It developed in the 17th century as the study of the economies of states which placed the theory of property in the theory of government. Some political economists proposed the labour theory of value (first introduced by John Locke, developed by Adam Smith and later Karl Marx), according to which labour is the real source of value. Many political economists also looked at the accelerating development of technology, whose role in economic and social relationships grew ever more important.
In late 19th century, the term "political economy" was generally replaced by the term economics, which was used by those seeking to place the study of economy on a mathematical basis, rather than studying the relationships within production and consumption.
In the present, political economy means a variety of different, but related, approaches to studying economic and political behavior, which range from combining economics with other fields, to using different fundamental assumptions which challenge those of orthodox economics:
- Political economy is most commonly used to refer to interdisciplinary studies that draw on economics, law and political science in order to understand how political institutions, the political environment and capitalism influence each other.
- Within political science, the term refers to modern liberal, realist, Marxian, and constructivist theories concerning the relationship between economic and political power among and within states. This is also of concern to students of economic history and institutional economics.
Disciplines which relate to political economy
Because political economy is not a unified discipline, there are a variety of studies that use the term which have overlapping subject matter, but radically different viewpoints.
Sociology is the study of the effects of involvement in society on individuals as members of groups, and how this changes their ability to function. Many sociologists begin from a framework of production determining relationship drawn from Karl Marx.
Anthropology often studies political economy by studying the relationship between the world capitalist system and local cultures.
Psychology is frequently the fulcrum around which political economy centers, in that it deals with decision making, not as being a black box whose effects are seen only in price decisions, but as being a source of study, and therefore the assumptions in a model of political economy.
History since it documents change over time, is often used as a means of arguing in political economy, and often historical works have a framework of political economy which they assume or argue as the basis for the narrative structure.
Economics, because it studies activity and price relationships and the effects of scarcity, grew out of political economy. It is often used in political economy to argue policy effects and study the results of actions, and it is often in opposition to political economy, in that many, if not most, practicing economists see political economy as being a hindrance to the operation of economic forces. From the point of view of political economy, economics is a branch of the entire study, and economics has, at its basis, a theory of political economy which should be open to examination.
Law since it concerns the creation of policy, or the mediation of policy ends through political acts which have specific individual results, is seen, in political economy, as both political capital and social infrastructure, on one hand - and as the result of the sociology of a society on the other.
Constitutional economics is the academic sub-discipline of economics and constitutionalism. It is often described as "the economic analysis of constitutional law." Constitutional economics tries to explain the selection of different constitutional rules "limiting the choices and activities of economic and political agencies." This is different from the approach of traditional economics. Also, constitutional economics studies how well economic decisions of the state agree with the existing constitutional economic rights of its citizens." For example, proper distribution of economic and financial resources of the state is a big question for every nation. Constitutional economics helps finding a legal mechanism to solve this problem.
Ecology is often involved in political economy, because human activity is one of the single largest effects on the environment, and because it is the suitability of the environment for human beings which is one of the central concerns of most human beings. The ecological effects of economic activity on the environment have spurred the creation of a great deal of research studying means of changing the incentives balance of the market economy. This work is particularly controversial in its interaction with economics, since it questions the fundamental econometric assumptions of market economics and their basic validity.
- Alexander Hamilton
- Constitutional economics
- Social Capital
Political economy for Kids. Kiddle Encyclopedia.