Political economy is an interdisciplinary field that studies how economic theories like capitalism and socialism function in the real world under different governments and public policies. It examines the relationships between individuals, governments, and policies. The field has roots in the 18th century works of Adam Smith and others and remains important for understanding how political changes can impact the economy and vice versa. Political economists conduct research on these interactions to provide insights that can help economies adapt to changing circumstances.
Political economy is an interdisciplinary field that studies how economic theories like capitalism and socialism function in the real world under different governments and public policies. It examines the relationships between individuals, governments, and policies. The field has roots in the 18th century works of Adam Smith and others and remains important for understanding how political changes can impact the economy and vice versa. Political economists conduct research on these interactions to provide insights that can help economies adapt to changing circumstances.
Political economy is an interdisciplinary field that studies how economic theories like capitalism and socialism function in the real world under different governments and public policies. It examines the relationships between individuals, governments, and policies. The field has roots in the 18th century works of Adam Smith and others and remains important for understanding how political changes can impact the economy and vice versa. Political economists conduct research on these interactions to provide insights that can help economies adapt to changing circumstances.
Political economy is an interdisciplinary field that studies how economic theories like capitalism and socialism function in the real world under different governments and public policies. It examines the relationships between individuals, governments, and policies. The field has roots in the 18th century works of Adam Smith and others and remains important for understanding how political changes can impact the economy and vice versa. Political economists conduct research on these interactions to provide insights that can help economies adapt to changing circumstances.
and Applications By WILL KENTON Updated September 25, 2023
Reviewed by MICHAEL J BOYLE
Fact checked by MELODY KAZEL
What Is Political Economy?
Political economy is an interdisciplinary branch of the social sciences. It focuses on the interrelationships of individuals, governments, and public policy.
Political economists study how economic theories such as capitalism,
socialism, and communism work in the real world. Any economic theory is a means of directing the distribution of a finite amount of resources in a way that benefits the greatest number of individuals.
These ideas can be studied both theoretically and as they are actually used. Public policy that is created and implemented derive from these economic theories. Political economists study both the underlying roots of these policies and their results.
KEY TAKEAWAYS The field of political economy involves the study of how economic theories such as capitalism or communism play out in the real world. As political parties come to and leave power, economic policy often changes due to the ideology and goals of the party in power. Those who study political economy seek to understand how history, culture, and customs impact an economic system, and vice versa. Global political economy studies how political forces shape global economic interactions. The rise of globalism and global trade means that political economy of one country can impact both the economy and the politics of others. Investopedia / Zoe Hansen
Understanding Political Economy
Political economy is a branch of social science that studies the relationship that forms between a nation's population and its government when public policy is enacted. It is, therefore, the result of the interaction between politics and the economy and is the basis of the social science discipline. [1]
Advertisement Those who research the political economy are called political economists. Their study generally involves the examination through a sociological, political, and economic lens of how public policy, the political situation, and political institutions impact a country's economic standing and future.
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In a wider sense, political economy was once the common term used for the field we now call economics. Adam Smith, John Stuart Mill, and Jean-Jacques Rousseau all used the term to describe their theories. [2] The shorter term "economy" was substituted in the early 20th century with the development of more rigorous statistical methods for analyzing economic factors. [3] [4]
Types of Political Economy
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 a particular group of people. The rationale behind this is that whatever is produced by society is done so because of those who participate, regardless of status, wealth, or position. Socialism aims to bridge the gap between rich and poor, eliminating the ability of individuals or groups to control the majority of power and wealth. [5] Capitalism: This theory advocates profit as a motive for advancement and the ability of free markets to regulate and drive the economy on their own. The idea behind capitalism is that private individuals and entities are driven by their own interests—they control production and distribution, set prices, and create supply and demand. [6] Communism: Individuals often confuse communism with socialism, but there is a distinct difference between these two theories. Communism was a theory developed by Karl Marx, who felt that capitalism was limited and created a big divide between rich and poor. He believed in shared resources, including property. Unlike socialism, however, under communism production and distribution are overseen by the government. [7] Advertisement ?.Bitkey
Important: Political economy may draw upon 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 during the period studied how wealth was distributed and administered between people. Some of the earlier works that examined this phenomenon include those by Adam Smith and John Stuart Mill. [8] [9]
Advertisement Antoine de Montchrestien But the term is probably best ascribed to the French writer and economist, Antoine de Montchrestien. He wrote a book called 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. [10]
Adam Smith Smith was a Scottish philosopher, economist, and writer who is commonly referred to as the father of economics and of the political economy. He wrote about the function of a self-regulating free market in his first book, which was called The Theory of Moral Sentiments. [11] 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 was considered the foundation for the field of study by future economists. [8]
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John Stuart Mill
The Englishman Mill combined economics with philosophy. He believed in utilitarianism—that actions that lead to people's goodwill are right and that those that lead to suffering are wrong. [9] In essence, he believed that economic theory and philosophy were needed, along with social awareness in politics, to make better decisions for the good of the people. Some of his work, including Principles of Political Economy, Utilitarianism, and A System of Logic made him one of the most important figures in politics and economics.
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Importance of Political Economy
Political economy studies both how the economy affects politics and how politics affect the economy. As political parties come to and leave power, economic policy often changes in a country in accordance with the ideology and goals of the party in power. [12]
Political changes can impact many areas of the economy, which can in turn impact elections and government policies. These areas include:
Monetary and fiscal policy
Food security Global trade Labor supply, demand, and crises Gross domestic product (GDP) Financial inequality Disaster management Environmental stability [13] 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 impacted.
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Understanding political economy can also help a country's economy become
more resilient. If the government leaders in power at any given moment are forward-thinking, they can try to put laws and policies in place that create the greatest possibility for economic stability and growth, regardless of changing political power. [12]
FAST FACT Political economy is still a widely used term that describes any government policy that has an economic impact.
Political Economy in Academia
Political economy has become an academic discipline of its own. Many major institutions offer the study as part of their political science, economics, and/or sociology departments. Political economists conduct research to determine how public policy influences behavior, productivity, and trade. This work helps them establish how money and power are distributed between people and different groups. They may study specific fields such as law, bureaucratic politics, legislative behavior, the intersection of government and business, and regulation. [14]
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The study may be approached in any of 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. [15] New political economy: This approach studies 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 newer 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 including political science, economics, sociology, cultural studies, and history. The international political economy concerns how political forces like states, [16] individuals, and institutions affect global economic interactions. [16]
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Modern Applications of Political Economy
Modern applications of the political economy involve the study of later philosophers and economists, such as Karl Marx.
As mentioned above, Marx became disenchanted with capitalism as a whole.
He believed that individuals suffered under regimented social classes, where one or more individuals controlled the greater proportion of wealth.
Under communist theories, this would be eradicated, allowing everyone to live
equally while the economy functions based on the ability and needs of each participant. Under communist regimes, resources are controlled and distributed by the government. [7]
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Socialism vs. Communism
Many people confuse socialism and communism. It's true there are some similarities—notably, that both stress bridging the gap between rich and poor, and that society should relegate equilibrium among all citizens.
But there are inherent differences between the two. While resources in a communist society are owned and controlled by the government, individuals in a socialist society hold property. People can still purchase goods and services under socialism, while those who live in a communist society are provided with their basic necessities by the government. [17]
What Does Political Economy Mean?
The term "political economy" refers to a branch of social sciences that focuses on relationships between individuals, governments, and public policy. It is also used to describe the policies set by governments Ad that affect their nations' economies.
What Is the Primary Concern of Political Economy?
The main concerns of political economy are the relationship between governments and individuals, and how public policy affects society. These are determined through the study of sociology, politics, and economics. What Are the Characteristics of Political Economy? Some of the characteristics or themes of a political economy include the distribution of wealth, how goods and services are produced, who owns property and other resources, who profits from production, supply and demand, and how public policy and government interaction impact society.
Who Coined the Term "Political Economy"?
Adam Smith is generally considered the father of economics and of the political economy. But the term is generally ascribed to French economist Antoine de Montchrestien, who wrote the book Traité de l'économie politique, which translates to the treaty of the political economy. [11] [10]
The Bottom Line
Political economy is a branch of the social sciences that studies the relationships between individuals, governments, and public policy. It examines how the realm of politics impacts the economy and how the economy impacts politics.
As political parties change, a country's economic policy often changes as well,
based on the ideology and goals 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 prompt new political laws, policies, or election 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.
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ARTICLE SOURCES
Related Terms Social Science: What It Is and the 5 Major Branches Social science is a group of academic disciplines that examine human behavior and includes anthropology, economics, psychology, and sociology. more
What Is Communism? Learn Its History, Pros, and Cons
Communism is an ideology that advocates a classless system in which the means of production are owned communally. more
Who Was John Stuart Mill, and What Is He Best Known For? John Stuart Mill was an influential 19th-century British philosopher, political economist, and author of the leading economics textbook for 40 years. more
Socialism: History, Theory, and Analysis
Socialism is an economic and political system based on public or collective ownership of the means of production and that emphasizes economic equality. more
What Is Capitalism: Varieties, History, Pros & Cons,
Socialism Capitalism is an economic system in which monetary goods are owned by individuals or companies, and workers earn only wages. more
Economics Defined with Types, Indicators, and Systems
Economics is a branch of social science focused on the production, distribution, and consumption of goods and services. more
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