Political economy originally was the term for studying production, buying and selling, and their relations with law, custom, and government, as well as with a distribution of national wealth including through the budget process. Political economy originated in moral philosophy. It developed in the 18th century as the study of the economies of states, polities, hence political economy.
In late nineteenth century, the term "political economy" was generally replaced by the term economics, used by those seeking to place the study of economy upon mathematical and axiomatic bases, rather than the structural relationships of production and consumption (cf. marginalism, William Stanley Jevons, Alfred Marshall). Today, political economy, where it is not used as a synonym for economics, may broadly refer to an interdisciplinary approach that applies economic methods to analyze how political outcomes and institutions affect economic policy or vice versa. It is available as an area of study in certain colleges and universities.
History of the term
Originally, political economy meant the study of the conditions under which production or consumption within limited parameters was organized in the nation-states. 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. French physiocrats, Adam Smith, David Ricardo and Karl Marx were some of the exponents of political economy. In 1805, Thomas Malthus became England's first professor of political economy, at the East India Company College, Haileybury, Hertfordshire. The world's first professorship in political economy was established in 1763 at the University of Vienna, Austria; Joseph von Sonnenfels was the first tenured professor.
In the United States, political economy first was taught at the College of William and Mary; in 1784 Adam Smith's Wealth of Nations was a required textbook.
Glasgow University, where Smith was Professor of Logic and Moral Philosophy, changed the name of its Department of Political Economy to the Department of Economics (ostensibly to avoid confusing prospective undergraduates) in academic year 1997–1998, making the class of 1998 the last to be graduated with a Scottish Master of Arts degree in Political Economy.
In its contemporary meaning, political economy refers to different, but related, approaches to studying economic and political behaviours, ranging from the combination of economics with other fields to the use of different, fundamental assumptions that challenge orthodox economic assumptions:
- Political economy most commonly refers to interdisciplinary studies drawing upon economics, law, and political science in explaining how political institutions, the political environment, and the economic system—capitalist, socialist, mixed—influence each other. "Traditional" topics include the influence of elections on the choice of economic policy, determinants of electoral outcomes, the political business cycles, central-bank independence, redistributive conflicts in fiscal policy, and the politics of delayed reforms in developing countries and of excessive deficits. From the late-1990s, the field has expanded to explored such wide-ranging topics as the origins and rate of change of political institutions, and the role of culture in explaining economic outcomes and developments. When more narrowly construed, it analyzes such public policy as monopoly, market protection, institutional corruption, and rent seeking.
- Historians have employed political economy to explore the ways in the past that persons and groups with common economic interests have used politics to effect changes beneficial to their interests.
- International Political Economy (IPE) is an interdisciplinary field comprising approaches to international trade and finance, and state policies affecting international trade, i.e. monetary and fiscal policies. In the U.S., these approaches are associated with the journal International Organization, which, in the 1970s, became the leading journal of international political economy under the editorship of Robert Keohane, Peter J. Katzenstein, and Stephen Krasner. They are also associated with the journal The Review of International Political Economy. There also is a more critical school of IPE, inspired by Karl Polanyi's work; two major figures are Susan Strange and Robert W. Cox.
- Economists and political scientists often associate the term with approaches using rational choice assumptions, especially game theory, in explaining phenomena beyond economics' standard remit, in which context the term "positive political economy" is common.
- Anthropologists, sociologists, and geographers, use political economy in referring to the neo-Marxian approaches to development and underdevelopment postulated by André Gunder Frank and Immanuel Wallerstein.
- New political economy students treat economic ideologies as the phenomenon to explain, per the traditions of Marxian political economy. Thus, Charles S. Maier suggests that a political economy approach: interrogates economic doctrines to disclose their sociological and political premises....in sum, [it] regards economic ideas and behaviour not as frameworks for analysis, but as beliefs and actions that must themselves be explained. This approach informs Andrew Gamble's The Free Economy and the Strong State (Palgrave Macmillan, 1988), and Colin Hay's The Political Economy of New Labour (Manchester University Press, 1999). It also informs much work published in New Political Economy an international journal founded by Sheffield University scholars in 1996.
- Guy Debord agrees: "The commodity's domination was at first exerted over the economy in an occult manner; the economy itself, the material basis of social life, remained unperceived and not understood, like the familiar which is not necessarily known. In a society where the concrete commodity is rare or unusual, money, apparently dominant, presents itself as an emissary armed with full powers who speaks in the name of an unknown force. With the industrial revolution, the division of labor in manufactures, and mass production for the world market, the commodity appears in fact as a power which comes to occupy social life. It is then that political economy takes shape, as the dominant science and the science of domination."
Because political economy is not a unified discipline, there are studies using the term that overlap in subject matter, but have radically different perspectives:
- Sociology studies the effects of persons' involvement in society as members of groups, and how that changes their ability to function. Many sociologists start from a perspective of production-determining relation from Karl Marx. Marx's theories on the subject of political economy are contained in his book, Das Kapital.
- Political Science focuses on the interaction between institutions and human behaviour, the way in which the former shapes choices and how the latter change institutional frameworks. Along with economics, it has made the best works in the field by authors like Shepsle, Ostrom, Ordeshook, among others.
- Anthropology studies political economy by studying the relationship between the world capitalist system and local cultures.
- Psychology is the fulcrum on which political economy exerts its force in studying decision-making (not only in prices), but as the field of study whose assumptions model political economy.
- History documents change, using it to argue political economy; historical works have political economy as the narrative's frame.
- Economics focuses on markets by leaving the political—governments, states, legal frameworks—as givens. Economics dropped the adjective political in the 19th century, but works backwards, by describing "The Ideal Market", urging governments to formulate policy and law to approach said ideal. Economists and political economists often disagree on what is preeminent in developing production, market, and political structure theories.
- Law concerns the creation of policy and its mediation via political actions that have specific results, it deals with political economy as political capital and as social infrastructure—and the sociological results of one society upon another.
- Human Geography is concerned with politico-economic processes, emphasizing space and environment.
- Ecology deals with political economy, because human activity has the greatest effect upon the environment, its central concern being the environment's suitability for human activity. The ecological effects of economic activity spur research upon changing market economy incentives.
- International Relations often uses political economy to study political and economic development.
- Cultural Studies studies social class, production, labor, race, gender, and sex.
- Communication examines the institutional aspects of media and telecommuncation systems, with particular attention to the historical relationships between owners, labor, consumers, advertisers, and the state.