School of Public Affairs And Governance

Silliman University
Dumaguete City
Final Paper on Soc Sci 308 (History of Economic Thought)
Prepared by: Philner P. Salindo
Submitted to: Dr. Reynaldo Rivera
NATIONALIST ECONOMICS History Theory and Practice, Alejandro
Lichauco, 1998
INTRODUCTION
Nations undergone socioeconomic crisis whose intensity and
complexity is very hard to phantom, for it is most likely without reason
or precedent. The author wrote this book to give readers an idea about
the origin and nature of these occurrences in laymans terms and to
give information about the people who devoted their time in providing
solutions of this socioeconomic crisis, also in laymans terms.
Alejandro Lichauco wrote this book to open our minds with the
fact that policies have ignored our countrys vital requirements as a
nation-state and is inconsistent with such requirements. He wants us to
know

the

truth

that

the

Philippine

crisis

represents

fatal

disorientation of policies, not so much of the moral order. He further

affirms that knowing about the nature and origin of economic system
and how it was developed will make us understand the status quo of
our country. Therefore it is relevant to grab hold of these ideas for us to
understand better our current situation.

SUMMARY
Nationalist Economics is a book that simply demonstrates,
explains, and tells about the rise and development of nationalist

economics. It also explained in the first four chapters of the book all
about the gradual and dynamic changes with the economic principles
of the countries who wished to be the powerful one in trade and
commerce. It explained there a brief background of the past events
and what the country had done to be wealthy. He also defined
Nationalism differently. He defined it as a power and a philosophy of
power and not as that sense of belongingness of people for his country.
It is henceforth clear that nationalism manifest power and
principles of power, not merely a manifestation of people for their love
of country. This nationalism can be the root of success used correctly.
He discussed in brief also all about the concept of economics systems,
starting with mercantilism, nationalist economics, physiocracy, LaissezFaire

economics,

free

trade,

free

market

among

others.

He

strengthened its contents through discussing the economic systems

employed by nation-states and how these nation-states rose into
power as the direct result of nationalist economics.
Aside from concrete examples in history about nation-states
employing a particular economic concept and became successful, the
author also included the explanation of nationalist economics in Asia
after World War II. Moreover, the author delved into the discussion of
the rise and fall of nationalist economics in the Philippines. He laid
down the origin and the basis for our dependence with the US
monetary currency, and how industrialization in the Philippines
changed the economic landscape of the state. And lastly the author
gave a thorough investigation about he real motives of IMF-WB group
and its ideology, making readers understand why these multiinternational banking corporations are more than willing in granting
loans to developing third-world nations in the world. He further
discussed the debt problems in the Philippines and also gave
discussion on how other countries like in Latin America handled such
problems.

The book of Alejandro Lichauco serves as an eye opener for

those are so blinded with false realities about the economy. In any
time, in any place economic systems exists, it will always depend on
how well people are educated in making these systems work.

POWER AND ECONOMY

Nationalism is a concept always equated with the love of a
country, but is more than that. It is power and a philosophy of power. It
is power because it gave propels people to do daunting tasks. Even
when faced with great adversaries its that sense of nationalism that
gave them power to overcome such.
It is power that welded together the German nation to create a
very strong state and challenged the old powers of Europe. It is power
that catapulted the Japanese people to establish their nation as one of
the great economic power in the Pacific, before and after the
catastrophic Pacific War. It is power that encouraged India to developed
its own agricultural system that could feed 800 million hungry
stomachs. It is the same power that made South Korea and Taiwan as
nation-states in Asia that are now brushing elbows with the upper
echelon of economic powers around the world. It is power that turned
Vietnam into an industrialized nation from a country spoiled and
ravage with wars between world powers separated with different
economic ideologies. Its also power that led the Arab people in
nationalizing the Suiz canal, proving to the world that they also
embrace current changes as adopted by the world community. And
lastly, it is the same power that brought Filipnos together from different
islands, with different languages, customs and traditions into one
entity and fought for independence.

Nationalism is at the same time a philosophy of power. Power

itself is not enough to concretize or to put into reality the ideals
projected by the people for their nation to flourish and develop.
Therefore it is also a philosophy, it is the methods, means, ways,
techniques, the guiding principles through which these countries must
employ for them to be successful. It is the persistence and character of
the people it self to overcome overwhelming challenges and at the end
will let them see the light that they collectively created.
Therefore nationalism is more than the love of a country or a
sense of belongingness, it is the element that creates the states
strength, because a weak state cannot protect and insure the security
of its people. A strong state can. The question is how does a state
become strong and powerful? If it is weak, how can it transform that
weakness into strength?
The answer lies with an economic philosophy that transcends
ideologies and accounts for the strength and power of states today. It
is therefore the economic philosophy that allowed weak nations turn
themselves into strong and powerful states in the past, and currently
transforming others in the near future. It is the same economic
philosophy that catalyzes the evolution towards cohesiveness and
unity that generates and manifests power and strength of a developing
state.

MERCANTILISM
In the end of the Middle Ages, and as a new era unfolded where
European nation-states emerged almost altogether. There was a
necessity for nation-states to establish dominance not only in its home
region but also through out the world. Europe was basically dependent
on agricultural industries but later on developed trade and industry,

which became the main source of revenue because agriculture is not

as stable as the profits coming from trade and industry. Agricultural
produce depend heavily on so many factors, unlike trade and industry
wherein labor guarantees profit. It is therefore necessary for these
young European nation-states to develop a new economic system that
does not solely depend on agriculture. Thus the birth of a new
economic philosophy that gives profit and in turn translates into wealth
and power. This economic philosophy lies in the principle of importing
less and exporting more. The lesser import means that nation-states
spend less on tariffs and exporting more means gaining more than
what is spent. The generation of profit became prolific and resulted to
rising powers in Europe.
This economic philosophy is known as Mercantilism and has been
the forefront of economic policies of nation-states in Europe. This
created nation-states, which are more than capable of just defending
themselves, because in this time conflict will always be resolved by
wars and military aggression, was just like a candy in a candy shop.
Further mercantilism is an economic philosophy that ensures the
capability of creating a strong military and navy to impose the
nationalist interest of each nation-state.
Mercantilism was more than a strategy but it is also expresses an
underlying philosophy. The philosophy was state power. Nation-states
must have power, because without it, it is nothing. And power meant
wealth. And foreign trade was only one of the many ways of gaining
wealth and power. It therefore established a system of values, priorities
and strategies for maximizing wealth.
Principles then of mercantilism where developed by mercantilist
and became the guiding principles used before and of today. Antonio
Serra, a mercantilist advocated for the development of manufacturing
rather than agriculture for he viewed the former as superior to the
latter since labor and money spent on trade are easily tradable and

generate more values than agriculture. On the same view point,

Thomas Munn said that industry should be encouraged instead of
agriculture, since the more labor applied to natural materials, the
greater the value and the more it would bring in foreign sales. He also
cited that states should play a vital and very important role in creating
conditions favorable to such goals. It is therefore this guiding
framework that has been followed by economic leaders in his time and
of today. On the same way, Jean Baptiste Colbert contributed much on
the principles of mercantilism that resulted to the rising of economic
profit of France and explicitly made it as one of the most powerful
nation-state of Europe. His framework of mercantilism is anchored on
the system of control where in there was the organization of industries
and commerce. He acknowledged the fact that the world of economics
is cloth with competition therefore necessitating the need for exporting
quality products. His policies also attracted foreign laborers for he gave
them privileges; in addition, he also encouraged the formation of
companies that will cater to the demands of trades and established
monopolies in favor of France. At the end, Colbert system of control
backfired for it demanded high tariffs on imported products to protect
its nationalist interests, as a result other nation-states also demanded
higher-tariff on French exports, resulting to tariff wars.
The rival of supremacy of France, England also developed its own
principles of mercantilism and differ its application. Instead of
concentrating on the regulation of domestic trade, England applied it
on foreign trade. Thus imposing heavy taxes to manufactured goods or
in cases prohibiting the entrance of such. And other commodities
necessary to national industry were banned.
Mercantilism wherefore, strengthens the nationalist economics
through the concentration of policies on developing manufacturing,
industries,

companies,

establishing

monopolies,

and

protecting

national interests by importing less and exporting more. Nation-states

became powerful because they have amassed wealth through such

economic philosophy and through the diligent practice of its guiding
principles.
The philosophy and principles of mercantilism became the
fundamentals of trade and commerce around the world and it also
became the thesis of an antithesis, the nourishing philosophy of
another philosophy. For it others believed it stifles the freedom of
individuals to venture into a more nationally less-controlled economy.
The antithesis is the new philosophy of called as physiocracy, a
reaction to the stringiness of the mercantilist philosophy.

CAPITALISM
The principles of capitalism sprouted out of the reaction to the
established economic philosophy that propelled nation-states in Europe
to acquire vast wealth from trade and industrialization and from foreign
trade, with limitations on imports and a surplus on exports. This
antithesis philosophy is the classical economics taught by various
advocates in France. The school of physiocracy was organized to
directly counter the established philosophy of mercantilism. The main
thinking of the physiocrats is that agriculture is far superior to
manufacturing. Thus, it is classical economics for it went back to the
principles of feudalism, in which land holdings determine wealth.
According to the physiocrats, the philosophy of mercantilism does not
adhere to the natural order, since its main purpose is to gain wealth
and power, which is represented by money and money for them, is a
temporary element and does not hold bearing on genuine wealth.
Francois Quesnay stated three arguments to challenge the
mercantilists. Frist, he stated that economic liberty is part of the
natural order, in which the mercantilist philosophy stifled. Second, he

insisted that the real source of a nations wealth is agriculture. And

lastly, he stipulated that the accumulation of wealth through foreign
trade is harmful. They established that by exporting more wealth, they
are depriving the state of what is really due to them.
This philosophy was adversely opposing to the philosophy of
mercantilism. This is simply because businessmen have the desire to
profit more and venture into commerce without limitations and without
strict supervision of nationalists governments. This philosophy of the
physiocrats took it stride when Adam Smith, an economist and a moral
philosopher supported its cause. Smith also believed that agriculture is
the fundamental source of wealth. His philosophy on free trade and
free market system were introduced. These concepts brought about
radical changes Europe, for it allowed businessmen to profit more, but
on the other hand lessen the nation-states capacity to dictate the flow
of the economy. It was adopted by England for sometime but later was
abandoned. The concepts of the division of labor and law of
comparative advantage only applies in a world where in nation-states
have the same bearing with regards to their interests. It is not
applicable in a time where nation-states are often at war. On the same
point, the concept of invisible explained that because of mans desire
to profit it would bring forth gradual progress in the society. It is mans
desire that acts as a puppet master pulling strings for the economics to
bring wealth to nation-states.
In addition, the theory of Jean Baptiste Say, states that there can
be no overproduction since supply creates its own demand. This is an
implicit idea, an offshoot of the invisible hand that there can be no
general overproduction but equilibrium of supply and demands
resulting to the balance of production. This theory called as Says law
presented the best possible economic worlds as long as the state
abandoned mercantilism and abstained from intervening in the
economy.

The physiocrat and Adam Smiths philosophy was a novel

ideology of economics that brought about radical changes in Europe,
nation-states embraced it for a moment, and later one after another
abandoned it. One concrete example is the establishment of the
economic system of the young American state. Alexander Hamilton,
the father of American economics, had dilemma to which economic
philosophy to follow. The mercantilist philosophy to which he is familiar
of or the physiocrat and Adam Smiths economic philosophy that gave
justice to what America is all about, an agricultural nation-state. He
had to choose one, and from his decision lies ahead the future of the
nation. His decision was not a walk in park, he observed nation-states
in Europe were imposing tariffs on imported products, and were still
practicing mercantilism as an economic system. For the advocates of
physiocracy and Adam Smith, America could be the perfect example of
the world if it completely embraced the new philosophy. Then
Alexander Hamilton made his decision, he focused on industrialization,
the protection of domestic industries were the priority of policies, there
were heavy imposition of foreign goods, tariffs were high and subsidies
were appropriated to domestic industries to ensure its survival. Thus
embracing the mercantilist philosophy of economics.
The decision he made proved correct in the break out of the Civil
War in 1860s; the agricultural south had no answer to the
industrialized north. As a conclusion, nationalist economics generates
power and wealth for nations that embraced it. The mercantilist
philosophy was applied in the US for 150 long years before it entered
into free trade and free market system, which eventually lead to the
downfall of its economy. Thus the immediate reaction of the American
government is to go back to imposition of tariffs on imported products.
Alexander Hamiltons decision of as to what philosophy of economics
to apply determined the fate of the United States of America.

THE RISE AND FALL OF NATIONALIST ECONOMICS IN THE

PHILIPPINES
Some people will blame the Marcos regime as the reason for our
economic downfall, but in reality before Marcos became a president,
the Philippines was already inside the deathtrap. After World War II, the
Philippines was ravaged and was devastated. The new administration
clung to borrowing money from IMF-WB, to reconstruct industries and
manufacturing markets. The result was undesirable; the Philippine
government exhausted the monetary funding on importation even the
non-essential goods and left the Philippine economy fragile. The only
solution that the administrations could use is to grant parity rights to
Americans through the Bell-Trade Act, which in turn undermine the
progress of the nation-state for it is now flooded with imported goods
coming from the US. There were so many provisions that became a
leverage for the Americans and on the other side of the coin, became
very much disadvantageous for Filipinos. From 1949 until the mid
1950s the Philippines was tied up to the US government, strengthened
by peso-dollar currency. It is therefore a clear manifestation of
mercantilist philosophy applied by the Americans, from the principles
of creation of conditions in other countries favorable for to the
American interest. On the other, the Philippines embraced the free
trade concept of Adam Smith, which became disastrous to the
Philippine Economy, since the Philippines became the dumping site of
surplus exports of the US and it is not allowed to impose tariffs and
limitations on imports. This is where we can see a clear delineation in
power and wealth through the practice of philosophy and principles.
The Philippines tried to recover from such slumber, in the 60s
the rise of nationalist economists encouraged the government to focus
on industrialization and the limitation of foreign rights. This led to a

new era of progress, and the Filipino First Policy slogan and advocacy
took effects. The government then started to impose tariffs and taxes
on imported goods, and started the process of industrialization. Though
the industrialization of the Philippines was limited, for the fact that
some products were not produced in the Philippines but were from
abroad and were just assembled in the Philippines. To complete the
industrialization process, on nation must have products that are
essential elements to other products. Take for example, steel. Steel can
build cars; bridges, roads, buildings, and can employ many. In this
sense, industrialization can be complete. It was then recognized by the
Garcia administration, the integrated industrialization was proposed.
Unfortunately, there are factors that killed such innovative proposal.
One of which, is the selfish desire of businessmen who felt that the
government is exerting much control over their business venture. So
they supported the candidacy of the Macapagal, the vice-president of
Garcia. Second, the secret support provided by the US government for
Garcia, because he promised to open the Philippine economy again to
free trade. Then the inevitable happened and misfortunes rained down
on the Filipinos like the wrath of God. The decision of Macapagal sealed
the fate of the Philippine economy and its people.
When Marcos became the president, the Philippines was already
in debt. And the only means for him to stay in power is to put the
country under martial law, and to stir the economy towards Filipino
leverage. But again Marcos failed for the economic system of the
Philippines

abandoned

the

nationalist

economy

and

went

straightforward to the downtrodden free trade and free market

principles. During the EDSA revolution and the making of the
provisional

constitution,

there

was

proposal

from

nationalist

economists particularly and article and provision to strengthen the

nationalist advocacy in the Philippines. Again, despicable interests won
and concluded the Philippine state into a nation-state that doesnt

have a chance to progress unless national economics prevailed and be

established, to gain power and wealth.
The example in the Philippines is a concrete reality of how
philosophies of economics differ and how they affect the lives of
people. The mercantilist philosophy fosters nationalism. Nationalism is
power and a philosophy of power. This is how nation-states acquire
wealth and translate in into power and it is the means through which
power is acquired. Power therefore is determined by strong nationalist
economies, strong

nationalist economies

philosophies and principles.

adhere to

mercantilist