Political economy – sometimes referred to as comparative economy – is an interdisciplinary field in political science and economics that studies the relationship between political and economic systems, including how they influence each other.
The field originated within the 16th-century Western moral philosophy, with theoretical works exploring the administration of states' wealth. The earliest works of political economy are usually attributed to the British scholars Adam Smith, Thomas Malthus, and David Ricardo, although the work of the French physiocrats preceded them. Various thinkers, from John Stuart Mill to Karl Marx, saw economics and politics as inseparable.
By the mid-18th century, political economy emerged as a distinct field, encompassing the study of phenomena that is now categorised under economics. In the late-19th century, economics had become an independent discipline separate from political economy with the rise of mathematical modeling, coinciding with the publication of the influential textbook Principles of Economics by Alfred Marshall in 1890.
In its modern form, political economy is an interdisciplinary field analyzing phenomena such as labour markets, international trade, growth, the distribution of wealth, and economic inequality. In contrast, the term economics usually refers to the narrow study of the economy absent other political and social considerations.
Etymology and history
Origins Before economics became a separate modern discipline, the term originally referred to household or estate management and originated from the Greek word oikonomikos, whose definition is "practiced in the management of a household or family". Political economy originally extended that idea to the level of the state, which involved the management of wealth, production, trade, taxation, and subsistence at the national level.
The phrase (translated into English as "political economy") first appeared in France in 1615 with the book Traicté de l'oeconomie politique by French soldier-economist Antoine de Montchrétien.
In Adam Smith's The Wealth of Nations, Smith described political economy as part of the "science of a statesman or legislator" whose goals were to provide revenue or subsistence for the people and revenue for the state.
Other contemporary scholars attribute the roots of this study to the 14th century Tunisian historian and sociologist, Ibn Khaldun, for his work on making the distinction between "profit" and "sustenance." He also calls for the creation of a science to explain society and goes on to outline these ideas in his major work, the Muqaddimah. In Al-Muqaddimah, Khaldun states, "Civilization and its well-being, as well as business prosperity, depend on productivity and people's efforts in all directions in their own interest and profit" – seen as a modern precursor to Classical economic thought.
The French physiocrats (including François Quesnay, Richard Cantillon and Anne-Robert-Jacques Turgot) were the first major exponents of political economy,Steiner (2003), pp. 61–62 although the intellectual responses of Adam Smith, John Stuart Mill, David Ricardo, Henry George and Karl Marx to the physiocrats generally receive much greater attention in contemporary discourse.
Redefinition and relationship with economics By the late 18th century, themes that are now associated with economics—including "core principles and laws pertaining to money, markets, and trade"—had been solidified into a discourse that had come to be known as political economy.
However, in the late 19th century, economics increasingly tried to become a more autonomous, technical, and often mathematical discipline. In his work A General Mathematical Theory of Political Economy, William Stanley Jevons developed the marginal utility theory of value—sparking the "marginal revolution" and introducing mathematical methods in economics—and advocated economics for brevity and with the hope of the term becoming "the recognised name of a science".Jevons, W. Stanley. The Theory of Political Economy, 1879, 2nd ed. p. xiv. Groenwegen, Peter. (1987 ). "'political economy' and 'economics'", The New Palgrave: A Dictionary of Economics, v. 3, pp. 905–906. [Pp. 904–07.]
In the book From Political Economy to Economics, authors Milonakis and Fine argue that "the process by which political economy became economics" involved "desocialisation and dehistoricisation" and that this involved "the separation of economics from the other social sciences at the beginning of the twentieth century." They also critique the "marginal revolution" as pioneered by William Stanley Jevons, adding that the move from political economy to economics gave the discipline a rationale for developing independently of other social disciplines.
At about the same time, political science was also becoming its own autonomous academic discipline separate from history and political economy. Additionally, Alfred Marshall's Principles of Economics (published 1890) argued that the field was "better described" as economics than by the "narrower term" political economy.
On the "marginalist revolution", Michael Bernstein explains that the intellectual roots of modern economics can be traced back to "the moral philosophy of the eighteenth and nineteenth centuries"—the tradition that included classical political economy—and argues that the marginalist-neoclassical turn allowed economists to break with that heritage and construct a "distinctly professional knowledge".
Historians of economic thought therefore treat the late-19th-century marginalist and early neoclassical turn as part of the broader transformation of "political economy" into "economics," which is a narrower and more mathematical discipline that is separated from history, politics, and other social sciences. The term "economics" gradually displaced "political economy" as the mainstream name of the discipline, especially after Marshall's Principles of Economics in 1890.
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.Mark Robbins (2016) "Why we need political economy," Policy Options,
Contemporary definition In the contemporary context, the definition of political economy has changed. Contrary to the modern terms of economics and political science, political economy now refers to the interdisciplinary study of the mutual relationship between politics and economics, that is:
How the state, legal systems, and institutions shape markets and economic outcomes; and, How markets, wealth, firms, and economic interests shape politics (including the state).
The field is also sometimes split into comparative political economy and international political economy. The former analyses the interactions between the market and the state within countries, while the latter focuses on global interactions between politics and economics.
Educational institutions 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 Italy's first professor of political economy. 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. At present, 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 fundamental assumptions that challenge earlier economic assumptions.
Approaches
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 system – capitalist, socialist, communist, or mixed – influence each other.Weingast, Barry R., and Donald Wittman, ed., 2008. The Oxford Handbook of Political Economy. Oxford UP. Description and preview. 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;At JEL: P as in JEL Classification Codes Guide , drilled to at each economic-system link.For example: • 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. (2) international political economy, which studies the economic impacts of international relations;At JEL: F5 as drilled to in JEL Classification Codes Guide .For example: • Gilpin, Robert (2001), Global Political Economy: Understanding the International Economic Order, Princeton. Description and ch. 1, " The New Global Economic Order" link. • Mitra, Devashish (2008). "trade policy, political economy of," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract. and (3) economic models of political or exploitative class processes.At JEL: D72 and JEL: D74 with context for its usage in JEL Classification Codes Guide , drilled to at JEL: D7. Within political science, a general distinction is made between international political economy typically examined by scholars of international relations and comparative political economy, which scholars of comparative politics primarily study.
Social choice theory studies how utilities of individuals combine across society, also called the social welfare function, depending on political structure.Arrow, Kenneth J. (1963). Social Choice and Individual Values, 2nd ed., ch. VIII , sect. 2, The Social Decision Process, pp. 106–08. Public choice theory is a microfoundations theory closely intertwined with political economy.Tullock, Gordon ( 2008). "public choice," The New Palgrave Dictionary of Economics. Abstract . Both approaches model voters, politicians, and bureaucrats as behaving in mainly self-interested ways. Economists and political scientists often associate political economy with approaches that use rational-choice assumptions,Lohmann, Susanne (2008). "rational choice and political science," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract. especially in game theory• Shubik, Martin (1981). "Game Theory Models and Methods in Political Economy," in K. Arrow and M. Intriligator, ed., Handbook of Mathematical Economics, Elsevier, v. 1, pp. 285–330. • _____ (1984). A Game-Theoretic Approach to Political Economy. MIT Press. Description and review extract. • _____ (1999). Political Economy, Oligopoly and Experimental Games: The Selected Essays of Martin Shubik, v. 1, Edward Elgar. Description and contents of Part I , Political Economy. • Peter C. Ordeshook (1990). "The Emerging Discipline of Political Economy," ch. 1 in Perspectives on Positive Political Economy, Cambridge, pp. 9–30. • _____ (1986). Game Theory and Political Theory, Cambridge.