Political economy is understood here in its modern sense - to analyze economic choices in terms of political and ideological predilections and assess how power relations dictate particular economic structures and outcomes.
A political economy approach “interrogates economic doctrines to disclose their sociological and political premises.... in sum, [it] regards [all] economic ideas and behaviour not as frameworks for analysis, but as beliefs and actions that must themselves be explained.” Charles S. Maier In search of Stability: Explorations in Historical Political Economy, pp. 3-6.
A [radical] political economist sees [the] power structures and puts them at the forefront of his analysis; a conventional economist—who sees only a society of free, self-interested economic men interacting as equals in the marketplace—does not…. The conventional economist not only fails to take account of relations of power and authority, and so fails to grasp the most socially relevant aspects of the problem, but, by being so blind to [special] interests and so caught up in his data and his techniques; he in effect supports a system that maltreats large numbers of people. . . . John Gurley, The State of Political Economics, American Economic Review, 61, no. 2 (May 1971): 55. 61, no. 2 (May 1971): 55.)
The conventional economist's reply: "Human behaviour reveals uniformities which constitute natural laws. If these uniformities did not exist, then there would be neither social science nor political economy, and even the study of history would largely be useless. " Vilfredo Pareto: Cours d'Economie Politique (1896-7), Vol. 2, 397.
Lord Robbins (1981) interpreted political economy as the 'application of Economic Science to problems of policy.' This is the Public Choice definition of political economy. At various times, other economists nave designated this area a branch of 'economies', either normative, welfare or applied, or 'economic policy'.
The Institutionalist School: Institutionalism is an essentially normative and policy-oriented political economy. John R. Commons recognized, 'political economy' is not merely a matter of governance; it is also fundamentally a question of power, of dominance and subservience in the determination and legitimization of goals, rules and policies. From this perspective, politics and economics cannot be distinguished in terms of (overlapping) 'sectors' ft national life, 'private' and 'public', but only as alternative approaches to or ways of looking at society; and political economy implies thinking of economic activity as a power system as well as an economizing process. Among contemporary economists in the institutionalist tradition, Galbraith is perhaps pre-eminent in perceiving and examining the evolving American economy as a political and power system. e may identify four major kinds of power relations in Galbraith's writings: (1) those between business, especially large scale corporate, leadership and the general consuming and working public (and, similarly, between political leadership and the citizenry); (2) the internal power relations within the giant corporations, notably, the shift in power not only from owners to managers, but therein, from managers to the 'technostructure'; (3) the power relations between the 'planning system' and the 'market system'; and (4) the power interactions between business and government, exemplified by the 'symbiosis' between big business and the pubic bureaucracy (Galbraith, 1971; 1973; Fusfeld, 1972). Institutionalist analysis is oriented toward problem-solving, based heavily on empirical observation and inductive logic. Deductively formulated generalizations action and social practice, and derive their interest from their practical relevance (Hill, 1978, pp. 316-17) As Cochran notes (1983, pp. 3-11), this approach is deeply rooted in the institutionalist tradition. Illustrations include: Commons's concept (1961) of ideas as 'guides to action and science itself not as a body or knowledge. but as a process of attaining control. Institutionalist economic theory s essentially complementary to standard economic theory, even when economists of institutionalist persuasion offer their neo-neoclassical and neo-Keynesian colleagues few compliments (and vice versa). (John E. Elliott, 1984.)
