifications of the free trade principle opened the door to nationalistic, State-centric policy outcomes domestically, so too the central importance accorded to rational consent is quite closely interconnected with an expansive State role in cultivating patriotism and “national character.” But it remains to be shown how these elements of classical liberal political economy support an equally expansive international role for the State as the primary agent for the global artificial identification of interests.

Of course, it is not hard to find clear illustrations of a professed faith on the part of the classical economists that external affairs are blessed by the beneficent operation of a spontaneous and natural harmony of interests.²¹ Nevertheless, in external affairs asin internal affairs, the critical question in practice becomes: How does one secure this ideal or harmonic interests? To this question, liberalism, and particularly the formulations of John Stuart Mill, had prepared the ground for a degree of State interventionism which might be termed “nationalist universalism,” and which stands in sharp contrast to the more purely free-trade noninterventionism of Manchesterians like Cobden and Bright.

“Nationalist universalism” is the liberalism not of Cobden and Bright, but rather of Mazzini, Paine, Woodrow Wilson and Cordell Hull. International liberal theories of nationalist universalism tend to project the acknowledged role of domestic interventionism into an international ethic of interventionism. As in domestic liberal theory, there occurs in this variant of international liberal theory a shift from proscriptionof any role for the State (except the most minimal defensive actions) to a prescription of the modes of State action most conducive to establishing the necessary framework for free exchange and its inevitably peaceful consequences. Nationalist universalism prescribes a hegemonic regime, a universal “tutelage” function. This international tutelary role invites nationalist assertiveness globally, just as the domestic tutelary role invited broad governmental authority at home. Here is the germ of the liberal defense of the hegemonic regime created for the greater benefit of mankind.

At the core of this liberal universalism is the rejection of the more pacifistic liberal trust in the inevitability of progress. Instead, the State is seen as a key actor in promoting international harmony. In part, this divergence of perspective between the pacifistic liberalism of the Manchester school and nationalistic universal liberalism of a Mazzini or Wilson can be attributed to the failure of the pacifistic strain to comprehend the true nature of the domestic laissez faire framework. That is, pacifistic Cobdenism (which one might label as “fundamentalist” liberalism) projected internationally a vision of interpersonal relations which was not even true domestically, and their understanding of the apolitical order in inter-State relations proceeded from a misconstrued perception of domestic order as equally apolitical and consensual. As B. C. Parekh has recently pointed out: “It is not generally realized that a liberal’s theory of international relations is generally only his theory of interpersonal relations projected on the international scene.”²²

The difference between pacifistic and nationalistic liberalism can therefore be traced to the different perceptions of the basis for order in interpersonal relations within the nation-State. Nationalistic liberalism follows the perceptions of classical liberals who emphasized the priority of a political regime to direct market relations. Fundamentalist liberalism, on the contrary, views the basis of domestic order as spontaneously consensual and hence apolitical. Cobdenism would have reason prevail over force internationally, just as it has prevailed domestically, by the spontaneous force of public opinion. But, in fact, Cobdenism misunderstands the basis of domestic consensus which is grounded upon institutions which combine reason with force.²³ Fundamentalist liberalism had identified all politics per se with the evils of aristocratic rule and assumed that the elimination of the evil aristocracy would also put an end to the sway of politics over human life and reason. This peculiarly apolitical model of society blinded the liberals to the essentially political underpinnings of their ownposition, which had involved replacing overt methods of open violence with more indirect methods of domination. In this regard, Hans Morgenthau once pointed out:

The middle classes developed a system of indirect domination which replaced the military method of open violence with the invisible chains of economic dependence and which hid the very existence of power relations behind a network of seemingly equalitarian legal rules.²⁴

The more pacifistic strand of fundamentalist liberal thought misunderstood the political nature of liberalism’s own ascendancy over aristocratic elements in the nineteenth century. It was prone, therefore, to identify all politics with outmoded aristocracy. It viewed the struggle for power as characteristic of only a certain type of (autocratic) government which, when it had passed into history, would usher in anew age of reason, antithetical to power politics. The sphere of the traditionally political would be progressively delimited, and ultimately would disappear. Such was the messianism of the pacifist liberals. One finds in their protestations a rarefied liberalism more pure in its anti-State stance and more consistently harmonic in its assumptions than even the liberalism of Woodrow Wilson. The more nationalistic universalism of Wilsonian liberalism was in this sense more “realistic” and even “mercantilist” than pacifism insofar as it recognized the inadequacy of the gradual spread of rationalism and education to guarantee peace. (Of course, Wilson also was prone to foresee an ultimate stage wherein politics could be eliminated and democratic public opinion would replace the old balance of power with a new contractual democratic communitarian ethos.) Such nationalistic universalism at least acknowledged the need for an ordering agency among states as well as within them, and it attuned liberal thought to a notion of international relations which was much more in the tradition of John Stuart Mill than of Richard Cobden.

There is a fundamental disagreement between the two strands of liberal thought concerning the use of force by the agents of progressive liberalism. The nationalist universalism communicated through John Stuart Mill to Wilson introduced into liberal theories of international relations the notion of the regime as a preserver of domestic values and as an exponent and proselytizer of universal values. There thus appears an embryonic consciousness of Realpolitik, of the need for great powers not only to protect and preserve but also to extend their influence. For the Manchester tradition, the issues of the origins of international order and the role of the State in enforcing such order are not raised because a misunderstood domestic model had been extrapolated externally. This projection dissolves any basic distinction between domestic and foreign policy, and substitutes a natural, spontaneous consensus.

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C. Regimes and Markets in Contemporary Political Economy: Wilhelm Röpke

A major contemporary effort to explore the extra-economic bases of international and national economic markets has been undertaken by Wilhelm Röpke. Röpke contributed substantially to the “fusionist” school of conservatism that sought to defend laissez faireliberal ideals while emphasizing the non-economic regime factors without which the market economy could not survive. Röpke wrote:

The market economy is a form of economic order belonging to a particular philosophy of life and to a particular social and moral universe. The market economy, and with it social and political freedom, can thrive only as a part and under the protection of a bourgeois system. This implies the existence of a society in which certain fundamentals are respected and color the whole network of social relationships: individual effort and responsibility, absolute norms and values, independence based on ownership, prudence and daring, calculating and saving, responsibility for planning one’s own life, proper coherence with the community, family feeling, a sense of tradition and the succession of generations combined with an open-minded view of the present and the future, proper tension between individual and community, firm moral discipline, respect for the value of money, the courage to grapple on one’s own with life and its uncertainties, a sense of the natural order of things, and a firm scale of values.²⁵

The market economy thus presupposes a definite social structure and normative moral context. Röpke rejects the sort of “social rationalism” that views the market economy in mechanistic terms as a technique applicable to any spiritual or social setting. His arguments in The Humane Economy are quite blunt on the nature of the “embeddedness” of economics in sociopolitical reality. Referring to advocates of market economy, he notes that:

. . . in so far as they are at all intellectually fastidious they have always recognized that the sphere of the market, of competition, of the system where supply and demand move prices and thereby govern production, may be regarded and defended only as part of a wider general order encompassing ethics, law, the natural conditions of life and happiness, the state, politics, and power. Society as a whole cannot be ruled by the laws of supply and demand, and the state is more than a sort of business company, as has been the conviction of the best conservative opinion since the time of Burke.²⁶

For Röpke the market economy clearly cannot promise mutually beneficial exchange relations unless its operation is strongly tempered.

Individuals who compete on the market and there pursue their own advantage stand all the more in need of the social and moral bonds of Community, without which competition degenerates most grievously . . . the market economy is not everything. It must find its place in a higher order of things which is not ruled by supply and demand, free prices, and competition. It must be firmly contained within an all-embracing order of society in which the imperfections and harshness of economic freedom are corrected by law and in which man is not denied conditions of life appropriate to his nature. Man can wholly fulfill his nature only by freely becoming part of a community and having a sense of solidarity with it.²⁷

The significance of the extra-economic framework for international as well as domestic economic processes is clearly the focus of Röpke’s earlier research efforts. As part of a project to comprehend the debacle of the post-depression world economy, Röpke produced in 1939 an “Interim Report on International Economic Disintegration” for the Graduate Institute of International Studies at Geneva. Finally issued in revised form in 1942, the study noted several critical, noneconomic factors that constitute essential prerequisites of any stable, integrated, international economic system. Contrary to those who extolled the virtues of the great “mechanism” that was the international gold standard, Röpke argued that the working of the gold standard depended upon a set of political, legal, and moral conditions, in the absence of which drift and chaos were inevitable. Röpke explicitly rejected the “fundamentalist” Manchester vision wherein:

. . . the competitive market economy was considered sociologically autonomous: It needed no special laws, no special state or special society, required neither a special morality nor any other irrational or extra-economic forces and sentiments. Rarely or never was this belief stated so crudely, but surely few will today deny that the general tendency of the liberal philosophy ran—and in some quarters still runs—in this direction. It was supplemented, however, by the other belief that the competitive market economy, while standing on its own feet sociologically and obeying its own laws, exerted a strong regulating, integrating and educating influence on society as a whole, and worked for peace, good will, solidarity and a mild, but general morality with its motto “honesty is the best policy.” Far from consuming and being dependent on socio-political integration from outside the economic sphere, the competitive market economy produces it—or so runs the argument. When Cobden coined his famous slogan: “free trade, good will and peace among nations,” he may have meant that all three condition each other, but there is a strong suspicion that the main emphasis was on “free trade” as the agent, which brought peace and good will in its wake.²⁸

Röpke felt that the easy trust of the Manchesterians in the invisible hand was clearly no longer tenable. The conditions of stability in an integrated economy, heretofore merely assumed to exist, had to be investigated and emphasized.

Under the system of the competitive market economy, as well as under any other economic system, economic integration cannot, in the end, go further than the socio-political integration based on laws, institutions and psychomoral forces. The latter is the indispensable condition of the former, whereas it is highly doubtful that economic integration can be sufficiently relied upon to produce the integration it requires.²⁹

For Röpke the competitive market system is not readily transferable across borders or across continents:

It is a highly sensitive artifact of occidental civilization, with all the latter’s ingredients of Christian and pre-Christian morality and its secularized forms; and it should not be forgotten that the “economic man” of the classics was really an English gentleman of the eighteenth or nineteenth century, whose moral code was fixed by the Church and by tradition.³⁰

On the basis of such reflections, the conclusions one reaches regarding the scope for beneficent “spillover” from utilitarian problem-solving and need gratification are necessarily highly qualified and cautious:

It is hard to see how competition, much as it is indispensable and beneficial from the point of view of the production of material wealth, can be capable of breeding social integration. It should be obvious that, morally, it is a highly dangerous arrangement, and one which must be balanced by the strongest of counter-forces from outside the economic sphere.³¹

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D. Conclusions

It is clear that the contemporary resurgence of interest in the foundations of beneficial, cooperative, or at least nonconflictual, international economic regimes could profit from a systematic review of Röpke’s works. Because of its paramount concern with the noneconomic grounds of political order and social cohesion, its skepticism toward utilitarian economism, and its emphasis on more holistic conceptions of man and the State, Röpke’s thought offers a rich source of speculation on processes of global economic integration. His work cautions against overweening State authority, while acknowledging those intangible and institutional grounds of social solidarity and cohesion that also contribute to the stability of mutually beneficial economic exchanges.

The core reality of global political economy as articulated in the classical tradition remains the paradoxical fact that any truly liberal and open world economy requires a prior framework of order—of rules, norms, negotiated agreements, and enforceable codes. Several conclusions about the contours of viable regimes for guiding future liberal market relations are suggested by this review of the literature:

(a) Any international regime for governing market relationships must be consistent with national autonomy. Universalistic or regional schemes which would dissolve the national identity are uniformly rejected in the classical perspective. Indeed, a degree of national integration is a necessary condition for international integration. Economic integration cannot for long extend beyond the bounds of political accommodation.

(b) To some extent market relations require formal and institutionalized guarantees of security and dependability of behavior. Legal rules supplemented by a range of tacit and informal understandings are prerequisites for reasonably harmonious economic competition.

(c) Many intangible conditions affect the functioning of markets domestically, and to the extent conditions conducive to cooperation within the nation can be replicated between international actors an improved economic climate may result. Common subscription to liberal principles; a shared sense of values; “shared images” among bureaucratic and elite actors concerning priority issues; a higher-order identification of worthy objectives to be pursued in common; an ability to learn from mistakes; a “social learning process”; and honest and sustained communication to foster these goals are all identifiable components of any working market regime.

(d) The notion of a “core” power which advocates the principles of market liberalism and which is capable of proselytizing these values is an implicit element in the classical tradition, and seems a necessary condition for liberal international economic relations.

On the basis of this general enumeration of regime characteristics one conclusion suggests itself. The classical tradition confirms the critical importance of political arrangements to forge a structural regime within which liberalized market processes may be carried out. The foundation of the regime is the body of rules, norms and principles which establish a predictable range of behavior. Within this set of “rules of the game” more or less free market activities may be carried out, and these processes are facilitated by the existence of the regime. The classical tradition indeed provides an effective rebuttal to those who would argue for the self-sufficiency of economic markets. Instead, it supplies a rich body of speculation as to the nature of the political, social and even ethical preconditions of any future international economic harmony.

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Notes

1. A recent review of this literature may be found in R. Keohane, “The Theory ofHegemonic Stability and Change in International Regimes 1967–1977” in O. Holsti, R. Silverson and A. George (eds.), Change in the International System (Boulder, Colorado: Westview Press, 1980, 131–162.
2. Karl de Schweinitz, “Free Enterprise in a Growth World,” Southern Economic Journal 29 (1992), 105
3. Examples of recent scholarship which explore the contribution of Smith to understanding the relationship between sociopolitical regimes and liberal markets would include: D. Winch, Adam Smith’s Politics (NewYork: Cambridge University Press, 1975); Quentin Skinner, ed. Essays on Adam Smith (London: Oxford University Press, 1976); Quentin Skinner (with T. Wilson), ed., The Market and the State (London: Oxford University Press, 1976).
4. D. Winch, Adam Smith’s Politics: An Essay in Historiographic Revision (New York: Cambridge University Press, 1978): 71.
5. An excellent recent review is supplied by Albert Hirschman, The Passions and the Interests (Princeton, NJ: Princeton University Press, 1977).
6. Winch, Adam Smith’s Politics, 77. Winch notes that “political factors had taken precedence over natural economic forces.” The contrary interpretation of Smith’s “economic determinismappears in R.L. Meek, Social Science and the Ignoble Savage (London: Cambridge University Press, 19761.
7. See especially R.L. Meek, D.D. Raphael and P.C. Stein, eds. Lectures on Jurisprudence (London: Oxford University Press, 1977), 255–261.
8. The Wealth of Nations. Book V, Chapter I. Sec. F.
9. The Wealth of Nations. Book V, Chapter I, Sec. B. On the importance of coping with uncertainty in order to succeed in a marketplace, see F. Knight’s classic treatise Risk, Uncertainty and Profit (New York: Houghton Mifflin, 1921).
10. A.S. Skinner, Adam Smith and the role of the State (Glasgow: University of Glasgow Press, 1974), 22.
11. Jacob Viner, “Bentham and J. S. Mill: The Utilitarian Background,” in his The Long view and the Short (Glencoe, Illinois: Free Press, 1958), 316.
12. Lionel Robbins, The Theory of Economic Policy in English Classical Political Economy (London: Macmillan & Co., 1952), 40–41.
13. A leading proponent of this view has been Maurice Cowling. See especially his study of the role of deferential respect for authority in John Stuart Mill’s positivism, Mill and Liberalism (Cambridge, at the University Press, 1963).
14. Guido de Ruggiero. The History of European Liberalism (Boston: Beacon Press, 1959), 413–414.
15. Lionel Robbins. op. cit., 9–10.
16. William D. Grampp, The Manchester School of Economies (Stanford, California: Stanford University Press, 1960), 16–17.
17. Ibid., 37–38.
18. Robbins. op. cit., 10–11, emphasis added.
19. Grampp, op. cit., 36.
20. Maurice Cowling, “Mill and Liberalism,” in Mill: A Collection of Critical Essays, ed. J.B. Schneewind (New York: Anchor Books, 1968), 333.
21. J. S. Mill, fur example, noted that “the good of no country can be obtained by any means but such as tend to that of all countries, nor ought to be sought otherwise, even if obtainable.” In Letters, ed. Elliot, 11, 47; furthermore, from “A Few Words on Nonintervention,” in Dissertations and Discussions, III. 249, one reads: “Is a nation at liberty to adopt as a practical maxim, that what is good for the human race is bad for itself, and to withstand it accordingly? What is this but to declare that its interest and that of mankind are incompatible?” The reasoning of Mill in this latter passage is revealing in its circularity, for Mill begs the question of who is the definer of what is indeed “good for the human race.” Other writings make it clear that for Mill it is Great Britain which is peculiarly gifted to define the good for mankind. By assuming the definition to be already clear, Mill in effect assumes away the most critical issue.
22. B. C. Parekh, “Liberalism and Morality,” in B. C. Parekh and R.N. Berki, The Morality of Politics (London: Allen and Unwin, 1972), 81–82.
23. See Kenneth Waltz, Man, the State and War (New York: Columbia University Press, 1954), 116–117
24. Hass Morgenthau, Scientific Man vs. Power Politics (Chicago: University of Chicago Press, 1946), 45.
25. Wilhelm Röpke, A Humane Economy (Chicago, Illinois: Henry Regnery Company, Gateway edition, 1971), 98. See also George Nash, The Conservative Intellectual Movement in America Since 1945 (New York: Basic Books, 1970). For anearlier discussion see my “Wilhelm Röpke and Problems of Contemporary International Political Economy,” World Affairs 141, No. 4 (1979).
26. Ibid., 90-91.
27. Ibid.
28. Idem, International Economic Disintegration, 67–68, emphasis added.
29. Ibid., 68
30. Ibid., 68–69. Röpke drives home the point still further: “In fact, the market economy is an economic system which cannot exist without a minimum of mutual trust, confidence in the stability of the legal institutional framework of the economic process (including money), contractual loyalty, honesty, fair play, professional honour. . . . Above all, there must be a ‘creed’ in the most general sense of the term, a belief in a definite scale of ultimate values giving sense and purpose to the ordinary doings of all participating in the economic process. . . .”
31. Ibid., 69, 71.