The study of Political Economy is the study of how individuals relate to the state, and in turn, how the states in the world relate to each other.
- 1 Introduction
- 2 Definitions
- 3 Classical Political Economics
- 4 Modern Political Economics
Political economists are concerned with the allocation of scarce resources in a world of infinite wants and needs. In order to allocate these resources, politics are used within a state to provide for the people. Political economy is the study of the relationships between individuals and society, and more specifically, the relationships between citizens and states. Machiavelli can be considered one of the first political economists as his works provided a link between a ruler and the state along with the use of power in this relationship. Likewise, Thomas Hobbes argued for the power of a sovereign leader because of his assumption that human beings are naturally bad. In the Enlightenment, the view of the role of individuals changed. Individuals were seen as virtuous and rational, able to find a natural Truth within the world. John Locke and Adam Smith helped to provide the fundamental beliefs of liberalism, which is the belief that the state which governs least is the one which governs best. As capitalism flourished in industrial countries in Europe, problems began to emerge from the economic system. As a result, political economists such as Malthus, Hegel, and Marx critiqued capitalism in their works as they presented alternatives to liberalism.
In the 20th century, modern political economists have continued to write about the relationships between individual and the state. Keynes, for example, introduced the alternative liberal idea of the welfare state (which helps to guide and protect the interests of those who have been damaged by the inequalities of the free market).
In all of these examples, these writers have presented new ideas about the allocation of resources within a society in the context of the relationships between individuals and states.
What Political Economy Is
Political economy is a study of philosophy and ideology that studies the evolution of political and economic ideas. Political economy profits from the interdisciplinary application of approaches and concepts that originated in the study of politics, economics, sociology, philosophy, and history. It ultimately concerns itself with the relationship between individuals and the state, and what influences this relationship. Political economists concern themselves not only with mechanics of economics but also with the ideology that supports its translation into policy.
The study of political economy can be split into two different historical periods. The first is known as Political Economy/Classical Political Economy and the other which is Political Economy/Modern Political Economy.
- State: A state is a sovereign political institution which governs over civil society, which is made up of individuals. The political institution combined with its civil society can also be referred to as the state.
- Civil society: This is an organized collection of individuals who participate in various groups which make up the society. The civil society is governed by the state, but is not a part of the political institution.
- Power: Power, by the classical sociological definition, is the use or threat of force in order to influence other people's actions.
- Sovereignty: This is the legitimate use of power in order to govern a body of individuals. An institution that is sovereign answers to no higher power and is therefore autonomous.
- Individual: Individuals are people who live and function within civil society and are governed by the state. However, throughout history, who is regarded as an individual has been debated since different groups of people (and animals) have gained or lost rights that have been attributed to legitimate individuals.
- Virtue: Virtue is the moral excellence of an individual. In other words, virtue is the measure of "goodness" in a person.
- Private property: Private property has been defined in different ways across the theories, but it can be generalized; private property is property that individuals can appropriate for themselves, and which society and the state have sanctioned the individual's right to use it in whatever way he or she sees fit.
- Capital: Capital is wealth used to make more wealth. It can be accumulated, spent, and exchanged. Its second definition is the money which is used as an input along with the means of production and labor for the goal of making profit.
- Means of production: The means of production are those inputs that are not capital or labor. In other words, these are the technical tools used to produce commodities.
- Labor: Labor is work produced by humans in order to change raw materials into commodities.
- Commodity: A commodity is an end product, with the inputs of capital, labor, and means of production. Commodities are sold to consumers in order to satisfy their demands and to provide the producer with revenue (and hopefully profit).
- Nation: A nation is a collection of individuals based on some sort of commonality, whether that be a common language, ethnicity, culture, or all of the above. A nation is different from a state because it does not necessarily have a formal political institution that governs the people that belong in it.
- Mercantilism: Mercantilism is a political economic system based on the central belief that there is only a fixed amount of wealth in the world and that the state should take precedence over the individual in order to effectively maximize its wealth. The power of the state increases its wealth and vice versa.
- Liberalism: Liberalism is a political economic system based on the central belief that wealth comes from labor and that there is a flexible amount of wealth in the world. The individual is virtuous and can govern himself even with a limited government.
- Marxism: Marxism is a political economic system based on the central belief that wealth and private property is detrimental and at times dangerous for individuals. Marxists strive to control the factors of production in a socialist system in order to gain enough infrastructure to support a communist utopia, where private property and a government do not exist. Marxism is divided into two polar camps of thought; one which does not believe in the possibility of a Communist Utopia (as Marx never did) and another which believes that a classless society can be created not only in relation to the means of production but in inter-class relations as well. This divide is labeled as a schism between Marxists and Communists.
- Monarchy: A system of government with a king or queen as the leader.
- Democracy: A system of government wherein each individual of the society has a direct influence over the development of both domestic and foreign policy. Such a society has never been achieved as of yet; and in its place has existed a bureaucratic representative system of governing.
- Socialism: A system of government where the state controls the factors of production with the goal that institutions will one day be able to support the communist utopia (and the elimination of both state and private property).
- Polyarchy: The most widely embraced system of government in contemporary society, Polyarchy is a system in which a vast majority of citizens are ruled over by a small cadre of the obscenely wealthy in a system of representative democracy.
Classical Political Economics
Classical theories of political economics come from theorists ranging from philosophers of antiquity to Keynes.
Before The Enlightenment
During the middle ages, Europe mainly contained feudal social systems. During this time, there were no strong centralized powers and therefore, the large states that exist in modern Europe did not exist at this time.
Many places in Europe generally relied on the agrarian form of production. Serfs were bound to the land in order to work it to produce resources which would be exchanged with the lords for protection. Lords served kings and were loosely united under them in a feudal hierarchy.
Manufacturing and trade did occur, but in a very limited scale compared to later times. In some places, profit seeking was considered a sin. (Compare this with Asian societies in the 1700s or so when merchants were considered to be within the lowest social group based on the fact that they did not labor for their income.) The notions of wealth at the time was very different compared to more modern ideas of wealth such as the labor theory of value.
Soon after the middle ages from the 16th century onwards to around the 18th century, many European states adopted mercantilist economic systems. During this time, the society of the town grew into the emergence of civil society within states dominated by monarchy. Mercantilists generally believed that the distribution of wealth is a zero-sum game meaning that one economic actor must lose wealth if another gained because mercantilists believed that there is a fixed amount of wealth in the world that cannot be created or destroyed, but only exchanged. Because of this, states believed in the favorable balance of trade. Mercantilist states strived to have a higher rate of exports than imports in order to gain more wealth.
These mercantilists believed that value and wealth come ultimately from gold, that gold is pure liquid (the only form of exchange that can be used without converting to some other form of wealth), and that gold was the only form of exchange into which all other forms of exchange could be converted to. In other words, gold is what defines value itself. Therefore, in the struggle for more wealth, states attempted to export as much as possible and to mine the earth as much as possible to accumulate the greatest amount of gold.
Individuals worked for the interests and the wealth of the state since the state's wealth was considered to be the ultimate goal of economics. States sanctioned monopolies and tightly controlled the market by means of licenses and guilds. Individual companies were licensed by the state and smaller artisans worked under state-controlled guilds which controlled the apprenticeship and employment of workers as well as the quality and quantity of the resulting commodities.
Before the Enlightenment, most political economists vouched for a strong state, advocating the security of the state over the individual. Niccolò Machiavelli is one of the first of these writers with his work The Prince, which is a treatise telling the prince of a state what he or she should do in order to gain political power. One important passage in the book is as follows: "The prince must none the less make himself feared in such a way that, if he is not loved, at least he escapes being hated. For fear is quite compatible with an absence of hatred; and the prince can avoid hatred if he abstains from the property of his subjects and citizens and from their women." This is telling the prince to control the people either by having his subjects fear or love him, and can do so by avoiding hatred of him. To do this, he must not deal with other people's private property. This is a very important idea in the study of political economy because it is an early example of the assumption that private property can be accumulated and that the intervention into the accumulation of private property by individuals is very offensive.
Thomas Hobbes was another writer who believed in the strong state. He assumed that humans were naturally like animals, prone to hurting each other if there were no controls put into place. Therefore, he believed that a strong state with the power being granted to one Sovereign would be the best way to rule a group of people. The Sovereign should be the ultimate authority on matters of "right" and "wrong," and individuals could be sacrificed as necessary in order to keep the state (which protects the large part of the population) from falling. Hobbes stressed the importance of the state over individuals, since it was the individuals who grant the state power to rule over them. In other words, individuals create a state in order to limit the amount of violence that they have for each other by granting the state a monopoly on power and violence. Because the individuals give up their rights to kill, people are generally safer since people with violent tendencies give up their legal rights to kill, and can be killed by the state in order to protect the interests of the people.
Classical liberalism came from the philosophy of the Enlightenment of the 18th century. Liberals generally believe that individuals are virtuous people who can more or less govern themselves by a mixture of this virtue and by rationality (which also draws from the Enlightenment idea that there is a definite Truth in the world, and that Truth may be found by actively searching for it and by applying logic to facts). Since liberals believe that individuals are naturally virtuous, they can and should be able to govern themselves and to decide the paths of their own lives with as little government intervention as possible. Liberals are not anarchists because they do recognize that a state is important in order to control the people as a whole, but they do believe that the state which governs least is the one which governs best.
John Locke was an Enlightenment thinker who believed that people in a state of nature are generally virtuous. However, in order to protect property rights from those few deviants, a social contract devised by the public sanctioning rights and responsibilities to a governing state must be introduced to society. Locke's idea of "life, liberty, and property" directly influenced the thinkers who introduced independence in the United States, namely Thomas Jefferson who advocated "life, liberty, and the pursuit of happiness."
Adam Smith was a Scottish philosopher who also believed that people are rational and virtuous enough to govern themselves. Also, he believed that individuals should have free control over their economic situation. Adam Smith wrote against mercantilism (state-sponsored monopoly system) and advocated a type of economic system known as capitalism. He believed that value did not come from gold, as was the belief at the time, but rather, that value came from labor. He argued that since individuals should have control over their economic lives and that value came from labor, that people should divide labor into different parts (specialization) in order to be more efficient in the free market, to open up a dynamic interaction between producers and consumers from competition that would regulate prices naturally (invisible hand).
Jeremy Bentham introduced the idea of utilitarianism. He believed that any action can be defined in two parts (cost and benefit). These two parts produce pain and pleasure in individuals. He thought that the cost and benefit of any action could be measured mathematically and the resulting measurement of utility could be used as a way to make economic or political decisions. He believed that the action which produced the greatest good for the greatest number of individuals is the best action to be taken in any decision.
Alternatives To Liberalism
Not everyone believed that liberalism was an answer to the problems of the world. Some thinkers believed that liberalism could never exist because of the lack of resources to support a liberal world while some thinkers believed that liberalism could never exist because of the lack of human virtue.
Thomas Malthus believed that the world's population and resources grew at different rates. He believed that the population growth rate was much faster than the resource growth rate which would cause a scarcity of resources for the given number of people. Therefore, with no active controls on population growth, the world would eventually destroy itself. Malthus' idea is a criticism of liberal ideas because his theory contradicted the idea of the virtuous individual. Left alone, individuals would overpopulate the earth, and the state needed to regulate unchecked human wants.
Thorstein Veblen was a thinker who challenged the idea of capitalism. He believed that in capitalist society, people accumulate property for the sole purpose of pecuniary emulation (the copying of spending patterns of the upper class) and conspicuous consumption (the buying of unnecessary goods in order to show off wealth to other people). He believed that liberalism encourages capitalism, which in turn encourages this sort of spending behavior, which is destructive to the society as a whole and to individuals in particular. He believed that allowing individuals too much economic freedom would cause them to act this way because of their inherent greed and desire to compete.
Karl Marx believed that the world consisted of a set pattern of history. He believed that history had a few important eras highlighting the different relationships between different sets of people. Inequality has been common to all these relationships. In ancient times, there were slaves and masters, where masters directly had control over slaves. This progressed to the feudal ages which supported the peasants and aristocrats. Eventually, this changed as well, with people from the peasant class and the aristocracy forming town dwellers who eventually became factory owners in the modern capitalist era. These factory owners employed factory workers who labored for the owners' profit. He called these modern factory owners capitalists and the class of capitalists the bourgeoisie. He called the workers proletarians and referred to their class as the proletariat.
In short, Marx believed that the world needed to complete a particular stage of history before moving on to the next stage. Therefore, feudalism was necessary for capitalism, and capitalism is necessary for the proposed next stage. Marx believed that inequality would become so widespread due to capitalism that the world would have to undergo a chaotic revolution due to his belief that the capitalist system could not support itself. He believed that there was a fixed amount of wealth in the world and that the capitalist system made capitalists accumulate private property to no end. He argued that the division of labor which is an important component of capitalism divides people into workers of different jobs; this categorization naturally led to inequality. After capitalism set up the necessary infrastructure, the world would move to socialism where the state would control individuals, destroying the division of labor to end inequality. After the world had stabilized, it would move to communism, where people no longer had a need to accumulate private property since everyone would in a sense become Renaissance men and women who would be bound by no one occupation. Anyone could work as they saw fit and provide for the rest of society. This is Marx's idea of the communist utopia.
Role Of Individuals
The idea of the individual and how the individual should be treated has changed throughout history. In the middle ages, the individual was servant to both lord as well as God. Individuals labored on the land in order to produce resources for the lords, who would then forward it to the kings, who were supposedly leaders chosen by God. The Catholic church ran in a rather hierarchical system with Jesus as the head and individuals making up the body.
Machiavelli wrote very little about the role of the individual, except that the prince should try by the use of power to get all the people within his principality to follow him. Individuals to Machiavelli were either servants or obstacles to the prince. Hobbes believed that humans are naturally violent and not virtuous. Therefore, in order to protect individuals and to limit violence, the rights to violence were given to the state in order for the state to mediate and control using this concentrated power. In other words, all individuals gave up their rights to kill for the state so that individuals would not have the power to do so, thus preventing violence and protecting a large number of people. However, Hobbes also believed that the state could use violence as necessary in order to prevent challenges to its authority or to prevent damages to society. Therefore, individuals should serve the state which would then protect them because individuals could not protect themselves in the state of nature.
Liberals such as Locke believed that individuals are generally virtuous. Therefore, they should be able to govern themselves because people can ultimately come to some sort of consensus. Locke was an Enlightenment philosopher and one important idea of the Enlightenment is that idea that there is an ultimate Truth, and that this Truth could be found using rationality. Therefore, with people's virtue and their ability to reason, they would be able to control and organize their lives largely independent from the intervention of the state. Smith believed that humans have the innate ability to truck, barter, and exchange, which are necessary skills required to participate in a free market. He argued that since people have these natural skills and are virtuous, they can engage in economic trade within the free market system with minimal limitations set up by the state.
Marxists believe that the ultimate goal is to free the individual from the state. All throughout history, people have been split into different classes due to inequality. These inequalities cause conflicts between individuals of different classes. He argued that under capitalism, this is no exception because the division of labor divides people into different jobs, continuing this inequality. The accumulation of private property and state intervention exacerbates this problem even further. He believed that the state needs to strictly control individuals until the society comes out of the capitalist system, and then it can move towards the communist utopia where individuals rule themselves without a state that caters to the interests of the wealthy specifically, but rather a vehicle that caters to the interests of the majority under strict Democratic control. Contrary to popular assumption Marx does not promote the dissolution of governing entities but rather to change them into entities of protection rather then exploitation. With this achieved that which was previously recognized as the State apparatus has been replaced with what is commonly referred to as a Workers State. Hence, it would be a misnomer for the new apparatus to be called a "State".
Role Of The State
The state is the institution that regulates the distribution of wealth and private property. Therefore, the role of the state was an important topic for those who were interested in how this distribution was to be handled. Also, throughout the history of the world, there had always been the question of how to protect and mediate the actions of individuals. It makes no sense for individuals to come together in a society unless there is some sort of coherence between the wants, needs, and abilities of those individuals. The state is the power that regulates these things.
The classical view of the state is the idea of an institution with sovereign power over its citizens. In other words, a state has power (which is the monopoly over force and violence) to make sure its citizens act within the bounds of the law. An institution is sovereign if it answers to no higher power.
In feudal times, Europe was split into kingdoms, which governed themselves by the word of the king (or what Machiavelli called the prince). Princes ruled their principalities based on inheritance or force and many claimed that they gained the right to rule by God's sanction. Kings gave power to their vassals (lords) to protect the kingdom in return for resources. The resources came from the lords' vassals (serfs) who worked the land and provided food for the kingdom in exchange for protection. Machiavelli believed that a prince should gain as much power as possible in order to control the population within the principality. He assumed that princes should win over their people by love if possible and force if necessary. Hobbes believed in the absolute power of a sovereign because he believed Athenian democracy was bound to fail. He argued that power should be spread out as little as possible because conflicts in power and sovereignty would bring conflicts among the population as well. He did not believe that a sovereign had to win over people if absolute power was taken for granted. In other words, if a sovereign has total power, then he does not need to use any other methods other than force to rule over the people. Since Hobbes believed that a state was the most important part of society (because it protected the individuals from eliminating each other and therefore preventing the destruction of society itself) he believed that individuals should give up their power in order for the state to regulate all aspects of personal lives if needs be in order to protect the majority of the people.
The liberals believed that the state which governs the least is the one which governs best. Since they believed that individuals have a good amount of virtue, they believed that states should exist to protect only the most fundamental rights since humans have the capacity to govern themselves in a fair manner. Locke believed that the state should be created to serve humans by protecting them from harm and to protect the private property they want to accumulate. Smith also argued for a limited state; he argued that the free market in a capitalist system would be enough to regulate most of the distribution of wealth within a population (though he did believe that a state was necessary to maintain infrastructure such as schools and certain forms of transportation).
Marx believed that the different structures of the state systems throughout history have allowed for inequality and class conflict. Therefore, he believed that the state would not be necessary after capitalism had been overthrown. He believed that the current state supports the capitalist system which perpetuates the exploitation of workers by their employers. He believed that a revolution by the proletariat was required in order to set up a new socialist government which would organize the necessary social and technical infrastructure built by capitalism to advance to the communist utopia. Therefore, even though he argued against the capitalist system, he believed that the capitalist state is a necessary institution before the creation of the socialist state and eventually the communist utopia can begin.
The idea of private property is regarded differently by the various political economists. Private property had not been an important part of the law of the state before the time of Machiavelli. Machiavelli's writings was important because it acknowledged private property rights in a time when Europe's society was based on the agrarian form of production. Thomas Hobbes advocated a need for a sovereign with total power in order to create a society where people's lives would be protected so they could be allowed to accumulate property.
In the European mercantilist society, the idea of the accumulation of private property developed further. As people started to dwell in towns and cities, the protection of property within a space of denser population was needed, so the state intervened in the market as well as in the distribution of wealth. States sanctioned their own monopolies and granted licenses to guilds in order to control the means of production as well as the flow of capital. In feudal society, people did not accumulate private property because the resources that came out of the land by the labor of the serfs went to lords and kings, who provided protection. Now, the state sanctioned limited markets and controlled the means of production to provide a limited supply of commodities for individuals. Now, people could buy products that had been provided with the control of the government.
Liberals wanted even more for the individual. Locke argued that "life, liberty, and property" should be protected by the formation of states. He saw the individual as the most important actor within a society, and he believed that the state should serve the interests of the individual, which are "life, liberty, and property." Therefore, these three parts to life are the most important, worthy of the state's protection. Smith also believed that the accumulation of property is essentially good. Due to the desires of the people to accumulate certain commodities, they would regulate the free market with the invisible hand, thereby controlling production and consumption by just following their human desires.
Marxists see private ownership of the Means of Production as unnecessary once inequality has been destroyed. The accumulation of private property and capital is what drives capitalism. Since capitalists need to compete in order to keep making profits, they must choose to accumulate capital in order to live as capitalists (otherwise, they will end up as workers themselves). It is the desire for private property itself that drives the capitalist system, and therefore must be abolished in the communist utopia. Marx did not necessarily advocate the state to actively intervene in order to remove the private property, but he believed that individuals would naturally see private property as unnecessary once the division of labor (and therefore inequality) has been eliminated.