Page 40 - Global Political Economy_Understanding The International Economic Order

THE NATUR E OF PO LITIC AL ECO NOMY
approach to social institutions and other sociopolitical matters is to
assume that individuals act alone or together to create social institu-
tions and promote other social/political objectives to advance their
private interests. Two fundamental positions may be discerned within
this broad range of scholarly research. On the one hand, some schol-
ars assume that individuals seek to create social institutions and advo-
cate public policies that will promote overall economic efficiency. On
the other hand, the term “political economy” is used by neoclassical
economists to refer to rent-seeking behavior by individuals and
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groups. Trade protectionism is an example of this approach. There
is, however, a powerful normative bias among economists that eco-
nomic institutions or structures are created to serve market efficiency.
The long-term objective of this body of scholarship is to make en-
dogenous to economic science those variables or explanations of so-
cial phenomena that have traditionally been assumed to be exogenous
and therefore the exclusive province of one of the other social sciences
such as psychology, sociology, or political science. By “endogenous,”
economists mean that a particular human action can be fully ex-
plained as a self-conscious effort of an individual to maximize his or
her economic interests; for example, according to the “endogenous
growth theory,” to be discussed in the next chapter, a firm invests in
scientific research in order to increase its profits. By “exogenous,”
economists mean that a particular action can be explained best by a
noneconomic motive; for example, Albert Einstein may be said to
have been motivated in his work by curiosity or by the desire for
fame rather than a desire to increase his income.
Economic imperialists assume that political and other forms of so-
cial behavior can be reduced to economic motives and explained by
the formal methods of economic science. Government policies, social
institutions including the state itself, and even whole economic sys-
tems, these economists claim, can be explained through application of
formal economic models. For example, economist Edmund S. Phelps
broadly defines political economy as the choice of the economic sys-
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tem itself. Underlying this sweeping definition of political economy
is the conviction, expressed by Jack Hirshleifer, that economics is the
one and only true social science. The universality of economics, he
argues, is due to the fact that its analytic abstractions such as scarcity,
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Rent-seeking refers to the use of a resource to obtain a surplus over the normal
economic return to that resource. An example is a tariff that raises the cost of domestic
goods.
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Edmund S. Phelps, Political Economy: An Introductory Text (New York: W. W.
Norton, 1985), xiii-xiv.
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