This document compiles the information provided during the lectures and the mandatory readings in a comprehensive document that has everything needed to ace the exam.
PE Endterm
Lecture 1: Introduction To The Course
Political science:
The scientific study of politics
The analysis of political ideas, norms, behaviours, and institutions to inform
public choices about government, governance, and public policy.
Economics:
The study of scarcity; is of how people use resources and how they respond
to incentives.
Political economy:
It studies how politics affects the economy and how the economy shapes
politics.
Somewhat of a dated definition: Using the tools of economics to study
politics.
Rationality: the correspondence between the choices that a person makes and
the interests the person holds.
Lecture 2: Classical Political Economy: Adam Smith.
Elements of Capitalism
Capitalism is a form of economic organization where financial considerations
dominate.
The key source of class power is control over capital.
Defining Element Explanation
1. Private ownership of the means → Economic resources are owned by private individuals
of production. and institutions for the purposes of making a profit.
→ The capacity of these owners to make profits from their
ownership of the means of production identifies them as a
distinct class.
2. Labour market → Those who do not own, depend on their capacity to sell
PE Endterm 1
, Defining Element Explanation
their ability to work.
→ The labour market is the place where individual buyers
and sellers negotiate wages and employment conditions
(directly, or mediated).
→ Labour is treated as a commodity.
→ Banks carry out the institutional function for the
3. Capital market
establishment of capitalist businesses via loans.
→ The stock exchange
4. Land market → In rural areas, lands are used to provide food.
→ In the urban areas, it has a major influence on the
effectiveness of cities as focal points of modern economic
life.
→ Land is privately owned and is usually allocated
through market processes.
→ Goods and services are commodities (produced for
5. Markets for goods and services
sale rather than for personal use by their producer)
→ Consumerism
6. The distinctive role of the state → It regulates and enforces property rights
→ The state must ensure that one’s self-interest does not
harm others
→ Government can inflate prices when negative
externalities exist
→ Ban the production of certain goods and certain
investor practices
→ Determines the rules based on which markets for
labour, capital, land, and commodities take place.
→ Provides goods and services that are not provided by
the market.
7. Distinctive ideology → Homo economicus
→ Competitiveness
→ Ideologies give legitimacy to the economic system.
→ It requires forward motion for its stability- growth and
8. Expansionary tendencies
expansion
→ It is an imperative for profit maximization
PE Endterm 2
, There are various types of capitalism:
Historical: Merchant, agricultural, industrial
Geographic/ Cultural
Societies are defined in terms of their Mode of Subsistence, which have
different divisions into classes:
1. Hunting and gathering;
2. Herding;
3. Agriculture (feudalism)
4. Commercialism
States and laws are formed by the ruling classes to defend their interests against
the other oppressed class (rent-seeking).
Hence, changing the (MoS) will lead to a change in the structure of such
institutions.
This progression is unilinear and deterministic
It cannot be predicted or caused by deliberate human action.
The Theory of Value
It is used to explain changes in Equilibrium Prices.
The value of a commodity determines its equilibrium price:
Factor Explanation
→ Actual market prices may be influenced by
1. Consumer demand
fluctuations in consumer demand
→ Where there is competition, prices will tend
to conform more closely to labour values than
2. The state of market competition
where there are elements of monopoly
present.
→ In industries with unequal degrees of
mechanisation, there is a tendency for relative
3. Degree of mechanization
market prices to deviate from relative labour
values
4. The socially necessary labour → It reflects the general standards of
productivity and the state of technology
PE Endterm 3
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