Political economy is an interdisciplinary branch of the social sciences. It focuses on the interrelationships between individuals, governments, and public policy.
The foundation of the social science field is the outcome of the interplay between politics and economics. Political economists research the practical applications of economic theories like capitalism, socialism, and communism as well as the design and implementation of public policies based on these theories.
The term political economy continues to be widely used to describe any government policy that has an economic impact.
In a Nutshell
- An interdisciplinary area of social science called political economy focuses on how people, governments, and public policy interact.
- An interdisciplinary area of social science called political economy focuses on how people, governments, and public policy interact.
- Political economists research the practical applications of economic ideas like capitalism, socialism, and communism.
- A subfield of social science known as political economics is concerned with how people, governments, and public policy interact.
- Political economics investigates the interactions between politics and economics.
- Having a better understanding of political economics can make nations more adaptable to changes in the global economy.
Types of Political Economy
Political economy is a branch of social science that studies the relationship formed between a nation’s population and its government when public policies are enacted. It is, therefore, the result of the interaction between politics and economics and forms the basis of the discipline of social science.As mentioned above, there are several notable types of political economies:
- Socialism: This type of political economy promotes the idea that the production and distribution of goods and wealth are maintained and regulated by society, rather than by a particular group of people. The foundation of this idea is that whatever is produced by society is produced by those who participate in it, regardless of their status, wealth or position. Socialism aims to reduce the gap between rich and poor by eliminating the ability of individuals or groups to control most of the power and wealth.
- Capitalism: This theory advocates profit as the motive for progress and the ability of free markets to regulate and direct the economy on their own. The idea behind capitalism is that individuals and other agents are driven by their own interests: they control production and distribution, set prices, and create supply and demand.
- Communism: Communism is often confused with socialism, but there is a clear difference between these two theories. Communism was a theory developed by Karl Marx, who believed that capitalism was limited and created a great divide between rich and poor. He believed in shared resources, including property. However, unlike socialism, in communism production and distribution are overseen by the government.
The only way to make a lasting change in the economy is to make sure everyone has a stake in it.
Barack Obama
Those who research political economy are called political economists. Their study usually involves examining how public policies, the political situation, and political institutions influence the economic situation and the future of a country from a sociological, political, and economic perspective.
Political economy can draw on sociology, economics and political science to define how government, an economic system and politics influence each other
History and Development of Political Economy
The roots of political economy as we know it today go back to the 18th century. Scholars of the time studied how wealth was distributed and managed among people. Adam Smith and John Stuart Mill were two of the first people to write about this subject.
But the term is probably attributed to the French writer and economist Antoine de Montchrestien. He wrote a book entitled “Traité de l’économie politique” in 1615, in which he examined the need for production and wealth to be distributed on an entirely larger scale, not in the household as Aristotle suggested. The book also analyzed how economics and politics are interrelated.
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Smith was a philosopher, economist and writer commonly known as the father of economics and political economy. He wrote about the function of a self regulating free market in his first book, entitled “Theory of Moral Sentiments.” His most famous work, “An Inquiry into the Nature and Causes of the Wealth of Nations” (or “The Wealth of Nations”) helped shape classical economic theory. It also served as the basis for future economists.
Mill combined economics with philosophy. He believed in utilitarianism: that actions that lead to the good will of people are right and those that lead to suffering are wrong. In essence, he believed that economic theory and philosophy were necessary, along with social awareness in politics, to make better decisions for the good of the people. Some of his works, such as “Principles of Political Economy”, “Utilitarianism” and “A System of Logic” led him to become one of the most important figures in politics and economics.
Importance of Political Economy
Political economy studies both how the economy affects politics and how politics affects the economy. As political parties come to power and leave power, economic policy often changes in a country depending on the ideology and objectives of the party in power.
Political changes can affect many areas of the economy, which in turn can impact elections and government policies. These include:
- Monetary and fiscal policy
- Food security
- Global trade
- Labor supply and demand and crisis
- Gross domestic product (GDP)
- Financial inequality
- Disaster management
- Environmental stability
As the economies of more countries become interconnected through globalism and international trade, the politics of one country can have a strong impact on the economy of another. Understanding the relationship between political power and economic decisions in one country can help other countries predict how their own economies will be affected.
Understanding political economy can also help a country’s economy become more resilient. If the rulers in power at any given time are far sighted, they can put in place laws and policies that create the greatest potential for economic stability and growth, regardless of changes in political power.
Political Economy in Academia
Political economy has become an academic discipline of its own in recent years. Many major institutions offer this study as part of their political science, economics and/or sociology departments.
Political economists do research to determine how public policy influences behavior, productivity and trade. Much of their study helps them to establish how money and power are distributed among individuals and different groups. They can do this through the study of specific fields such as law, bureaucratic politics, legislative behavior, the intersection between government and business, and regulation.The study can be approached in three ways:
- Interdisciplinary studies: The interdisciplinary approach draws on sociology, economics, and political science to define how government institutions, an economic system, and a political environment affect and influence each other.
- New political economy: This approach is studied as a set of actions and beliefs, and seeks to make explicit assumptions that lead to political debates about societal preferences. The new political economy combines the ideals of classical political economists and the most recent analytical advances in economics and politics.
- International political economy: Also called global political economy, which is slightly different, this approach analyzes the link between economics and international relations. It draws from many academic areas, such as political science, economics, sociology, cultural studies and history.
Modern Applications of Political Economy
The works of more recent philosophers and economists, like Karl Marx, are studied in modern political economy.
As already mentioned, Marx was disenchanted with capitalism as a whole. He believed that individuals suffered under regimented social classes, in which one or more individuals controlled the greatest proportion of wealth. Under communist theories, this would be eradicated, allowing everyone to live in equality as the economy functions on the basis of each participant’s ability and needs. In communist regimes, resources are controlled and distributed by the government.
Most people confuse socialism and communism. It is true that there are some similarities in particular, that both emphasize reducing the gap between rich and poor, and that society should relegate balance among all citizens. But there are inherent differences between the two. Whereas in a communist society resources are owned and controlled by the government, in a socialist society individuals are owners. Individuals can still purchase goods and services in socialism, while those living in a communist society have their basic needs provided by the government.
Wrap Up
Political economy is a branch of social science that studies the relationships between individuals, governments, and public policies. It examines how politics influences the economy and how the economy influences politics.
As political parties change, a country’s economic policy often changes as well, depending on the ideology and objectives of the party in power. This can impact areas of the economy such as monetary and fiscal policy, food security, labor crises, rising inequality, GDP and disaster management. These changes in the economy can, in turn, lead to new political laws, policies or electoral outcomes.
The rise of globalism and international trade means that the politics of one country can have a strong impact on the economy of another. Understanding political economy can help countries become more resilient in the face of global economic changes.
FAQs
Political economy is the study of how political forces influence and are influenced by economic theories and practices. It investigates the connections between people, businesses, governments, and societies, as well as how these connections impact economic outcomes.
Public policy, economic growth, global trade, taxation, and resource allocation are the primary subjects of political economy.
The study of economics examines how people, businesses, and governments decide how to produce and distribute products and services. Political economy is the study of how political forces influence and interact with economic ideas and practices.
Studying political economy can improve your comprehension of the interactions between and influences on political and economic systems. Additionally, it can aid in the development of critical thinking and a deeper comprehension of the intricate connections that exist between people, businesses, governments, and civilizations.
A degree in political economy can lead to a wide range of occupations, including government advisor, economic consultant, expert in international trade, and public policy analyst. A profession in law, finance, or business can all be built on top of it.
The main concern of political economy is to determine the relationship between governments and individuals, and how public policy affects society. To this end, sociology, politics and economics are studied.
Some of the characteristics or issues of political economy are the distribution of wealth, how goods and services are produced, who owns property and other resources, who benefits from production, supply and demand, and how public policies and government interaction impact society.
Socialism says that all production and wealth should be controlled and shared by society. Capitalism says that private owners should control a country’s industry and commerce for profit. Communism says that all property should be owned by the public and everyone should work according to his or her own needs and strengths.
Adam Smith is generally considered the father of economics and the father of political economy. But the term is generally attributed to the French economist Antoine de Montchrestien, who wrote the book “Traité de l’économie politique”, which translates as the treatise on political economy.
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- International Relations and Security Network – A Discourse on Political Economy
- Oxford Bibliographies – Political Economy
- International Monetary Fund – What Is Capitalism?
- The University of North Carolina at Chapel Hill – Communism: Karl Marx to Joseph Stalin
- Adam Smith Institute – The Wealth of Nations
- Internet Encyclopedia of Philosophy – Adam Smith (1723—1790)
- International Monetary Fund – The Political Economy of Economic Policy
- Harvard University – Political Economy
- SOAS University of London – Unit 1 The State, Policy-Making and Political Economy
- Stanford Business – Political Economics
- The College of New Jersey – Interdisciplinary Concentration in International Political Economy
- Oxford Research Encyclopedia – International Political Economy: Overview and Conceptualization
- Hampton Roads Naval Museum – Socialism, Fascism, Capitalism, and Communism Chart
