Lecture 1 What is Political Economy?
Political economy≠economics
● Political economy is about the relationship between states and markets. What kind of
political choices are underneath the economic choices that we see? And how are
these choices constrained: location, resources etc.
● Also: introduction to the main thinkers, for example: Adam Smith.
● The economic system is inherently political because it involves choices: how do we
organise the world? How should we organise our society in such a way that people
benefit the most?
● Because of that, it is also normative. There are different values, different choices that
determine in what kind of system you end up.
Political Economy
1. Studies the fundamental interconnection between states and markets
States and markets are not disconnected. The one cannot exist without the other in a
certain form.
2. Understands economic politics as a means for states to achieve their objectives
States would like to have prosperity in the area that they control.
3. Considers today and tomorrow’s political economic relations and battles from a
historic perspective
If you study economic history you will see cycles and patterns. Beware: that does not mean
that things ALWAYS happen in the same way. But you can see why certain states are more
developed than others and why US for example is so keen on protecting its intellectual
property rights.
Example: The Trade War
● Tariffs: when goods are imported into a country, states can levy taxes on these
goods. These are called tariffs. And make trade more costly.
Tariffs are very common. In this age of free trade, there are less tariffs.
● There are more goods coming from China to the US than the other way around. So
money flows from US to China (=trade deficit). So US owes money to China.
● International trade flows influence the value of currencies (exchange rates)
● Central banks are responsible for monetary policy (in US: federal reserve)
For the US this deficit is a problem. So they also want to trade with China, which means that
China has to make it easier for the Americans to trade.
Trump: If they don’t make it easier for us to trade with them, we will make it harder for them
to trade with us. Come on all American companies let’s leave China
American companies: Noooo, what about the cheap labour in China??!!
economy=politics and politics=economy
→ The economy is inherently political and much of what is political is directly related to the
economy.
1
,It’s the political economy, stupid
The economy is inherently political. And much of what is political, is directly related to the
economy. PE is everywhere, and everything is PE.
But if that is true… How can you study this?
Four kinds of Political Economy
● Political Economy I = the classic thinkers on state and market, and their followers
● Political Economy II = the political science of economic policy fields
● Political Economy III = political phenomena considered from an economics
perspective
● Political Economy IV = markets and business considered from a political science
perspective
(our focus is mostly on PE I, II and IV)
Political economy I
● The classic thinkers on state and market, and their followers. They considered both
states AND markets, integrated in one academic debate.
The roots of political economy can be traced back to 250 years ago. For the people who
started to think about it politics and economy were very much connected. These thinkers
tried to understand the causes of wealth and prosperity. For example: Adam Smith’s The
Wealth of Nations. They also thought about how the public administration could and should
be organised.
The most fundamental question was:
To what extent should the socioeconomic order be the outcome of coordination either by the
market or the state?
Early 20th century: the Academic Divide
2
,Political economy II
= the political science of economic policy domains
Within the domain of political science you can focus exclusively on the economic policy
domain. For example: regulation of banks. The same goes if you are interested in climate
change: The G7 offers Brasil money for the Amazonian fires, but how can a less
industrialised country catch up if they are now forced to follow the rules, while the countries
that industrialised earlier on didn't have to follow any rules?. How much do you now pay for
the solidarity next generations?
Political economy III
=political phenomena considered from an economics perspective
Pol phenomena from ec perspective
idea of property was connected to family
the way we organise society to provide for our needs
What is economics?: different definitions
1. ‘The branch of knowledge concerned with the production, consumption and transfer
of wealth’ -Google
2. ‘A branch of the science of a statesman or legislator with the twofold objective of
providing a plentiful revenue or subsistence for the people’ - Adam Smith
This makes sense from a classical political economist perspective because it is all
about how we can organise our societies in a better way.
3. ‘Combining the assumptions of maximizing behaviour, stable preferences, and
market equilibrium, used relentlessly and unflinchingly -Gary Becker
refers to neoclassical economics, understand ec behaviour based on certain
assumptions
So economics is not easily defined.
What is economics?
1. a domain
2. A perspective and approach to study social interaction
demand/supply, competitions; rational behaviour; homo economicus;
individualism
Political economy III
=taking an economic perspective on politics
It is not about studying markets but the interaction between individuals.
Example: a class is seen as a place of knowledge production and knowledge consumption.
So it is economically viable to have as many students in one room. And all the people in the
class (lecturer and students) are seen as market actors.
3
, Political economy IV
=markets and business considered from a political science perspective
Who wins? Who loses? What are the consequences for inequality?
This includes studying lobbying, how lobbying practices work and how they develop over
time.
4
Political economy≠economics
● Political economy is about the relationship between states and markets. What kind of
political choices are underneath the economic choices that we see? And how are
these choices constrained: location, resources etc.
● Also: introduction to the main thinkers, for example: Adam Smith.
● The economic system is inherently political because it involves choices: how do we
organise the world? How should we organise our society in such a way that people
benefit the most?
● Because of that, it is also normative. There are different values, different choices that
determine in what kind of system you end up.
Political Economy
1. Studies the fundamental interconnection between states and markets
States and markets are not disconnected. The one cannot exist without the other in a
certain form.
2. Understands economic politics as a means for states to achieve their objectives
States would like to have prosperity in the area that they control.
3. Considers today and tomorrow’s political economic relations and battles from a
historic perspective
If you study economic history you will see cycles and patterns. Beware: that does not mean
that things ALWAYS happen in the same way. But you can see why certain states are more
developed than others and why US for example is so keen on protecting its intellectual
property rights.
Example: The Trade War
● Tariffs: when goods are imported into a country, states can levy taxes on these
goods. These are called tariffs. And make trade more costly.
Tariffs are very common. In this age of free trade, there are less tariffs.
● There are more goods coming from China to the US than the other way around. So
money flows from US to China (=trade deficit). So US owes money to China.
● International trade flows influence the value of currencies (exchange rates)
● Central banks are responsible for monetary policy (in US: federal reserve)
For the US this deficit is a problem. So they also want to trade with China, which means that
China has to make it easier for the Americans to trade.
Trump: If they don’t make it easier for us to trade with them, we will make it harder for them
to trade with us. Come on all American companies let’s leave China
American companies: Noooo, what about the cheap labour in China??!!
economy=politics and politics=economy
→ The economy is inherently political and much of what is political is directly related to the
economy.
1
,It’s the political economy, stupid
The economy is inherently political. And much of what is political, is directly related to the
economy. PE is everywhere, and everything is PE.
But if that is true… How can you study this?
Four kinds of Political Economy
● Political Economy I = the classic thinkers on state and market, and their followers
● Political Economy II = the political science of economic policy fields
● Political Economy III = political phenomena considered from an economics
perspective
● Political Economy IV = markets and business considered from a political science
perspective
(our focus is mostly on PE I, II and IV)
Political economy I
● The classic thinkers on state and market, and their followers. They considered both
states AND markets, integrated in one academic debate.
The roots of political economy can be traced back to 250 years ago. For the people who
started to think about it politics and economy were very much connected. These thinkers
tried to understand the causes of wealth and prosperity. For example: Adam Smith’s The
Wealth of Nations. They also thought about how the public administration could and should
be organised.
The most fundamental question was:
To what extent should the socioeconomic order be the outcome of coordination either by the
market or the state?
Early 20th century: the Academic Divide
2
,Political economy II
= the political science of economic policy domains
Within the domain of political science you can focus exclusively on the economic policy
domain. For example: regulation of banks. The same goes if you are interested in climate
change: The G7 offers Brasil money for the Amazonian fires, but how can a less
industrialised country catch up if they are now forced to follow the rules, while the countries
that industrialised earlier on didn't have to follow any rules?. How much do you now pay for
the solidarity next generations?
Political economy III
=political phenomena considered from an economics perspective
Pol phenomena from ec perspective
idea of property was connected to family
the way we organise society to provide for our needs
What is economics?: different definitions
1. ‘The branch of knowledge concerned with the production, consumption and transfer
of wealth’ -Google
2. ‘A branch of the science of a statesman or legislator with the twofold objective of
providing a plentiful revenue or subsistence for the people’ - Adam Smith
This makes sense from a classical political economist perspective because it is all
about how we can organise our societies in a better way.
3. ‘Combining the assumptions of maximizing behaviour, stable preferences, and
market equilibrium, used relentlessly and unflinchingly -Gary Becker
refers to neoclassical economics, understand ec behaviour based on certain
assumptions
So economics is not easily defined.
What is economics?
1. a domain
2. A perspective and approach to study social interaction
demand/supply, competitions; rational behaviour; homo economicus;
individualism
Political economy III
=taking an economic perspective on politics
It is not about studying markets but the interaction between individuals.
Example: a class is seen as a place of knowledge production and knowledge consumption.
So it is economically viable to have as many students in one room. And all the people in the
class (lecturer and students) are seen as market actors.
3
, Political economy IV
=markets and business considered from a political science perspective
Who wins? Who loses? What are the consequences for inequality?
This includes studying lobbying, how lobbying practices work and how they develop over
time.
4
