The document discusses the evolution of the concept of political economy. It notes that early theorists like Adam Smith saw political economy as both positive (describing how the economy works) and normative (how it should work). Later theorists like Lionel Robbins and Joseph Schumpeter emphasized the interaction between economic and political systems and the use of normative principles to develop policy prescriptions. Karl Marx analyzed political economy in terms of historical changes to production relations and social power structures. The document contrasts this with Alfred Marshall's definition of economics as a positive science, separate from political and social contexts.

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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