POLITICAL ECONOMY. – As many definitions have been given of it as there have been phases in its doctrinal development; indeed, the nature of each definition derives from the entire conception that at a given moment prevails regarding II. The first systematic definitions all proved unsatisfactory, either because they were not sufficiently comprehensive or because of their erroneous foundation. A decisive step was taken when it became possible to express the complex characteristics of it in the terms of “the science that studies the adaptation of limited means to human ends.” This formulation is far more extensive and precise than it may seem at first glance, for it brings into focus the very constituent elements of the economic problem: on the one hand, the existence of diverse ends that economic subjects—individuals and social groups—seek to attain, and on the other, the limited nature of the means available for achieving those ends.
Of fundamental importance for the formation of political economy is the evaluation of ends. By taking as one of the terms of the economic problem that of the attainment of human ends, and given the essentially ethical nature of these, it follows that political economy is undoubtedly connected with ethics and, in particular, stands in a relation of subordination to it (Vito). This conception represents the most modern phase in the doctrinal development of political economy. Indeed, the prevailing opinion until a few decades ago maintained the absolute separation of political economy from ethics or, at least, the neutrality of the former with respect to the latter. From the first point of view, a distinction was drawn between pure economics, a theoretical science with the exclusive purpose of studying phenomena, and applied economics or “economic policy,” a normative discipline tasked with guiding practical economic activity; pure economics would be entirely independent of ethics, since it limits itself to reconstructing economic phenomenology as it actually occurs, while dependence on ethics is admitted only for applied economics, inasmuch as the direction of economic activity can never be contrary to moral precepts. This would be correct, however, only if the supposed distinction between economic science and economic policy had a conceptual justification and did not derive merely from the practical convenience of scientific specialization (on the basis of which one distinguishes, for example, economic statistics and economic history, or the science of finance). In support of the thesis that advocates the neutrality of economics with respect to ethics, it is argued that, given the deductive nature of economic science, it is indifferent whether the hypotheses from which it takes its logical-deductive process are in accord with ethical principles or not; what matters is that the process be exact (Pantaleoni). But in this case one cannot but share the opinion of those who object that there are limits to be respected even in the assumption of hypotheses (Vito). It must be concluded that, in fact, there is a relation of dependence of economics on ethics, without this necessitating a denial of the possibility of economics’ autonomy with respect to ethics. It suffices to attribute to ethics the meaning of the science of ends and to economics that of the science of means; within their respective spheres each remains autonomous, having a specific object of inquiry (Toniolo, Vito).
Not all ends have economic relevance; only those that are more precisely defined by the term “needs” are to be considered as such, for the attainment of which limited and alternatively employable means are available. In other words, needs are only those ends in the face of which a problem of choice arises; if, in fact, means existed in unlimited quantity and were susceptible of only a single use, there could not even be a problem. Similarly, not all means have economic relevance, but only those that are limited in quantity and capable of alternative employment, i.e., those means in the face of which a problem of choice still arises. These are given the general name of “goods,” which properly applies to means of a material nature, while those that, though immaterial in nature—such as individual services, etc.—serve in the same way to satisfy needs, are called “services.”
In the classification of all sciences into physical or natural sciences and social sciences, it is beyond dispute that political economy belongs to the latter, which in turn may be distinguished into historical and theoretical sciences. Political economy has all the characteristics of the theoretical sciences; its laws therefore generally possess those same characteristics that qualify natural laws. The main differences lie in the fact that, since economic phenomena are essentially human phenomena, economic laws tend not to have that degree of absolute determination found in others; nor are they susceptible of precise individual verification, given that economic phenomena cannot be reproduced experimentally.
The scientific development of political economy is very recent and coincides with the advent of the modern age. Up to this period there were only fragmentary treatments: it is only in the Middle Ages that the study of economic topics appears with some frequency, inasmuch as the Christian conception of life which dominated all sectors naturally led to discussion of its purely economic aspects; topics of considerable practical as well as doctrinal interest, such as the just price and the just wage, were the object of extensive analysis and debate.
The first autonomous treatment, which indeed runs from the beginning of the modern age to the first half of the 18th century, was carried out by the mercantilist school, whose concern, however, was limited to providing empirical rules of good economic governance. Its position was summed up in the maxim “pecunia nervus rerum,” by which it was intended to establish that all activity of the responsible organs should be directed toward increasing the mass of money, since this would measure the wealth of a country.
Criticism of this conception was first advanced by the physiocrats, who made the first attempt to treat political economy on the basis of a rational criterion, even if this criterion proved entirely inconsistent. The physiocrats, in fact, subordinated the proper functioning of economic life to the observance of a natural order immanent in society, since economic activity in conformity with nature is agriculture, and the entire system should be built upon II. The physiocrats deserve credit for having been the first to seek to relate all the particular elements of the economic system to a single ordering factor, and thus for having opened the way to scientific treatment on which English scholars of the classical school were decisively embarked.
With the classical school, political economy entered the phase of systematic analysis. The classical economists (Smith, Malthus, Ricardo, Stuart Mill, etc.) began to identify certain fundamental connections between economic phenomena; they arrived at the formulation of various general propositions having the value of laws, and finally emphasized the importance of the function of price as the central element of the economic system. Their chief interest was indeed directed toward solving the problem of the formation of value and price, which would remain the fundamental problem of economic science. The value of goods was interpreted as consisting in the cost of production, which in turn would represent the labor embodied in the goods themselves (from this formulation Marxist theory would take its departure). Because of its reliance on objective factors such as cost of production and embodied labor, the classical school is also defined as “objectivist in orientation.” Its premises include the typical conceptions founded on utilitarianism, individualism, and economic liberalism.
The historical school, especially through German scholars (List, Bücher, Schmoller, etc.), instead proposed to deny the possibility of economic laws in the name of the asserted contingent character of every phenomenon and every economic system; their attempt, however, ultimately failed. With the Austrian school the scientific character of political economy was reconfirmed; from then on investigations were always oriented in this direction. This school is called “psychological” because its followers (Menger, Böhm-Bawerk, von Wieser, etc.) explained the value of goods on the basis of the value attributed to them by subjects (subjectivist criterion). With this formulation, definitive explanation of value became possible for modern economic science, since today it is held to be formed by the synthesis of the objective and the subjective element.
The last school that can be classified from a systematic standpoint is the “mathematical” school, which differs from the preceding ones not only in having adopted the mathematical method on the methodological plane but especially in having substituted functional investigation for causal research into economic phenomena. To the mathematical economists (Cournot, Walras, and above all Pareto) belongs the credit for having enunciated the principle of the interdependence of economic phenomena and the notion of the “general equilibrium” of the system, to the realization of which all economic data contribute simultaneously.
It would be rather difficult to attempt to pass judgment on contemporary currents; what is certain, however, is that all of them differ from the preceding ones in recognizing that at the base of economic life it is not possible to admit utilitarian or hedonistic motives, which must instead be replaced by the conception of social ends of an ethical nature. From the standpoint of premises, they adopt the postulates of the preeminence of labor over other factors of production, the necessity of state intervention in economic life, and the obligation to safeguard human personality above every other economic consideration.