In this book ten international scholars examine the complex between the economy and the polity from a scientific rather than an ideological point of view. In so doing, they present an overview of the exciting new work now being done, the main...

In this book ten international scholars examine the complex between the economy and the polity from a scientific rather than an ideological point of view. In so doing, they present an overview of the exciting new work now being done, the main ideas and controversies now prevalent, and the new approaches to the study of political economy now being pursued.

THE DEVELOPMENT OF POLITICAL ECONOMY The founders of political economy were philosophers sharing common assumptions concerning the political setting and the analytical method most conducive to economic well-being. Concerned with the individual's welfare within a prospering economic system and reacting against the state's role in mercantilism, these early writers nevertheless set their microlevel analyses firmly within a particular institutional and political setting, one free of state monopoly and interference. This institutional framework was believed necessary for the free enterprise system to operate in accordance with the natural laws of economics. In this system, Smith claimed the natural laws of economics would provide economic welfare for society. Scarcity would be eliminated through the efforts of free men pursuing their individual well-being. Malthus and Ricardo accepted Smith's view, although Ricardo's analysis of the distribution process suggests he was cognizant of political problems affecting economic growth. All three founders of classical political economy, however, assumed the economic system would be able to dispose of its output unfettered by political distortions. All three also accepted an economic approach that stressed an abstract-generalizing method of analysis. Later schools of political economy disagreed with these views and, because of these disagreements, important breaks occurred among the historicists, socialists, Marxists, and eventually, among members of the Austrian and the Lausanne schools. �  The center of debate was Germany. The central component of this split was 19th century German romanticism's denigration of the value of reason and natural order. Classical economists had advocated a scientific method of wringing general rules of human behavior from reason; under influence, German economists rejected this in favor of an alternate scientific approach emphasizing the observation of the unique in its endless historical variation. This German historicism acquired international importance when German universities became centers of world learning in the late 19th century. As a method of analysis, German historicism was hostile to the secularized natural law tradition of Adam Smith and the later English political economists. It rejected utilitarianism in favor of an almost secular idolatry of the state and nation, occasionally to the point of advocating unquestioning obedience of the people to government. Socialist critics of classical political economy emanated from a different ideological tradition, one that stressed class rather than national or individual aspirations. Socialist critics argued that existing economic arrangements systematically excluded the poorest class. They rejected the institutional framework of laissez-faire economics and advocated substantive rather than merely legal equality. All socialist political economists shared a dissatisfaction with a social order in which the competition for private profit led to poverty and insecurity for so many. Despite common roots, the socialist thinkers offered a wide variety of alternatives to classical political economy. Some opposed all private property. Others were antistate. Some, like Proudhon, rejected both the state and private property. Some proposed cooperative movements to replace competition as the guiding force of society, while others saw the trade union movement as the vehicle for shifting the balance of economic bargaining power to the worker. Some socialists even suggested monetary reforms to give producers purchasing power commensurate with their productive capacity. Finally, some argued that moral suasion was the way to effect change, while others advocated force. These pre-Marxist socialists left an important legacy of political ideas to mainstream practictioners of political economy: the promotion of industrial development; government by a managerial elite; work more attractive for workers; educational reform; the social responsibility of property; and the idea of state management of the money supply. MAINSTREAM POLITICAL ECONOMY AND THE MARGINALIST REVOLUTION [T]he late 19th century rejection of the labor theory of value in favor of utility theory marked a revolutionary departure from classical political economy. Political economy's traditional concern with general welfare and the state's role in ensuring that welfare now became secondary to a concern with microeconomic movements in which the economic variables were not political but rather mathematical or functional, and the interest was in relating change in one variable to change in another. Concerns with economic growth became less important than the attempts to locate equilibrium positions within a framework in which the total quantity of resources was given. The consumer and the firm, rather than national income or economic growth and development, became the central focus of mainstream economic analysis until the 1930s and the advent of Keynesian economics. The intellectual fathers of the marginalist transformation were Malthus and ;Von Thunen, and Gossen; the marginalist transformation began in full force in the 1870s with the publication of works by W. Stanley Jevons, Carl Menger, and Leon. Coming from different traditions, these three authors eventually founded separate schools that arrived at similar conclusions concerning marginalism. The Austrian school embraced utility theory. The Lausanne school emphasized more abstract general equilibrium analysis. The Cambridge economists followed Alfred Marshall, whose work not only encompassed utility theory and equilibrium analysis, but also included the seeds of the later debate between contemporary monetary and fiscal theorists. The Austrian school, begun by Carl Menger, Friedrich von Wieser, and Eugen Von Bohm-Bawerk, is noted politically for its strong emphasis on political individualism and economic noninterventionism and its emphatic rejection of Marx and socialism. Methodologically, the Austrian school is noted for its purely theoretical analysis, free of empirical tests. While it had much in common with marginalism, the Austrian school eventually went in a different direction. This separatism was partly the result of a language barrier which resulted in many early Austrian works not being translated into English until 80 years after their German publication. Menger interpreted economic relationships in terms of causes and effects rather than in terms of mutual interdependence, the technique used in most modern Menge's work was anti-Marxist, a trait shared by the other two early Austrians, Friedrich von Wieser and Eugen Von Bohm-Bawerk. Both of these men were strongly critical of Marx and the interventionist socialist state. Bawerk expanded his criticism to include reform socialism and economic intervention. The Austrian tradition was thus identified with laissez-faire principles and anti-Marxism. This tradition was carried on by two important later Austrians: Ludwig von Mises and Friedrich von Hayek. Mises criticized socialism for a rational method of pricing. He opposed economic interventionism strongly enough to deny the government a role even in setting monetary policy. Mises's extreme antigovernment views, especially after Keynes, isolated him from contemporary economics. Hayek, 20 years Mises's junior, was more tolerant of mathematical economics and mainstream economic views. Hayek was also a strong advocate of individualism and libertarianism, however, and a staunch opponent of state intervention, which he saw as leading to totalitarianism and serfdom.

1. The Development of Political Economy (Kristen R. Monroe) 2. Politics, Economics, and the Underground Economy (Bruno S. Frey, University of Zurich) 3. The Political Dimensio

1. The Development of Political Economy (Kristen R. Monroe) 2. Politics, Economics, and the Underground Economy (Bruno S. Frey, University of Zurich) 3. The Political Dimensions of Wage Dynamics (Martin Paldam, University of Aarhus, Denmark) 4. Inflation, Unemployment, and Electoral Terms: When Can Reform of Political Institutions Improve Macroeconomic Policy? (William R. Keech, University of North Carolina, Chapel Hill, and Carl P. Simon, University of Michigan) 5. Can Income Policies Work? (R. Robert Russell, New York University) 6. Politics and Economics in Everyday Life (Donald R. Kinder and Walter R. Mebane, Jr., University of Michigan) 7. Parties and Classes in the Political Response to Economic Conditions (M. Stephen Weatherford, University of California, Santa Barbara) 8. Economic Expectations, Economic Uncertainty, and Presidential Popularity (Kristen R. Monroe, and Maurice D. Levi, University of British Columbia) Index