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Political economy is a term used for studying production and trade, and their relations with law, custom, and government, as well as with the distribution of national income and wealth. Political economy originated in moral philosophy. It was developed in the 18th century as the study of the economies of states, or polities, hence the term political economy.
A classic definition of the term was articulated in 1877 by Friedrich Engels: "Political economy, in the widest sense, is the science of the laws governing the production and exchange of the material means of subsistence in human society... Political economy is therefore essentially a historical science. It deals with material which is historical, that is, constantly changing."
In the late 19th century, the term economics came to replace political economy, coinciding with the publication of an influential textbook by Alfred Marshall in 1890. 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."
Today, political economy, where it is not used as a synonym for economics, may refer to very different things, including Marxian analysis, applied public-choice approaches emanating from the Chicago school and the Virginia school, or simply the advice given by economists to the government or public on general economic policy or on specific proposals. 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. It is available as an area of study in certain colleges and universities.
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"). Thus, political economy was 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, along with Adam Smith, John Stuart Mill, David Ricardo, Henry George, and Karl Marx were some of the exponents of political economy. 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. Glasgow University, where Adam Smith had been Professor of Logic and of Moral Philosophy, changed the name of its Department of Political Economy to the Department of Economics (ostensibly to avoid confusing prospective undergraduates), in the academic year 1997–98. This left the class of 1998 as the last to be graduated with a Master of Arts in Political Economy.
In its contemporary meaning, political economy refers to different, but 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:
- 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, communists, or mixed — influence each other. The Journal of Economic Literature classification codes associate political economy with three subareas: the role of government and/or power relationships in resource allocation for each type of economic system, international political economy, which studies the economic impacts of international relations, and economic models of political processes. The last area, derived from public choice theory and dating from the 1960s, models voters, politicians, and bureaucrats as behaving in mainly self-interested ways, in contrast to a view, ascribed to earlier economists, of government officials trying to maximize individual utilities from some kind of social welfare function. An early and continuing focus of that research program is what came to be called constitutional political economy.
- Economists and political scientists often associate political economy with approaches using rational-choice assumptions, especially in game theory, 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. Other "traditional" topics include analysis of such public policy issues as economic regulation, monopoly, rent-seeking, market protection, institutional corruption, and distributional politics. Empirical analysis includes the influence of elections on the choice of economic policy, determinants and forecasting models of electoral outcomes, the political business cycles, central-bank independence, and the politics of excessive deficits.
- A recent focus has been on modeling economic policy and political institutions as to interactions between agents and economic and political institutions, including the seeming discrepancy of economic policy and economist's recommendations through the lens of transaction costs. 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. Topics have included the breakup of nations, the origins and rate of change of political institutions in relation to economic growth, development, financial markets and regulation, backwardness, reform, and transition economies, the role of culture, ethnicity, and gender in explaining economic outcomes, macroeconomic policy, the environment, fairness, and the relation of constitutions to economic policy, theoretical and empirical.
- New political economy may 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 behavior 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.
- International political economy (IPE) is an interdisciplinary field comprising approaches to the actions of various actors. In the United States, these approaches are associated with the journal International Organization, which in the 1970s became the leading journal of IPE 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 thinkers such as Antonio Gramsci and Karl Polanyi; two major figures are Matthew Watson and Robert W. Cox.
- Anthropologists, sociologists, and geographers use political economy in referring to the regimes of politics or economic values that emerge primarily at the level of states or regional governance, but also within smaller social groups and social networks. Because these regimes influence and are influenced by the organization of both social and economic capital, the analysis of dimensions lacking a standard economic value (e.g., the political economy of language, of gender, or of religion) often draws on concepts used in Marxian critiques of capital. Such approaches expand on neo-Marxian scholarship related to development and underdevelopment postulated by André Gunder Frank and Immanuel Wallerstein.
- 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.
- Political Economy and Law is a recent attempt within legal scholarship to engage explicitly with political economy literature. In the 1920s and 30s, legal realists (e.g., Robert Hale) and intellectuals (e.g., John Commons) engaged themes related to political economy. In the second half of the 20th century, lawyers associated with the Chicago School incorporated certain intellectual traditions from economics. Since the crisis in 2007, however, legal scholars especially related to international law, have turned to more explicitly engage with the debates, methodology and various themes within political economy texts.
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.
- Anthropology studies political economy by investigating regimes of political and economic value that condition tacit aspects of sociocultural practices (e.g., the pejorative use of pseudo-Spanish expressions in the US entertainment media) by means of broader historical, political, and sociological processes. Analyses of structural features of transnational processes focus on the interactions between the world capitalist system and local cultures.
- Archaeology attempts to reconstruct past political economies by examining the material evidence for administrative strategies to control and mobilize resources. This evidence may include architecture, animal remains, evidence for craft workshops, evidence for feasting and ritual, evidence for the import or export of prestige goods, or evidence for food storage.
- 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, often using it to argue political economy; some historical works take political economy as the narrative's frame.
- Human geography at times draws on theories of politico-economic processes. Typically under the moniker of political ecology, political ecology has been used by geographers to understand human systems and their relationship with the environment, broadly defined.
- 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.
- Cultural studies examines social class, production, labor, race, gender, and sex.
- Communications examines the institutional aspects of media and telecommuncation systems. As the area of study focusing on aspects of human communication, it pays particular attention to the relationships between owners, labor, consumers, advertisers, structures of production, and the state, and the power relationships embedded in these relationships.
- Economic sociology
- Economic study of collective action
- Constitutional economics
- European Association for Evolutionary Political Economy (EAEPE)
- Economic ideology
- Institutional economics
- Land value tax
- Law of rent
- Important publications in political economy
- Perspectives on Capitalism
- Social model
- Social capital
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- The Economic Sociology and Political Economy global academic community
- NBER (U.S.) "Political Economy" working-paper abstract links.
- VoxEU.org (Europe) "Politics and economics" article links.
- List, Friedrich. National System of Political Economy
- Carey, Henry C. Harmony of Interests - compares American and British systems[clarification needed] of political economy
- International Political Economy at Jacobs University Bremen
- Global Political Economy at City University London
- Centre for Global Political Economy at the University of Sussex, UK
- O'Neil Center for Global Markets and Freedom at the SMU Cox School of Business Dallas, TX USA
- Institute for the study of Political Economy and Law (IPEL) at the International University College of Turin (IUC), Italy
- European Centre for International Political Economy
- Institute for Political Economy and Development (IPEAD)