Political economy originally was the term for studying production, buying, and selling, and their relations

with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy. It developed in the 18th century as the study of the economies of states, polities, hence political economy. In the late nineteenth century, the term 'economics' came to replace 'political economy', coinciding with publication of an influential textbook by Alfred Marshall in 1890.[1] Earlier, William Stanley Jevons, a proponent of mathematical methods applied to the subject, advocated 'economics' for brevity and with the hope of the term becoming "the recognised name of a science."[2][3] Today, political economy, where it is not used as a synonym for economics, may refer to very different things, including Marxian analysis, applied public-choice approaches emanating from the Chicago school and the Virginia School, or simply the advice given by economists to the government or public on general economic policy or on specific proposals.[3] A rapidly-growing mainstream literature from the 1970s has expanded beyond the model of economic policy in which planners maximize utility of a representative individual toward examining how political forces affect the choice of policies, especially as to distributional conflicts and political institutions.[4] It is available as an area of study in certain colleges and universities. Contents [hide]

1 History of the term 2 Current approaches 3 Related disciplines 4 See also 5 Notes 6 References 7 Journals 8 External links

[edit] History of the term Originally, political economy meant the study of the conditions under which production or consumption within limited parameters was organized in the nation-

states. In this way, political economy expanded the emphasis of economics, which comes from the Greek oikos (meaning "home") and nomos (meaning "law" or "order"); thus political economy was meant to express the laws of production of wealth at the state level, just as economics was the ordering of the home. The phrase conomie politique (translated in English as political economy) first appeared in France in 1615 with the well known book by Antoine de Montchrtien: Trait de leconomie politique. French physiocrats, Adam Smith, David Ricardo and German philosopher and social theorist Karl Marx were some of the exponents of political economy. In 1805, Thomas Malthus became England's first professor of political economy, at the East India Company College, Haileybury, Hertfordshire. The world's first professorship in political economy was established in 1763 at the University of Vienna, Austria; Joseph von Sonnenfels was the first tenured professor. In the United States, political economy first was taught at the College of William and Mary; in 1784 Adam Smith's The Wealth of Nations was a required textbook.[5] Glasgow University, where Smith was Professor of Logic and Moral Philosophy, changed the name of its Department of Political Economy to the Department of Economics (ostensibly to avoid confusing prospective undergraduates) in academic year 19971998, making the class of 1998 the last to be graduated with a Scottish Master of Arts degree in Political Economy. [edit] Current approaches In its contemporary meaning, political economy refers to different, but related, approaches to studying economic and political behaviours, ranging from the combination of economics with other fields to the use of different, fundamental assumptions that challenge orthodox economic assumptions:

Political economy most commonly refers to interdisciplinary studies drawing upon economics, law, and political science in explaining how political institutions, the political environment, and the economic system capitalist, socialist, mixedinfluence each other. "Traditional" topics include the influence of elections on the choice of economic policy, determinants of electoral outcomes, the political business cycles,[6] centralbank independence, redistributive conflicts in fiscal policy, and the politics of delayed reforms in developing countries and of excessive deficits. From the late-1990s, the field has expanded to explore such wide-ranging topics as the origins and rate of change of political institutions, and the role of culture

in explaining economic outcomes and developments.[4] When more narrowly construed, it analyzes such public policy as monopoly, market protection, institutional corruption,[7] and rent-seeking.[8] A more classical-liberal approach that dates from the 1970s that denotes 'public-choice' theory type approaches which question the benevolence of social planners to maximize the utility of a representative individual and instead stress how political forces affect the choice of policies that may not be so benevolent, Historians have employed political economy to explore the ways in the past that persons and groups with common economic interests have used politics to effect changes beneficial to their interests.[9] International Political Economy (IPE) is an interdisciplinary field comprising approaches to international trade and finance, and state policies affecting international trade, i.e. monetary and fiscal policies. In the U.S., these approaches are associated with the journal International Organization, which, in the 1970s, became the leading journal of international political economy under the editorship of Robert Keohane, Peter J. Katzenstein, and Stephen Krasner. They are also associated with the journal The Review of International Political Economy. There also is a more critical school of IPE, inspired by Karl Polanyi's work; two major figures are Susan Strange and Robert W. Cox.[10] Economists and political scientists often associate the term with approaches using rational choice assumptions, especially game theory and social choice theory, in explaining phenomena beyond economics' standard remit, in which context the term "positive political economy" is common.[11] Anthropologists, sociologists, and geographers use political economy in referring to the neo-Marxian approaches to development and underdevelopment postulated by Andr Gunder Frank and Immanuel Wallerstein. New political economy students treat economic ideologies as the phenomenon to explain, per the traditions of Marxian political economy. Thus, Charles S. Maier suggests that a political economy approach: "interrogates economic doctrines to disclose their sociological and political premises....in sum, [it] regards economic ideas and behavior not as frameworks for analysis, but as beliefs and actions that must themselves be explained."[12] This approach informs Andrew Gamble's The Free Economy and the Strong State (Palgrave Macmillan, 1988), and Colin Hay's The Political Economy of New Labour (Manchester University Press, 1999). It also informs much work published in New Political Economy an international journal founded by Sheffield University scholars in 1996.[13]

Guy Debord agrees: "The commodity's domination was at first exerted over the economy in an occult manner; the economy itself, the material basis of social life, remained unperceived and not understood, like the familiar which is not necessarily known. In a society where the concrete commodity is rare or unusual, money, apparently dominant, presents itself as an emissary armed with full powers who speaks in the name of an unknown force. With the industrial revolution, the division of labor in manufactures, and mass production for the world market, the commodity appears in fact as a power which comes to occupy social life. It is then that political economy takes shape, as the dominant science and the science of domination."[14]

[edit] Related disciplines Because political economy is not a unified discipline, there are studies using the term that overlap in subject matter, but have radically different perspectives:

Sociology studies the effects of persons' involvement in society as members of groups, and how that changes their ability to function. Many sociologists start from a perspective of production-determining relation from Karl Marx. Marx's theories on the subject of political economy are contained in his book, Das Kapital. Political Science focuses on the interaction between institutions and human behavior, the way in which the former shapes choices and how the latter change institutional frameworks. Along with economics, it has made the best works in the field by authors like Shepsle, Ostrom, Ordeshook, among others. Anthropology studies political economy by studying the relationship between the world capitalist system and local cultures. Psychology is the fulcrum on which political economy exerts its force in studying decision-making (not only in prices), but as the field of study whose assumptions model political economy. History documents change, using it to argue political economy; historical works have political economy as the narrative's frame. Economics focuses on markets by leaving the politicalgovernments, states, legal frameworksas givens. Economics dropped the adjective political in the 19th century, but works backwards, by describing "The Ideal Market", urging governments to formulate policy and law to approach said ideal. Economists and political economists often disagree on what is preeminent in developing production, market, and political structure theories.

Law concerns the creation of policy and its mediation via political actions that have specific results, it deals with political economy as political capital and as social infrastructureand the sociological results of one society upon another. Human Geography is concerned with politico-economic processes, emphasizing space and environment. Ecology deals with political economy, because human activity has the greatest effect upon the environment, its central concern being the environment's suitability for human activity. The ecological effects of economic activity spur research upon changing market economy incentives. International Relations often uses political economy to study political and economic development. Cultural Studies studies social class, production, labor, race, gender, and sex. Communication examines the institutional aspects of media and telecommuncation systems, with particular attention to the historical relationships between owners, labor, consumers, advertisers, and the state.

[edit] See also

Economic study of collective action Constitutional economics Public choice theory EAEPE Economic system Economic ideology Institutional economics Important publications in political economy Perspectives on Capitalism Social model Social Capital

[edit] Notes ^ Alfred Marshall (1890) Principles of Economics. ^ W. Stanley Jevons (1879, 2nd ed.) The Theory of Political Economy], p. xiv. 3. ^ a b Peter Groenwegen (1987 [2008]). "'political economy' and 'economics'", The New Palgrave: A Dictionary of Economics, v. 3, pp. 90506. [Pp. 90407.]
1. 2.

^ a b Alberto F. Alesina (2007:3) "Political Economy," NBER Reporter, pp. 1-5 (press +). Abstract-links version. 5. ^ Image of "Priorities of the College of William and Mary" 6. ^ Allan Drazen 2008. "political business cycles," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract. William D. Nordhaus, 1989:2. "Alternative Approaches to the Political Business Cycle," Brookings Papers on Economic Activity, pp. 1-68. 7. ^ Niloy Bose, 2010. "corruption and economic growth," The New Palgrave Dictionary of Economics Online, 2nd Edition. Abstract. 8. ^ Anne O. Krueger, 1974. "The Political Economy of the RentSeeking Society," American Economic Review, 64(3), pp. 291303. 9. ^ Drew R. McCoy, "The Elusive Republic: Political Ecocomy in Jeffersonian America", Chapel Hill, University of North Carolina. 10. ^ Benjamin J. Cohen (2007), The transatlantic divide: Why are American and British IPE so different?, Review of International Political Economy, Vol. 14, No. 2, May 2007 11. ^ James E. Alt and Kenneth Shepsle (eds.) (1990), Perspectives on Positive Political Economy (Cambridge [UK]; New York: Cambridge University Press). Description and preview. 12. ^ Charles S. Mayer (1987). "In Search of Stability: Explorations in Historical Political Economy", Cambridge University Press, Cambridge, pp.36. 13. ^ cf: David Baker (2006). "The political economy of fascism: Myth or reality, or myth and reality?" New Political Economy, 11(2), pp. 227250.[1] 14. ^ Guy Debord "The Society of the Spectacle"
4.

[edit] References

Acemoglu, Daron (2003). "Why Not a Political Coase Theorem? Social Conflict, Commitment, and Politics," Journal of Comparative Economics, 31(4), pp. 620652 (close Bookmarks). Breyer, Friedrich (1994). "The Political Economy of Intergenerational Redistribution," European Journal of Political Economy, 10(1), , pp. 61-84. Abstract. Alesina, Alberto, and Roberto Perotti (1994). "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review, 8(3), pp. 351-371. _____ (1995). "The Political Economy of Budget Deficits" IMF Staff Papers, 42(1), pp. p. 1-31.

Baran, Paul A. (1957). The Political Economy of Growth. Monthly Review Press, New York. Review extrract. Becker, Gary S. (1983). "A Theory of Competition among Pressure Groups for Political Influence," Quarterly Journal of Economics, 98(3), pp. 371400. Bolton, Patrick, and Grard Roland (1997). "The Breakup of Nations: A Political Economy Analysis," Quarterly Journal of Economics, 112(4), , pp. 1057-1090. Commons, John R. (1934 [1986]). Institutional Economics: Its Place in Political Economy, Macmillan. Description and preview. Drazen, Allan (2000). Political Economy in Macroeconomics. Princeton. Review extract, description & ch. 1-preview link. Leroux, Robert (2011), "Political Economy and Liberalism in France : The Contributions of Frdric Bastiat", London, Routledge. Krusell, Per, and Jos-Vctor Ros-Rull (1999). "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model," American Economic Review, 89(5), , pp. 1156-1181. Maggi, Giovanni, and Andrs Rodrguez-Clare (2007). "A PoliticalEconomy Theory of Trade Agreements," American Economic Review, 97(4), pp. 1374-1406. Persson, Torsten, and Guido Tabellini (2000). Political Economics: Explaining Economic Policy MIT Press. Review extract, description and chapter-preview links. Rose, N. L. (2001). "Regulation, Political Economy of," International Encyclopedia of the Social & Behavioral Sciences, pp. 12967-12970. Abstract. Shubik, Martin (1981). "Game Theory Models and Methods in Political Economy," in Handbook of Mathematical Economics, v. 1, pp. 285-330. _____ (1984). A Game-Theoretic Approach to Political Economy, MIT Press. Description and review extract. Sturzenegger, Federico, and Mariano Tommasi (1998). The Poltical Economy of Reform, MIT Press. Description and chapter-preview links. Weingast, Barry R., Kenneth A. Shepsle, and Christopher Johnsen, (1981). "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, 89(4), pp. 642-664. O'Hara, Phillip Anthony, ed. (1999). Encyclopedia of Political Economy, 2 v. Routledge. 2003 review links. Pressman, Steven, Interactions in Political Economy: Malvern After Ten Years Routledge, 1996

Weingast, Barry R., and Donald Wittman, ed., 2008. The Oxford Handbook of Political Economy. Oxford UP. Preview. Winch, Donald (1996). Riches and Poverty : An Intellectual History of Political Economy in Britain, 17501834 Cambridge [etc.]: Cambridge U.P. Winch, Donald (1973). "The Emergence of Economics as a Science, 1750 1870." In: The Fontana Economic History of Europe, Vol. 3. London: Collins/Fontana.

[edit] Journals

Constitutional Political Economy Economics & Politics European Journal of Political Economy

Public Choice Review of Radical Political Economics

[edit] External links Wikibooks has a book on the topic of Political Economy

NBER (U.S.) "Political Economy" working-paper abstract links. VoxEU.org (Europe) "Politics and economics" article links. National System of Political EconomyMajor work on political economy by Friedrich List. Harmony of InterestsWork contrasting American System and British System of political economy by Henry C. Carey International Political Economy at Jacobs University Bremen Global Political Economy at City University London, UK Centre for Global Political Economy at the University of Sussex, UK O'Neil Center for Global Markets and Freedom at the SMU Cox School of Business Dallas, TX USA Institute for the study of Political Economy and Law (IPEL) at the International University College of Turin (IUC), Italy CHAPTERONE What Is Political Economy? Economists must not only know their economic models, but also understand politics, interests, conflicts, passions} the essence of collective life. For a brief period of time you could make changes by decree; but to let them persist,

you have to build coalitions and bring people around. You have to be a politician. }Alejandro Foxley, Chilean Minister of Finance (quoted inWilliamson and Haggard [1994]) 1.1. INTRODUCTION How does politics affect economic outcomes? This question has been asked probably as long as people have been interested in economics itself. From Adam Smiths Wealth of Nations in 1776 _or perhaps the Physiocrats even earlier. until at least John Stuart Mills Principles of Political Economy in 1848, what we now call economics was in fact generally referred to as political economy.1 This terminology in large part reflected the belief that economics was not really separable from politics. This was more than an administrative classification of disciplines; it arose from the widespread view that political factors are crucial in determining economic outcomes. Hence, as a discipline economics historically viewed political forces not only as influencing economic outcomes, but often as a determining influence. With the division of economics and political science into distinct disciplines, economists abstracted from political and institutional factors. The desire for methodological progress and for a more rigorous basis for economic analysis were important motivations in this separation. The development of neoclassical economics stressed optimization by consumers

and firms subject to well-defined constraints and a market environment, 1 According to Groenewegen _1987., the term political economy for economics originated in France in the 17th century. He attributes the first use to Montchretien in 1615. Sir James Steurt _1761. was the first English economist to put the term in the title of a book on economics, An Inquiry into the Principles of Political Economy. 4CHAPTERONE deliberately downplaying more amorphous political factors. Those determinants of economic outcomes easily formalized in this choicetheoretic framework were stressed in the development of neoclassical economics; those not easily formalized were seen as largely the province of other disciplines. Interest in the question of how politics affects economic outcomes may thus appear new to someone trained solely in modern neoclassical economics; in fact, it is not. One may want to keep the history of this interest in mind in assessing phrases such as explosion of interest or recent flood of work applied to current research in political economy. Nonetheless, looking at what has been happening in the past few years, such phrases are quite accurate. Of late, there really has been an explosion in the number of papers looking at the effect of politics on economic outcomes. Leading journals are filled with articles on the political economy

of one economic phenomenon or another; specialty journals have been started; conferences on a specific economic issue typically have at least one paper on the politics of the issue, not to mention numerous conferences devoted solely to political economy. In short, it appears justified to speak of the new political economy as an important field of current research and to conclude that this is not simply a fad, but an area of analysis that is here to stay.2 In short, political economy falls into that special class of things that seem quite old and musty and quite young and fresh at the same time. The new political economy is not, however, just a resurrection of an earlier approach to economics. Though characterized by a strong interest in the question of how politics affects economic outcomes, the new political economy is defined more by its way of approaching this question. Specifically, it is defined in large part by its use of the formal and technical tools of modern economic analysis to look at the importance of politics for economics. Modern economic analysis is used not just in the formal sense of a mathematical approach; it is also conceptual, viewing political phenomena in terms of optimization, incentives, constraints, et cetera. Hence, what really distinguishes the new political economy is not so much the volume, but the sort of research being done.3

Formal technique sometimes clouds, rather than enhances, our understanding of phenomena, and sometimes seems to be used as a substitute for insights into the phenomenon being studied. The relative newness of political economy in its current form may make this problem more acute. It has led some people to the perception, incorrect in my opinion, that the 2 One should, however, note that when asked to assess the significance of the French Revolution, Chinese Premier Chou En-Lai is said to have replied, It is too soon to tell. 3 For example, Alt and Shepsle _1990. defined political economy as the study of rational decisions in the context of political and economic institutions, stressing explicit microfoundations based on rational actors. WHATISPOLITICALECONOMY?5 new political economy is simply a not very insightful formalization of the obvious. Recent research has also been criticized as being too broad, seen as trying to cover everything, with widely differing degrees of success. Both the strengths and the weaknesses of the new political economy suggest the need for a more organized treatment. In this book, I not only survey recent work on political economy in macroeconomics, but also attempt to organize the work. As such, the approach is somewhere between a textbook and a monograph. It is meant not only to summarize, organize, and critique the existing literature, attempting to guide the

reader through the wilderness, but also, like a monograph, to present a very specific view of the field. I argue that heterogeneity and conflict of interests are essential to political economy and should be the organizing principles of the field. However, whether or not a reader finds himself in agreement with this point of view, he should find an organized treatment of the field very useful. Those readers who do agree with the central role of conflict of interests may thereby gain not only an understanding of different parts of the field, but also a better sense of how they fit together. 1.2. POLITICS AND ECONOMICS What is the new political economy? A general definition is that it is the study of the interaction of politics and economics. Though such a vague definition may have the virtue of being all-inclusive, it gives no real sense of what is being studied. It is like describing the taste of French cooking by saying it results from the interaction of France and cooking. It is technically correct, but one misses the real flavor. Our first task, therefore, is to attempt to provide a definition that will indicate what makes a question one of political economy, and how political economy differs from straight economics or from other areas of economics concerned with policy choice. How, for example, is political economy different than the well-developed theories of public finance and public economics? How does it differ from

the theory of public choice? Some Preliminary Definitions A famous definition of economics is that of Lionel Robbins _1932, p. 16., Economics is the science which studies human behavior as a relationship between ends and scarce means that have alternative uses. If economics is the study of the optimal use of scarce resources, political economy begins with the political nature of decisionmaking and is concerned with how politics will affect economic choices in a society. Society should be defined broadly to include not only countries or other such jurisdictions, but also firms, social groups, or other organizations. 6CHAPTERONE Obviously, we cannot go much further without being more precise about what we mean by the term politics. In the political science literature politics is defined as the study of power and authority, and the exercise of power and authority. Power, in turn, means the ability of an individual _or group. to achieve outcomes which reflect his objectives.4 Similarly, authority exists whenever one, several, or many people explicitly or tacitly permit someone else to make decisions for them in some category of acts _Lindblom, w1977x, pp. 17]18.. Thus, for example, Lindblom defines politics as the struggle over authority. As he puts it _p. 119., In an untidy process called politics, people who want authority struggle to get it while others try to control those who hold it.

For our purposes, the most important part of these definitions is what is implicit and taken for granted. Questions of power and authority are relevant only when there is heterogeneity of interests, that is, a conflict of interests between economic actors in a society. How then does a society make collective policy decisions that affect it as a whole when individual members have conflicting interests? How do individuals, classes, or groups within a larger society gain power or authority to attempt to have the societal choice reflect their preferred course of action? Politics may be thought of generally as the study of mechanisms for making collective choices. Asking how power or authority are attained and exercised can be thought of as a specific form of the general question of what mechanisms are used to make collective decisions.5 With this as a basis, we can return to the question of what political economy studies. The view that economics is the study of the optimal use of scarce resources contains an implicit, but crucial, assumption when applied to policy choice, namely, that once the optimal policy is found, it will be implemented. The problem of policy choice is simply a technical or computational one. Once the optimal policy has been calculated, the policymaker then implements it, where this decision is taken as automatic. That is, since the policymaker is a social welfare maximizer, it is taken as

given that once an optimal policy is derived, this is the policy that will be carried out. This identity of optimal and actually chosen action implies that a positive economics of policy choice follows almost immediately from the normative economics of policy choice. Note that the process of deciding technically what policy to adopt, the decision central to this approach, is very different from the process of deciding on policy which the definition of politics would suggest. 4 For example, Weber _1947, p. 152. defined power as the probability that an actor in a social relationship will be in a position to carry out his own will despite resistance, regardless of the basis on which this probability rests. 5 Keohane _1984, p. 21. writes, wherever, in the economy, actors exert power over one another, the economy is political. WHATISPOLITICALECONOMY?7 Political economy thus begins with the observation that actual policies are often quite different from optimal policies, the latter defined as subject to technical and informational, but not political, constraints. Political constraints refer to the constraints due to conflict of interests and the need to make collective choices in the face of these conflicts. Positive political economy thus asks the question how political constraints may explain the choice of policies _and thus economic outcomes. that differ from optimal policies, and the outcomes those policies would imply. To put

the same point another way, the mechanisms that societies use in choosing policies in the face of conflicts of interest will imply that the result will often be quite different than what a benign social planner would choose.6 This positive view implies a normative approach as well: normative political economy would ask the question of how, given the existing political constraints, societies can be led to best achieve specific economic objectives. This includes not only how to overcome political constraints within the existing institutional framework, but also the design of political institutions to better achieve economic objectives. Some Examples This definition of positive political economy may be better understood by reference to some examples of the questions it addresses. Some phenomena are so clearly in the realm of political economy that little discussion is required as to what are the political influences on the economic outcomes. For example, it is often argued that there is an opportunistic political business cycle, with pre-election economic policies and outcomes influenced by the desire of the incumbent to manipulate the economy in order to improve his re-election prospects. Or, even if incumbents do not, or simply cannot, manipulate the economy before an election, the fact of possible changes in the government after an election may have significant

effects on policies and outcomes. If policies were made by an infinitely lived social welfare-maximizing planner who was sure to retain his job _it is, after all, hard to find replacements these days., there would be no effect on policies from the possibility that the policymaker will be replaced. We consider the myriad effects of this possibility in Chapter 7. In other cases, the role of political constraints may be less in the foreground, but no less important. Consider an economy experiencing hyperinflation, where there is agreement that hyperinflation imposes very large costs on all members of society. The technical problem is how to 6 The importance of conflict of interests is appreciated in some of the literature in public finance. Atkinson and Stiglitz _1980, p. 298., for example, write, If everyone had identical tastes and endowments, then many public finance questions would lose their significance, and this is particularly true of the behavior of the state. If the interests of the members of society could be treated as those of a representative individual, then the role of the state would be reduced to that of efficiently carrying out agreed decisions. 8CHAPTERONE reduce the inflation at the least possible cost. Experience of many countries which have suffered from hyperinflations indicates that a necessary component of inflation reduction is greatly reducing the government budget deficit. Having this information, a welfare-maximizing policymaker would cut the government budget deficit. What we observe in fact is that in

many high-inflation economies, where it is agreed that deficit reduction is a necessary component of an inflation stabilization program, deficit reduction is long delayed while inflation accelerates. The positive political economy question is whether the political constraints on making budgetary decisions can explain this delay, and, furthermore, how the length of delay will reflect different political mechanisms for resolving budgetary conflicts. The normative political economy question is how to design policies or mechanisms for choosing policies which will hasten agreement on how to cut the budget deficit. This approach to the political economy of hyperinflation will be addressed in Chapter 10. To take another example, consider the question of the transition of the formerly socialist countries of Central and Eastern Europe to market economies. Though it is generally agreed that economic efficiency and social welfare will be substantially higher once a market system of allocation is in place, the transition has been slow, far slower than observers expected at the outset on the basis of the technical constraints. Political opposition from groups that will be hurt in the transition and under the new regime has been a significant factor in determining the pace of reform. Hence, crucial to understanding transition policies and their outcomes are the conflicts between different interest groups in the economy.

The relative performance of different transition economies reflects not only their differing economic characteristics, but differing political characteristics as well. We consider the political economy of large-scale economic reform and transition in Chapter 13. Disciplines Compared Given the definition of new political economy, one may ask how it differs from the related fields of public economics _or public finance. and of public choice. Public economics is concerned generally with the economics of the public sector, meaning how economic decisions of the government affect economic actors. Positive public economics concerns the effects of tax and expenditure policies on individual and firm behavior. Although positive public economics broadly defined includes political theories of the state, the main focus is on the effect of tax and expenditure policies. To the extent that public economics addresses the question of how tax and expenditure policies are chosen, it is primarily from the perspective of neoclassical welfare economics, that is, taking the governments objective of welfare maximization as given and asking how tax and expenditure policies, rather than direct command, may be used to achieve the objective of welfare maximization. This is the subject matter of normative WHATISPOLITICALECONOMY?9 public economics. One area of normative public finance is the formulation

of simple criteria for government decisionmaking, but this is not in terms of choosing the objective to be maximized, but of choosing criteria and methods to achieve the optimum.7 The question of how the objectives are chosen, that is, how collective choices are made, is the subject matter of public choice. That is, public choice is concerned largely with studying decisionmaking mechanisms per se, considering not only the positive and normative aspects of different ways of making collective choices, but also the question of how a society can choose over the set of possible choice mechanisms. Public choice differs from political science, in that it stresses the use of tools of economic analysis to study collective choices. As Mueller _1989, p. 1. concisely defines it, Public choice can be defined as the economic study of nonmarket decision making, or simply the application of economics to political science. We consider the subject matter of public choice in a bit more detail in our treatment of decisionmaking mechanisms in Chapter 3 and again in Chapter 9 in the discussion of problems of collective action. Public choice and political economy as defined here are clearly closely related. Many treatments of the new political economy would not make a distinction between the fields, arguing that public choice is an integral part of the new political economy. There is much to this argument. First, both

public choice and new political economy, namely, the study of the effects of political constraints on economic outcomes using specific analytical tools, are defined not so much by their subject matter as by their analytical and methodological approach. Second, since policy outcomes may depend on the intricacies of the decisionmaking process _consider, for example, the formulation of international trade policy., it may be unproductive to make a distinction between the fields in specific applications. Our distinction is meant more to highlight the subject matter of this book. Our interest is in the effect of politics on economic outcomes, not on politics per se. Though the stress is on using tools of economic analysis, the interest is not in choice mechanisms themselves. Moreover, there are already excellent textbook treatments of public choice and mathematical political science by practitioners, while there is no comprehensive textbook treatment of the effects of politics on macroeconomic outcomes in any generality. 1.3. TYPES OF HETEROGENEITY What ties politics, public choice, and political economy together is the centrality of heterogeneity of interests. Were there no heterogeneity of preferences over outcomes, there would be no need for a mechanism to 7 The subject matter of normative public finance will be touched on at many points in the

book, especially in the discussion of public goods in Chapter 9. 10 C H A P T E R O N E aggregate individual preferences into a collective choice. Similarly, were there no conflicts of interests whatsoever, the choice of economic policy would be that of the social planner maximizing the utility of the representative individual. _Remember the quote from Atkinson and Stiglitz _1980. in footnote 6.. It is heterogeneity of interests that is the basis of the field of political economy. At this point, one may argue that heterogeneity of interests is also central to much of economics. Markets are driven by heterogeneity as well, heterogeneity of tastes, of endowments, and of expectations. Why not therefore argue that heterogeneity is the basis not only of the field of political economy, but also of market economics itself? The argument on the importance of heterogeneity for political economy may be summarized in two propositions. First, heterogeneity or conflict of interests is necessary for there to be political constraints. Second, the effect of politics on economics follows from the mechanisms by which these conflicts are resolved. The first point is clear}heterogeneity is a necessary condition. It can be read as saying only that without heterogeneity, there would be nothing to study. It is the second which is really our focus, and, to my

mind, defines political economy. Heterogeneity is also necessary for there to be markets, but heterogeneity of interests plays out quite differently when addressed through the market than through the political process. For example, the effect of heterogeneity of abilities on distribution of income mediated simply through the market will be quite different than the income distribution which would result when individuals can lobby for transfers, based on their endowed abilities. How much different will depend on the political mechanism by which tax-andtransfer policy is decided.8 Moreover, there are numerous issues where individuals have a heterogeneity of interests where the market mechanism either cannot be used or simply is not used to determine outcomes, the political choice mechanism being used instead. Given the necessity of conflict of interests for there to be a political economy problem, one is led to ask: what are important types of heterogeneity for political economy? There are many, which we find useful to separate into two basic classes, giving rise to two crucial types of conflict of interests. The first conflict reflects underlying heterogeneity of actors coming into the political arena, implying they have different policy preferences. There are a number of reasons. They may simply have different tastes over goods, broadly defined, or different relative factor

endowments. They may find themselves in different situations not easily summarized in terms of tastes or endowments that lead them to prefer different policies. Or, they may just differ in how they think the world works, and hence what policies would best achieve a given aim. In short, 8 Lindblom _1977. discusses at length the conceptual differences between markets and political institutions as allocation devices, and the implications of these differences. W H A T I S P O L I T I C A L E C O N O M Y ? 11 individuals are heterogeneous in a number of dimensions, leading them to prefer different policies ex ante. We apply to this heterogeneity the general term ex-ante heterogeneity, which plays a crucial role in political economy. There is another central type of heterogeneity. Even when political-economic actors have the same primitives}endowments, preferences, etc. }there will generally still be a conflict of interests. Actors may all equally value a good, but there is conflict if its distribution _if it is private. or the distribution of the costs of providing it _if it is public. is determined by a collective choice. Economic policies generally have distributional implications. Therefore, when a policy does _or can. have distributional consequences, self-interested representative agents will be in conflict over distribution. This includes the rents that office-holding may provide to those in office, whether these are pecuniary benefits or simply the ego

rents associated with holding office. Since distribution can also refer to conflicts arising from ex-ante heterogeneity of factor endowments, we use the general term ex-post heterogeneity for this type of heterogeneity. These two concepts of heterogeneity will appear in various forms throughout the book. One should note that these are not by any means mutually exclusive. In discussions of supply of a public good, for example, there may be conflict over the importance of the public good relative to other expenditures, reflecting ex-ante heterogeneity, as well as conflict over who should bear the cost of supplying the public good, which is ex-post heterogeneity. To take another example, conflict over the size of income assistance programs in the budget combines distribution of a private good whose burden may be seen as a public good, not to mention the ideological conflict over the proper role of the state in providing income transfers. We end this section with two notes on the relevance of our argument that heterogeneity of interests is central to political economy. First, ex-post heterogeneity is important not only in questions of income redistribution, but also in understanding the political aspects of some representative agent problems, problems where it might initially appear that heterogeneity plays no substantial role. Specifically, consider imperfect credibility of

policy due to the possibility of time inconsistency, which is the subject of Chapter 4. Time inconsistency is said to arise if the optimal policy chosen at t1 for date t1 differs from the optimal policy for t1 which was chosen at t0-t1, even though technology, preferences, and information are the same at the two dates. Time inconsistency refers to more than a policymaker announcing a policy for t1 at t0 and then enacting a different policy at t1 if it suits his own interests. Time inconsistency is especially interesting because it can arise even when the planner is maximizing the welfare of a representative individual. Hence, heterogeneity would appear to play no role. We will argue in Chapter 4 that this is not correct. In models where the government is maximizing the welfare of a representative individual, time inconsistency arises only when there is an important 12 C H A P T E R O N E ex-post heterogeneity. That is, in such models all individuals may be identical ex ante, but are not identical ex post. In fact, we shall argue that ex-post heterogeneity is key to the possibility of time inconsistency in the presence of a benevolent government.9 Second, the reader may still feel uncomfortable with the argument that the distinction between political and nonpolitical problems turns on the heterogeneity of interests and how they are handled. We had indicated

above that markets are also driven by heterogeneity, but that the effects of heterogeneity are quite different when mediated in the market than when addressed by a political process or social planner. What about the study of social welfare maximization with heterogeneous individuals? This is the topic of multiple-agent welfare economics, where ex-ante or ex-post heterogeneity of actors is central to the analysis of optimal policy choice. How does it differ from political economy? Though heterogeneity is central to both areas, there is a key difference. Welfare economics takes as given the multi-agent objective function, which weights the importance of heterogeneous agents for social welfare. That is, the say that different actors have in determining the policy outcome is taken as exogenous, the focus of analysis being the calculation of optimal policy given the objective function. In contrast, in political economy, a main focus is often the endogenous determination of the objective that is to be implicitly maximized. The weights in the implied objective function are not exogenous; they are determined by the political process and in turn determine the economic outcome. In the next section we make this distinction clearer by comparing fields and their approach to heterogeneity through a specific example. 1.4. AN ILLUSTRATION OF APPROACHES The points of the previous two sections, both on the role of heterogeneity

and conflict of interests and on the comparison of disciplines, may be better understood by considering a specific economic problem and asking two questions. First, how might heterogeneity of interests manifest in a specific example and what issues does it raise? Second, how can we better characterize and understand the differences between the disciplines discussed in Section 1.2 by how their focus differs with respect to this problem? Hence, in this section, we consider a basic dynamic optimization problem in economics, namely, the choice between consumption today and consumption tomorrow, and ask what issues it raises with respect to multi-agent welfare economics, public finance, public choice, and political 9 An alternative view of time inconsistency is that it reflects the decisionmaker having different preferences over time, a sort of ex-ante heterogeneity. This approach will also be considered in Chapter 4. W H A T I S P O L I T I C A L E C O N O M Y ? 13 economy. The example will also make clear the centrality of heterogeneity to questions of politics and political economy. The Optimal Saing Problem Ricardo Smith must decide on how much of his income to consume today and how much to save, that is, accumulate as capital, which produces income next period. He has a two-period horizon, so his decision on how much to save is how much to consume tomorrow. Given his preferences over consumption today and consumption tomorrow, as represented by his

utility function, standard maximization techniques, in this case, simple calculus, will allow him to choose saving optimally. Now, suppose that instead of a two-period horizon, Smith has an infinite horizon. In each period he faces the same decision problem, with the value of saving at any date t depending on the value he assigns to consumption at tq1 _and the return to capital., which in turn depends on the value of consumption at tq2, et cetera. His choice problem can be seen as choosing a sequence of optimal consumption levels, one for each date t; though conceptually identical to the two-period problem, the infinite horizon makes this problem technically more difficult. The key point to note is that the decision problem is a technical one, that is, how to find an optimal consumption sequence over an infinite horizon, given his preferences. For example, under some fairly unrestrictive conditions, dynamic programming may be used. _An exposition of the method of dynamic programming applied to the optimal saving problem is presented in Chapter 2.. In an economy composed of a number of identical individuals, the choice problem of a social planner maximizing the utility of a representative individual would be identical, and the same techniques may be used to solve for the consumption sequence that maximizes social welfare. The

social planners problem with a representative agent represents the baseline case in standard welfare economics. The emphasis in welfare economics is on identifying what is the optimal policy, gien the welfare function to be maximized subject to constraints. Hence, as above, the decision process refers only to the technical process of solving a set of equations. This may be mathematically difficult _for example, in some dynamic optimization problems., but there is no political problem arising from a conflict of objectives. Ex-Ante Heterogeneity To introduce ex-ante heterogeneity and conflict of interests, suppose that Smith is part of a group that makes collective consumption decisions, where there are several types of individuals in the group with different consumption preferences. For example, the Smith family _all with identical 14 C H A P T E R O N E preferences. each summer rents a two-family house together with the family of Robinson Malthus, whose vacation preferences are the same within the family, but differ from those of the Smiths. Hence, a decision must be made on what sort of house to rent. To simplify the exposition, let us begin with a very simple set-up. Suppose there are enough resources left over from previous years for two summers worth of vacations, and the decision is simply how much to spend on this years vacation and how

much to save and spend on next years vacation. Suppose there are only two types of individuals in the group}the Smiths prefer a fancier, more expensive house this summer, while the Malthus family prefers a less expensive house this summer, allowing more resources to be saved for next summer. These differences in preferences could be represented by different utility attached to the current summers consumption, or, in a manyperiod framework, by a different discount factor b relating the utility of current and future consumption. Standard welfare economics handles the case of many agents with different preferences by considering a social planner maximizing a weighted sum of individual utilities _a social welfare function., where the weight on each type is exogenously given, say a to the preferences of the Smithians, 1ya to the preferences of the Malthusians.10 A level of current consumption will result from this maximization problem, where it will reflect the value of a. As in the representative agent problem, the planners decision problem refers to the problem of technically deriving the optimum for any value of a. If a is high, so that the Smithians utility is more heavily weighted in the social welfare function, the chosen saving rate _chosen in the normative, and, therefore, implemented in the positive sense as well. will be closer to their preferred policy, that is, lower. The

planners solution will be Pareto efficient, in that neither type of individual could be made better off without the other being made worse off. A typical problem in multi-agent welfare economics would be to ask how the chosen optimum would be affected by an exogenous change in the weights, that is, to derive the contract curve, the set of such Paretoefficient points. Ex-Post Heterogeneity The concept of ex-post heterogeneity may be easily represented in this example as well. Suppose that both families have exactly the same preferences for what type of house to rent this summer, and hence the same preferences over current and future consumption. However, each family would like to have the nicer half, or perhaps the larger half of the house for itself. That is, they value current consumption equally and care about the distribution of consumption benefits. We could represent this as a problem in welfare economics in which the two types of individuals have 10 The temptation to call the social planner Summers is almost irresistible. W H A T I S P O L I T I C A L E C O N O M Y ? 15 the same utility function and discount rate, but can be assigned different levels of current consumption. The planners problem can be represented as choosing a level and distribution of current consumption to maximize discounted utility over the two summers. If the distribution of consumption

between the Smith and Malthus families could be represented as a continuous variable _let us say, square feet of house space!., standard calculus techniques could be used to find the planners optimum. As before, the planners problem is a technical one, finding the optimal consumption vector for given a, with different values of a corresponding to different consumption allocations. The higher a is, the more house space the planner would assign to the Smith family. Political Economy By this point, the reader may be a bit amused by this example. The two sorts of conflict of interests between the Smith and Malthus families are easily recognizable, but the social planner is not. Who is this social planner who is making collective consumption decisions for the Smiths and Malthuss? What relation does the social planners problem with an exogenous weight a on Smithian consumption have to the problem the two families face}resolving the conflict over collective consumption when they have different preferences? The short answer is very little if any. This is not because the multi-agent welfare economics problem is poorly formed, but because it misses key issues we associate with conflicts of interest. How in fact are conflicts of interest resolved? What implications does the need to resolve conflicts _and the way they are resolved. have for economic

outcomes? Deriving the optimal policy once society has chosen how to weight the preferences of different groups does not treat these problems. In the case of two families with different preferences trying to plan a joint vacation, we may think of various ways in which they try to resolve their conflicts. Coming to a joint decision is usually not too difficult, but the problem they face is a political one in microcosm. When we consider not two individuals or families, but an economy as a whole making collective choices on saving and investment, the political problem of resolving conflicts of interests is not so simple, and the economic implications of how the conflicts are resolved are far larger. To continue with our comparison of different disciplines by considering a specific economic problem, the reader should continue thinking of the consumption versus saving problem, but now in an economy composed of many, heterogeneous individuals. Political economy starts with the problem of choice in a society with heterogeneous agents, but with a very different focus than multi-agent welfare economics. The focus is on the process by which it is decided what policy to adopt, and, more specifically, on what policy choice will emerge from a specific political process. The issue is not the technical problem of 16 C H A P T E R O N E

the implication of different weights, but the political problem of how the weights are chosen _representing the question of how conflicts of interests are resolved. and its economic implications. In the consumption versus saving problem with either ex-ante heterogeneity _difference in how present and future are weighted. or ex-post heterogeneity _the incentive to increase ones share of current consumption at the expense of others., the focus is on the implications for capital accumulation of the societys current aggregate consumption being politically determined. This means both how the political mechanism determines the a in a political-economic equilibrium and how this decision in turn affects capital accumulation and welfare. Heterogeneity of interests is crucial for the problem to be of any political interest. If all individuals had the same discount factor and there was no possibility for consumption to differ across individuals, societal and individual variables would be identical, no matter what the collective choice mechanism, and there would be no political problem. The idea that the political process may bias the result away from a socially preferred solution has at least two aspects to it. First, society as a whole may have preferences over efficient outcomes, but the outcome emerging from the political process, even if Pareto-efficient, may be

different from what society finds optimal. For example, given their preferences over income distribution in the society as a whole, individuals may find the political-economic equilibrium far from optimal, even if both exercise of political power and redistribution absorb no economic resources. Second, and more important, the political process by which economic policy is chosen will generally absorb resources in one way or another, leading to an economically inefficient outcome. The most interesting economic implications of heterogeneity and conflict of interests stem not from determining which point on the contract curve is chosen. They stem from the fact that the political process implies the economy is off the contract curve, that is, in an equilibrium that is economically inefficient, often markedly inefficient. Public Economics and Public Choice The optimal saving problem may also be used to sharpen the distinction between political economy _as defined here., on the one hand, and public finance and public choice on the other. Consider first a public finance perspective. In the multi-agent welfare economics problem, the social planner was modeled as choosing consumption levels directly. Alternatively, one may think of a decentralized problem, in which the planner does not choose quantities directly; instead, the optimal allocation is achieved via a price system, in which individuals choose their desired levels

of consumption and saving on the basis of market prices. The problem is W H A T I S P O L I T I C A L E C O N O M Y ? 17 transformed from finding optimal quantities to finding prices that support these quantities. This too is a technical problem in the sense set out above. A major question in normative public finance is the derivation of optimal tax and public pricing structures given technological and informational constraints.11 Positive public finance forms the basis of the normative analysis, where the objective function is taken as given. A public finance solution to the multiple-agent decentralized growth problem is a set of tax rates, one on each type of agent at each point of time, that supports the chosen consumption allocation, which itself is derived from the given a. In contrast, in a political economy model of determination of tax rates, conflict over whose preferences will be reflected in aggregate policy may induce a conflict over tax rates. For example, different preferences over current versus future consumption will induce different preferences over consumption taxes. Conflict over tax policy may also reflect ex-post heterogeneity, as individuals use the tax system to try to redistribute resources towards themselves. In both types of cases, conflict over tax structure can lead to grossly inefficient outcomes. Positive public finance forms the basis

not of a normative analysis as discussed in the previous paragraph, but of calculating the economic consequences of choosing any particular tax policy, corresponding, for example, to different values of a. The focus would be on what resolution of this conflict of interests is implied by the political mechanism, and, on the basis of positive public finance, the implications for economic magnitudes. From a public choice perspective, the interesting question is the implications for equilibrium a of different choice mechanisms, more specifically, the formal analysis of how collective choice mechanisms translate into specific policy choices. Relative to the political economy focus in this book, there is far more stress on the positive and normative workings of these mechanisms, far less on the economic consequences. For example, in an economy with many different interests to be weighted in a social welfare function, how will the weights differ under simple majority voting versus more complicated voting procedures? Or, if the weights are chosen in a representative democracy, where the elected representatives then bargain over them, how will a change in election procedures in the first stage, or rules of agenda in the second, affect the equilibrium weights that emerge from this process? In the theory of public choice, the economic implications in terms of an aggregate path of saving are a decidedly secondary

consideration _though more important in applied public choice.. In fact, the economic application is often not relevant in the analysis of the implication of voting rules, and the analysis often abstracts away from it. 11 In the next chapter we solve a simple, but important public pricing problem under asymmetric information. 18 C H A P T E R O N E 1.5. PLAN OF THE BOOK The book is divided into four parts. The first part of the book, comprising this chapter and the following two, are meant to set the stage for the study of political economy. The next chapter is meant to familiarize readers with a number of useful economic models. Some models and techniques are, however, introduced in chapters as they are used. Chapter 3 concentrates on the subject of politics per se, concentrating on mechanisms for making collective choices. In Part II, we investigate the problem of time inconsistency, representing a crucial distortion away from the first-best optimum that can arise even when policy is chosen by a social welfare maximizer with an infinite horizon. Chapter 4 introduces the problem and presents two widely studied models, as well as discussing intuitively why problems of time inconsistency arise. A key argument in the chapter is that time inconsistency reflects heterogeneity of interests and would be absent if such heterogeneity were

absent. This view, consistent with the approach of the book, differs from the standard view of time inconsistency. Chapters 5 and 6 consider solutions to the problem of time inconsistency. In Chapter 5, we concentrate on how the policymaking environment can make policy credible, that is, how institutions or the creation of external circumstances _broadly defined. can lead to the expectation that announced policies will be carried out. Put simply, we consider mechanisms by which a policymaker can commit himself to a desired policy. In Chapter 6, we consider commitment through repeated interactions, so that policy choice can be made credible. We concentrate on investing policy with credibility by the policymaker building a reputation, that is, by engendering the expectation that certain policies will be followed in the future on the basis of actions that have been observed in the past. These chapters, especially Chapter 6, present much of the game-theoretic basis for analysis so widely used in the new political economy and that will be used repeatedly in the book. In Part III, we address phenomena of heterogeneity and conflicting interests directly. In Chapter 7, we consider the crucial role in the political economy of macroeconomics of elections, and more generally, expectations of possible changes in policymakers. This includes numerous models of the

political business cycle _including a detailed empirical assessment., models of interactions of the executive and the legislature _including discussion of non-American phenomena, such as coalition governments and endogenous timing of elections. and various aspects of tying the hands of successor governments. In Chapter 8, we consider numerous aspects of redistribution of income and wealth, including using transfers to court voters, pork-barrel politics, rent-seeking, intergenerational and crossjurisdictional redistribution. Chapter 9 covers many aspects of public goods, not only the classical theory, but also collective action, clubs, and dynamic models of the supply W H A T I S P O L I T I C A L E C O N O M Y ? 19 of public goods. Several of these models form the basis of studying the effects of the political nature of decisionmaking on macroeconomic aspects. Chapter 10 is important both in its own right and as a bridge between Part II and Part IV on applications. We consider four general classes of models in which heterogeneity and conflict of interests lead to the nonadoption or the delayed adoption of socially beneficial policies. We also consider the role of crisis in enabling the adoption of such policies. Part IV presents applications of the models of earlier chapters to specific areas. Chapter 11 covers the political economy of factor accumulation and growth, including models of redistributive pressures, market

imperfections, and the link between political institutions and growth. Given its prominence in the literature, there is also a detailed discussion of empirical determinants of growth. Chapter 12 covers a wide range of political economy issues connected with macroeconomics of the open economy, including exchange rate arrangements, currency crises, international policy cooperation, capital controls, sovereign debt, and foreign aid. Chapter 13 presents a more applied approach to the political economy of large-scale economic reform and transition, with special emphasis on the transition from socialism and central planning to markets. This includes the political economy of labor reallocation, privatization, and price liberalization. Chapter 14 covers a number of topics on the political economy of the size of government _specifically, growth of government. as well as recent work on the size and number of nations.

Nigeria's Political Economy 1960-1985: Before the Babangida Regime BY SAM OYOVBAIRE

The Babangida regime was highly informed about Nigerias political economy in its policy thrust and reform programmes. This fact was revealed quite early in the tenure of the regime. It was identified within four months of assuming power in the 1986 Budget Address and in the Inaugural Address to the Political Bureau, both in January 1986. President Babangida had very perceptive observed that: The economic predicament of the country can be attributed to the nature and practice of politics and government, and the collapse of the economy. These are attributed to bad governance and its consequences. We must therefore aim at establishing a political system capable of ensuring opportunities for the people to participate in the decision making process and in economic production and distribution. Our task, among others, is to bring about a new political culture, which, like a veritable fountainhead, will bring forth a suitable, strong and dynamic economy and polity. Such arrangement will enable us to harness the human and natural resources of Nigeria towards building a cohesive and self-reliant society. The dialectical relationship between the political process and the economy was the prop upon which marketed oriented economic reforms on the one hand, and an ingenious democratization programme on the other, were rested for the

regimes agenda of return from military rule to civilian rule. It is therefore important, in discourses on the Babangida regime, to acknowledge and appreciate the forces of the political economy preceding that regime as a prelude to any objective assessment of the regime. Although regrettably debilitating to the cause of national stability and democratization, when scholars of history look at the records, they are likely to see historical dividends in the IBB regime beyond The tale of June 12. They will see forces of political and economic advance beyond the jaundiced or contrived warrants such as IBB hidden agenda, personal dictatorship, self-confessed evil genius and a regime of endless scheming for accumulated and arbitrary use of power. Scholars will, in their research, see facts about socio-economic and political change beyond the hap on shortcoming and negativity of the regime. But what concretely will they see? Against the backdrop of the grasp of Nigerias political economy by the regime, scholars will see breakthroughs with respect to the structure and pattern of economic development inherited by the Nigerian post-colonial state. They will see that, for the first time in the history of the country, an agenda of transition from military dictatorship to civil rule was deliberately crafted and packaged to couple political and economic reforms by way of democratization and socio-economic de-regulations. They will also see the combination of expanded economic freedoms and the political space; they will see salient elements of empowerment of civil society including the press, and the impact of new socio-cultural infrastructures upon the political economy. They will also see that the regime inaugurated salient measures in an attempt to capture the future by situating the countrys economy within the rapidly growing contemporary global market by deregulating Telecommunication and broadcast industries. Through the programme of deregulation, the regime jolted the joints and structural links between the post-colonial state and market

forces, and thereby inaugurated the process of expanding and empowering socio-economic and political classes. MAJOR FACTORS OF THE POLITICAL ECONOMY As an undeveloped nation-state, factors of the political economy are many, complex and inter-related. Therefore are four major ones, namely: Primacy of the state over and above society; economy and even the policy; underdevelopment and dependence upon the external global economy; state monopoly of primary public utilities and economic activity sectors; and the nature and character of social classes. We offer seminal comments on these factors as a prelude to some appraisal of their analytic history between 1960-1985 as a background to the Babangida regime. At independence in 1960, the countrys political economy was already laid out with the state as the primary and dominant factor in the social relations of production. Itself a product of colonisation and colonialism, the state was, and still largely is, the main instrument or institutional factor for development of the economy, society and political system. Depending on ones objective and perspective in research, the Nigerian postcolonial state embodies the multi-faceted problems in the transformation of the country and its peoples. As a federal state system, the post-colonial economy revolves almost completely around the state especially in the struggles to transcend underdevelopment and simultaneously achieve social justice and equity for the people. The regime understood both the difficulties and the dynamics of the Nigerian post-colonialist state; and it was guided in the direction of breaking the umbilical cord which tied the state to its pre-colonial and colonial roots. The practices of Nigerian federalism, aided by prolonged military rule, added further significance to the primacy and dominance of the state over the political economy. As the country increasingly became over-centralized and over-

concentrated in the accumulation and distribution of power, it inexorably drew upon itself intense struggle that provided the environment as well as the content for political instability, the fears as well as the facts of marginalisation, ethnicity and manipulation of religion and primordial ingredients in the politics and governance of the country. The second force of major interest in Nigerias political economy is that of under-development and dependence of productive forces upon the external global system. Nigerians economy is underdeveloped in the sense that the factors of production and productive forces were not, and are still not, fully transformed by science and technology vis--vis their abundance and potentials for the lives of the large majority of the people. This underdevelopment equally afflicts the issue of distributive justice in terms of the spread of available goods and services to the various communities and peoples across the country. Similarly, the economy was, and still is, heavily dependent upon the productive forces of the world capitalist system. The commanding heights of economic activities in Nigeria are generally induced and articulated largely from outside the country. This is so in spite of the abundance of foreign exchange earnings, which the export of crude oil and recently gas has made available to the state. There is an uneven development pattern as well as an unjust and inequitable relation among the social classes. The ownership and control of capital for development are conditioned by foreign interest and foreign domination. In the same way, the benefits of available development are skewed in favour of urban settlements and against the large majority of the rural population. Access to power, wealth and status and the exercise of these resources are dominated and monopolised by the interests related to the state. This is the fact about the abject powerlessness of the large majority of the Nigerian people. The third factor in Nigerian political economy derives directly from the preceding two factors, namely, the regulation of social

and economic activities by the state. Fiscal and monetary policies, the provision of public utilities such as communication and Tele-communication, electricity and water, major transport facilities by road and air, among others became state monopolies. Consequently market forces were thereby constricted. While it is understandably plausible for the state to monopolise these services at a time when the domestic market was small, Nigerias political economy demands that such monopolies should be dismantled in order for the country to play appropriate role in the global economy. The fourth and final major is the development of the political class. Arising from the complexity of the pre-colonial state system, the practices of divide-and-rule by colonialism, the hoisting of federalism upon the country in the struggles to be independent from colonial rule, and the dis-articulated trajectory of modernisation across the country, it became very difficult for a wholesome development of the political class, to emerge. As a consequence, members of the political class logically depended, and continued to do so, upon primordialism, ethnically, religion and such other factors to assert themselves in the competition for power. Nigerias political economy has the problem of developing a political class that can transcend the impediments of its origins in institutions such as political parties and pressure groups in competition for, and use of power. The preceding four factors of the political economy are by no means exhaustive of the forces propelling policies, governance, economy and society of the country. In their combination however, these four major factors hold the essential keys to unlocking the historical entrance of the country into modern democracy and economic activities of the contemporary world system. As has already been indicated above, the Babangida regime, understood and appreciated these factors as affliction upon the development of the country. The challenge before the regime, was how to design a transition agenda which could

embrace the dynamics of the political economy, such that at the point of exit and the return to civil rule and hopefully to democracy, the foundations of the political economy would not have been laid but also synchronized with the forces of society for uninterrupted governance of the country. It is a matter of common knowledge that the IBB transition project collapsed by the end of the seventh year of its eight year tenure, a subject matter that does not belong to this analytic overview of the political economy preceding the regime. ANALYTIC HISTORY The salient forces of Nigerias political economy up to 1985 when the IBB regime imploded into governance, emerged quite early in the 20th century from a long period of over 300 years of the countrys relationships with the Arab World, Western Europe and the American continent. During this long period of history, trade and commerce among the Nigerian pre-colonial states were very limited. Such links were also limited between the pre-colonial state systems were only suppliers of slave labour, agricultural commodities and rudimentary metals, and they were simply consumers of industries commodities from Europe. Through this encounter, the pre-colonial state systems, became incorporated into the expanding industrial economies of Europe and America. As it will be recalled, this was the era of initial growth, consolidation and expansion of European capitalism on a world scale. The prime commodity of international trade between Nigeria before 1800 and Europe and America was slave labour. By the early 19th century however, the export of slaves had virtually been overtaken by the export of vegetable oil and other agricultural items. The features of international trade were initially limited to the coastal areas, but they gradually progressed into the hinterlands. In all of this, the political economy was subjugated and dependent upon the European economy in the sense that the demand for, and price of traded items were determined largely by the European operators.

Towards the end of the 19th century, the urge by Europe to politically subjugate Africa and regulate trade and commerce gave rise to colonisation through the instrument of trading companies. Gradually, the process grew beyond mere commerce and trade into actual suppression of the sovereignty of the pre-colonial states. By 1914, the colonial authority had consolidated its hold on Nigeria. The Nigerian colonial state and political economy became firmly established. As a consequence, previous state systems and economies were subordinated to the British and European capitalism. The process of development carried along with it simultaneously the articulation and organization of pre-colonial and colonial forces as well as social relations of production, distribution and exchange. The activities consisted largely of agriculture, mining, finance and transport including internal transportation system and shipping. A major element in the process is that of exploitation and export of raw materials and on import of European manufactures. As it was indicated earlier, the main instrument in establishing and organizing Nigerias political economy was the state. The primary functions of the state included construction and promotion of transportation, forging the operation of foreign merchant companies and their domestic agents, introduction of the use of modern means of exchange and the regulation of access to land, finance and the use of labour. By the late 1940s through the 1950s when Nigerians had begun to articulate the struggles for independence from colonial rule, the country had become fully integrated into the world capitalist economy. The details of the processes of incorporation do not belong to this analysis, but it is important to indicate the major instruments since they relate to the political and economic reforms of the IBB regime. These include marketing boards as the means for appropriation of surplus value of peasant

production, price and physical controls of goods and services, and the use of other parastatals such as the banking institutions, the utilities (NEPA, NITEL, Water Boards, etc). fiscal policies as an economic instrument for encouraging import substitution industrialisation were all established. The spectrum of economic freedom for development of Nigerian private entrepreneurship was limited. Seen against the democracy of the First Republic of Nigerias commitment to establishing durable democracy even during prolonged military rule and the civil battle, it is quite clear to perceptive observers and scholars of the political economy, and the desires and aspirations of the political class about democracy. In other words, there was in the countrys development process, structural tension between the economy and polity which needed to be dealt with. The Management of the crises leading to the civil war between 1967 and 1970 did not focus on, let alone have a grasp of the fundamental undercurrent in the countrys political economy. Indeed, the civil was and its machinery of management accelerated the features of the inherited political economy. These features include:

accelerated foreign domination and control of the economy which included repatriation abroad of huge profits, dividends and interest. Nigerian nationals collaborated in this process which had the effect of inhibiting or limiting domestic capital accumulation for re-investment; indigenous businessmen served as middlemen, distributive agents and representatives For reasons of mutual interest, and benefits of the actors, the state was unable to regulate relations between the foreign and domestic capital classes; Government bureaucracy was virtually converted into business centres for negotiation of highly inflated business margins for the political class and the bureaucrats. Contrary to the dramatisation of the size and character of

corruption under the IBB regime, the facts about heightened corruption were rooted in the political economy of the country immediately after the civil war;

The marketing boards and other regulatory bodies of price and commodities accelerated the problems of the political economy. There was a deep-seated web of interest built around a regime of import licence which resulted prices and scarcity of essential commodities (essenco regime).

These process were complemented by a vast movement of human resources from the rural areas to the urban centres following the general decline in the agrarian sector. The working classes also expanded from about one million towards the end of the civil war to over four million in the early 1980s. But just as it was in the pre-civil war era, the standards of livelihood of the generality of the population did not change. The critical socio-economic issues of housing, potable water, prices of consumer and intermediate capital goods and services, cost of education and cost of health including the cost of eradicating disease and filthy environment remained unchanged. In fact, in the case of the rural economy and rural population, the conditions of living were worsened by additional problems of massive outward migration of the able bodied men and women. These elements of the political economy surged between 1970 and 1985 when the IBB regime came on board. Indeed, in the period of the Second Republic, the problems were heightened by the pattern of competition for, and retention of political power. During the period, power was used nakedly and blatantly in the interest of some and against the interest of others. (Details of this phenomenon is of common knowledge, and do not belong to this presentation). The overall nature and character of Nigerias political economy preceding the Babangida regime can, thus, be indicated as

follows:

Continued over bearance of the state on the political economy, Control and regulation of the major heights of the economy, Control and monopoly of socio-economic policies and institutional utilities, Regulation of prices and cost of major consumer and intermediate capital goods and services, The constrictive role of institutions such as marketing boards, Over-valuation of the national currency vis--vis the major currencies of the world and thereby limited the conceptitive potentials of the Nigerian economy. Regime of subsidies and import licences. Existence of non-complementarily between the expansion of freedoms for the transition to civil rule and the regime of regulation, domination and control, of major socioeconomic activities by the state.

These and many more socio-economic and political features constituted the facts and driving forces in the overall policy regime within which the country was operating; and much more fundamentally, they constituted the governance area in which the twin programmes of political and economic reforms were intended to be pursued and implemented in the transition to civil rule agenda. The Babangida regime saw through difficulties in the inherited framework of the countrys political economy and was therefore poised to turn things around. In wanting to do this, the regime may have under-rated the cost of change. In pursuing its fundamental programmes of governance and transition to civil rule, it had to confront reactions to the philosophical thrust and methodology of its well articulated program of change. But there was no doubt that the regime had put its fingers properly on the wheel of

progress. What remained was the political will and element of political luck for it to succeed in its vision and mission. It was in conceptualising the historical place of IBB regime within the context of the thrust of their paper that led us quite early in the regimes tenure to observe that with IBB Nigeria cannot be the same again. Conclusion: The preceding presentation is an initial draft of the fundamental underlying mission of the IBB regime. The mission had tended to be neglected in the variety of commentaries and even academic publications on the regime. We do not doubt the existence of many areas of difficulty of the regime; we do, in fact, acknowledge the difficulties of the regime either as historically imposed imperative upon the regime or as generated by the regimes policies and programmes in the cause of pursuing its agenda. We have deliberately, in this presentation, tried to indicate that over and above, or side by side with, the shortcomings of that regime, there is a pool of enduring positively not only in the agenda of the regime but also in the actual legacy. We hope that as we continue in the scholarly and intellectual research and appraisal of the countrys recent and contemporary history, we should be able to put our fingers on concrete findings about the IBB regime and how these facts have positively impacted on modern Nigeria.

Established 1947. Grand Patron: Chief Harold Dappa Biriye. Copyright Reserved: www.Niger Delta Congress.com. Contact:webmaster@nigerdeltacongress.com/ Disclaimer: Published articles are not necessarily the opinions or viewpoints of www.nigerdeltacongress.com.but that of authors and contributors whose name and email addresses are enclosed. All articles are received and published in good faith.

Economics 105 Satyananda Gabriel Associate Professor Economics Mount Holyoke College Email: sgabriel@mtholyoke.edu Teaching Assistants:

Spring 2002

MW 2:30

Michael Coles: e-mail: worcestermichael@hotmail.com Michael's office hours are Monday 4-5 in Thompson 628. Michael's discussion sections are at 9:05 and 10:10 in Dickinson 206. Merrilee Mardon: e-mail: mardon@econs.umass.edu Merrilee's office hours are Wednesday 1:00 -2:00 and TBA (to be arranged). Merrilee's sections are at 11:15 in Dickinson 206 and at 12:20 in Dickinson 109. Course Description: Introduction to political economy for majors and nonmajors. Political economy is the study of the role of economic processes in shaping society and history. Political economy (particularly when the word "radical" is added as an adjective) has come to be closely associated with the work of economists who adopted key concepts developed by Marx, in particular his focus on class processes or relationships, but who rejected the economic determinism of orthodox versions of Marxian theory. Thus, political economy makes extensive and intensive use of class analysis in making sense of society and history, but does so in the context of political, cultural, and environmental processes, as well as other economic processes.

Nevertheless, most of the writings in political economy, including the work of Marx, have been concerned specifically with understanding the role of capitalism (as the prevalence of a specific class arrangement or set of class processes) in shaping society and history. This course introduces students to a post-structuralist approach to political economy, an approach that de-centers political economy from this narrow focus on capitalism. Post-structuralist political economy provides an alternative to orthodox (neoclassical) economic theory (taught in its purest form in the introductory course in microeconomics), as well as to more traditional (economic determinist) versions of Marxian (or Marxian-influenced) political economy. In the architecture of this new form of political economy, all social processes are significant determinants of economic outcomes, the behavior of economic agents and institutions, and the direction of historical change. In other words, the poststructuralist approach studied in this course rejects economic determinism in favor of a more open-minded approach to social causality and the creation of history (overdetermination). For instance, unlike orthodox economic theory or economic determinist versions of Marxian theory, the post-structuralist approach would view cultural processes as no less significant than economic processes in shaping investment decisions. The same could be said for political or environmental processes. This point, among others, will be made by essays and papers read during the semester. This post-structuralist political economy, like a number of other versions of (radical) political economy, is, in part, a product of debates over the theoretical contributions of Marx. This has implications for the concepts that are highlighted within social analysis. In particular, it implies a concern with conducting class analysis. Thus, students in the course will learn the language of class analysis and study a range of different applications of class analysis. Primary Course Objective: At the end of the semester students should be comfortable with the language and mode of analysis of post-structuralist political economy and be well positioned for later comparison of this approach to alternative economic theories. Thus, each student should achieve the following objectives: i) understand the difference between the orthodox determinist/reductionist approaches to economic and social analysis and an overdeterminist approach; ii) understand the basics of conducting class analysis; iii) understand the post-structuralist Marxian definition of capitalism; iv) learn how to distinguish capitalist class processes (the basis for capitalism) from non-capitalist (slave, feudal, ancient, communal) class

processes; and, perhaps most crucially, v) understand how the material covered in the course relates to his or her life. Required Text: Re/Presenting Class edited by J.K. Gibson-Graham, Stephen Resnick, Richard Wolff (GGRW). This textbook is available at the annex or from online booksellers. Other readings will be available online. Therefore, do not simply print a copy of this syllabus and think it is etched in stone. Instead, check this online syllabus at the end of every week (online readings will be posted no later than Friday noon if relevant for the following week). Grading: Final grades will be based on two midterms and a final exam. The first midterm contributes 25% to the semester grade, the second contributes 35%, and the final examination 40%.

Calendar: Readings denoted with an * require Adobe Acrobat. January 30th: Introductory Lecture February 4-6: J.K. Gibson-Graham, Stephen Resnick, and Richard Wolff, "Toward a Poststructuralist Political Economy," pps. 1-22 of GGRW Gabriel, Greater Caribbean: Crossing the Boundary, chapters 1 & 2* February 11-13: Bruce Norton, "Reading Marx for Class," pps. 23-55 of GGRW Gabriel, Capitalism, Socialism, and the 1949 Chinese Revolution February 18: No class --- Note that Mount Holyoke College does not recognize the power of UMass administrators to change days of the week, so the Monday class scheduled on a Tuesday is cancelled. February 20-25: J.K. Gibson-Graham and Phillip O'Neill, "Exploring a New Class Politics of the Enterprise," pps. 56-80 of GGRW Gabriel, Lecture Notes on Post-structuralist Theory of the Firm February 25-March 4: Gabriel and Todorova, "Racism and Capitalist Accumulation"*

March 6-11: Review and Summary of Introductory Concepts and Logic Sample Questions for First Midterm March 13 First Midterm March 16-24: Spring Break March 25-27: Andriana Vlachou, "Nature and Class: A Marxian Value Analysis," pps. 105-130 of GGRW April 1-3: Carole Biewener, "The Promise of Finance: Banks and Community Development," pps. 131-157 of GGRW ............Case Study: Belize Rural Women's Association ............Gabriel, Belize Rural Women's Association, Revolving Loan Fund, ............ & Women's Cooperatives April 3-8: J.K. Gibson-Graham and David Ruccio, "After Development: Reimagining Economy and Class," pps. 158-181 of GGRW April 8-10: Gabriel, "A Class Analysis of the Iranian Revolution of 1979," pps. 206-226 of GGRW April 15: Patriot's Day Click Here for Study Questions for Midterm II April 17 Second Midterm April 22-24: Serap Kayatekin, "Sharecropping and Feudal Class Processes in the Postbellum Mississippi Delta," pps. 227-246 of GGRW April 29-May 1: Dean Saitta, "Communal Class Processes and Pre-Columbian Social Dynamics," pps. 247-263 of GGRW May 6-8: Gabriel, "Ambiguous Capital: The Success of China's New Capitalists" Gabriel, "Ambiguous Capital II: Restructuring China's State-owned Enterprises" May 13-15: Stephen Resnick and Richard Wolff, "Struggles in the USSR: Communisms Attempted and Undone," pps. 264-290 of GGRW Click Here for Study Questions for Final Exam

Final Exams Heterodox Economic Theory (essay in progress --- what is the difference between political economy and heterodox economic theory?) Karl Marx: Critique of Political Economy Review by Frederick Engels Karl Marx, A Contribution to the Critique of Political economy First Published: Das Volk, Nos. 14 & 16, August 6 & 20, 1859; Written: between August 3 and 15, 1859. I The Germans have long since shown that in all spheres of science they are equal, and in most of them superior, to other civilised nations. Only one branch of science, political economy, had no German name among its foremost scholars. The reason is obvious. Political economy is the theoretical analysis of modern bourgeois society and therefore presupposes developed bourgeois conditions, conditions which for centuries, following the wars in the wake of the Reformation and the peasant wars and especially the Thirty Years War, could not establish themselves in Germany. The separation of the Netherlands from the Empire removed Germany from the international trade routes and restricted her industrial development from the very beginning to the pettiest scale. While the Germans painfully and slowly recovered from the devastations of the civil wars, while they used up their store of civic energy, which had never been very large, in futile struggle against the customs barriers and absurd commercial regulations which every petty princeling and imperial baron inflicted upon the industry of his subjects, while the imperial cities with their craft-guild practices and patrician spirit went to ruin Holland, England and France meanwhile conquered the leading positions in international trade, established one colony after another and brought manufactory production to the height of its development, until finally England, with the aid of steam power, which made her coal and iron deposits

valuable, headed modern bourgeois development. But political economy could not arise in Germany so long as a struggle had still to be waged against so preposterously antiquated remnants of the Middle Ages as those which hampered the bourgeois development of her material forces until 1830. Only the establishment of the Customs Union enabled the Germans to comprehend political economy at all. It was indeed at this time that English and French economic works began to be imported for the benefit of the German middle class. Men of learning and bureaucrats soon got hold of the imported material and treated it in a way which does little credit to the German intellect. The literary efforts of a hotchpotch of chevaliers dindustrie, traders, schoolmasters and bureaucrats produced a bunch of German economic publications which as regards triteness, banality, frivolity, verbosity and plagiarism are equalled only by the German novel. Among people pursuing practical objectives there arose first the protectionist school of the industrialists, whose chief spokesman, List, is still the best that German bourgeois political economy has produced although his celebrated work is entirely copied from the Frenchman Ferrier, the theoretical creator of the Continental System. In opposition to this trend the free-trade school was formed in the forties by merchants from the Baltic provinces, who fumblingly repeated the arguments of the English Free Traders with childlike, but not disinterested, faith. Finally, among the schoolmasters and bureaucrats who had to handle the theoretical aspects there were uncritical and desiccated collectors of herbaria, like Herr Rau, pseudo-clever speculators who translated foreign propositions into undigested Hegelian language like Herr Stein, or gleaners with literary pretensions in the field of so-called history of civilisation, like Herr Riehl. The upshot of all this was cameralistics, an eclectic economic sauce covering a hotchpotch of sundry trivialities, of the sort a junior civil servant might find useful to remember during his final examination. While in this way in Germany the bourgeoisie, the schoolmasters and the bureaucrats were still making great exertions to learn by rote, and in some measure to understand, the first elements of Anglo-French political economy, which they regarded as incontestable dogmas, the German proletarian party appeared on the scene. Its theoretical aspect was wholly based on a study of political economy, and German political economy as an independent science dates also from the emergence of this party. The essential foundation of this German political economy is the materialist conception of history whose principal features are briefly outlined in the Preface to the above-named work. Since the Preface has in the main already been published in Das Volk, we refer to it. The proposition that the process of social, political and intellectual life is altogether necessitated by the mode of production of material life"; that all social and political relations, all

religious and legal systems, all theoretical conceptions which arise in the course of history can only be understood if the material conditions of life obtaining during the relevant epoch have been understood and the former are traced back to these material conditions, was a revolutionary discovery not only for economics but also for all historical sciences and all branches of science which are not natural sciences are historical. It is not the consciousness of men that determines their existence, but their social existence that determines their consciousness. This proposition is so simple that it should be self-evident to anyone not bogged down in idealist humbug. But it leads to highly revolutionary consequences not only in the theoretical sphere but also in the practical sphere. At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or this merely expresses the same thing in legal terms with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.... The bourgeois mode of production is the last antagonistic form of the social process of production antagonistic not in the sense of individual antagonism but of an antagonism that emanates from the individuals social conditions of existence but the productive forces developing within bourgeois society create also the material conditions for a solution of this antagonism. The prospect of a gigantic revolution, the most gigantic revolution that has ever taken place, accordingly presents itself to us as soon as we pursue our materialist thesis further and apply it to the present time. Closer consideration shows immediately that already the first consequences of the apparently simple proposition, that the consciousness of men is determined by their existence and not the other way round, spurn all forms of idealism, even the most concealed ones, rejecting all conventional and customary views of historical matters. The entire traditional manner of political reasoning is upset; patriotic magnanimity indignantly objects to such an unprincipled interpretation. It was thus inevitable that the new point of view should shock not only the exponents of the bourgeoisie but also the mass of French socialists who intended to revolutionise the world by virtue of the magic words, libert, galit, fraternite. But it utterly enraged the vociferous German vulgar democrats. They nevertheless have a partiality for attempting to plagiarise the new ideas in their own interest, although with an exceptional lack of understanding. The demonstration of the materialist conception even upon a single historical example was a scientific task requiring years of quiet research, for it is evident that

mere empty talk can achieve nothing in this context and that only an abundance of critically examined historical material which has been completely mastered can make it possible to solve such a problem. Our party was propelled on to the political stage by the February Revolution and thus prevented from pursuing purely scientific aims. The fundamental conception, nevertheless, runs like an unbroken thread through all literary productions of the party. Every one of them shows that the actions in each particular case were invariably initiated by material causes and not by the accompanying phrases, that on the contrary the political and legal phrases, like the political actions and their results, originated in material causes. After the defeat of the Revolution of 1848-49, at a time when it became increasingly impossible to exert any influence on Germany from abroad, our party relinquished the field of emigrant squabbles for that was the only feasible action left to the vulgar democrats. While these were chasing about to their hearts content, scuffling today, fraternising tomorrow and the day after once more washing their dirty linen in public, while they went begging throughout America and immediately afterwards started another row over the division of the few coins they had collected our party was glad to find once more some quiet time for research work. It had the great advantage that its theoretical foundation was a new scientific conception the elaboration of which provided adequate work; even for this reason alone it could never become so demoralised as the great men of the emigration. The book under consideration is the first result of these studies. II [Das Volk, No. 16, August 20,1859] The purpose of a work like the one under review cannot simply be desultory criticism of separate sections of political economy or the discussion of one or another economic issue in isolation. On the contrary, it is from the beginning designed to give a systematic rsum of the whole complex of political economy and a coherent elaboration of the laws governing bourgeois production and bourgeois exchange. This elaboration is at the same time a comprehensive critique of economic literature, for economists are nothing but interpreters of and apologists for these laws. Hardly any attempt has been made since Hegels death to set forth any branch of science in its specific inner coherence. The official Hegelian school had

assimilated only the most simple devices of the masters dialectics and applied them to everything and anything, often moreover with ridiculous incompetence. Hegels whole heritage was, so far as they were concerned, confined exclusively to a template, by means of which any subject could be knocked into shape, and a set of words and phrases whose only remaining purpose was to turn up conveniently whenever they experienced a lack of ideas and of concrete knowledge. Thus it happened, as a professor at Bonn has said, that these Hegelians knew nothing but could write about everything. The results were, of course, accordingly. For all their conceit these gentlemen were, however, sufficiently conscious of their failings to avoid major problems as far as possible. The superannuated fossilised type of learning held its ground because of its superior factual knowledge, and after Feuerbachs renunciation of the speculative method, Hegelianism gradually died away, and it seemed that science was once more dominated by antiquated metaphysics with its rigid categories. For this there were quite natural reasons. The rule of the Hegelian Diadochi, which ended in empty phrases, was naturally followed by a period in which the concrete content of science predominated once more over the formal aspect. Moreover, Germany at the same time applied itself with quite extraordinary energy to the natural sciences, in accordance with the immense bourgeois development setting in after 1848; with the coming into fashion of these sciences, in which the speculative trend had never achieved any real importance, the old metaphysical mode of thinking, even down to the extreme triviality of Wolff, gained ground rapidly. Hegel was forgotten and a new materialism arose in the natural sciences; it differed in principle very little from the materialism of the eighteenth century and its main advantage was merely a greater stock of data relating to the natural sciences, especially chemistry and physiology. The narrow-minded mode of thinking of the pre-Kantian period in its most banal form is reproduced by Bchner and Vogt, and even Moleschott, who swears by Feuerbach, frequently flounders in a highly diverting manner through the most simple categories. The jaded cart-horse of the commonplace bourgeois mind falters of course in confusion in front of the ditch separating substance from appearance, and cause from effect; but one should not ride carthorses if one intends to go coursing over the very rough ground of abstract reasoning. In this context, therefore, a question had to be solved which was not connected with political economy as such. Which scientific method should be used? There was, on the one hand, the Hegelian dialectics in the quite abstract speculative form in which Hegel had left it, and on the other hand the ordinary, mainly Wolffian, metaphysical method, which had come again into vogue, and which was

also employed by the bourgeois economists to write their bulky rambling volumes. The second method had been theoretically demolished by Kant and particularly by Hegel so that its continued use in practice could only be rendered possible by inertia and the absence of an alternative simple method. The Hegelian method, on the other hand, was in its existing form quite inapplicable. It was essentially idealist and the main point in this case was the elaboration of a world outlook that was more materialist than any previous one. Hegels method took as its point of departure pure thought, whereas here the starting point was to be inexorable facts. A method which, according to its own avowal, came from nothing through nothing to nothing was in this shape by no means suitable. It was, nevertheless, the only element in the entire available logical material which could at least serve as a point of origin. It had not been subjected to criticism, not been overthrown; none of the opponents of the great dialectician had been able to make a breach in the proud edifice. It had been forgotten because the Hegelian school did not know how to apply it. Hence, it was first of all essential to carry through a thorough critique of the Hegelian method. It was the exceptional historical sense underlying Hegels manner of reasoning which distinguished it from that of all other philosophers. However abstract and idealist the form employed, yet his evolution of ideas runs always parallel with the evolution of universal history, and the latter was indeed supposed to be only the proof of the former. Although this reversed the actual relation and stood it on its head, yet the real content was invariably incorporated in his philosophy, especially since Hegel unlike his followers did not rely on ignorance, but was one of the most erudite thinkers of all time. He was the first to try to demonstrate that there is an evolution, an intrinsic coherence in history, and however strange some things in his philosophy of history may seem to us now, the grandeur of the basic conception is still admirable today, compared both with his predecessors and with those who following him ventured to advance general historical observations. This monumental conception of history pervades the Phnomenologies, Asthetik and Geschichte der Philosophie, and the material is everywhere set forth historically, in a definite historical context, even if in an abstract distorted manner. This epoch-making conception of history was a direct theoretical pre-condition of the new materialist outlook, and already this constituted a connecting link with the logical method as well. Since, even from the standpoint of pure reasoning, this forgotten dialectics had led to such results, and had moreover with the greatest ease coped with the whole of the former logic and metaphysics, it must at all events comprise more than sophistry and hairsplitting. But the critique of this method,

which the entire official philosophy had evaded and still evades, was no small matter. Marx was and is the only one who could undertake the work of extracting from the Hegelian logic the nucleus containing Hegels real discoveries in this field, and of establishing the dialectical method, divested of its idealist wrappings, in the simple form in which it becomes the only correct mode of conceptual evolution. The working out of the method which underlies Marxs critique of political economy is, we think, a result hardly less significant than the basic materialist conception. Even after the determination of the method, the critique of economics could still be arranged in two ways historically or logically. Since in the course of history, as in its literary reflection, the evolution proceeds by and large from the simplest to the more complex relations, the historical development of political economy constituted a natural clue, which the critique could take as a point of departure, and then the economic categories would appear on the whole in the same order as in the logical exposition. This form seems to have the advantage of greater lucidity, for it traces the actual development, but in fact it would thus become, at most, more popular. History moves often in leaps and bounds and in a zigzag line, and as this would have to be followed throughout, it would mean not only that a considerable amount of material of slight importance would have to be included, but also that the train of thought would frequently have to be interrupted; it would, moreover, be impossible to write the history of economy without that of bourgeois society, and the task would thus become immense, because of the absence of all preliminary studies. The logical method of approach was therefore the only suitable one. This, however, is indeed nothing but the historical method, only stripped of the historical form and diverting chance occurrences. The point where this history begins must also be the starting point of the train of thought, and its further progress will be simply the reflection, in abstract and theoretically consistent form, of the historical course. Though the reflection is corrected, it is corrected in accordance with laws provided by the actual historical course, since each factor can be examined at the stage of development where it reaches its full maturity, its classical form. With this method we begin with the first and simplest relation which is historically, actually available, thus in this context with the first economic relation to be found. We analyse this relation. The fact that it is a relation already implies that it has two aspects which are related to each other. Each of these aspects is examined separately; this reveals the nature of their mutual behaviour, their reciprocal action. Contradictions will emerge demanding a solution. But since we are not examining

an abstract mental process that takes place solely in our mind, but an actual event which really took place at some time or other, or which is still taking place, these contradictions will have arisen in practice and have probably been solved. We shall trace the mode of this solution and find that it has been effected by establishing a new relation, whose two contradictory aspects we shall then have to set forth, and so on. Political economy begins with commodities, with the moment when products are exchanged, either by individuals or by primitive communities. The product being exchanged is a commodity. But it is a commodity merely by virtue of the thing, the product being linked with a relation between two persons or communities, the relation between producer and consumer, who at this stage are no longer united in the same person. Here is at once an example of a peculiar fact, which pervades the whole economy and has produced serious confusion in the minds of bourgeois economists economics is not concerned with things but with relations between persons, and in the final analysis between classes; these relations however are always bound to things and appear as things. Although a few economists had an inkling of this connection in isolated instances, Marx was the first to reveal its significance for the entire economy thus making the most difficult problems so simple and clear that even bourgeois economists will now be able to grasp them. If we examine the various aspects of the commodity, that is of the fully evolved commodity and not as it at first slowly emerges in the spontaneous barter of two primitive communities, it presents itself to us from two angles, that of use-value and of exchange-value, and thus we come immediately to the province of economic debate. Anyone wishing to find a striking instance of the fact that the German dialectic method at its present stage of development is at least as superior to the old superficially glib metaphysical method as railways are to the mediaeval means of transport, should look up Adam Smith or any other authoritative economist of repute to see how much distress exchange-value and use-value caused these gentlemen, the difficulty they had in distinguishing the two properly and in expressing the determinate form peculiar to each, and then compare the clear, simple exposition given by Marx. After use-value and exchange-value have been expounded, the commodity as a direct unity of the two is described as it enters the exchange process. The contradictions arising here may be found on pp. 20 and 21. We merely note that these contradictions are not only of interest for theoretical, abstract reasons, but that they also reflect the difficulties originating from the nature of direct interchange, i.e., simple barter, and the impossibilities inevitably confronting this

first crude form of exchange. The solution of these impossibilities is achieved by investing a specific commodity money with the attribute of representing the exchange-value of all other commodities. Money or simple circulation is then analysed in the second chapter, namely (1) money as a measure of value, and, at the same time, value measured in terms of money, i.e., price, is more closely defined; (2) money as means of circulation and (3) the unity of the two aspects, real money which represents bourgeois material wealth as a whole. This concludes the first part, the conversion of money into capital is left for the second part. One can see that with this method, the logical exposition need by no means be confined to the purely abstract sphere. On the contrary, it requires historical illustration and continuous contact with reality. A great variety of such evidence is therefore inserted, comprising references both to different stages in the actual historical course of social development and to economic works, in which the working out of lucid definitions of economic relations is traced from the outset. The critique of particular, more or less one-sided or confused interpretations is thus substantially given already in the logical exposition and can be kept quite short. The economic content of the book will be discussed in a third article.

Table of Contents | Marx Engels Archive A History of Political Economy by John Kells Ingram 1888

Chapter I

Introductory

In the present condition of Political Economy, the production of new dogmatic treatises on the subject does not appear to be opportune. There are many works, accessible to every one, in which, with more or less of variation in details, what is known as the "orthodox" or "classical" system is expounded. But there exists in England and other countries widespread dissatisfaction with that system, and much difference of opinion with respect both to the method and the doctrines of Economic Science. There is, in fact, good reason to believe that this department of social theory has entered on a transition stage, and is destined ere long to undergo a considerable transformation. But the new body of thought which will replace, or at least profoundly modify, the old, has not yet been fully elaborated. The attitude of mind which these circumstances seem to prescribe is that of pause and retrospection. It is thought that our position will be rendered clearer and our further progress facilitated by tracing historically, and from a general point of view, the course of speculation regarding economic phenomena, and contemplating the successive forms of opinion conceding them in relation to the periods at which they were respectively evolved. And this is the task undertaken in the following pages.

Such a study is in harmony with the best intellectual tendencies of our age, which is, more than anything else, characterised by the universal supremacy of the historical spirit. To such a degree has this spirit permeated all our modes of thinking, that with respect to every branch of knowledge, no less than with respect to every institution and every form of human activity, we almost instinctively ask, not merely what is its existing condition, but what were its earliest discoverable germs, and what has been the course of its development? The assertion of J. B. Say(1) that the history of Political Economy is of little value, being for the most part a record of absurd and justly exploded opinions, belongs to a system of ideas already obsolete, and requires at the present time no formal refutation.(2) It deserves notice only as reminding us that we must discriminate between history and

antiquarianism: what from the first had no significance it is mere pedantry to study now. We need concern ourselves only with those modes of thinking which have prevailed largely and seriously influenced practice in the past, or in which we can discover the roots of the present and the future.

When we thus place ourselves at the point of view of history, it becomes unnecessary to discuss the definition of Political Economy, or to enlarge on its method, at the outset. It will suffice to conceive it as the theory of social wealth, or to accept provisionally Say's definition, which makes it the science of the production, distribution, and consumption of wealth. Any supplementary ideas which require to be taken into account will be suggested in the progress of our survey, and the determination of the proper method of economic research will be treated as one of the principal results of the historical evolution of the science.

The history of Political Economy must of course be distinguished from the economic history of mankind, or of any separate portion of our race. The study of the succession of economic facts themselves is one thing; the study of the succession of theoretic ideas concerning the facts is another. And it is with the latter alone that we are here directly concerned. But these two branches of research, though distinct, yet stand in the closest relation to each other. The rise and the form of economic doctrines have been largely conditioned by the practical situation, needs, and tendencies of the corresponding epochs. With each important social change new economic questions have presented themselves; and the theories prevailing in each period have owed much of their influence to the fact that they seemed to offer solutions of the urgent problems of the age. Again, every thinker, however in some respects he may stand above or before his contemporaries, is yet a child of his time, and cannot be isolated from the social medium in which he lives and moves. He will necessarily be affected by the circumstances which surround him, and in particular by the practical exigencies of which his fellows feel the strain. This connection of theory with practice haS its advantages and its dangers. It tends to give a real and positive character to theoretic inquiry; but it may also be expected to produce exaggerations in 'doctrine, to lend undue prominence to particular sides of the truth, and to cause transitory situations or temporary expedients to be regarded as universally normal conditions.

There are other relations which we must not overlook in tracing the progress of economic opinion. The several branches of the science of society are so closely connected that the history of no one of them can with perfect rationality be treated apart, though such a treatment is recommended -- indeed necessitated -- by practical utility. The movement of economic thought is constantly and powerfully affected by the prevalent mode of thinking, and even the habitual tone of sentiment, on social subjects generally. All the intellectual manifestations of a period in relation to human questions have a kindred character, and bear a certain stamp of homogeneity, which is vaguely present to our minds when we speak of the spirit of the age, Social speculation again, and economic research as one branch of it, is both through its philosophic method and through its doctrine under the influence of the sciences which in the order of development precede the social, especially of the science of organic nature.

It is of the highest importance to bear in mind these several relations of economic research both to external circumstance and to other spheres of contemporary thought, because by keeping them in view we shall be led to form less absolute and therefore juster estimates of the successive phases of opinion. Instead of merely praising or blaming these according to the degrees of their accordance with a predetermined standard of doctrine, we shall view them as elements in an ordered series, to be studied mainly with respect to their filiation, their opportuneness, and their influences. We shall not regard each new step in this theoretic development as implying an unconditional negation of earlier views, which often had a relative justification, resting, as they did, on a real, though narrower, basis of experience, or assuming the existence of a different social order. Nor shall we consider all the theoretic positions now occupied as definitive; for the practical system of life which they tacitly assume is itself susceptible of change, and destined, without doubt, more or less to undergo it. Within the limits of a sketch like the present these considerations cannot be fully worked out; but an effort will be made to keep them in view, and to mark the relations here indicated wherever their influence is specially important or interesting.

The particular situation and tendencies of the several thinkers whose names are associated with economic doctrines have, of course, modified in a greater or less degree the spirit or form of those doctrines. Their relation to special predecessors, their native temperament, their early training, their religious prepossessions and political partialities, have all had their effects. To these we shall in some remarkable instances direct attention; but, in the main, they are, for our present purpose, secondary and subordinate. The ensemble must preponderate over the individual; and the constructors of theories must be regarded as organs of a common intellectual and social movement.

The history of economic inquiry is most naturally divided into the three great periods of (1) the ancient, (2) the mediaeval, and (3) the modern worlds. In the two former, this branch of study could exist only in a rudimentary state. It is evident that for any considerable development of social theory two conditions must be fulfilled. First, the phenomena must have exhibited themselves on a sufficiently extended scale to supply adequate matter for observation, and afford a satisfactory basis for scientific generalisations; and secondly, whilst the spectacle is thus provided, the spectator must have been trained for his task, and armed with the appropriate aids and instruments of research, that is to say, there must have been such a previous cultivation of the simpler sciences as will have both furnished the necessary data of doctrine and prepared the proper methods of investigation. Sociology requires to use for its purposes theorems which belong to the domains of physics and biology, and which it must borrow from their professors; and, on the logical side, the methods which it has to employ -- deductive, observational, comparative -- must have been previously shaped in the cultivation of mathematics and the study of the inorganic world or of organisms less complex than the social. Hence it is plain that, though some laws or tendencies of society must have been forced on men's attention in every age by practical exigencies which could not be postponed, and though the questions thus raised must have received some empirical solution, a really scientific sociology must be the product of a very advanced stage of intellectual development. And this is true of the economic, as of other branches of social theory. We shall therefore content ourselves with a general outline of the character of economic thought in antiquity and the Middle Ages, and of the conditions which determined that character.

NOTES:

1. "Que pourrions-nous gagner recueillir des opinions absurdes, des doctrines dcries et qui meritent de l'tre? Il serait la fois inutile et fastidieux." con. Pol. Pratique, IXme Partie. The "cependant" which follows does not really modify this judgment. 2. See Roscher's Geschichte der National-oekoomik in Deutschland, Vorrede.