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What Is Political Economy? - Princeton University

CHAPTER ONEWhat Is Political Economy? Economists must not only know their economic models,but also understand politics, interests, conflicts, passions the essence of collective life. For a brief period of time youcould make changes by decree; but to let them persist,you have to build coalitions and bring people have to be a politician. Alejandro Foxley, Chilean Minister of Finance([])quoted inWilliamson and INTRODUCTIONHow does politics affect economic outcomes? This question has beenasked probably as long as people have been interested in economics itself. From Adam Smith sWealth of Nationsin 1776 or perhaps the earlier until at least John Stuart Mill sPrinciples of Political Econ-omyin 1848, what we now call economics was in fact generally referredto as Political economy .

economics. Modern economic analysis is used not just in the formal sense of a mathematical approach; it is also conceptual, viewing political phe-nomena in terms of optimization, incentives, constraints, et cetera. Hence, what really distinguishes the new political economy is not so much the volume, but the sort of research being done.3

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