What Is Political Economy ???


At EconomyWatch.com, we always make a point of talking about not just “economics” but “political economy”.

So what then do we mean when we talk about political economy ???

As the great English theorist and historical EH Carr would say, we are talking about two things that are similar – but not identical.

When talking about political economy we are talking about two things that are very different – but must always be examined together.

Politics and economics are intrinsically and inextricably linked, and cannot study or talk about one without studying or talking about the other.

So what do we mean by EACH of these two terms ???

Economics is actually the easier of the two to define.

Economics can be defined as the system that every society has for organizing the production, distribution and consumption of goods a

nd services.

Politics is the system that every society has for organizing people’s relationships with one another everywhere


from the individual level / to the two-person relationship level / to the family / to the workplace / to the city / to the state or province / to the nation-state / to the continent, like Asia / to a world religion like Islam / to the entire world.

In every society, there is always – simultaneously – a political aspect and an economic aspect.

There is always a structural connection between the economic and political systems.

In good “theory as question” fashion, we don’t know WHAT that connection is going to be,

so we’re always trying to understand the precise relationship of the economic and political aspects in each individual concrete situation.

In this context, let’s refer to the late great French structural anthropologist Claude Levi-Strauss, who argued that people live in groups, and it is those groups that define identity even for those within that group.

In this general framework, politics can be seen as the interaction of interests on the one hand, and emotion on the other – and we should never forget the emotional aspect.

Within this basic framework of politics being about interests and emotions, there are, broadly speaking, three fundamental aspects of politics:

  1. Power
  2. Problem-solving and
  3. Legitimacy

Politics is always about the simultaneous interaction of these three basic aspects.

We start by observing that there are four forms of power:

  • Power as Domination
  • Power as Coercion
  • Power as Manipulation
  • Creative Power


Power as Domination – individual or groups are able to impose their will on other individuals or groups through the use, or the threat of the use, of force … at the macro level, this takes the institutional form of military – dealing with EXTERNAL threats / and the police, for maintaining INTERNAL order


Power as Coercion – the imposing of someone’s will not with the threat or use of force, but rather through the limiting, or threat to limit, the access of an individual or group to that which they need to survive physicallyat the macro level, power as coercion is best understood as economic power – I won’t threaten to break your arm, but I will fire you from your job if you don’t do what I say …


Power as Manipulation – this is the power of television, of the Internet, of all media … it is getting people to do what you want them to do by getting them to want to do what you want them to do … after all, no one is forcing or coercing anyone to watch tv or surf the internet for 10 hours a day … ;-) … and last but not least,


Creative Power – this is the power a teacher or artist or coach or therapist has in the ability to take potential – intellectual, aesthetic, athletic or emotional in nature – and turn that potential into something real.


So those are the four different forms of power.

What about the other two main elements of politics – problem-solving and legitimacy ???

Problem solving is one of the main ways we evaluate those who are in charge of the situation, whatever that situation may be.

That is, to what extent can they handle – or SEEM to handle – the dilemmas or challenges that any group inevitably confronts.

So while problem-solving is fairly simple conceptually, it’s extremely important in politics and quite complicated in action.

Legitimacy introduces the normative aspect of things.

It refers to question of right and wrongbut not in a simple way.

This is because, in politics, questions of right and wrong / good and bad / morality are not absolute.

Rather, issues of right and wrong / good and bad have to be defined in relation to the identity of the group or society involved.

Legitimacy can thus best be understood as having to be defined in relation to the nature of group identity.

In this sense, legitimacy – the normative element of politics –has to be understood as an appropriate relationship among three things:

  • Values
  • Ends and
  • Means

So what then are Values?

Basically, values can be understood as “who we are”.

Ends, in that context, are “what we want”especially in relation to how we define “who we are,” namely Values.

And, in the framework of Values and Ends, Means are “how we intend to get or do” the things we want – Ends – in accordance with our understanding of who we are – Values.

Here, of course, we refer to the basic verstehende orientation of the great German sociologist Max Weber, especially in terms of “instrumental” vs. “substantive” rationality:  

Is it all about just getting what you want and only caring about the effectiveness of the means to achieve those ends – what he calls “instrumental rationality” ???


Is it about getting what you want in line with your own views about who you are, the values that define your group / society’s identity – what Weber calls “substantive rationality” ???

In conclusion, then, we always have to think about politics and economics as two sides of the same coin

You can’t talk about one without talking about the other …

They’re not the same thing, but, like sex and emotion, they’re always connected

David Caploe PhD

Chief Political Economist