Why Don't We Call It Political Economy Any More?

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Why Don't We Call It Political Economy Any More?

by David Bryant, July 1999

As an occasional student of both Economics and Political Science I have often wondered why people stopped using the older term Political Economy early in the twentieth century.  I have read quite a few books on all three subjects, but have not yet discovered a substantial reason for separating this branch of social science under two separate headings.  The most I can say with certainty is that the classical theories of Political Economy expounded by D. Ricardo and J. S. Mill had fallen into some disrepute by the year 1900, and that many authors of the period thought it advisable to distinguish their ideas from the classical theories.  In my opinion, the new terms put form before function, and have engendered great confusion among modern social scientists.

Now I am not a fan of econometrics or the various macro-economic theories propounded by J. M. Keynes and his devotees.  My own preferences lie more along the lines of rational individualism advanced by the so-called Austrian School.  In this article I propose to illustrate the flavor of the Austrian style of analysis while defending my view that the title Political Economy makes more sense than Politics or Economics considered separately.  The argument is divided into 6 parts:  some remarks on my general bias toward deductive analyses; a brief commentary on the scientific method, especially as applied to social problems; definitions of some relevant terms; two examples of the Austrian style of economic analysis; two corresponding examples from political science; and a summation.

My general bias

I received my baccalaureate degree from the California Institute of Technology, which is known for its technical / engineering orientation.  Mathematics was my specialty.  Accordingly I prefer sharp definitions to fuzzy ones, and I have more confidence in deductive than in inductive logical processes.  I subscribe to that philosophy of science which holds that all human understanding is imperfect.  We may never know the Truth. But our theories, subjected to the test of experience, may in time approach that unattainable ideal as we gradually sharpen and correct them.

The scientific method applied to social problems

Generally speaking, the so-called social sciences may be approached either inductively or deductively.  Since most social problems are not amenable to the strictly controlled experimental processes of physical science, most social scientists employ a process of non-experimental inductive logic:  they compile lists of disparate but related observations, and from these they attempt to infer certain principles of general applicability.

Another class of social scientists uses the deductive processes of mathematics to construct their theories.  They engage in some sort of a priori argument to justify their basic axioms, and proceed to deduce certain principles of general applicability from those first premises.

In science, experience is the test of any theory.  The inductive reasoner must always test each of his hypotheses, of which there may be many, against the entire mass of new data he gathers.  If experience reveals a new phenomenon which has no place in his existing theory, he will usually respond by adding one or more new principles to his theory, or by broadening the definition of the terms he uses.  In time his theory tends to become cumbersome and logically disjoint.

The deductive reasoner, with complete confidence in the power of logic, is able to test his theories more quickly and with less effort, for he has only a short list of axioms to compare against the new data.  Of course, if experience forces him to revise his axioms, he must reconstruct his entire theory.  On occasion he may find that some new phenomenon fits comfortably within his existing theory, and in the end his description of reality is quite compact, for it is derived from what appears to be an internally consistent set of fundamental truths.  And in some sense his theory is more useful because it has greater predictive value.

Now some observers would claim that the distinction I have drawn is actually the difference between the social sciences and the so-called hard sciences.  I do not agree.  It makes more sense to say that the hard sciences concern themselves with physical reality, while the social sciences focus on the more nebulous realm of human passions and emotions.  After all, chemistry was once called alchemy: it took a Mendeleëv to reduce the bewildering array of alchemical rules into the simple periodic chart, and what was that but the transition from inductive to deductive logic?  If the theories of economics, or sociology, appear to be complicated and confusing, it is only because not all their unifying truths have as yet been discovered.

Some definitions

In mathematics, definitions are clear and concise.  Unfortunately, most of the words we use to describe the social sciences have several shades of meaning.  Below I have listed a few terms that will be used in the following examples.  Some of these definitions (marked MW) are modeled after Merriam-Webster’s Third New International Dictionary; the rest (marked DB) are mine.

Economics:  a social science that studies the production, distribution, and consumption of commodities.  (MW)

Economics:  The science of scarcity; the study of humanity’s attempts to deal with the problem of scarce resources.  (DB)

Austrian Economics:  A school of economic thought whose principal proponents (Menger, Böhm-Bawerk, von Mises, Hayek) came from Vienna.  It stresses the voluntary nature of economic transactions, and proceeds from a priori statements about human behavior to arrive at well known economic laws (e.g., the law of supply and demand; the law of diminishing returns to capital).  (DB)

Political Science:  a social science concerned chiefly with the description and analysis of political and esp. governmental institutions and processes and making use of factual material and methods selected from other social sciences (as sociology, psychology, economics, and history); the study of the phenomena of politics.  (MW)

Political Science:  a field of inquiry devoted to an analysis of power in society.  (MW)

Politics:  the art of adjusting and ordering relationships between individuals and groups in a community; also public or social ethics.  (MW)

Political Economy:  an 18th century branch of the art of government concerned with directing governmental policies toward the promotion of the wealth of the government and the community as a whole.  (MW)

Political Economy:  a 19th century social science comprising the modern science of economics but concerned principally with governmental as contrasted with commercial or personal economics.  (MW)

Political Economy:  The art or science of wealth maximization derived from two basic principles: that individuals invariably exercise their power to make choices; and that every politically established law has unintended consequences.  (DB)

Common Weal:  the general welfare.  (MW)

Commonwealth:  public welfare; also a whole body of people united by common consent to form a nation, state, or politically organized community.  (MW)

Two examples of Austrian economic analysis

Many Austrian analyses of economic phenomena begin by considering an act of exchange between two individuals.  For our first example let us consider such an exchange, and let us accept the maxim that individuals invariably exercise their power to make choices.  Additionally, we will accept the Austrian maxim that economic values are subjective.

To keep it simple, let us also assume that both individuals are entirely free to walk away from the deal without consummating the exchange, and that both parties are rational traders (which is to say that each is seeking to get the better end of the bargain -- in economic jargon, both parties are utility maximizers).
Remembering that values are subjective, we must say that A’s interests will be advanced by the exchange if and only if his own estimate of the value of the good he holds is less than the value he places on B’s good.  By symmetry, B is in the same position.  Now the question we pose is simply this:  Under what circumstance will an act of voluntary exchange take place?

Denoting A’s estimation of the value of his own good (or “the utility of good a to consumer A”) by A(a) and his estimation of the value of B’s good by A(b), we see that there are four possible situations:

    either    (1) A(a) <= A(b)  and  B(b) <= B(a)    (“Win / Win”)

    or         (2) A(a)  >  A(b)  and  B(b) <= B(a)    (“Lose / Win”)

    or         (3) A(a) <= A(b)  and  B(b)  >  B(a)    (“Win / Lose”)

    or         (4) A(a)  >  A(b)  and  B(b)  >  B(a)    (“Lose / Lose”)

(You will note that I have included the vanishingly small situation in which neither party has an incentive or disincentive to trade in case (1) ... technically, I should call (1) “Doesn’t lose / Doesn’t lose.”  But I’m trying to keep it simple without sacrificing rigor.)

Now we appeal to our assumption that A and B are rational traders.  It is apparent that case (1) is the only case in which an act of voluntary exchange will take place, because it is the only situation in which the interests of both A and B are advanced.


This first example is elementary.  And the ways in which our model diverges from reality are fairly obvious.  We have only considered barter; the concept of money did not enter this analysis.  We have ignored the effect of emotion on our traders; perhaps A will refuse to deal with B simply because he doesn’t like him.  In the real world B might be bigger and stronger than A, in which case B might decide simply to bash A in the head with a rock and make off with both a and b (note that this outcome is contained within case (2) above).  Further objections could be raised.  Nevertheless, I maintain that even this elementary result illustrates an important truth:  men engage in trade because trade advances their common interests.  Or, to put it another way, in a rational free market each act of voluntary economic exchange advances the interests of both parties.

Without further elaboration, let us turn to a second example by posing the question “Does a free market advance the interests of Society?“  Now this is an extremely delicate question, because the underlying moral philosophy of the one who attempts to answer it is, in fact, the primary determinant of the answer given.  Accordingly, I will not even attempt to state all the assumptions necessary to arrive at a logical deduction, but will instead present an Austrian economist’s answer without resorting to the symbology of formal analysis.

We must never forget that values are subjective.  The question as posed cannot be readily answered, because we have not yet defined “the interests of Society.”  In fact, I contend that “the interests of Society” cannot be rationally defined.  Who is to decide what those interests are?  No single individual can make that choice, for he is only aware of his own estimation of the value of things.  Are we to engage in some sort of balancing act and arbitrarily assume that we can judge when one man’s pleasure is more important than another’s pain?  Why should any man allow another to make such a choice for him?  Would you?

Although the question as posed is not susceptible of rational analysis, we may approximate an answer by appealing to our first result, and by rephrasing the question posed.  Let us ask “Does the free market harm any individual?” instead.  We have already solved this problem -- it does not.  Upon reflection you will see that a free market and voluntary acts of exchange do in fact enhance the welfare of each member of Society (as viewed through his own eyes), and that the economist cannot rationally decide what “the interests of Society” are.  Neither you nor I have any business making decisions for another, because values are subjective.


I hope I have not drawn these examples out in too much excruciating detail.  I intended only to illustrate the flavor of Austrian economic analysis.  As you can see, simple economic questions can be rigorously analyzed, while more complex and imprecise questions cannot.  In a sense the Austrian theory is still embryonic, waiting for its Mendeleëv.

Two examples from political science

Most "political scientists" are more interested in the mechanical operation of political systems than in theoretical questions of how those systems ought to function.  For purposes of this argument, I have chosen two theoretical examples which closely parallel the economic problems we have already analyzed.

For our first example, let us accept Jefferson’s maxim that Government derives its just powers from the consent of the governed.  Alternatively, we may accept the proposition that all political power is vested in and derived from the people.  The question I propose is this:  under what circumstance will a rational Citizen delegate his personal authority to the institution of a Civil Government?

Upon reflection it will be seen that this case is entirely analogous with the first economic example presented above.  Assuming that each Citizen has the power to make a choice, and further assuming that each Citizen is the best arbiter of the relative value of his own costs and benefits, we may confidently assert that a rational Citizen will delegate a portion of his personal authority to the institution of Government if and only if the value of the perceived benefit to him is greater than the value of the liberties he surrenders in the process.


This relatively pure result has in practice been corrupted by another principle of politics, namely, that the minority of Citizens can be bound by the will of the majority.  In the original institution of civil government this was perhaps a regrettable necessity, and the question of just how far the Citizens may go in controlling that unruly element among us who willfully refuse to sacrifice a single particle of individual autonomy for the good of the whole is certainly a thorny one.  But can one logically assert that a peaceful farmer should be imprisoned merely because he chose to cultivate the “wrong” crop?  Or that two adults should be punished if they choose to engage in consensual sexual relations without having previously entered and recorded the “approved” form of a contract?  Of course not!  A truly civil government would never forcefully intrude on the lives of peaceful people unless and until they have actually harmed other members of the society.

Setting indignation aside, let us proceed to a second example by considering the question “How should a representative of the Citizens identify those laws proposed for the commonwealth which will in fact advance the common weal?”  I believe that this question is extremely important, and while it may not exactly parallel our second economic example, it is certainly very similar to it.

Surely no argument of my own devising could ever match the eloquence of one who addressed this subject more than 200 years ago.  In The Federalist # 64 John Jay answered this question powerfully:

    "In proportion as the United States assume a national form and a national character, so will the good of the whole be more and more an object of attention, and the government must be a weak one indeed, if it should forget that the good of the whole can only be promoted by advancing the good of each of the parts or members which compose the whole."  (emphasis added -- note also the plural form of the verb assume)
Once again a moment’s reflection shows that this political principle is an almost perfect copy of our second economic conclusion: the very same criterion used to discriminate between good and bad laws distinguishes the unhampered market. In politics, as in economics, it is not logically possible to set off the pain of one person against the pleasure of another.


Unless I am mistaken, the preceding examples demonstrate clearly the very real and substantial ties which bind the separate disciplines of Economics and Political Science into an organic whole, at least when science is understood to mean the sincere pursuit of Truth.  A great number of additional examples, all pointing in the same direction, spring readily to mind.  I see no harm, and great advantage, in associating all political and economic studies within a single discipline which, for lack of a better name and in keeping with a long and illustrious history we should denominate Political Economy.

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