Relevance of Classical Political Economy to the Developing Countries

Relevance of Classical Political Economy to the Developing Countries

Introduction

Economic results of any country strongly depend upon the policy choice. Nonetheless, these decisions are not taken by the social workers or activists who can make choices for maximizing the social welfare, but are make by the governments who have their own objectives. The influence of politics into the economic behavior model along with the reorganization of the crucial significance of studying such power for gaining knowledge is not new, but now it is widely accepted (O'Brien and M. Williams, 2010, pp. 255-276). The concept of political economy exists in the world for centuries. The old concept is called classical political economy while with time it evolved which is now known as neo-political economy. Though, classical political economy is widely replaced by the neo-political economy, both concepts possess similarities. Owing to this fact, this paper will analyze the relevance of classical political economy to the issues faced by the developing countries.

Discussion

The terminology “political economy” is applied to the “polity” of the state. Originally, the concept was conceived in broad terms, both in theory and practice. Classical political economy originated in the context of suspension of feudalism and expansion of commerce in Northwest Europe which was later expanded around the world. Behind this classical political economy lie the theories of value and the idea of trade as equal exchange of products measured by labor time. On the other hand, the prominent issues faced by developing countries are poverty, unequal distribution of income, population growth and food production and consumption. These issues are studied in classical political economy.

Adam Smith Approach

Adam Smith distinguishes between two components of the economic system: the political economy and economic policy, closely coupled. The first block was placed on two theories - productive labor and capital and secondly in the critique of mercantilism and physiocratism next to the policy demands of economic liberalism (Payne and Phillips, pp. 10—21). The subject of political economy in terms of Smith's research program is the search for sources, methods of creation, accumulation and distribution of wealth of nations.

Above all considerations of Adam Smith, dominated the general principle of freedom of management, defining liberalism have a modest role compared to mercantilism and concepts closer to the physiocrats (O'Brien and M. Williams, 2010, pp. 255-276). It is rather the "invisible hand" of the market accepts the contradictions of individual interests than the conscious decision of the government and politics of protection against certain occupations or sectors and areas of the national economy. In the set of economic policy, enunciated by Smith, distinguish his views on the role of foreign trade, the question of colonies, national defense and fiscal policy (Kiely, 2007, pp. 49-56). These principles have met with the approval of both contemporary and later taken over by the currents of liberalism. The ideas of Adam Smith were indeed a breakthrough in the history of economic thought.

David Ricardo Approach

On the other hand, ...