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Lecture 02 Notes

Political Science
Course Code
Norla Carloff

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The Political Economy of Finance
Lecture 02 – Sept.22/10
Two broad approaches to examine issues
oEconomist Perspective Market as mediated supply and demand through
markets; markets are independent; actors are units (government, firms,
oUnits have well defined and separate functions/roles in the economy
oDone through deductive reasoning looking through the lens of a theory thus it
is temporarily true until refuted
oAlso there is inductive reasoning which is looking through patterns first (such as
data) then moving to a theory
Theory becomes a law since its very difficult to refute (not preferred by
many economists)
oNeoliberalism (major) and neorealism (not as relevant; NGOs as an example of
why its not as relevant) are two main perspectives
oSociological Perspective relations, trends, patterns across societies leads to
order and thus a post-positivist approach
Credit borrowing issues; traditional IPE theory does not take full
Banks have a difficult time using this approach since its highly
subjective/difficult to use since it requires more inference rather than a
reliance on quantitative data
oMarxist IPE Very different assumptions than modern economics
Focuses on inequalities Communist Manifesto” whereas the
Bourgeois wants to abolish private propertyits already been abolished
thus its zero-sum gain
Necessary requisite of capitalism (property) which thus leads to efficiency
and is positive sum
Exchange could take place through voluntary institutions
Move to free-trade for mutual benefits; freedom of labour
Requires total free-flow (which does not occur)
oAnalytical perspective rather than qualitative perspective
IPE of Finance:
Borrowing and lending and investing
Involves privatization of public actors across countries/units
Lending is a form of investment
Debts/loads must pay back
oThis differs from equity where you cant lose more than what you put in (thus
limited liability)
Trust required between borrower/lender gain of interest and lend to people they know
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