Political economy

Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. It developed in 18th century as the study of the economies of states (also known as polities, hence the word "political" in "political economy"). In contradistinction to the theory of the physiocrats, in which land was seen as the source of all wealth, political economists proposed the labour theory of value (first introduced by John Locke, developed by Adam Smith and later Karl Marx), according to which labour is the real source of value. Political economists also attracted attention to the accelerating development of technology, whose role in economic and social relationships grew ever more important.

Central concepts of political economy

Political economy studies the means of production, specifically capital, and how this manifests itself in economic activity. Whereas economics focuses on price, and sees production and consumption as "effects" on price, political economy sees economics as a manifestation of underlying reality which is effected by policy and law. The division into "use value" and "exchange value" makes a clear distinction between what would now be called "value" and "price" or "capital value" and "commodity value", in contrast to the denial of intrinsic values separate from prices in, for example, neoclassical economics.

Related Topics:
Means of production - Capital - Policy - Neoclassical economics

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In political economy, labour is used to mean human activity which produces change, and capital is the means by which the change from that labour is made greater. The results of labour are commodities which are traded and consumed, which leads to the problem of disposal of the results of consumption.

Related Topics:
Labour - Capital - Commodities - Trade - Consumed - Disposal

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Private exchange occurs in the market, and is based on a legal framework of possession and title, this is also called the private sector. Government exchange occurs through politics, and influences market decisions through policy. The government as a player in the market economy is called the public sector.

Related Topics:
Market - Possession - Title - Private sector - Politics - Public sector

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Political economy in its normative form focuses on the necessities of production, exchange, consumption and disposal, referred to as infrastructure. In its descriptive form it focuses on the classification and detailing of the workings of production, for example as in David Ricardo in On the Principles of Political Economy http://www.econlib.org/library/Ricardo/ricP.html.

Related Topics:
Normative - Infrastructure - David Ricardo - On the Principles of Political Economy

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Political economy, because it is concerned with a view of underlying reality, is often required to be multi-disciplinary in its approach. Political economy often talks in terms of "systems" of economy, either Wallerstein's world system or emergent systems, and the free market is often an important subject of discussion.

Related Topics:
Multi-disciplinary - Free market

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Production

In political economy, production refers to the use of labour, with the aid of capital, to create a determinate and recognizable thing which has use, or utility (see Utilitarianism). Studying the relationship of production is crucial to political economy, since economics only recognizes general demand, while production is often bottlenecked by specific resources, and political activity is often centered around securing of resources perceived to be creating a bottleneck.

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Political economy views production as the central activity of an economy, and views the labour available as the ultimate bottleneck for state activity. The polity must supply its needs from its available stock of labour, and thus must have sufficient capital available to allow that labour to be sufficient. Thus the basic equation of political economy may be phrased as:

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Labour involves not only time in the abstract sense, but the realities of human beings, both as social and economic beings. The basic formula of political economy was described by Adam Smith in his "Wealth of Nations":

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capital(labour) - investment - consumption = surplus/deficit

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Capital is the function, into which is put labour. Investment is the amount spent developing the stock of capital, and consumption is the use of utility. A polity which has a surplus is then able to buy assets or capital from abroad, or increase investment or consumption. A polity where investment and consumption taken together are greater than the production will run a deficit, and must borrow or sell assets to make up the difference.

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The study of production then focuses on how capital interacts with labour, in the broad, rather than narrow sense. This is because labour must, to make use of capital, have the necessary skills and social infrastructure. In Marxian terms, social infrastructure is referred to as consciousness and societies with sufficient social infrastructure to produce what they consume and control their own capital are said to have the "objective" basis for production.

Related Topics:
Social infrastructure - Consciousness

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Capital

Capital may be said to be any tool which increases the ability of labour to organize material into usable form. Physical capital refers to tangible objects which, when employed, allow greater production. Intellectual capital refers to concepts, ideas, designs, theories and information which allows an individual to act with greater effectiveness. Physical capital implies an intellectual capital required to use it. Human capital can be described as the readiness of labour to use capital, and includes education, social norms, ethical understanding, networks of relationship and communication, health and general well being.

Related Topics:
Physical capital - Intellectual capital - Human capital

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Capital can be for positive production, but, in political economic terms, weapons are also capital. States pursue political economy, in no small degree, to be able to produce the capital of projecting power and force. Often the projection of force is to acquire resources required for production, or the opening of labour to be utilized in production, or to open markets for the results of national production.

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Transport

Labour and resources need to be able to get to capital, and commodities need to be moved to where they can be exchanged and consumed. This creates the need for transport - of people, things and information.

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The need to move labour and resources to within range of capital is seen in the creation of transport grids, such as trains and roads. The need to coordinate production is seen in the creation of communication grids.

Related Topics:
Transport - Communication

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Exchange

From the view of political economy, exchange is the process where the producers of commodities or investment exchange with consumers. Each producer is also a consumer, and each consumer is also a producer. The market provides a mechanism for exchange, and money provides a medium of exchange. Consequently, the dynamics of monetary exchange are a central focus of much of political economy.

Related Topics:
Market - Money - Medium of exchange

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The infrastructure of exchange determines the range of market possibilities. Political economy views the long term goal of economic activity as the successive creation of political capital sufficient to manage the range of monetary exchange required by the society. In simple terms, money is a commodity which a society produces, and in order to function, the money it produces must be capable of sustaining the market which the society uses. Adam Smith enumerates early in The Wealth of Nations a list of requirements for the functioning of a market, which include stability of exchange and expected rates of profit in various enterprises.

Related Topics:
Political capital - Market - The Wealth of Nations

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The mechanisms of exchange are generally studied through a framework rooted in economics.

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Consumption

Consumption is the return of material organized by production back to a state of being unusable. Consumption is based on the utility of that which was consumed, and is the goal or purpose that people seek to attain.

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Disposal

Disposal is the least glamorous area of political economics, but in many respects the most vital. People produce waste. Waste, if allowed to accumulate, creates disease and other undesirable effects. Providing the infrastructure of removing that waste, or neutralizing its harmful effects, is a large fraction of the history of urban development. As Fiorella LaGuardia famously remarked "there is no Republican or Democratic way to collect the trash on time".

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Sewage systems, garbage collection, clean air laws and recycling are all results of the need to dispose of after effects, and take up a significant fraction of the political life of most localities. On the scale of political economy, wastes produced often require more space or expertise than can be managed locally.

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Green economics and other fields of study that concentrate on externalization of costs focus heavily on the carry capacity of ecological systems and the effect of human activity in them, this includes the effects in human terms of global warming, ecological diversity, soil erosion, water quality, epidemiology and pollution.:):)

Related Topics:
Green economics - Externalization - Carry capacity - Global warming - Ecological diversity - Soil erosion - Water quality - Epidemiology - Pollution

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