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.

History of the term

The term political economy originally meant the study of the conditions under which production was organized in the nation-states of the new-born capitalist system. The term was first used in England in the 18th Century, to replace the earlier approach of the (French) physiocrats. The main exponents of Political Economy are Adam Smith, David Ricardo and Karl Marx. In 1805 Thomas Malthus became Britain's (and possibly the world's) first professor of political economy at the East India Company College at Haileybury in Hertfordshire.

Related Topics:
Physiocrats - Adam Smith - David Ricardo - Karl Marx - 1805 - Thomas Malthus - East India Company College - Haileybury - Hertfordshire

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By the second half of the 19th century, laissez-faire theorists started to argue that the state should not regulate the market; that politics and markets operated according to different principles; and that political economy should be replaced by two separate disciplines, Political science and Economics, in a move that has been seen, especially by Marxist thinkers, as the beginning of the fragmentation of social science. Around 1870 neoclassical economists such as Alfred Marshall began using the term economics instead of "political economy." Institutions which taught politics and economics jointly, such as Oxford University, did not adopt this terminological preference and appointed the mathematical economist Francis Edgeworth to the Drummond Chair of Political Economy in 1891.

Related Topics:
Political science - Economics - Marxist - Neoclassical economists - Alfred Marshall - Francis Edgeworth

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The term "liberal" during the 18th and 19th centuries meant the removal of barriers to trade and capitalist economic activity. This included ideas such as reduction of tariffs, standardized systems of weights and measurements, the metric system, central banking and the establishment of a gold standard to facilitate trade. These theories were part of the move to the first age of Globalization based on the theory of comparative advantage put forward by Ricardo. The present-day term "classical liberal" refers to 19th century liberalism.

Related Topics:
Metric system - Gold standard - Globalization - Classical liberal

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At the same time with the rise of classical liberalism, and in opposition to it, the theories of socialism and communism developed, which stated that unregulated ("laissez-faire") capitalism, the kind of system advocated by the classical liberals, could not correctly allocate resources and products without resulting in unsustainable misery for the vast majority of the people. In the socialist school, the most important thinker was Karl Marx. Marx regarded himself as being in the tradition of Adam Smith, focusing on the labour theory of value, on structures of production and the struggle to control those structures (which he named "class struggle").

Related Topics:
Socialism - Communism - Karl Marx - Adam Smith - Labour theory of value - Class struggle

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Political Economy remained in use for the study of economies seen through the lens of government action, even though many economists also study the effects of government.

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