Political Economy

Political economy is a branch of economics and social science. It integrates the principles of economics, sociology, and politics. It is an interdisciplinary analysis of how trade, production, government regulations, laws, and customs interact.

This discipline studies the distribution of wealth, national income, and power among individuals and groups of society. Primarily, governments follow either socialism, capitalism, or communism. The political structure of a nation has a direct impact on the economy.

• Political economy is a discipline that combines principles, theories, policies, methods, and tools from various disciplines—sociology, economics, and political science. The study focuses on the interaction of various factors—trade, productivity, government laws, regulations, international trade, etc.
• This field of study got recognition in the 18^th century due to the efforts of Adam Smith, David Hume, and François Quesnay.
• This economics discipline is necessary for understanding how history, culture, regulations, and customs affect an economy. Real-world scenarios are dynamic; multiple factors interact at once. Therefore, a wide lens is required to decipher economics at the macro level.

The political economy definition suggests an aggregation of multiple disciplines—politics, economics, and sociology. It is an interdisciplinary study of the correlation between individuals, groups, society, markets, and the state. This discipline studies both political and economic processes to elucidate the distribution of resources, power, wealth, and national income—among different sections of society.

This study was first initiated by Adam Smith, François Quesnay, and David Hume in the 18^th century. Smith was a Scottish philosopher and political economist, Quesnay was a French economist, and Hume was a Scottish philosopher.

Political systems like socialism, capitalism, and communism directly impact the economy. Socialism is a political structure where factors of production are owned by the society; the citizens have a greater say in the distribution of income and commodities. Similarly, communism also emphasizes society owning the means of production. Communism is a political structure proposed by Karl Marx. This system aims to replace private property and profit-driven economies with public ownership. In contrast, capitalism is an economic structure where the personal interest of individuals drives production, distribution, supply, demand, and commodity prices.

Studying political economy as a separate discipline involves three crucial components:

1. Interdisciplinary Studies: As the name suggests, it is a three-dimensional analysis, i.e., sociology, political science, and economics. The study tracks the complex interaction between the economic system, political environment, and governmental institutions.
2. New Political Economy: It is a set of actions and beliefs that zeroes society's current preference society.
3. International Economy: This component studies interaction based on the economy—between individuals, states, and institutions. The study approaches the interactions with a wide lens—integrating economics, sociology, politics, history, and culture.

Political economics has been driven by various classical and modern theories. Let us take a closer look at the modern political economy theories:

#1 - Economic Nationalism

The nationalistic view emphasizes that the government is the key regulator of resources within an economy; individuals do not play a major role.

#2 - Liberalism

This concept highlights that an economy runs on capital, labor, and land—key used for producing goods or services. This political outlook encourages free market capitalism and minimal government intervention. In simple terms, it believes in individual economic freedom and recommends privatization.

#3 - Marxism

The Marxist stance on the economy goes against private ownership of resources. Political economy Marxism states that private ownership causes economic inequality. Marxist economists see that as a setback for society. This ideology focuses on power imbalances, class struggle, and social transformation.

John Stuart Mill published 'Principles of Political Economy' in 1848. He was an English philosopher, political economist, civil servant, and Member of Parliament. Contemporarily though, his ideas are popularly referred to as macroeconomics. Mill elucidates the following principles:

#1 - Production

The basic requirements for the production of goods or services, i.e., labor and natural objects. While labor includes material and intellectual resources, natural objects comprise capital.

#2 - Distribution of Goods

The proper distribution of goods, property, and wealth is equally important for an economy.

#3 - Exchange

Increased exchange of goods and services also drives economic growth. The exchange of goods is primarily dictated by goods' price—supply and demand fluctuate accordingly. In addition, the exchange of goods or services is impacted by factors like credit on prices, currency function, interest rates, and international trade.

#4 - Effect of Social Progress on Production and Distribution

Social progress also affects the economy. Social progress leads to better security and protection, tax reforms, superior knowledge, and better standards of living. But, according to Mill, social progress stagnates in the absence of production and capital flow.

#5 - Role of Government in Economic Affairs

This principle focuses on the impact of necessary and optional functions of the government. Necessary functions include security, protection, and taxation. Other measures are seen as specific political ideologies dictate optional measures like monetary policies, infrastructural development, and governmental investments.

This has been a guide to What is Political Economy & its definition. Here, we explain its components, types, and principles. You can learn more about it from the following articles -

• Supply vs Demand
• Communism vs Socialism
• Marxism