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Political economy

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Concept and definition of Political Economy

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Political economy

  1. 1. POLITICAL ECONOMY: CONCEPTS Prof. Prabha Panth, Osmania University, Hyderabad
  2. 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 11-12-2016Prabha Panth 2
  3. 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. 11-12-2016Prabha Panth 3
  4. 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. 11-12-2016Prabha Panth 4
  5. 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. 11-12-2016Prabha Panth 5
  6. 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. 11-12-2016Prabha Panth 6
  7. 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. 11-12-2016Prabha Panth 7
  8. 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. 11-12-2016Prabha Panth 8

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