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Fri Mar 9 10:21:08 MST 2001
by Richard Lee (Fernand Braudel Center)
POLITICAL ECONOMY/ECONOMICS: political economy, trans. of Fr. économie
politique; "originally the art or practical science of managing the
resources of a nation so as to increase its material prosperity; in more
recent use, the theoretical science dealing with the laws that regulate the
production and distribution of wealth"; economics, from Gr., originally
"economy" in the narrow sense to manage a household.; in the wider sense
especially from the nineteenth century, related to the development and
regulation of the material resources of a community or nation; econometrics,
from 1930's, application of statistical techniques to economic data (OED).
The most common reference for the birth of economics is the publication of
Adam Smith's Wealth of Nations in 1776 in England. However, Montchrestien
had used the term "political economy" to describe his discipline in 1615 in
one of the first publications in which the term "political economy"
appeared, his Traité d'économie politique, in much the way Smith did; and a
decade before Smith, James Steuart had first used the term, in English, in
the title of his An Inquiry into the Principles of Political Economy. Oxford
created the Drummond Chair in Political Economy in 1825, although from 1805
and until his death, Malthus occupied a position with the East India
(Company) College as Professor of History, Political Oeconomy and Finance.
In France the Journal économique published from 1751-1772. The Journal
d'économie publique, de morale et de politique founded in 1796 lasted only
two years and the Revue mensuelle d'économie politique was also short lived.
Political economy became a required subject in the faculties of law in 1877
as a result of a long campaign on the part of, among others, the Société
d'économie politique from its foundation in 1842. The Journal des
économistes, founded in 1841, lasted almost a century as the organ of the
In Italy the publication of Custodi's series Scrittori classici italiani di
economia politica in 1803 was symptomatic of the pretense of (political)
economists to offer a "complete picture of fundamental political problems";
along the same lines, Gioia's Nuovo prospetto delle scienze economiche ossia
somma totale delle idee teoriche e pratiche in ogni ramo d'amministrazione
privata e pubblica appeared in 1815. (Schiera in Wagner et al., 1991, 108).
In polemic with this encyclopedic school, Ferrara founded the Biblioteca
dell'economia in 1852. Courses in political economy were ubiquitous
throughout the century and chairs in political economy were
institutionalized in the general university reform of 1876.
In the United States, there was a profusion of university courses in
political economy by the early nineteenth century. Harvard had the first
chair, established in 1871, and courses primarily for graduate students from
1875. The first Ph.D.'s were awarded at Harvard, Yale and Johns Hopkins in
1875, 1877, and 1878, respectively. The American Economic Association was
founded in 1885 and the Quarterly Journal of Economics began publishing in
1886 in Cambridge, Mass.
In his Principles of Political Economy of 1848, John Stuart Mill argues that
political economy is not a science which teaches how a nation may become
rich. He dismisses the analogy of the domestic economy of the family and the
political economy of the state on the grounds that the one is an art and the
other a science--an early distinction between the normative and the
positive. Mill is concerned to define political economy in such a way as
to make it a science; and in doing so he provides one of the earliest
treatments of the role of simplifying assumptions in economic analysis. ...
His interest in methodology and his concern for separating science and art
foreshadowed the modern separation of positive from normative economics.
... [I]t was this eagerness for the discipline to be more scientific that
led one of Mill's successors to change its name (Wright, 1990, 61).
Neo-classical economics emerged with the so-called marginalist revolution
from the 1870's of Menger (Austria), Walras (Switzerland), Jevons (England).
Marginal utility (or cost) was
differentiated from average utility (or cost). It was predicated on the
increment to the total utility (or cost) of consuming (or producing) one
more unit and based on the "laws" of diminishing
utility or returns which go back to Turgot. Marshall's (England) Principles
of Economics (1890) brought Mill's project of a "science" of economics to
fruition and underlined it with a
definitive change in name.
Indeed for Marshall the term "economics" was preferable to "political
economy", broadening the domain, as he thought, to business and commerce,
and stressing positive economics without,
however, totally excluding the normative. Although largely directed by
practical needs, economics avoids as far as possible the discussion of those
exigencies of party organization, and those diplomacies of home and foreign
politics of which the statesman is bound to take account in deciding what
measures that he can propose will bring him nearest to the end that he
desires to secure for his country. It aims indeed at helping him to
determine not only what that end should be, but also what are the best
methods of a broad policy devoted to that end. But it shuns many political
issues, which the practical man cannot ignore: and it is therefore a
science, pure and applied, rather than a science and an art. And it is
better described by the broad term "Economics" than by the narrower term
"Political Economy" (Marshall quoted in Wright, 1990, 64).
For Marshall the "Mecca of economic science" was "economic biology"
(Maloney, 1985, 28-32).
In Germany the Zeitschrift für die gesamte Staatswissenschaft began
publishing in 1844 but the decades of the 1870's and 1880's formed a turning
point. The Methodenstreit of the 1880's
was an ardent discussion over the proper method for economic studies.
Schmoller's historical approach collided with the "pure" theory of the
neoclassicist Carl Menger: the one emphasized the historically concrete, the
other the abstract; the one relied on price history, the other on price
theory; the one spoke of actual past economic behavior, the other of typical
economic behavior; the one stressed lessons gained from descriptive history,
the other worked with theoretical models applicable everywhere and at any
time ... really a far-reaching dispute over the structure of reality. ...
[As] Menger's followers opened the doors of economics even wider to
psychology and mathematics ... economists preferred to theorize on the
timeless and typical processes of the market and thereby moved ever closer
to the ideals of the ahistorical natural sciences (Breisach, 1983, 299).
In the United States, the Methodenstreit was carried on between Richard Ely,
who was inspired by Schmoller's Verein für Sozialpolitik, and Simon
Newcombe, astronomer and "an able and
articulate spokesman for the abstract deductivist conception of political
economy which Ricardo had inspired and which J. S. Mill had tried to
restrict" (Manicas in Wagner, et al., 49). The
American Economics Association (1885) was formed out of this matrix to
combat the view that economic problems would solve themselves. Ely, however,
was treated as an anarchist and
socialist; after Haymarket the ranks broke, and Henry Adams proposed giving
up any claim to moral authority. From the other side Charles F. Dunbar of
Harvard in the first issue of the
Quarterly Journal of Economics (1886), offered to make peace with the
Rid of its Germanisms and formally fitted with differential equations,
economics was securely in the hands of descendants of 'the great masters of
the deductive school.' As for the others who stayed, they were, like Veblen,
derisively termed 'sociologists,' or perhaps more kindly ... 'institutional
economists' (Manicas in Wagner, et al., 62).
At Harvard the term "political economy" was dropped in 1897 to be replaced
by "economics"; this transition was fairly complete in most U.S.
universities by 1900.
In the Italian debate over the role of the state in the economic sphere, the
laissez-faire group (Adam Smith Society founded in Florence in 1874) who
supported the journal L'Economista, was
countered by those who wished to apply experimental methods to both economic
and social enquiry, social science as broad and complex--they supported the
Economist's Journal during its
first run 1875-78. By the 1890's the Economist's Journal had passed into the
hands of the marginalists who proclaimed the sovereignty of "pure
economics". Although polemics among
proponents of the theoretical movement and the historical school persisted
during the later nineteenth century in the context of a crisis of liberalism
and contributions by economists to the elaboration of the welfare state (but
unlike the German model, state intervention was to be complementary rather
than exclusive), economists of all stripes shared a loose attachment to
empiricist ("experimental") methodology, pragmatic state politics, and the
search for "economic laws".
In Germany, the two fields of science and politics were divided, but the
support in terms of technical expertise and legitimation that science gave
to politics was decisive.
In Italy, there was no clear separation, the middle course triumphed as in
all fields. As a consequence, science became much more directly political
without politics becoming much more scientific in return (Schiera in Wagner,
et al., 1990, 113).
The upshot of the Italian Methodenstreit essentially amounted to responding
to the "social question" with soft methodology and theorizing situated
somewhere between speculation and
experience, theory and practice.
As codified by Say in France (formation, distribution and consumption of
wealth), the transformation to "classical economics" was an outcome of a
politics of liberalism and laissez-faire and a
turn from mercantilism to markets and the "hidden hand" which tended to
distance the state from the traditional "political sciences".
Economics then was not a "human science", developed by philosophers in the
faculty of letters, and was no longer a "political science", developed by
civil servants in relation to problems of state administration[, and could
thus claim autonomy]. But economics was not a theoretical discipline either.
... [I]t was not until economics was institutionalized in the faculty of law
that a more scholarly type of economic analysis emerged, for which the Revue
d'économie politique (1887) served as an outlet (Heilbron in Wagner, et al.,
Thus in France economics came to occupy a position between the "political"
and "human sciences". The Revue d'économie politique appeared to compete
with the Journal des économistes and espoused a "science" which had already
conquered socialism and protectionism. The new school emerging here in 1887
was not marginalism though; it was the historical school opposing the
orthodox school grounded in the "natural right" of property. The
classicists, going back to Say, distinguished between science (discovery of
natural laws) and art; the historicists emphasized the historical character
of economic categories and tended to abolish the science/art distinction in
aiming for greater practicality in science. Hence the historical school
played a role in the abandoning of the classical definition and in the
forming of the conception of economics as the science of "allocating
decisions about scarce resources". ... Thus ... the debate on the conception
of political economy ... opposes liberals (heirs of the classics) and
historicists, with the marginalists (notably Menger) being seen in rather a
good light by those of the orthodox school when setting forth their views
(Alcouffe, 1989, 337).
In England the Royal Economic Society was established in 1890; the founding
of the London School of Economics in 1895 by Sidney and Beatrice Webb was
part of broad-based interest in
extension courses in political economy. Commercial education has customarily
been distinguished from economics through its "practical" intent such as
that at the University of Birmingham
(1902) which challenged Marshall and the tripos in economics at Cambridge.
In the U.S. the Rockefeller Foundation became a major player in the 1920's
with the establishment of the National Bureau of Economic Research and
subsidizing the International Commission on Price History; again the aim was
to turn economics into a true science. But large-scale data sets were found
to be necessary for any prediction which could lead to policy initiatives.
Other centers formed with this (empirical and inductive) end in sight and
benefiting from assistance from Rockefeller were the Harvard Economic
Services and overseas, institutes in Vienna, Oslo, Rotterdam, Heidelberg,
Kiel, and Oxford (see Craver and Leijonhufvud, 1987). The mathematization of
economics was fulfilled with the foundation of the Econometric Society and
the appearance of Econometrica (1933).
The world economic downturn of the late 1920's and 1930's, the "Great
Depression", and its massive unemployment were inexplicable from a classical
or neo-classical perspective.
Keynesianism, a broad economic/political/social program to preserve
capitalism in its crisis based on the technical/theoretical work of John
Maynard Keynes, cast the state in a primary role in
fostering the economic well being of its citizens. Liquidity preference
leading to high interest rates and deficient aggregate demand resulting in
unemployment (demand responding to income
instead of price) suggested public policy programs based on active state
intervention to realize full employment. In the U.S. this was exemplified in
the New Deal and the political realignment of the Democratic Party
coalition, and, after 1945, the limited corporatism of the labor-management
understanding in which economic interests were assured while unions
demands for restructuring in the social and political spheres. In Great
Britain corporatism went even further after 1945 with the Welfare State and
included control over financial institutions
and markets and public ownership and investment in industry.
During the 1970's Keynesianism was revamped and extended by Keynesians
themselves at the same time as they came under attack from Milton Friedman
and the Chicago school. Monetarism, which goes back to Hume and the idea
that the rate of inflation is based on growth of the money supply, is
associated with deflation and conservatism. It is believed that decreasing
state spending controls the money supply by limiting state borrowing and
stimulates private investment; however, controlling the money supply has
proved next to impossible and public policy initiatives of the last two
decades grounded in monetarism (IMF excepted, which continues to rely on
control of the money supply in developing countries) boil down to an
aversion to welfare spending and organized labor while promoting the
deregulation of private capital.
Concerns germane to the tradition of political economy continued to remain
prominent in Marxist analysis and presently inform the work of members of
the Union for Radical Political Economy in the U.S. which publishes the
Review of Radical Political Economics and the Conference of Socialist
Economists in England and its journal Capital & Class. Challenges to
economic orthodoxy also regularly appear in the Cambridge Journal of
Economics, Critical Social Policy, and Race and Class.
Xxxx Xxxxx Xxxxxx
Department of Political Science
SUNY at Albany
Nelson A. Rockefeller College
135 Western Ave.; Milne 102
Albany, NY 12222
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