POLITICAL ECONOMY: CONCEPTS

Prof. Prabha Panth,Osmania University,Hyderabad

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• The term “political economy” first used by Antonine Montchiestien (1575-1621).

• Later used by Sir James Steuart (1767).• Dealt with the study of an economy in its

political and social setting i.e. as Political Economy.

• Acknowledged social and political impacts on the economy.

• Prescriptive and normative; to improve and modify the economy through government policies

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• DEFINITIONS:Adam Smith: “Political Economy describes the actual working of the economy (positive aspect), and also the way the economy should work (normative aspect)”.

• Was more prescriptive, than descriptive.• Role of State Policy,• Branch of Civil government.

Lionel Robbins: “Political Economy analyses the political effects of economic actions, and economic effects of political actions.”

• Shows interaction between economic and political systems.

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Schumpeter: “Political Economy is an exposition of a comprehensive set of economic policies on the strength of certain unifying normative principles.”• Policy prescriptions,• Normative approach.

Marx and Engels: “Political Economy studies production relations in terms of their interconnections with the contemporary development of productive forces, as dictated by history.”• Role of productive relations – workers and capitalists• Historical approach.

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1. Political – historical background of analysis.2. Social relationships, ownership of means of

production.o Factors paid by their relative power, not relative efficiency (MP),o Ownership of capital and social power,o Distribution of income on the basis of social power of different

sections of society. Not on the basis of exchange in the market.3. Prescriptive in nature – normative approach.4. Public policy to achieve certain goals in society.5. Analysis of growth and decay of various forms of economic systems,6. Macro analysis.

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• Thus Political Economy studies the effects of various socio-political – economic changes on the production and distribution systems of an economy.

• In such a system, Economics is not separate from its Political and Social background.

• Similarly, these systems are also interconnected with Economics.

• The Classical economists, and the Pre-classicals analysed Economics as an integral part of a specific historical, social, and political system.

• It was based on Normative principles.• They suggested policy measures to improve and modify

the existing economics systems and processes.

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• However Marshall changed “Political Economy” to “Economics”

• To remove all normative and prescriptive aspects in its study.

• “Economics” – as an objective and scientific study, on par with “Physics”.

• Laws of Economics supposed to be as universally applicable as those of exact sciences like Physics, irrespective of the social, political, and historical background.

• Made Economics a Positive science – to study economic phenomenon as it is, not as it should be.

• No subjective analysis of whether the present situation is “good” or “bad”, and how to correct it.

• Capitalist market considered the Optimum, based on Perfect Competition.

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Questions:1. Short Answers:

i. Define and explain Adam Smith’s concept of Political Economy.ii. What are the different aspects highlighted by Schumpeter’s and Robbins’ definition of Political Economy?iii. Write a short note on Marxian definition of Political Economy and its components.

2. Essay Answers:i. Define Political Economy, and explain its main

features.ii. Compare the scope of “Political Economy” with the

concept of “Economics” given by Marshall.