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Political Economy

Overview

Table of Contents

Rational Choice

Thinkers and politicians throughout the ages have discussed economic issues, but they usually subordinated a strong economy to other goals, such as a centralized government or the acquisition of more territory. Adam Smith’s publication of The Wealth of Nations in 1776 brought economics into the modern era. Smith and later scholars focused on how the economy works best and most efficiently, but they did not consider what moral goals the economy should serve. Smith argued that the most efficient economy was a free-market economy, with little government interference. When Britain and other nations began to put Smith’s theories into practice, their economies expanded rapidly and vast wealth was created. Even though economics has changed greatly since his time, it is fair to say that we live in Adam Smith’s world.

Today all governments must work to implement sound economic policy. But there are no easy answers to economic issues. Often, different parts of society want different things, and what helps one part hurts another. And sometimes dealing with one problem causes another. In a democracy, politicians who fail to fix the economy—or even those who appear to be doing nothing to solve economic problems—face very angry voters. So politicians need to pay attention to economics.

Politics and money frequently intersect, and political scientists call that intersection political economy. The two realms interact and affect each other in complex ways, making it difficult to tell where one begins or ends. The state is expected to play a role in shaping the economy, so naturally the state affects and alters the economy. But the economy also affects the state: A state that cannot make the economy grow, or distribute it in a manner seen to be fair, could be in a great deal of trouble. And a booming economy can save even inept or corrupt leaders.

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