Political Economy

   A field of interdisciplinary study drawing on economics, law, and political science to understand the mechanism by which political structures, institutions, and the policies influence market behavior. Within the discipline of political science, the term refers to modern liberal, realist, Marxian, and constructivist theories concerning the relationship between economic and political power among states. This is also of concern to students of economic history and institutional economics. Economists, however, often associate the term with game theory. Furthermore, international political economy is a branch of economics that is concerned with international trade and finance, and state policies that affect international trade, such as monetary and fiscal policies. Others, especially anthropologists, sociologists, and geographers, use the term political economy to refer to neo-Marxian approaches to development and underdevelopment set forth by theoreticians such as Andre Gunder Frank and Immanuel Wallerstein.

   To study the economies of states, the discipline of political economy was developed in the eighteenth century. In 1805, Thomas Malthus became first professor of political economy at the East India Company College at Haileybury in Hertfordshire. In an apparent contradistinction to the theory of the physiocrats, which viewed land as the source of all wealth, political economists such as John Locke, Adam Smith, and Karl Marx proposed the labor theory of value. According to this theory, labor is the real source of value. Political economists also attracted attention to the accelerating development of technology, whose role in economic and social relationships grew ever more important. Until the late nineteenth century, however, the term economics generally superseded the term political economy .

   By the second half of the nineteenth century, laissez-faire theorists started to argue that the state should not regulate the market, that politics and markets operated according to different principles, and that political economy should be replaced by two separate disciplines, political science and economics. Around 1870, neoclassical economists such as Alfred Marshall began using the term economics . Institutions that taught politics and economics jointly, such as Oxford University, did not adopt this terminological preference and appointed the mathematical economist Francis Edgeworth to the Drummond Chair of Political Economy in 1891. Political economy remained in use for the study of economies seen through the lens of government action, even though many economists also study the effects of government. Political economy primarily refers to “systems” of economy, either Wallerstein’s “world system” or emergent systems, and the free market is often an important subject of discussion.

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   FURTHER READING:

    Best, Michael H., and William E. Connolly. The Politicized Economy. Lexington, MA: DC. Heath, 1982;

    Kindleberger, Charles P. Historical Economics: Art or Science? New York: Harvester/Wheatsheaf, 1990;

    Lindblom, Charles A. Politics and Markets: The World’s Political-Economic Systems. New York: Basic Books, 1977;

    Phelps, Edmund S. Political Economy: An Introductory Text. New York: W. W. Norton, 1985;

    Staniland, Martin, What Is Political Economy? A Study of Social Theory and Underdevelopment. New Haven, CT: Yale University Press, 1985.

   JITENDRA UTTAM