Political Economy Definition, History, and Applications

About 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 derives from these economic theories. Political economists study both the underlying roots of these policies and their results.

  • 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 the political economy of one country can impact both the economy and the politics of others.

    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.

    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.

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.

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