Political economy

Political economy originally refered to the study of the conditions that determined the relative wealth or poverty of polities (e.g. nation-states). In the 19th century liberal theorists argued that the state should not regulate the market; that politics and markets operated according to different principles; and that political economy should be replaced by two separate disciplines, Political science and Economics. Notable thinkers have opposed this liberal tradition: Karl Marx (who rejected the conceptual distinction between politics and economics) and John Maynard Keynes (who rejected the institutional separation of politics and economics). Today, the term political economy is used in various ways. It is most commonly uesd to refer to interdisciplinary studies that draw on economics, law, and political science in order to understand how political institutions and the political environment influence market behavior. "International political economy" is a branch of economics that is concerned with international trade and finance, and state polities that affect international trade such as monetary and fiscal policy. Others use "political economy" to refer to neo-Marxian approaches to development and underdevelopment set forth by Andre Gundar Frank and Immanuel Wallerstein.

The term was first widely used in the 18th Century by philosophers such as the physiocrats and Adam Smith. It was universally used to describe what we now know as economics until around 1870 when the term economics was coined, and brought into common use by influential neoclassical economists such as Alfred Marshall.

Marshall and most other economists used both terms as synonyms, with the term political economy gradually falling out of favour in the English speaking world during the twentieth century. Use of the term underwent something of a revival during the 1960s when it was used increasingly by the libertarian economists of the Chicago School. Political economy is also sometimes preferred by other radical groups with widely differing views, such as Post-Keynesian economists and Marxists.