Introduction to Political Economy (Part 1)

Introduction to Political Economy Introduction to Political Economy Introduction to Political Economy Eighth Edition

Preface to the Eighth Edition

We have written this book to introduce our readers to what we are calling "political economy." We want to distinguish this kind of economics from the "mainstream" of economics that dominates instruction in contemporary capitalist societies. If you are taking an economics course at almost any U.S. university or college, your teacher has almost certainly assigned you a textbook from what we call the economic mainstream. In the most general terms, how are these two traditions, political economy and mainstream economics, different from each other? We can begin an answer with a passage from one of the very few contemporary textbooks that gives attention to them both.

Political economy ... is more concerned than mainstream economics with the relationships of the economic system and its institutions to the rest of society and social development. It is sensitive to the influence of non-economic factors such as political and social institutions, morality, and ideology in determining economic events. It thus has a much broader focus than mainstream economics.

A bit of historical background will help to make sense of this quotation. What we are calling political economy was first fully developed in the work of Adam Smith, whose seventeen seventy-six book, the Wealth of Nations, contained a fabulously rich combination of theoretical analysis, historical setting, and copious detail. Smith took into account anything and everything that caught his attention, and to read the Wealth of Nations is to discover the broad outlines, and countless details, of British life in the late eighteenth century. For most of the nineteenth century, people studying the economy, the most prominent of whom were Karl Marx and Thorstein Veblen, followed Smith's lead. They produced broadly cast arguments in which there were no predictable boundaries limiting the kinds of "economic" knowledge taken into account. While Marx, Veblen, and other such political economists clearly focused attention on economic activity-how people produced their livelihood and how they divided it up-they roamed far and wide in looking for ideas and information that would help them to explain what they saw.

However, after the middle of the nineteenth century, more and more social scientists adopted a version of the "scientific method," borrowed from physical scientists such as physicists, chemists, and biologists. Successes in these scientific fields starting in the sixteenth century had enticed social theorists into taking a scientific approach to their studies, and this was certainly true of economists. By the twentieth century, and especially after nineteen fifty, economics increasingly came to be expressed in the terms of mathematics and statistics. Presently, the economics profession is dominated, as are the graduate schools that produce professional economists, by economists who exclude from their analyses most of those things that are not readily measurable or appropriate for quantitative model building.

As the discipline has been narrowed, it has pushed to the margin alternative schools of economics, especially political economy. Political economists, as defined above by Riddell, Shackelford, Stamos, and Schneider, have gradually found their work shunned by the major economics journals, often because it is considered to be "non-economic." From our view, the most unfortunate consequence of this trend is that the ideas of writers like Marx and Veblen, and others who extended their work, are rarely studied by economists as graduate students. Correspondingly, these important ideas are less frequently taught by such graduate students when they become professors.

We have written this book to try to bridge this gap. In this eighth edition, we have once again updated much of the book in order to take account of key economic events in the world during the two years that have passed since the previous edition. We have updated data and examples throughout the book to demonstrate the continuing relevance and importance of political economy to the modern world. We have also added new information boxes to chapters that broaden the content in key areas to help demonstrate the vast scope of political economic analysis. These additions include features on the role of government; inequality and its connection with race, gender and class; how Finland establishes traffic fines based on income; the promising "Cleveland Model" of creating cooperatives and jobs utilizing local anchor employers; and much more.

In our initial chapter, we provide our readers a more detailed look at political economy by comparing its essential ideas and concepts to those of the economic mainstream. We follow this first chapter with three on the central writers in the political economy tradition, Smith, Marx, and Veblen, whose ideas, as we shall see, provide the structural frame for the rest of the book. In Chapter five, we take up the ideas of John Maynard Keynes, whose work in the nineteen thirties on the booms and busts of modern capitalist societies revolutionized the way economists understand capitalism and the measures necessary to keep it from collapsing. Keynes, who actually straddled the fence between political economy and mainstream theorizing, shared with political economists the practice of casting an exceedingly broad net for useful facts and ideas in his work. Though he had little use for Marx's writings, he often indirectly legitimated political economy by using his grand and eloquent voice to criticize mainstream economists for the narrowness of their studies.

We follow the first five chapters, ones that focus mostly on systems of thought, with five that analyze the impact of these ideas on our own world. In Chapter six we describe and analyze social classes in U.S. capitalism, in part because they are a central aspect of all political economy analyses of capitalism. We also discuss social classes because they are crucial to how capitalism shapes our lives, and, as we shall see, because they are virtually ignored by mainstream economics. We then turn in Chapter seven to the theory of "social balance," developed by John Kenneth Galbraith to describe how corporations cajole and bamboozle us into buying goods and services we don't need, while environmental pollution spreads wider and deeper, and the public sector-the infrastructure-is in a continuing decline. Chapter eight shows how Marx's ideas were extended to current times in the theory of "monopoly capital" advanced in the nineteen sixties by Paul Baran and Paul Sweezy. These two economists used Marx's key idea of "surplus value" to try to understand what they ultimately called "the irrational system" of U.S. capitalism. Following Chapter eight, we have added a vignette on the sometimes questionable behavior of large corporations, and what these corporate misdeeds tell us about the corporate structure and its role in the economy.

In Chapter nine we describe the modern welfare state in Sweden, which has been shaped by political economists in that country for over a century. To study the Swedish economy is to catch a glimpse of life in a society where the public understanding of capitalism, how it works, and how it should work, has been influenced more by ideas from political economy than by those from the economic mainstream. In the final chapter, we discuss another exemplary case study of these ideas put into action in the form of the Mondragón Cooperative Corporation, the world's largest conglomeration of cooperative-run businesses, located in Spain's Basque Country. Mondragón is notable for several things, most especially that it is a huge and expanding global firm owned completely by its workers, and for its commitment to maintaining an alternative economic model in the age of globalized capitalism.

X INTRODUCTION TO POLITICAL ECONOMY

The sequence of chapters we have chosen here has proven helpful to us in teaching the book to undergraduates, yet we suggest that others use the sequence that makes the most sense for their own courses. In order to encourage readers to go through the book in various kinds of ways, we have written each chapter to work mostly independently of the others. A consequence of this independence is that our readers will find some repetition as they go along. However, we have tried to limit this repetition to information or concepts that can bear a second going over. If our readers are assigned this book alongside a typical mainstream textbook, they can judge for themselves which approach, or which combination of approaches, works best to help them understand the economic world in which most will spend a lifetime trying to make a living.