Definition of 'Political Economy'
Political economy is concerned with how political institutions and processes affect economic outcomes, and how economic factors influence political decisions. It also examines the distribution of wealth and power in society, and the role of the state in the economy.
Political economy has a long history, dating back to the ancient Greeks. However, it only became a distinct field of study in the 18th century, with the work of Adam Smith, David Ricardo, and Karl Marx.
Smith's book, The Wealth of Nations, is considered to be the foundation of modern economics. In this book, Smith argued that the free market is the most efficient way to allocate resources and produce wealth. However, he also recognized that the government has a role to play in the economy, such as providing public goods and regulating monopolies.
Ricardo's work focused on the relationship between wages, profits, and rent. He argued that the price of labor is determined by the supply and demand for workers, while the price of capital is determined by the supply and demand for investment. Ricardo also developed the theory of comparative advantage, which argues that countries should specialize in the production of goods and services in which they have a comparative advantage.
Marx's work was a critique of capitalism. He argued that capitalism is a system that is inherently exploitative, and that it leads to the concentration of wealth and power in the hands of a few. Marx also developed the theory of class struggle, which argues that the history of all hitherto existing society is the history of class struggles.
Political economy has continued to develop in the 20th and 21st centuries. Some of the major figures in this period include John Maynard Keynes, Joseph Schumpeter, and Friedrich Hayek. Keynes argued that the government has a role to play in stabilizing the economy, and he developed the theory of fiscal policy and monetary policy. Schumpeter argued that capitalism is a dynamic system that is constantly evolving, and he developed the theory of creative destruction. Hayek argued that the free market is the best way to promote economic growth and individual liberty.
Political economy is a complex and challenging field of study. However, it is also a field that is essential for understanding the world we live in. Political economy can help us to understand how the economy works, how political decisions affect economic outcomes, and how to create a more just and equitable society.
Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.
Is this definition wrong? Let us know by posting to the forum and we will correct it.