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Political Economics Notes
Political Economics Notes
Political Economics Notes
Economics—the social science that deals with the production, distribution, and consumption of
material wealth and with the theory and management of economic systems or economies—was
once called political economy. Today, political economists study interrelationships between
political and economic institutions (or forces) and processes, which do not necessarily lead to
optimal use of scarce resources.
Political economy is founded on the predicament of economic choices in a society comprising
heterogeneous agents. Its focus is different from that of welfare economics. In a nutshell,
political economy analysis investigates the interaction of political and economic processes in a
society; in the context of historical legacies, this entails comprehending.
Definitions:
Adam Smith: "Political Economy describes the actual working of the economy (positive
aspect), and also the way the economy should work (normative aspect)".
o Was more prescriptive, than descriptive.
o Role of State Policy,
o Branch of Civil government.
Lionel Robbins: "Political Economy analyses the political effects of economic actions, and
economic effects of political actions."
o Shows interaction between economic and political systems.
Marx and Engels: "Political Economy studies production relations in terms of their
interconnections with the contemporary development of productive forces, as by history."
o Role of productive relations — workers and capitalists
Each country should have a strategic policy framework, thus the introduction of Sustainable
Development Goals (SDGs) which act as a guide to all countries to formula a policy framework
keeping in mind with the SDGs.
Economic systems:
1. Capitalism: Capitalism is often thought of as an economic system in which private actors
own and control property in accord with their interests, and demand and supply freely set
prices in markets in a way that can serve the best interests of society. The essential feature of
capitalism is the motive to make a profit.
2. Socialism: The sole objective of socialism is the maximum social welfare of the society. It
means that there is no scope of exploitation of labour class. A socialist economy is a system
of production where goods and services are produced directly for use, in contrast to a
capitalist economic system, where goods and services are produced to generate profit (and
therefore indirectly for use).
3. Communism: Communism has a centrally planned economy; it can quickly mobilize
economic resources on a large scale, execute massive projects, and create industrial power. It
can move so effectively because it overrides individual self-interest and subjugates the
welfare of the general population to achieve critical social goals.
4. Liberalism: In liberal market economies, firms rely primarily on competitive markets to
secure access to finance, skills, labor and technology, while firms in coordinated market
economies rely more heavily on collaborative arrangements, often coordinated by business
associations or trade unions.
5. Marxism: Marxism is a social, political, and economic philosophy named after Karl Marx. It
examines the effect of capitalism on labor, productivity, and economic development and
argues for a worker revolution to overturn capitalism in favor of communism.
CAPITALISM
Marx wrote CAPITAL to lay out the inner workings of the economic system called capitalism.
Marx went deeper & tried to discover capitalism’s fatal contradictions.
Marx saw Capitalism as an economic system driven by the need to maximize profit. Two
fundamental classes dominate society:
– A capitalist class that privately owns society’s means of production.
– A working class that owns no means of production & must sell its labor power to the capitalist
class to survive.
Capitalists make profit by exploiting wage labor. Capitalists make profit by exploiting wage
labor.
Marx begins his analysis of capitalism by examining the commodity. The goods & services
produced for sale under capitalism are commodities.
– Commodities are “useful” things or activities designed to be sold in a market. Thus,
commodities have a dual nature: They have a “use value” & an “exchange value.”
Capital is any form of wealth (machinery, land, resources, money) that is used to employ labor
for the purpose of generating greater wealth (surplus value) for the owners of capital (capitalists).
Capitalists gain profits by paying workers less for their labor power than the exchange value of
the wealth they produce. This is the meaning of exploitation.
The more wealth (surplus value) workers generate above the cost of their labor, the more
exploited they are…the greater the “rate of exploitation.”
Modes of Exploitation:
Absolute Surplus value- Lengthen the working day without increasing wages. (Working longer).
Relative Surplus value – Decreasing necessary labor time needed to reproduce labor power. This
is accomplished by cheapening the labor power by increasing productivity. (Increased
productivity).
- The wealth that could be produced when human work was only supplemented with animal,
wind & water energy was limited.
- But when human labor was subordinated to the fossil powered industrial machines, it became
just a small part of the energy applied toward producing unprecedented amounts of wealth.