At a very basic level, political economy involves philosophical
analysis focusing on issues like free enterprise, liberalism, conservatism
or socialism? We will begin by looking at historical analyses of this
sort involving the work of Adam Smith in An Enquiry into the Nature
and Causes of the Wealth of Nations (1776) [University of Chicago
Press] and the work of Karl Marx and Friedrich Engels in The Communist
Manifesto (1848) [Penguine Classics].
The weaknesses of the unregulated free-market system that was allegedly
discovered and put forward by Smith, the criticism of which formed the basis
of Marx and Engels' work, together with the weaknesses of the exclusively
government-operated system Marx and Engels proposed, suggest a system of
regulated free-enterprise, the study of which will constitute the remainder
of this lesson. Our analysis will incorporate the process of political
decision-making with standard economic analysis to produce a modern
presentation of the basics of political economy. In this system any
recommendations by economists must survive a political-decision-making
process which could involve a number of alternative characteristics.
You should now answer a question that tests your understanding
of the above discussion. While detailed answers are available
on-screen for all questions asked in these Lessons, you should always
think about the questions and construct your own answers before going to
the ones here provided.
Political Economy is the study of the interaction of economics
and politics in countries' policy-making. All economic policy
has a political basis for its implementation. And a large
fraction of the policy debates in a country typically involve
some government manipulation of economic activity.