Foundations of Political Economy
Leiden University – Faculty of Humanities – BA International Studies – 2020-2021
Lecture 1 Foundations of Political Economy What is an economy?
The social bases of economies and economic aspects of life
⎯ London, Jonathan. Foundations of Political Economy (syllabus). Pages 1-5.
⎯ Menz, Georg. Comparative Political Economy: Contours of a Subfield. Oxford University Press,
2017. Pages 1-5.
⎯ Bandelj, N., & Sowers, E. (2014). “What is Economy?”. In Economy and State: a sociological
perspective. Bandelj, N., & Sowers. Pages 3-6.
⎯ Stilwell, F., 2012. “The Personal is Political Economic,” In Political economy: The Contest of
Economic Ideas. 3rd edition, South Melbourne, Victoria: Oxford University Press. Pages 10-15.
Jonathan London – Foundations of Political Economy
“Political economy addresses issues fundamental to individual and collective well-being and rests on
the proposition that economies and economic aspects of social life may not be understood
independently of the social relations, institutions, and processes withing which they occur. … political
economy may best be understood as a post-disciplinary mode of inquiry in that its interest in history,
politics, economy, culture, and the impressive diversity of human experience and its rejection of the
misbegotten idea that the world can be adequately understood by dividing its analysis into various
academic departments.” (1)
“An approach to political economy that is cognizant of economies’ social foundations and which
embraces intellectual pluralism proves especially valuable for international and area studies, which
address economies an economic aspects of life in a global context.” (1)
Course overview
“The contemporary world offers a particularly in interesting context in which to ‘do’ political
economy. This can be seen both substantively and intellectually.
• Substantively, the economic and political turbulence and heightened uncertainty about the
future that prevails today has led people around the world to question and debate the adequacy
of the social, political, and economic arrangements within which we live. And understanding of
political economy can enhance our ability to make sense of these questions and to participate in
these debates.
• Intellectually, political economy’s intrinsically multi-disciplinary outlook provides opportunities to
draw from different disciplines within the social sciences and humanities without succumbing to
the intellectual fragmentation that standard disciplinary approaches have tended to invite,
promote, or reinforce.” (2)
“The position taken in this course is that neoclassical economics represents an important and highly
influential way of thinking and training people to think about economic aspects of life but which,
owing to certain flaws, is a problematic guide (at best) for understanding economic aspects of social
life.” (2)
Course objectives
• “Explain key concepts and theoretical approaches in classical, contemporary political economy;
• Develop comparative perspectives on themes addressed in a variety of settings
,• Collect and use data to make or explore claims about variety of political economy themes” (3)
Course components
“This course has three main components: readings, lectures, and tutorials.” (4)
“Policy on devices (during normal times): Use of electronic devices of any kind is not permitted in the
lecture hall, though students may make audio recordings of the lectures if they wish. Students are
provided with notes ach week to facilitate their learning.” (4)
Georg Menz – Comparative Political Economy
A Genealogy of the Field from Adam smith to the Mid-Twentieth Century
Abstract and Keywords
“This chapter charts the foundations of the subfield by taking the reader on a tour of key thinkers in
political economy from the eighteenth century onwards.” (1)
1.1 Introduction: Why Study Comparative Political Economy?
“CPE concerns itself with the comparative study of distributional outcomes across countries and
thus, more indirectly, among individuals.” (1)
“CPE concerns itself with the ‘wealth of nations’, to borrow from Adam Smith’s most famous work,
but also, albeit indirectly, the wealth of individuals. It explores how the complex domains of labour
markets, industrial relations, finance, and welfare states mesh and interact.” (2)
“CPE focuses on the institutional differences in the organization of modern capitalism. Different
configurations in the organization of labour market regulation, education systems, finance, and
welfare states lead to different outcomes in terms of levels of productivity, economic sectors of
excellence, and the avenues available for individual socioeconomic advancement. … CPE also opens
our eyes to the fate of individual citizens embedded within different institutional arrangements
governing the interaction between state and market.” (2)
“Political actors can draw on and learn from the experience of other countries, but often policy
choices for economic reform are made based on ideological and ideational preference alone and
constitute a leap into the dark.” (2-3) “Elements of political culture and religious traditions and values
are thus important … elements in helping account for the emergence and sustenance of institutions
of political economy.” (3)
“Who gets what, when, and how? Traditionally, these were political choices made by government.”
(3) This changed during the 19th century, firstly in Germany, followed by Britain and the USA. “All of
these were political choices driven by domestic political and social conflict. … However, they were
influenced by ideological preferences, some of which need to be understood behind the backdrop of
elements of political culture and religion.” (3)
“Though the globalization debate is largely thought of as being the subject area of International
Political Economy (IPE), it cannot be and should not be ignored by CPE scholars and students.
International economic processes have a top-down impact at the national level.” (3) “The relevance
of the international sphere has been driven home starkly by the financial crisis commencing in 2008
and the associated near collapse of the single European currency. … CPE is not some arid academic
exercise. It is the study of conflict-prone and conflict-ridden politico-economic processes that inspire,
transform, and occasionally upset human lives.” (4)
,“This book introduces, explores, and critically analyses the subfield of CPE. It helps the reader
understand the building blocks of political-economic systems of regulation. It is designed for
classroom use.” (4)
“CPE helps us understand crucial policy choices in setting up, running, and reforming key political
institutions. … CPE is an encompassing subfield that helps us understand how economic choices have
political fall-out, but also how political institutions limit or at least shape economic processes.” (5)
N. Bandelj and E. Sowers – What is Economy?
Definition of economy
• Ancient Greek: “oikos meant a Greek household and nomos meant act, law, or principle”. (3)
• Recent: “the complex of activities involving production, distribution, exchange, and consumption
of goods and services”. (3)
“… we will use the term [economy] to refer mostly to a national economy of a particular country …
and use the term international or global economy when we refer to the economic activities that
encompass multiple countries or even the whole world.” (3)
“… ‘the economy’ does not include only paid activities in the formal sector. Non-paid work, work in
the informal sector, and illegal work are all part of a nation’s economy even if it is harder to evaluate
their contribution to GDP. … States certainly play a role in these non-paid, non-market activities.” (4)
For example, the exclusion of inmate work “from the legal category of employment”. (4) “Moreover,
informal activities are intrinsically linked to the actions of state because … the informal economy
exists only because of the regulations enacted to create the formal economy. … There would be no
tax evasion schemes if not for the system of taxation. Thus, it is precisely the state regulation of the
economy that gives rise to the opportunities to engage in informal economic activity.” (5)
“There are also many activities that are considered illegal but are part of the economy because they
involve production, distribution, and consumption of – albeit illicit – goods and services. The value of
illegal trade is substantial. … A crucial point related to the economy-state discussion is the fact that
whether an activity is considered illicit as opposed to licit is a result of legal regulation … Thus, it is
clear that the role of the federal and state government is central for what we define as illegal
economy.” (5)
“Common measurements include GDP, GDP growth, national debt, interest rates, unemployment,
inflation, consumer spending, exchange rates, and balance of trade.” (5-6) “Based on some of these
indicators, scholars and practitioners classify countries as ‘developed’ and ‘developing’ states or as
‘advanced industrial nations’ and ‘least developed countries’. The classification of individual
countries in any of these categories is quite controversial. … Precisely because of the widespread use
of these categories in the collection and analysis of statistical data, the status and recognition of a
country as ‘more or less developed’ is perpetuated. … Amid the wealth of economic indicators we
should realize that not one of them is absolutely more important than the other. As we argue
throughout the book, desired economic goals – be they GDP growth, full employment, low inflation,
or low inequality – are politically and socially defined.” (6)
F. Stilwell – Political economy: The contest of economic ideas, Chapter 2 The Personal
is Political Economic
The study of economics “is about how the economic system works, rather than how the system can
be worked for personal advantage”. (10) “Generally, the study of economics should serve the needs
of intelligent citizens who wish to make sense of the world around them.” (10)
, The economic context: risk and uncertainty
“Dramatic changes in technology are transforming the way goods and services are produced, and
particularly, the way information is transmitted.” (10) “This process has cultural and political, as well
as economic, dimensions, but its most notable feature is the growing economic power of
transnational corporations. … Understandably, many individuals feel dwarfed and powerless in these
circumstances. The capacity of the democratic institutions within nation states to exercise control
over the enormously powerful private corporations is under challenge; in many cases, governments
do not even seem to have the will to exercise such control.” (11)
“Meanwhile, the nature of work is also rapidly changing. … For those who are in work, the emphasis
is now increasingly on casual, part-time, or contract employment.” (11)
“Increased income inequalities, within and between nations, are a predictable feature of these
circumstances. They repeatedly undermine the conditions for effective cooperation in seeking
solutions.” (11)
“Meanwhile, in the wealthier nations the economic exuberance of the early 2000s has been replaced
with a more troubled economic outlook. The capitalist system has always been prone to a cyclical
pattern of boom and bust, but the global financial crisis that began in 2007-08 was a particularly
harsh reminder of this systemic flaw.” (11)
“It is not surprising that many individuals feel overwhelmed by these developments and problems.
Therein lies the twin challenge for political economy: to analyse the underlying forces and to posit
some effective solutions.” (11)
Box 2.1 Economic decisions
Everyone has to make economic decisions every day, although they vary widely.
• Students
• Consumers
• Workers
• Businesses
• Speculators
• Banks
• Government ministers
Micro decisions: macro outcomes
“There is a link between micro personal choices and macro societal choices. Individuals’ economic
decisions affect and are affected by broader political economic forces.” (12) “… it seems reasonable
… to see what is happening in the economy as the outcome of the sum of individual decisions.” (12-
13) “As political economists, we step back from the individual choices and short-term decisions to
see the bigger picture. This can help us understand the political economic structures that shape and
constrain our options. It can also help to reveal the forces that change the context which individual
economic decisions are made.” (13)
Three trilogies
“The first diagram [of Figure 2.1] depicts the relationship between market, state, and community. It
shows the three different ways in which economic activity can be organized: market, state, and
community. … These three different ways of providing for our material needs and wants normally
coexist in any society, but their relative importance varies, and there are recurrent tensions between
them. The same diagram illustrates the boundary tensions in terms of the balance between public
Leiden University – Faculty of Humanities – BA International Studies – 2020-2021
Lecture 1 Foundations of Political Economy What is an economy?
The social bases of economies and economic aspects of life
⎯ London, Jonathan. Foundations of Political Economy (syllabus). Pages 1-5.
⎯ Menz, Georg. Comparative Political Economy: Contours of a Subfield. Oxford University Press,
2017. Pages 1-5.
⎯ Bandelj, N., & Sowers, E. (2014). “What is Economy?”. In Economy and State: a sociological
perspective. Bandelj, N., & Sowers. Pages 3-6.
⎯ Stilwell, F., 2012. “The Personal is Political Economic,” In Political economy: The Contest of
Economic Ideas. 3rd edition, South Melbourne, Victoria: Oxford University Press. Pages 10-15.
Jonathan London – Foundations of Political Economy
“Political economy addresses issues fundamental to individual and collective well-being and rests on
the proposition that economies and economic aspects of social life may not be understood
independently of the social relations, institutions, and processes withing which they occur. … political
economy may best be understood as a post-disciplinary mode of inquiry in that its interest in history,
politics, economy, culture, and the impressive diversity of human experience and its rejection of the
misbegotten idea that the world can be adequately understood by dividing its analysis into various
academic departments.” (1)
“An approach to political economy that is cognizant of economies’ social foundations and which
embraces intellectual pluralism proves especially valuable for international and area studies, which
address economies an economic aspects of life in a global context.” (1)
Course overview
“The contemporary world offers a particularly in interesting context in which to ‘do’ political
economy. This can be seen both substantively and intellectually.
• Substantively, the economic and political turbulence and heightened uncertainty about the
future that prevails today has led people around the world to question and debate the adequacy
of the social, political, and economic arrangements within which we live. And understanding of
political economy can enhance our ability to make sense of these questions and to participate in
these debates.
• Intellectually, political economy’s intrinsically multi-disciplinary outlook provides opportunities to
draw from different disciplines within the social sciences and humanities without succumbing to
the intellectual fragmentation that standard disciplinary approaches have tended to invite,
promote, or reinforce.” (2)
“The position taken in this course is that neoclassical economics represents an important and highly
influential way of thinking and training people to think about economic aspects of life but which,
owing to certain flaws, is a problematic guide (at best) for understanding economic aspects of social
life.” (2)
Course objectives
• “Explain key concepts and theoretical approaches in classical, contemporary political economy;
• Develop comparative perspectives on themes addressed in a variety of settings
,• Collect and use data to make or explore claims about variety of political economy themes” (3)
Course components
“This course has three main components: readings, lectures, and tutorials.” (4)
“Policy on devices (during normal times): Use of electronic devices of any kind is not permitted in the
lecture hall, though students may make audio recordings of the lectures if they wish. Students are
provided with notes ach week to facilitate their learning.” (4)
Georg Menz – Comparative Political Economy
A Genealogy of the Field from Adam smith to the Mid-Twentieth Century
Abstract and Keywords
“This chapter charts the foundations of the subfield by taking the reader on a tour of key thinkers in
political economy from the eighteenth century onwards.” (1)
1.1 Introduction: Why Study Comparative Political Economy?
“CPE concerns itself with the comparative study of distributional outcomes across countries and
thus, more indirectly, among individuals.” (1)
“CPE concerns itself with the ‘wealth of nations’, to borrow from Adam Smith’s most famous work,
but also, albeit indirectly, the wealth of individuals. It explores how the complex domains of labour
markets, industrial relations, finance, and welfare states mesh and interact.” (2)
“CPE focuses on the institutional differences in the organization of modern capitalism. Different
configurations in the organization of labour market regulation, education systems, finance, and
welfare states lead to different outcomes in terms of levels of productivity, economic sectors of
excellence, and the avenues available for individual socioeconomic advancement. … CPE also opens
our eyes to the fate of individual citizens embedded within different institutional arrangements
governing the interaction between state and market.” (2)
“Political actors can draw on and learn from the experience of other countries, but often policy
choices for economic reform are made based on ideological and ideational preference alone and
constitute a leap into the dark.” (2-3) “Elements of political culture and religious traditions and values
are thus important … elements in helping account for the emergence and sustenance of institutions
of political economy.” (3)
“Who gets what, when, and how? Traditionally, these were political choices made by government.”
(3) This changed during the 19th century, firstly in Germany, followed by Britain and the USA. “All of
these were political choices driven by domestic political and social conflict. … However, they were
influenced by ideological preferences, some of which need to be understood behind the backdrop of
elements of political culture and religion.” (3)
“Though the globalization debate is largely thought of as being the subject area of International
Political Economy (IPE), it cannot be and should not be ignored by CPE scholars and students.
International economic processes have a top-down impact at the national level.” (3) “The relevance
of the international sphere has been driven home starkly by the financial crisis commencing in 2008
and the associated near collapse of the single European currency. … CPE is not some arid academic
exercise. It is the study of conflict-prone and conflict-ridden politico-economic processes that inspire,
transform, and occasionally upset human lives.” (4)
,“This book introduces, explores, and critically analyses the subfield of CPE. It helps the reader
understand the building blocks of political-economic systems of regulation. It is designed for
classroom use.” (4)
“CPE helps us understand crucial policy choices in setting up, running, and reforming key political
institutions. … CPE is an encompassing subfield that helps us understand how economic choices have
political fall-out, but also how political institutions limit or at least shape economic processes.” (5)
N. Bandelj and E. Sowers – What is Economy?
Definition of economy
• Ancient Greek: “oikos meant a Greek household and nomos meant act, law, or principle”. (3)
• Recent: “the complex of activities involving production, distribution, exchange, and consumption
of goods and services”. (3)
“… we will use the term [economy] to refer mostly to a national economy of a particular country …
and use the term international or global economy when we refer to the economic activities that
encompass multiple countries or even the whole world.” (3)
“… ‘the economy’ does not include only paid activities in the formal sector. Non-paid work, work in
the informal sector, and illegal work are all part of a nation’s economy even if it is harder to evaluate
their contribution to GDP. … States certainly play a role in these non-paid, non-market activities.” (4)
For example, the exclusion of inmate work “from the legal category of employment”. (4) “Moreover,
informal activities are intrinsically linked to the actions of state because … the informal economy
exists only because of the regulations enacted to create the formal economy. … There would be no
tax evasion schemes if not for the system of taxation. Thus, it is precisely the state regulation of the
economy that gives rise to the opportunities to engage in informal economic activity.” (5)
“There are also many activities that are considered illegal but are part of the economy because they
involve production, distribution, and consumption of – albeit illicit – goods and services. The value of
illegal trade is substantial. … A crucial point related to the economy-state discussion is the fact that
whether an activity is considered illicit as opposed to licit is a result of legal regulation … Thus, it is
clear that the role of the federal and state government is central for what we define as illegal
economy.” (5)
“Common measurements include GDP, GDP growth, national debt, interest rates, unemployment,
inflation, consumer spending, exchange rates, and balance of trade.” (5-6) “Based on some of these
indicators, scholars and practitioners classify countries as ‘developed’ and ‘developing’ states or as
‘advanced industrial nations’ and ‘least developed countries’. The classification of individual
countries in any of these categories is quite controversial. … Precisely because of the widespread use
of these categories in the collection and analysis of statistical data, the status and recognition of a
country as ‘more or less developed’ is perpetuated. … Amid the wealth of economic indicators we
should realize that not one of them is absolutely more important than the other. As we argue
throughout the book, desired economic goals – be they GDP growth, full employment, low inflation,
or low inequality – are politically and socially defined.” (6)
F. Stilwell – Political economy: The contest of economic ideas, Chapter 2 The Personal
is Political Economic
The study of economics “is about how the economic system works, rather than how the system can
be worked for personal advantage”. (10) “Generally, the study of economics should serve the needs
of intelligent citizens who wish to make sense of the world around them.” (10)
, The economic context: risk and uncertainty
“Dramatic changes in technology are transforming the way goods and services are produced, and
particularly, the way information is transmitted.” (10) “This process has cultural and political, as well
as economic, dimensions, but its most notable feature is the growing economic power of
transnational corporations. … Understandably, many individuals feel dwarfed and powerless in these
circumstances. The capacity of the democratic institutions within nation states to exercise control
over the enormously powerful private corporations is under challenge; in many cases, governments
do not even seem to have the will to exercise such control.” (11)
“Meanwhile, the nature of work is also rapidly changing. … For those who are in work, the emphasis
is now increasingly on casual, part-time, or contract employment.” (11)
“Increased income inequalities, within and between nations, are a predictable feature of these
circumstances. They repeatedly undermine the conditions for effective cooperation in seeking
solutions.” (11)
“Meanwhile, in the wealthier nations the economic exuberance of the early 2000s has been replaced
with a more troubled economic outlook. The capitalist system has always been prone to a cyclical
pattern of boom and bust, but the global financial crisis that began in 2007-08 was a particularly
harsh reminder of this systemic flaw.” (11)
“It is not surprising that many individuals feel overwhelmed by these developments and problems.
Therein lies the twin challenge for political economy: to analyse the underlying forces and to posit
some effective solutions.” (11)
Box 2.1 Economic decisions
Everyone has to make economic decisions every day, although they vary widely.
• Students
• Consumers
• Workers
• Businesses
• Speculators
• Banks
• Government ministers
Micro decisions: macro outcomes
“There is a link between micro personal choices and macro societal choices. Individuals’ economic
decisions affect and are affected by broader political economic forces.” (12) “… it seems reasonable
… to see what is happening in the economy as the outcome of the sum of individual decisions.” (12-
13) “As political economists, we step back from the individual choices and short-term decisions to
see the bigger picture. This can help us understand the political economic structures that shape and
constrain our options. It can also help to reveal the forces that change the context which individual
economic decisions are made.” (13)
Three trilogies
“The first diagram [of Figure 2.1] depicts the relationship between market, state, and community. It
shows the three different ways in which economic activity can be organized: market, state, and
community. … These three different ways of providing for our material needs and wants normally
coexist in any society, but their relative importance varies, and there are recurrent tensions between
them. The same diagram illustrates the boundary tensions in terms of the balance between public
