Political economy, to paraphrase the editors of an earlier volume in this series, is the study of rational decisions in a context of political and economic institutions. Its central tenent is that a comprehensive understanding of economic phenomena requires knowledge of the political institutions, actors, and incentives present in the decision-making process. Conversely, these same political variables are best studied with the rational actor orientation of economics and with a continual eye toward the economic consequences of political choices.
While politics and economics coexisted as the single discipline of political economy for much of the period of modern scholarship, these fields were formally split in the late nineteenth century. It is now apparent that this split, while advantageous for certain scientific developments, has biased the way in which economists and political scientists think about many issues. The separate disciplines, with their own views on appropriate methods and the most productive lines of research, place artificial constraints on the study of many important social issues. The reconstitution of political economy is designed to reunite the separate perspectives in those areas where the interaction of individuals, institutions, and markets is paramount.
The division of economics and political science into separate disciplines can be traced back to a variety of factors. To take one prominent example, the development of the neoclassical model in economics emphasized behavior of individual consumers and firms in perfectly competitive markets, at the expense of any sort of political considerations. Indeed, one of the founders of the neoclassical movement, Stanley Jevons, was an early advocate of replacing “the old troublesome double-worded name for our science,” namely, political economy, with the much more concise label of “economics.”