Political economy

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Jean-Jacques Rousseau, Discours sur l'oeconomie politique, 1758 Rousseau - Discours sur l'oeconomie politique, 1758 - 5884558.tif
Jean-Jacques Rousseau, Discours sur l'oeconomie politique, 1758

Political economy is the study of production and trade and their relations with law, custom and government; and with the distribution of national income and wealth. As a discipline, political economy originated in moral philosophy, in the 18th century, to explore the administration of states' wealth, with "political" signifying the Greek word polity and "economy" signifying the Greek word "okonomie" (household management). The earliest works of political economy are usually attributed to the British scholars Adam Smith, Thomas Malthus, and David Ricardo, although they were preceded by the work of the French physiocrats, such as François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781). [1]

Production is a process of combining various material inputs and immaterial inputs in order to make something for consumption. It is the act of creating an output, a good or service which has value and contributes to the utility of individuals. The area of economics that focuses on production is referred to as production theory, which in many respects is similar to the consumption theory in economics.

Trade Exchange of goods and services.

Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. A system or network that allows trade is called a market.

Law System of rules and guidelines, generally backed by governmental authority

Law is a system of rules that are created and enforced through social or governmental institutions to regulate behavior. It has been defined both as "the Science of Justice" and "the Art of Justice". Law is a system that regulates and ensures that individuals or a community adhere to the will of the state. State-enforced laws can be made by a collective legislature or by a single legislator, resulting in statutes, by the executive through decrees and regulations, or established by judges through precedent, normally in common law jurisdictions. Private individuals can create legally binding contracts, including arbitration agreements that may elect to accept alternative arbitration to the normal court process. The formation of laws themselves may be influenced by a constitution, written or tacit, and the rights encoded therein. The law shapes politics, economics, history and society in various ways and serves as a mediator of relations between people.


In the late 19th century, the term "economics" gradually began to replace the term "political economy" with the rise of mathematical modelling coinciding with the publication of an influential textbook by Alfred Marshall in 1890. [2] Earlier, William Stanley Jevons, a proponent of mathematical methods applied to the subject, advocated economics for brevity and with the hope of the term becoming "the recognised name of a science". [3] [4] Citation measurement metrics from Google Ngram Viewer indicate that use of the term "economics" began to overshadow "political economy" around roughly 1910, becoming the preferred term for the discipline by 1920. [5] Today, the term "economics" usually refers to the narrow study of the economy absent other political and social considerations while the term "political economy" represents a distinct and competing approach.

Economics Social science that analyzes the production, distribution, and consumption of goods and services

Economics is the social science that studies the production, distribution, and consumption of goods and services.

Alfred Marshall British economist

Alfred Marshall, FBA was one of the most influential economists of his time. His book, Principles of Economics (1890), was the dominant economic textbook in England for many years. It brings the ideas of supply and demand, marginal utility, and costs of production into a coherent whole. He is known as one of the founders of neoclassical economics. Although Marshall took economics to a more mathematically rigorous level, he did not want mathematics to overshadow economics and thus make economics irrelevant to the layman.

William Stanley Jevons English economist and logician

William Stanley Jevons FRS was an English economist and logician.

Political economy, where it is not used as a synonym for economics, may refer to very different things. From an academic standpoint, the term may reference Marxian economics, applied public choice approaches emanating from the Chicago school and the Virginia school. In common parlance, "political economy" may simply refer to the advice given by economists to the government or public on general economic policy or on specific economic proposals developed by political scientists. [4] A rapidly growing mainstream literature from the 1970s has expanded beyond the model of economic policy in which planners maximize utility of a representative individual toward examining how political forces affect the choice of economic policies, especially as to distributional conflicts and political institutions. [6] It is available as a stand-alone area of study in certain colleges and universities.

Marxian economics school of economic thought

Marxian economics, or the Marxian school of economics, is a heterodox school of economic thought. Its foundations can be traced back to the critique of classical political economy in the research by Karl Marx and Friedrich Engels. Marxian economics comprises several different theories and includes multiple schools of thought, which are sometimes opposed to each other, and in many cases Marxian analysis is used to complement or supplement other economic approaches. Because one does not necessarily have to be politically Marxist to be economically Marxian, the two adjectives coexist in usage rather than being synonymous. They share a semantic field while also allowing connotative and denotative differences.

Public choicetheory is "the use of economic tools to deal with traditional problems of political science". Its content includes the study of political behavior. In political science, it is the subset of positive political theory that studies self-interested agents and their interactions, which can be represented in a number of ways – using standard constrained utility maximization, game theory, or decision theory.

Chicago school of economics neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles

The Chicago school of economics is a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles.


Originally, political economy meant the study of the conditions under which production or consumption within limited parameters was organized in nation-states. In that way, political economy expanded the emphasis of economics, which comes from the Greek oikos (meaning "home") and nomos (meaning "law" or "order"). Political economy was thus meant to express the laws of production of wealth at the state level, just as economics was the ordering of the home. The phrase économie politique (translated in English as "political economy") first appeared in France in 1615 with the well-known book by Antoine de Montchrétien, Traité de l’economie politique. The French physiocrats were the first exponents of political economy, although the intellectual responses of Adam Smith, John Stuart Mill, David Ricardo, Henry George and Karl Marx to the physiocrats generally receives much greater attention. [7] The world's first professorship in political economy was established in 1754 at the University of Naples Federico II in southern Italy. The Neapolitan philosopher Antonio Genovesi was the first tenured professor. In 1763, Joseph von Sonnenfels was appointed a Political Economy chair at the University of Vienna, Austria. Thomas Malthus, in 1805, became England's first professor of political economy, at the East India Company College, Haileybury, Hertfordshire. In its contemporary meaning, political economy refers to different yet related approaches to studying economic and related behaviours, ranging from the combination of economics with other fields to the use of different, fundamental assumptions that challenge earlier economic assumptions:

Adam Smith 18th-century Scottish moral philosopher and political economist

Adam Smith was a Scottish economist, philosopher and author as well as a moral philosopher, a pioneer of political economy and a key figure during the Scottish Enlightenment, also known as ''The Father of Economics'' or ''The Father of Capitalism''. Smith wrote two classic works, The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). The latter, often abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. In his work, Adam Smith introduced his theory of absolute advantage.

John Stuart Mill British philosopher and political economist

John Stuart Mill, usually cited as J. S. Mill, was a British philosopher, political economist, and civil servant. One of the most influential thinkers in the history of classical liberalism, he contributed widely to social theory, political theory, and political economy. Dubbed "the most influential English-speaking philosopher of the nineteenth century", Mill's conception of liberty justified the freedom of the individual in opposition to unlimited state and social control.

David Ricardo British political economist, broker and politician

David Ricardo was a British political economist, one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill.

Current approaches

Robert Keohane, international relations theorist Keohane small.jpg
Robert Keohane, international relations theorist

Political economy most commonly refers to interdisciplinary studies drawing upon economics, sociology and political science in explaining how political institutions, the political environment, and the economic systemcapitalist, socialist, communist, or mixed—influence each other. [8] The Journal of Economic Literature classification codes associate political economy with three sub-areas: (1) the role of government and/or class and power relationships in resource allocation for each type of economic system; [9] (2) international political economy, which studies the economic impacts of international relations; [10] and (3) economic models of political or exploitative class processes. [11] Much of the political economy approach is derived from public choice theory on the one hand and radical political economics on the other hand, both dating from the 1960s.

Sociology Scientific study of human society and its origins, development, organizations, and institutions

Sociology is the study of society, patterns of social relationships, social interaction, and culture of everyday life. It is a social science that uses various methods of empirical investigation and critical analysis to develop a body of knowledge about social order, acceptance, and change or social evolution. While some sociologists conduct research that may be applied directly to social policy and welfare, others focus primarily on refining the theoretical understanding of social processes. Subject matter ranges from the micro-sociology level of individual agency and interaction to the macro level of systems and the social structure.

Political science is a social science which deals with systems of governance, and the analysis of political activities, political thoughts, and political behavior. It deals extensively with the theory and practice of politics which is commonly thought of as determining of the distribution of power and resources. Political scientists "see themselves engaged in revealing the relationships underlying political events and conditions, and from these revelations they attempt to construct general principles about the way the world of politics works."

Economic system system of production and exchange

An economic system is a system of production, resource allocation and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes and patterns of consumption that comprise the economic structure of a given community. As such, an economic system is a type of social system. The mode of production is a related concept. All economic systems have three basic questions to ask: what to produce, how to produce and in what quantities and who receives the output of production.

Public choice theory is a microfoundations theory that is closely intertwined with political economy. Both approaches model voters, politicians and bureaucrats as behaving in mainly self-interested ways, in contrast to a view, ascribed to earlier mainstream economists, of government officials trying to maximize individual utilities from some kind of social welfare function. [12] As such, economists and political scientists often associate political economy with approaches using rational-choice assumptions, [13] especially in game theory [14] and in examining phenomena beyond economics' standard remit, such as government failure and complex decision making in which context the term "positive political economy" is common. [15] Other "traditional" topics include analysis of such public policy issues as economic regulation, [16] monopoly, rent-seeking, market protection, [17] institutional corruption [18] and distributional politics. [19] Empirical analysis includes the influence of elections on the choice of economic policy, determinants and forecasting models of electoral outcomes, the political business cycles, [20] central-bank independence and the politics of excessive deficits. [21]

In economics, the microfoundations are the microeconomic behavior of individual agents, such as households or firms, that underpins a macroeconomic theory.

Within economics the concept of utility is used to model worth or value, but its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or satisfaction within the theory of utilitarianism by moral philosophers such as Jeremy Bentham and John Stuart Mill. But the term has been adapted and reapplied within neoclassical economics, which dominates modern economic theory, as a utility function that represents a consumer's preference ordering over a choice set. As such, it is devoid of its original interpretation as a measurement of the pleasure or satisfaction obtained by the consumer from that choice.

In welfare economics, a social welfare function is a function that ranks social states as less desirable, more desirable, or indifferent for every possible pair of social states. Inputs of the function include any variables considered to affect the economic welfare of a society. In using welfare measures of persons in the society as inputs, the social welfare function is individualistic in form. One use of a social welfare function is to represent prospective patterns of collective choice as to alternative social states. The social welfare function provides the government with a simple guideline for achieving the optimal distribution of income.

A more recent focus has been on modeling economic policy and political institutions as to interactions between agents and economic and political institutions, [22] including the seeming discrepancy of economic policy and economist's recommendations through the lens of transaction costs. [23] From the mid-1990s, the field has expanded, in part aided by new cross-national data sets that allow tests of hypotheses on comparative economic systems and institutions. [24] Topics have included the breakup of nations, [25] the origins and rate of change of political institutions in relation to economic growth, [26] development, [27] financial markets and regulation, [28] the importance of institutions, [29] backwardness, [30] reform [31] and transition economies, [32] the role of culture, ethnicity and gender in explaining economic outcomes, [6] macroeconomic policy, [33] the environment, [34] fairness [35] and the relation of constitutions to economic policy, theoretical [36] and empirical. [37]

Other important landmarks in the development of political economy include:

Because political economy is not a unified discipline, there are studies using the term that overlap in subject matter, but have radically different perspectives: [47]

See also


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  6. 1 2 Alesina, Alberto F. (2007:3) "Political Economy," NBER Reporter, pp. 1–5. Abstract-linked-footnotes version.
  7. "What is Political Economy?". Political Economy, Athabasca University. Retrieved 2017-06-15.
  8. Weingast, Barry R., and Donald Wittman, ed., 2008. The Oxford Handbook of Political Economy. Oxford UP. Description Archived 2013-01-25 at the Wayback Machine and preview.
  9. At JEL: P as in JEL Classification Codes Guide, drilled to at each economic-system link.
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       • Brandt, Loren, and Thomas G. Rawski (2008). "Chinese economic reforms," The New Palgrave Dictionary of Economics , 2nd Edition. Abstract.
       • Helsley, Robert W. (2008). "urban political economy," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
  10. At JEL: F5 as drilled to in JEL Classification Codes Guide.
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       • Mitra, Devashish (2008). "trade policy, political economy of," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
  11. At JEL: D72 and JEL: D74 with context for its usage in JEL Classification Codes Guide, drilled to at JEL: D7.
  12. Tullock, Gordon ([1987] 2008). "public choice," The New Palgrave Dictionary of Economics. Abstract.
      Arrow, Kenneth J. (1963). Social Choice and Individual Values , 2nd ed., ch. VIII, sect. 2, The Social Decision Process, pp. 106–08.
  13. Lohmann, Susanne (2008). "rational choice and political science," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
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       • _____ (1984). A Game-Theoretic Approach to Political Economy. MIT Press. Description Archived 2011-06-29 at the Wayback Machine and review extract.
       • _____ (1999). Political Economy, Oligopoly and Experimental Games: The Selected Essays of Martin Shubik, v. 1, Edward Elgar. Description Archived 2012-05-24 at the Wayback Machine and contents of Part I, Political Economy.
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       • _____ (1986). Game Theory and Political Theory, Cambridge. Description and preview.
  15. Alt, James E.; Shepsle, Kenneth (eds.) (1990), Perspectives on Positive Political Economy (Cambridge [UK]; New York: Cambridge University Press). Description and content links and preview.
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  18. • Bose, Niloy. "corruption and economic growth," The New Palgrave Dictionary of Economics Online, 2nd Edition, 2010. Abstract.
       • Rose-Ackerman, Susan (2008). "bribery," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
  19. Becker, Gary S. (1983). "A Theory of Competition among Pressure Groups for Political Influence," Quarterly Journal of Economics, 98(3), pp. 371–400.
       • Weingast, Barry R., Kenneth A. Shepsle, and Christopher Johnsen (1981). "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, 89(4), pp. 642–664.
       • Breyer, Friedrich (1994). "The Political Economy of Intergenerational Redistribution," European Journal of Political Economy, 10(1), pp. 61–84. Abstract.
      Williamson, Oliver E. (1995). "The Politics and Economics of Redistribution and Inefficiency," Greek Economic Review, December, 17, pp. 115–136, reprinted in Williamson (1996), The Mechanisms of Governance, Oxford University Press, ch. 8, pp. 195–218.
      Krusell, Per, and José-Víctor Ríos-Rull (1999). "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model," American Economic Review, 89(5), pp. 1156-1181.
       • Galasso, Vincenzo, and Paola Profeta (2002). "The Political Economy of Social Security: A Survey," European Journal of Political Economy, 18(1), pp. 1–29. [ permanent dead link ]
  20. • Drazen, Allan (2008). "Political business cycles," The New Palgrave Dictionary of Economics , 2nd Edition. Abstract.
      Nordhaus, William D. (1989). "Alternative Approaches to the Political Business Cycle," Brookings Papers on Economic Activity, (2), pp. 1-68.
  21. Buchanan, James M. (2008). "public debt," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
       • Alesina, Alberto, and Roberto Perotti (1995). "The Political Economy of Budget Deficits," IMF Staff Papers, 42(1), pp. 1-31.
  22. Timothy, Besley (2007). Principled Agents?: The Political Economy of Good Government, Oxford. Description.
       • _____ and Torsten Persson (2008). "political institutions, economic approaches to," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
      North, Douglass C. (1986). "The New Institutional Economics," Journal of Institutional and Theoretical Economics, 142(1), pp. 230-237.
       • _____ (1990). Institutions, Institutional Change and Economic Performance, in the Political Economy of Institutions and Decisions series. Cambridge. Description and preview.
      Ostrom, Elinor (1990). Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University Press. Description and preview links. ISBN   9780521405997.
       • _____ (2010). "Beyond Markets and States: Polycentric Governance of Complex Economic Systems," American Economic Review, 100(3), pp. 641-72 Archived 2013-11-05 at the Wayback Machine .
  23. Dixit, Avinash (1996). The Making of Economic Policy: A Transaction Cost Politics Perspective. MIT Press. Description and chapter-preview links. Review-excerpt link.
  24. Beck, Thorsten et al. (2001). "New Tools in Comparative Political Economy: The Database of Political Institutions," World Bank Economic Review,15(1), pp. 165-176.
  25. Bolton, Patrick, and Gérard Roland (1997). "The Breakup of Nations: A Political Economy Analysis," Quarterly Journal of Economics, 112(4), pp. 1057–1090.
  26. Alesina, Alberto, and Roberto Perotti (1994). "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review, 8(3), pp. 351–371.
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  28. Perotti, Enrico (2014). "The Political Economy of Finance", in "Capitalism and Society" Vol. 9, No. 1, Article 1
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  31. • Mukand, Sharun W. (2008). "policy reform, political economy of," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
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  32. Roland, Gérard (2002), "The Political Economy of Transition," Journal of Economic Perspectives, 16(1), pp. 29–50.
       • _____ (2000). Transition and Economics: Politics, Markets, and Firms, MIT Press. Description and preview.
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  34. • Dietz, Simon, Jonathan Michie, and Christine Oughton (2011). Political Economy of the Environment An Interdisciplinary Approach, Routledge. Description and preview.
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       • Gleeson, Brendan, and Nicholas Low (1998). Justice, Society and Nature An Exploration of Political Ecology, Routledge. Description Archived 2013-05-10 at the Wayback Machine and preview.
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  39. cf: Baker, David (2006). "The political economy of fascism: Myth or reality, or myth and reality?" Archived 2011-06-23 at the Wayback Machine , New Political Economy, 11(2), pp. 227–250.
  40. Cohen, Benjamin J. "The transatlantic divide: Why are American and British IPE so different?", Review of International Political Economy, Vol. 14, No. 2, May 2007.
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