Oğuzhan Mengel

180458030

INT306

Topic: To what extent the state is an important actor in functioning of the markets according to
classical, neoclassical, marxist and keynesian approaches in IPE?

Key Words: Classical approach, neoclassical approach, marxist approach, keynesian

approach, state, market, intervention, liberalism, capitalism, economy, regulation

Classical Approach

Classical liberalism has two dimensions, political and economic. The classical school initially
emerged as political liberalism with the works of John Locke (17th century), and later gained the
identity of economic liberalism with the contributions of Liberal thinkers in economics (19th century).
The economic dimension of classical liberalism is; It is based on the idea of “Laissez Faire, Laissez
Passer”. "Laissez Faire, Laissez Passer"; It expresses the free market economy, the freedom of
contract, the non-intervention of the state in the economy, the removal of all obstacles limiting
production, the free exchange of goods and services. In short, the economic freedom of the individual
is aimed. What is meant by economic freedom is to engage in economic activities freely, in other
words, to have the right to economic entrepreneurship. The Classical School was born in 1776 with
the publication of Adam Smith's book, The Wealth of Nations, and maintained its dominance for a long
time like a century.

According to classical economic thought, if the state does not intervene in the economy,
economic activities occur and develop spontaneously. While consumers are trying to maximize their
benefits and producers are trying to maximize their profits, or in other words, while they are chasing
their personal interests, social benefit is also maximized by an invisible hand, even though it is
unintentionally and unintended. However, in order for the invisible hand to maximize the benefit of
society, it is argued that individuals who are considered to be rational should be able to carry out their
economic activities freely without state intervention and their economic freedoms should not be
restricted. Classical economic thinkers; They oppose the state's undertaking a function such as
providing "social justice" and following policies to redistribute income, as it causes the natural order in
the market to be disrupted by the state, and they defended the view that the price mechanism, or in
other words, the invisible hand, provided social welfare in the market in the best way. Smith drew
attention to the fact that the phenomenon of extravagance is observed especially in state
administration. According to him, spending by kings and ministers is more wasteful than spending by
private individuals. S. Mill also criticized the unnecessaryness of state intervention and defended
individual entrepreneurship. According to him, the reasons for the unnecessaryness of state
intervention can be gathered in three points. Individuals do things better. Even if the work is not done
better by the individuals, common goals will be developed as a result of the work being done by them,
as well as the increase in their initiative and experience. Government intervention, by unnecessarily
increasing the power and might of the government; it causes great havoc. The more bureaucracy
develops, the greater the bondage. In short, classical economists gave importance to the individual
and individual entrepreneurship, and therefore they were against the intervention of the state in the
market. The state should only fulfill the duties of security, defense, justice and diplomacy. The invisible
hand will organize the market.

Neoclassical Approach

The main concern of economic thought in the 19th century was the reasoning of fundamental
problems, that is, how to determine prices, wages, interest and profits. Neo-classicals tried to explain
the functioning of the market with a different approach, with the micro-analysis method they used,
unlike the classics. As a result of Keynes's demand-side policies, the role and importance of the state
in economic life and its interventions in the market increased, and as a result, the public economy
expanded. In the 1970s, large budget deficits occurred, prices rose and an unending inflation problem
emerged. This economic crisis in the 1970s led to the emergence of different economic views.
Neoclassicals, on the other hand, emerged in response to the economic policies implemented in this
period and were quite influential.

Neolclassicals; they reconsidered liberalism in order to present an alternative attitude to them,

different from classical liberals, on issues such as the limitation of the state, market-state relations,
individual freedom of choice and social justice. Neoliberals; They attached great importance to
economic, civil and political freedoms, private property and market economy. According to the neo-
classical approach, the state is generally seen as an external factor that can affect the functioning of
the markets, but it is not considered as a primary actor in the market process. They opposed the
government's intervention in the economy with its fiscal policies, the minimum wage, various subsidy
practices, and various protective laws. Neoclassicals think that such practices render policies
ineffective, hinder competition and, as a result, disrupt the functioning of the market. According to this
view, the state may intervene in the market in certain situations, but these interventions occur
exceptionally and should be carried out at a minimum so as not to distort the market. It is the duty of
the state in the economy to create a legal and regulatory structure that will ensure free competition,
property rights and the enforcement of contracts. In summary, Neoclassicals argue that the state
should fulfill its essential duties such as justice, security and defense, should encourage competition,
should act as an arbitrator in the market economy, but should not intervene directly. It assumes that
markets are generally self-correcting and efficient at allocating resources and promoting economic
growth, and that excessive government intervention can hinder market efficiency and hinder economic
progress.

Marxist Approach

According to the Marxist theory pioneered by Karl Marx, they thought that the state was an
exploitative device that supported class discrimination, and at the same time defined the state as a
parasite. In addition, according to this understanding, all economic systems and forms of government
have argued that they support the growth of the state institution. According to Marxists, who argue that
individual interest and social interest will not always be in harmony and conflict, this conflict of interest
has been the cause of class conflicts in society and one of the internal contradictions of Capitalism.
According to this understanding, the most important thing is the social interest. This understanding
sees the economy as a system in which the capitalist class exploits the working class and gets rich by
exploiting it. According to the understanding that opposes the nature of the capitalist system, he
argues that the means of production should be controlled by the workers, not by the capitalists, in
order to eliminate the exploitation situation. Generally speaking, my Marxism is a critique of capitalism
in economics and they strongly oppose what capitalism brings.

According to the Marxist approach, the state is seen as a very important actor in the functioning
of the markets. Marxism claims that capitalism is inherently unstable and prone to crises. The state
plays a crucial role in maintaining the conditions of capitalist accumulation by providing legal, political
and ideological support. According to this understanding, he argued that the state is an instrument of
the ruling class and serves to maintain the capitalist system and protect the interests of the ruling
class. State intervention in the economy is very important in Marxism, the state must intervene in the
market in order to regulate and control the capitalist system. The state can regulate markets through
taxes, subsidies, and also argues that capitalists should create state programs to reduce their negative
impact on the working-class population. In general, the Marxist approach emphasizes the importance
of the state in shaping the structure and dynamics of markets. The state sees the state as a key actor
in the regulation and maintenance of the capitalist system and in the resolution of conflicts that arise
as a result of its capital powers.

Keynesian Approach

The Keynesian approach is an economic theory that emphasizes the role of state intervention in
managing the economy, especially during periods of economic downturn. This approach was
originated by the British economist John Maynard Keynes, who argued that government intervention
could stimulate aggregate demand and stabilize the economy in times of recession. He thought that
the invisible hand of the market should be abandoned in order to solve the problem of stagnation and
unemployment, and that the hand of the state should appear. Keynes criticized liberalism in his work
“The End of Laissez-Faire”. He argued that the state should implement various policies against various
economic problems such as unemployment and inflation.

Contrary to the idea that the state should not intervene in the economy, defended by the classics,
this view advocates the active intervention of the state in the economy. The state should deal with
issues such as controlling inflation, reducing unemployment, ensuring economic stability and growth.
Keynesian economics argues that the market is not always self-regulating and can sometimes lead to
economic instability such as recession and depression. For this reason, Keynesian economists argue
that the state should use monetary and fiscal policies for various reasons such as achieving stability in
the economy. The reorganization of tax laws is very important for the Keynesian economic model
because they argue that economic inequality can be ended in this way. Keynes does not accept the
market order per se, according to him, the market system is full of uncertainties and all these problems
arise from the absence of the state's hand in the economy. For this reason, it is quite natural for the
liberal system to have crises in the economy. In summary, this economic model, which believes in
interventionism, argues that government policies can be used to stabilize the economy and promote
full employment, and the state will have a positive effect on economic growth.

REFERENCES

https://www.investopedia.com/terms/n/neoclassical.asp#:~:text=Neoclassical%20economic%20theory
%20believes%20that,adjust%20naturally%20to%20these%20changes.

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https://www.jstor.org/stable/3487747

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https://www.investopedia.com/terms/m/marxian-economics.asp

https://www.jstor.org/stable/2722299