Political Economy, History of

Margaret Schabas, University of British Columbia, Vancouver, BC, Canada

2015 Elsevier Ltd. All rights reserved.

Abstract

Political economy emerged as a discourse in early modern Europe and reached full maturity in the rst half of the nineteenth
century. It is the progenitor to modern economics, but there are several distinctive characteristics that set it apart. Political
economy was a literary rather than a mathematical science; it openly acknowledged its place within moral and political
philosophy, and it cultivated a historical stance. It also did not draw a rm demarcation between what came to be known,
c.1940, as microeconomics and macroeconomics. Political economy is still an acknowledged subeld within economics and
political science, albeit with a different set of problems and methods.

Premodern Economic Thought thirteenth century, in the form of partnerships, bills of

Aristotle (384322 BC) analyzed a number of key economic
phenomena in the context of his moral and political philos-
ophy. He discerned several essential properties of money, for
example, that a monetary price is a numerical ratio of two
bartered goods. He ascribed three key functions to money:
a measure of value, a store of wealth, and a medium of
exchange. Although trade and commerce were part of Athenian
life, he discredited the pursuit of prots or the practice of usury,
since these rendered money into an end rather than a means to
a more virtuous life.
The late medieval commentaries by Christian scholars
sustained Aristotles critical stance toward commerce, in step
with Charlemagnes prohibition of all forms of usury in AD
789. To sell a good for more than the customary or just price
would, in most cases, require deception and was thus a sin.
Likewise, to charge interest on a loan violated the Golden
Rule. If you were fortunate enough to have idle funds, then
you ought to assist others. To accept more than the principal
when the loan was repaid, Aquinas (122574) argued, was
unjust because money, like wine, is a consumptible good.
Money was not yet seen as an instrument for investment,
since most loans were for singular events such as a dowry.
Nevertheless, the discourse and the law gradually admitted
exceptions to these rules. If goods were transported to a place
where they were scarce, a higher price might be charged. If in
the period of the loan, the lender incurred a loss that would
otherwise have been averted, this might justify the payment
of interest on the loan. The increasing diffusion of money,
and frequent and disruptive debasements by the Crown,
prompted the fourteenth-century philosophers Jean Buridan
and Nicole Oresme to seek solutions to monetary instability.
They downplayed Aristotles conventional stance on money
in favor of the intrinsic discipline offered by the limited
supply of gold and silver. Oresme also discerned what came
to be known, by the sixteenth century, as Greshams law, by
which the clipped coins drove the full-bodied coins out of
circulation. The pamphlet literature of the sixteenth century
tracked the transition to the legalization of usury, even
though these practices were widespread since at least the
exchange, or annuities.
Early Modern Political Economy
In the early modern period, with the rise of overseas trade and
with banking in full sway, attention shifted to stabilizing the
supply of money and prices. Nicolaus Copernicus (1473
1543), Navarrus (14911586), Jean Bodin (153096),
Thomas Mun (15711641), William Petty (162387), and
John Locke (16321704) are some of the more prominent
contributors, but there are hundreds more, and virtually every
major philosopher of the period weighed in on economic
debates. Copernicus, Navarrus, and Bodin articulated ideas
that grew into the quantity theory of money, by which the
inux of new money results in a rise in overall prices. Mun,
a leading mercantilist and advocate of net exports as the key to
Englands prosperity, recognized the concept of price elasticity
and, more profoundly, market forces that override legal
restrictions. His short treatise, Englands Treasure by Forraign
Trade (1664), was in wide circulation till the middle of the
next century. It advanced the notion of a virtuous merchant
and attended to the economic rivalries between England, the
Netherlands, and Turkey to control the trade of cloth and
spices. Contrary to the popular view that mercantilists sought
to stockpile gold, Mun downplayed the importance of money.
Rather, a favorable balance of trade would provide the reve-
nues needed to improve the manufacturing and agrarian
sectors, such as the recent rise of silk production in London or
the increase of arable land in East Anglia. His views on
economic rivalry were boosted by mercantilist John Cary,
whose Essay on the State of England (1695) also held sway for
much of the next century.
Petty was one of the rst to devise quantitative measure-
ments of economic phenomena, including population, money
supply, and per capita output. Gregory King (16481712),
William Fleetwood (16561723), and Charles Davenant
(16561714) also contributed to the discipline of Political
Arithmetic, compiling data on prices and money supplies.
King and Davenant discerned the law of demand, as well as the

356 International Encyclopedia of the Social & Behavioral Sciences, 2nd edition, Volume 18 http://dx.doi.org/10.1016/B978-0-08-097086-8.03033-6

price elasticity of demand, with a chart of corn prices as
a decreasing function of the annual yield. John Graunt
(162074) and Christiaan Huygens (162995) devised pop-
ulation estimates and mortality tables. This in turn inspired
leading mathematicians such as Abraham De Moivre
(16671754) and Jacob Bernoulli (16541705) to join
concepts of probability to demography, and to spell out the
core elements, by 1720, of the binomial theorem or law of
large numbers, an invaluable tool for statistical thinking and
econometrics that took hold in the nineteenth century.
Petty and Locke, respectively, rened the quantity theory of
money by devising the two additional variables of the velocity
of money and the level of transactions. Given the dire shortage
of specie, they each considered alternative solutions to avert
price uctuations, either increasing the velocity or altering the
rhythm of rent payments. Locke was a primary inuence on
Isaac Newton, then Warden of the Mint, during the massive
recoinage of 1696, whereby the clipped coins were summoned
and replaced by full-bodied coins at par. Locke also developed
a monetary theory of the interest rate, as the price for loanable
funds. He urged the dismantlement of the current legal ceiling
and the promotion of competitive banking such that the
market rate of interest would converge on the natural rate.
Locke broached a labor theory of value that equated the
labor input to the relative price. He also wedded the virtue of
industry to the right to private property or estate, and moti-
vated the individual rights of association and mobility that in
turn rendered the tacit contracts of the market as the locus of
liberty. Others at the time also helped forge the idea of what
came to be known as the liberal doctrine of political economy,
notably Josiah Child (163099) and Pierre le Pesant de Bois-
guilbert (16461714), who coined the term laissez faire. Their
advocacy of a freer movement of goods and prices was in direct
opposition to long-standing regulations and crown privileges.
As nance minister to King Louis XIV, Jean-Baptiste Colbert
(161983) had promoted the liberalization of the internal
trade of France while at the same time instilling measures that
would protect it against foreign imports. Colbertism was an
early example of political economy in the sense in which the
power of the nation-state was closely conjoined with policies
for economic development in both the agrarian and artisanal
sectors.
Eighteenth-Century Political Economy
In the eighteenth century, economic discourse grew dramati-
cally. In France, the center of Enlightenment thought, there
were over 3000 publications on economic topics, in the form of
essays, pamphlets, dictionaries, encyclopedia entries, and full-
edged treatises. In France and Italy of the 1750s and 1760s,
specialized journals, such as the Journal Oeconomique or Il Caff,
provided forums for economic debates. The crowning
achievement, however, came from Scotland. Over 1000 pages
in length, Adam Smiths An Inquiry into the Wealth of Nations
(1776) became the dominant text by the 1790s. But Smiths
work did not spring from a vacuum. Some key pre-Smithian
texts are John Laws Money and Trade (1705), Jean-Francois
Melons Essai politique sur le commerce (1734), and Richard
Cantillons Essay on the Nature of Commerce in General (1755).
Political Economy, History of 357
Most inuential was David Humes Political Discourses (1752),
a set of 12 essays on political economy that underwent 11
British editions and was translated into four other European
languages, including 12 translations into French alone, all
before Hume died in 1776. Ferdinando Galianis texts, On
Money (1751) and Dialogues on the Grain Trade (1769), were
also widely read and cited.
There was no consensus on the name for the discourse on
economic phenomena until c.1800, when political economy
became the operative term. Antoine de Montchrtien issued
a lengthy book entitled Traict de loeconomie politique
(1615), but until James Steuarts Inquiry into the Principles of
Political Economy (1767), most works had titles with more
singular topics such as money, taxes, commerce, or trade. Most
deemed their inquiry a science, the science of commerce for
example, and positioned it squarely within the broader rubric
of the science of man or moral sciences. In Book IV of the
Wealth of Nations, Smith introduced the science of political
economy, although he dened it as the science of the legislator.
In the Scandinavian and German-speaking regions of
Europe, cameralism, the science of state management or
applied political economy, ourished throughout the early
modern period as an integral part of higher education. Some
of the more prominent contributors are Johann Joachim
Becher (163582), Ernst Ludwig Carl (16821743), Carl
Linnaeus (170778), Johann Heinrich Gottlob von Justi
(171771), and Joseph von Sonnenfels (17321817). Cesare
Beccaria (173594) was appointed the rst chair of Cameral
Science at the University of Milan, in 1768. Cameralism
preached a strong version of autarky or economic self-
sufciency, including sumptuary laws, and promoted the
study of natural history as the means to harness natures
bounty through mining and forestry.
Cameralism is usually sharply distinguished from the main-
stream of eighteenth-century political economy, which was
increasingly cosmopolitan and forward-looking; global trade and
economic expansion implied greater prosperity in the future and,
more signicantly, a diminution of war and conict. Predilec-
tions for new goods, conveniences, or luxuries, were seen in an
increasingly favorable light, as the means to insure trade and thus
goodwill between nations. In addition to Hume and Smith,
many of the leading Enlightenment philosophers, for example,
George Berkeley (16851753), Montesquieu (16891755),
Voltaire (16941778), and Jean-Jacques Rousseau (171278),
also wrote about economic topics, money, wealth, and trade.
Two leading savants, Jean dAlembert and Denis Diderot, secured
a place for the science of economics, in their highly inuential
Encyclopdie (17 vols. 175165). In addition to those cited, other
important contributors to eighteenth-century political economy
include Bernard Mandeville (16701733), Franois Quesnay
(16941774), Antonio Genovesi (171269), Condillac (1714
80), and Anne Robert Jacques Turgot (172781).
At Versailles, Quesnay founded one of the rst schools of
political economy, known as the Physiocrats or les conomistes.
Members include Victor Mirabeau (171589), Pierre Mercier
de la Rivire (17191801), and Pierre-Samuel du Pont de
Nemours (17391817). Physiocracy means the rule of nature
and, as a doctrine, it advocated a strong agrarian sector with
unrestricted domestic trade. All artisanal activities were deemed
sterile, merely transmuting materials, leather into shoes, for
358 Political Economy, History of
example, but not creating genuine wealth; this could only arise
from the gifts of nature, the sun, the rain, and the soil that
allows one seed in the spring to become two in the fall.
Quesnay devised one of the rst models in economic theory,
his celebrated tableau conomique, which depicted an annual
diffusion of money and goods between three economic classes,
the farmers, the artisans, and the landowners. The tableau
captured the notion of capital as an advance, producing a net
surplus over the course of a year. It also broached an implicit
version of the multiplier by which each transaction prompted
additional partial expenditures such that the initial capital
doubled its output.
Hume made two enduring contributions to monetary
theory: the specie-ow mechanism by which prices and money
equilibrate over the entire globe; and the causal path by which
an unanticipated growth in money due to a trade surplus could
stimulate economic growth. Hume also advanced a nonmone-
tary interpretation of the interest rate and broached the law of
the falling rate of prot. Although Humes account leaves many
loose threads, it is all the richer for his insights into human
nature and political order, particularly as imbedded in his
historical account of commercialization.
Adam Smith (172390) canvassed the entire eld of
economics, including the theories of value and distribution,
trade and development, public nance, even economic history
and the history of economics. Book I, on value and distribu-
tion, establishes labor as the original price of all commodities
and capital goods. Labor is estimated objectively in terms of
hours of exertion and subjectively in terms of the loss of leisure.
Once property rights and money come into existence, capital
and labor acquire returns in the form of wages and prots,
respectively. The spectrum of wages can be attributed to ve
circumstances, and the spectrum of prots to two, the
disagreeableness and insecurity of the particular business, but
in both cases there exists an underlying natural rate of return.
Prices are reducible to three components, wages, prots, and
rent. The market price, the one observed on a quotidian basis,
uctuates around the natural or long-term price. Smith also
lays out his celebrated account of the division of labor, in the
sense of division within a single trade, the production of metal
pins, for example, into specic tasks to glean economies of
scale. He also emphasized the importance of specialization by
trade to take advantage of natural talents and thus secured one
of the more enduring functional relations in economics,
namely, that the division of labor by trade is a function of the
size of the market.
Books II and III focus on capital accumulation and economic
growth, rst within a nation and then with respect to global
trade. Smith observes that, for most of the past, human insti-
tutions have distorted the natural progress of opulence. Instead
of the agrarian surplus of a town sparking a manufacturing
surplus and then overseas trade, growth was most manifest in
the trading cities of Venice, Hamburg, or Amsterdam that then
prompted manufacturing and nally more agriculture to feed
the growth in local population. Books IV and V expand out to
comparative political economy, domestic and foreign trade
policies, the provision of public works, and scal policy.
Building on Humes account of trade, Smith delivers on the
question as to why some countries are poor and others rich, and
offers a dynamical account that peers far into the future.
Although mentioned only once in the Wealth of Nations, the
invisible hand has come to be synonymous with Smith. It
draws on but softens Mandevilles insight that private vices
have public virtues; rather, self-interested actions not only yield
unintended and benecial consequences, but also may yield
better outcomes than actions that profess the public good. The
invisible hand is also mentioned once in Smiths only other
book, the Theory of Moral Sentiments (1759), and is used in
a very different light, to motivate the sense in which there is
distributive justice even in a world of rich and poor. For Smith,
the real purpose of life is to achieve peace and tranquility and,
for the most part, this is an inverse function of wealth and rank.
The poor sleep more soundly than the rich and, as long as the
basic necessities of life are met, have an equal if not superior
claim on a happy life. Wealth, for Smith, is a futile and hollow
end, born out of a restless desire for trinkets and gadgets. But
because we are deceived into thinking that wealth brings
happiness, we work hard and thus keep the world in motion.
Wealth also garners the approval of others, and this is part and
parcel of our more fundamental disposition to cultivate fellow
feeling. Arguably no one has surpassed Smith in weaving such
a penetrating account of human nature into such an expansive
theory of material well-being and the rise of modern
commerce.
Nineteenth-Century Political Economy
Smiths ideas were extended and rened by, most notably,
Thomas Robert Malthus (17661834), Jean-Baptiste Say
(17671832), David Ricardo (17721823), and John Stuart
Mill (180673), a tradition now known as the Classical school
of political economy. The Classical economists emphasized
a cost-of-production (labor) theory of value and the competing
claims of the three economic classes (laborers, landowners, and
capitalists) over the annual product, aptly depicted as the fall
harvest of corn (wheat). The capitalists made a justiable
contribution by bringing foresight and prudence into a world
that was otherwise myopic. The so-called iron law of wages
proclaimed the futility of raising wages much above subsis-
tence, since this would increase population and within 10 years
increase the supply of labor thus bringing wages back to their
original level. The only ways to avoid this were either to engage
in the moral restraints that Malthus advocated to keep pop-
ulation down, or to accumulate capital, since that would
increase the demand for labor.
For Ricardo, the price of the wage good, corn, was deter-
mined at the margin of cultivation, where the last units of labor
and capital were deployed. Rent, which Ricardo dened as
a return to the powers of the soil, was a pure residual and did
not, as Smith had posited, enter into the formation of prices.
Also contrary to Smith, Ricardo argued that an increase in
wages was not inationary. Because wages and prots are
inversely related, an increase in wages would prompt the
movement of capital from the labor-intensive (agriculture) to
the capital-intensive (manufacturing) sectors, unleashing an
adjustment in relative prices but not in the overall price level.
Population growth implied the cultivation of inferior grades
of land and diminishing returns implied the rise in the price
of corn. This meant a long-term tendency for the prot rate to

fall, even if the capital stock continued to accumulate. Ricardos
analysis was exacting and cemented the method of abstract
deductive reasoning. Ricardo also worked out the principle
of comparative advantage in trade, predicated on the interna-
tional immobility of capital. Even if a country such as Portugal
can produce both cloth and wine more cheaply than its trading
partner, England, it is more efcient if Portugal produces just
the one good, wine, in which it has the greatest comparative
advantage (lower labor costs of production) and trades that for
English cloth, the good for which England has the least
comparative disadvantage. Mill extended the analysis by
introducing nation-specic patterns of demand and the inter-
ference effects of foreign exchange rates.
For the Classical economists, pricing came about after
distribution, because the returns to the three factors of
production, land, labor, and capital, were part of the natural
order. Malthusian laws of population growth and diminishing
returns were seen to be inexorable, the result of forces deeper
than any human action or process of deliberation. Even money,
via the specie-ow mechanism, was seen to have a motion that
transcended human agency. This in turn bolstered the doctrine
of laissez faire, most championed by Say, who argued against
the possibility of persistent gluts in production, and thus for
the efciency and justice of market mechanisms. Says Traite
deconomie politique (1803) was one of the most widely read
texts of the rst half of the nineteenth century and became
the target of the socialist movement that emerged at this time,
led by Henri de Saint-Simon (17601825), Charles Fourier
(17721837), and Pierre-Joseph Proudhon (180965).
Classical economists worried about the onset of the
stationary state, whereby the prot rate fell to the point that
capital accumulation would halt, and overpopulation result in
a world of standing room only. Scarcity, doom, and gloom
were prevalent motifs of the dozens of texts by the Classical
economists, notwithstanding the dramatic growth of the
Western European economy throughout the nineteenth
century. They clearly underestimated the potential for birth
control, for technological inventions and innovations, both in
the form of labor-saving and capital-saving procedures, and for
the dramatic returns in the agrarian sector as new techniques of
plant breeding, crop rotation, fertilization, and transportation
took hold. The reasons for their pessimism are still not fully
understood.
Early Neoclassical Economics
Despite numerous appreciations by the Classical economists
of the importance of utility in the determination of prices, it
was only in the 1870s that mainstream economic theorists
discarded the labor theory of value and embraced the idea of
marginal utility as the key determinant of a price. The leading
instigators of this so-called marginal revolution were, in
Britain, William Stanley Jevons (183582), Francis Ysidro
Edgeworth (18451926), and Alfred Marshall (18421924)
and, on the Continent, Lon Walras (18341910), Vilfredo
Pareto (18481923), and Carl Menger (18401921). In the
United States, John Bates Clark (18471938) and Irving
Fisher (18671947) were at the vanguard. Inspiration came
from Jeremy Bentham (17481832), who believed that utility
Political Economy, History of 359
could be quantied and all actions reduced to a calculus of
pleasure and pain. Insofar as individuals strive to maximize
utility and minimize labor, wealth is construed as a mental
not material entity, and thus unbounded. Herein lay the germ
of the more optimistic tenor that characterizes the Neo-
classical period.
The most salient feature of economic theory since the 1870s
is its systematic use of mathematics, particularly the calculus.
Much of the original momentum to transform literary political
economy into a mathematical discipline was drawn from the
aspiration to emulate physics. John Stuart Mill was the rst to
argue that political economy must adopt the axiomatic-
deductive method of Newton. What motivated the early Neo-
classical economists to develop a mathematical theory was the
realization that the phenomena themselves were quantitative,
and that the mind deliberated in terms of innitesimal units
and thus the calculus. They drew inspiration from new devel-
opments in logic and psychology, as well as the techniques
of constrained maximization as worked out in Lagrangian
and Hamiltonian mechanics. Walrasian economics became
the dominant theory by the 1920s, and by the 1950s, the
Foundations of Economic Analysis (1947) by Paul Samuelson
(19152009) insured that every future economic theorist must
rst acquire training in mathematics.
Political economy gained considerable standing over the
course of the nineteenth century, having traditionally been
part of the study of jurisprudence and moral philosophy. In
1805, Malthus was appointed to the rst post as Professor of
Political Economy, at the East India College, and in the 1820s,
chairs were established at the more renowned universities at
Cambridge, Oxford, and London. In France, Charles Gide
(18471932) led the establishment of chairs in political
economy at every French university by 1878, and founded
the Revue dconomie politique (1887). Later efforts at discipline
formation were made with the discarding of the adjective
political from the name of the discipline, as evident by
the publication of Marshalls Principles of Economics (1890),
along with the formation of the British Economic Society and
the Economic Journal in 1891. Marshalls chosen successor at
Cambridge, Arthur C. Pigou (18771959), founded welfare
economics in the 1920s, and insisted that economics was now
no longer tied to moral or political philosophy.
American economists garnered professional momentum
with the founding of the American Economic Association in
1885, and the creation of three journals, the Quarterly Journal
of Economics (1887), the Journal of Political Economy (1892),
and the American Economic Review (1891). Thorstein Veblen
(18571929), John R. Commons (18621945), and Wesley
Clair Mitchell (18741948), among others, founded a school
known as Institutionalism that left a profound imprint on
subsequent American economics. Mitchell and his successor,
Arthur F. Burns (190487), developed the National Bureau of
Economic Research (founded in 1920), into the spawning
ground for many of the leading American economists of the
mid-twentieth century, including Burnss student Milton
Friedman (19122006) who became the dominant voice of
neoliberalism.
Marshalls most famous student, John Maynard Keynes
(18831946), decried the problems of persistent unemploy-
ment and inequalities of wealth and income. The solution lay
360 Political Economy, History of
with increased government intervention in the form of public
works, severe inheritance taxes, and reformed scal policy.
Keynes envisioned a world of developed economies run by
decentralized institutions, whereby individuals would no
longer be conned by economic necessity nor driven by greed,
where they could enjoy leisure, artistic improvement, and enter
the ambit of altruism. In addition to his social philosophy,
Keyness General Theory of Employment, Interest and Money
(1936) remains one of the most inuential books in the history
of political economy for its theoretical integration of a number
of key tools and concepts, for example, the marginal propensity
to consume and to save, the multiplier, the saving-investment
function, and the demand theory of money. Many of these
tools, including involuntary unemployment and business
cycles, were worked out with his fellow economists at
Cambridge, Ralph Hawtrey (18791975), Dennis Robertson
(18901963), Richard Kahn (190589), and Nicholas Kaldor
(190886), or can be found in the earlier work of Knut Wicksell
(18511926). Piero Sraffa (18981983) and Joan Robinson
(190383), both colleagues of Keynes, cultivated neo-
Ricardian theories that drew attention to capital rigidities and
imperfect competition. Value and Capital (1939), by Oxford
economist John Hicks (190489), made canonical both
Walrasian general equilibrium theory and the graphical tools
for Keynesian economics that mapped functions for investment
and money demand in terms of the interest rate and aggregate
nominal income (the IS-LM diagram).
Although the Neoclassical theory became the dominant
position by the 1930s, there were many alternative streams
of thought, some of which still survive to this day. In
Germany, for example, such thinkers such as Wilhelm
Roscher (181794), Gustav von Schmoller (18381917),
Werner Sombart (18631941), and Max Weber (18641920)
were adamantly historical and sociological in their approach
to the study of economic phenomena. Others followed Karl
Marx (181883), such as Karl Kautsky (18541938) and
Rosa Luxemburg (18711919), emphasizing class conict,
and the rights of labor to its full product. Marxs major
treatise in political economy, Das Kapital (vol. I, 1867), was
left unnished; not until Friedrich Engels completed Volume
III in 1894 was there sufcient material to spawn a distinct
school. And although Marx was much indebted to Ricardo,
Marxist economics is best viewed as a twentieth-century
pursuit. It has become increasingly analytical and mathe-
matical, but still adheres to some of the distinctive principles
of exploitation, alienatation, and increasing immiseration.
Eastern Europe produced several economists who made
important analytic contributions to mainstream economics,
notably Eugen Slutsky (18801948), Nikolai Kondratiev
(18921938), Oskar Lange (190465), and Wassily Leontief
(190699), who emigrated to the States. In England, new
schools of thought were founded that were either historical
or socialist in orientation. Under the inspiration of
Thorold Rogers (182390) and Arnold Toynbee (185283),
economic history secured a rm toehold in the university
curriculum, and matured in the hands of William Ashley
(18601927), G.D.H. Cole (18891959), and Phyllis
Deane (19182012). The Fabians, notably Beatrice Webb
(18581943) and Sidney Webb (18591947), founded the
London School of Economics in 1895 and were instrumental
in steering Britain toward the welfare state.
In Vienna, Menger attracted a number of students, including
Friedrich von Wieser (18511926) and Eugen von Bhm-
Bawerk (18511914), giving rise to a full-edged Austrian
School. The second generation of Austrians, Ludwig von Mises
(18811973), Joseph A. Schumpeter (18831950), and Frie-
drich von Hayek (18991992), moved to Britain or the United
States, and in the process created an interesting blend of Austrian
rationalism with American libertarianism. Schumpeters Capi-
talism, Socialism and Democracy (1942) and Hayeks Road to
Serfdom (1944) are two of the most popular nontechnical works
of twentieth-century political economy. Like Keynes, they grap-
pled with the fate of capitalism as an economic system and
proposed political measures to sustain the status quo.
If economics is what economists do, then the 1930s and
1940s constitute the most pivotal decades by which political
economy retreated from center stage and transformed into an
interdisciplinary subeld within the academy, focusing on
global and comparative national development. It has been
adopted by faculty across the social sciences, and given
new meaning by, for example, the sociologist Immanuel
Wallerstein, the political scientist Elinor Ostrum, or the
economist Doran Acemo glu. There is no simple explanation
for this shift, but one critical move can be attributed to the
fundamental divide undertaken by Keynes and the early
founders of econometrics, Ragnar Frisch (18951973), Jan
Tinbergen (190394), and Trygve Haavelmo (191199). They
segregated macroeconomics (the study of national output and
growth) from microeconomics (the study of prices and
markets) and political economy took on a more specialized
and subservient place in the conguration of economic
theory.
See also: Capitalism; Economics, History of; Macroeconomics,
History of From 1933 to Present; Microeconomics, History of.
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