Political economy in its originality is the study of production, buying/selling, and their relationships to laws, customs and government. Adam Smith is considered to be the founder of such phenomenon of study (According to him, “in political economy we study how to produce wealth for nations”, Latterly his follower David Recardo furthered his concept by adding the distribution of wealth in it). In contemporary world, the scope of ‘political economy has changed a little, but the essence is same, ‘the related approaches to study economics and political behaviour’. In Political economy generally we put light on two aspects, the production and the distribution.
First of all let’s have a glimpse of production side, where by following are the concepts of production:
1- Individualism: According to this concept a single person, with his or her will and his or her own desires, is the basis of production It states that the individual contributions to production are always measurable, so it makes sense to view one individual’s contribution as separate from those of others.
2- Communitarianism: According to which it is the action of a group, with particular exceptional individuals, which forms the basis of production. In other words the individual, within a community, is considered to be the basic unit.
3- Collectivism: It states that it is impossible to measure the contribution of each and every individual of the society, so it works on average.
The next part of political economy is the distribution side. Here remember these terms.
1- Social surplus = Societies produce more than isolated individuals.
2- Capital Surplus = Labour with the aid of capital produces more than labour alone.
3- Social Costs = Societies generate more waste than an individual
4- Capital Requirements = Capital makes demands for investment and organization.
In contemporary situation, political economy can be discussed with reference to following political thoughts.
The first political thought is liberalism, according to which capital surplus should be kept within the hands of individual while the social surplus and social costs should be distributed as widely as possible. It advocates the state’s intervention in the distribution of social costs ans social benefits. Since social surplus is low as compare to capital surplus, liberals believe that there’s nothing to distribute. (John Locke & Thomas Jefferson are considered as the promoters of this idea)
The next thought in the context of Political economy is ‘Conservatism’. According to this thought, capital surplus should be kept by individual but a part of it should be kept by state as well. Social surplus’ distribution should be according to the circumstances, and social cost should be distributed among the masses. Conservative thought is actually the base of modern times’ social structure. (This thought was originated by Richard Hooker but the doctrine was presented by Edmund Burke)
After conservatism, the next thought in queue is ‘Socialism’, which demands total control of the state on the economic setup. According to this thought the part of capital surplus is very low in comparison to the part of social surplus.(Rousseau was the originator of the socialist; thought )
Next thought is Libertarianism, which is a little closer to liberalism as well, according to this thought, as individual has paid for the economic activity to be done, so there’s no social cost left for him to be distributed. But as far as capital surplus is considered, it’s purely individual’s effort so it should be kept by him. Secondly libertarianism concludes that there’s no social surplus. Laissez Faire is an example of such economic setup, which opposes state’s interference in economic activities.
And lastly there’s Communism, which was originated by Karl Marx, and the thought promoted as ‘Marxism’. It also shares the view of Libertarianism that there’s no difference between social surplus and capital surplus, but it holds that the surplus is kept by state’s control.