Concept and definition of Political Economy

1. POLITICAL ECONOMY:
CONCEPTS
Prof. Prabha Panth,
Osmania University,
Hyderabad

2. • 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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3. • 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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4. 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
by history.”
• Role of productive relations – workers and capitalists
• Historical approach.
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5. 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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6. • 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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7. • 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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8. Questions:
1. Short Answers:
i. Define and explain Adam Smith’s concept of Political
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.
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