Table of Contents:
Chapter I.Introduction: What is Political Economy?.............................
1.1 Course Overview
1.2 What is Politics?
1.3 Power
1.4 Authority
1.5 The rights of states and right of individual
1.6 Islam and Politics
1.7 The economy and Economics
1.8 What is Political Economy?
Chapter II:The Political System...............................................
2.1 The State and the Government
2.2 Difference between State, Government, and Nation
2.3 Importance of Government
2.4 Difference between Presidential and Parliamentary Forms of Government
2.5 Philippine Political System
2.5.1 The Executive Branch
2.5.2 The Legislative Branch
2.5.3 The Judicial Branch
Chapter III: The Economic System..............................................
3.1 The Economic System Overview
3.2 The 3 Basic Economics Problems
3.3 Factors of Production
3.4 Types of Economies
3.4.1 Traditional Economy
3.4.2 Command (Planned) Economy
3.4.3 Market Economy
3.4.4 Mixed Economy
3.4.5 Scarcity
3.4.6 Types of Resources.
Chapter IV:..............................................
4.1 The types of Economic System
4.1.1Capitalism
4.1.2 Socialism
4.1.3 Communism
4.1.4 Islamic Economic System
4.2 Key Political Economist
4.2.1 Adam Smith
4.2.2 David Ricardo
4.2.3 Karl Marx
4.2.4 John Maynard Keynes
4.2.5 Neoclassical Economics
4.3 Schools of Economic Thought
4.3.1Classical School
4.3.2 Neo Classical School
4.3.3 New Classical School
4.3.4 Keynesian Economics.
Chapter V: The Market System...........................................
5.1 Supply and Demand
5.2 Markets versus “The Market”
5.3 Land, Labor, and Money.
Chapter VI: Government and the Economy......................................
6.1 Role of Government in the Economy
6.2 Taxation
6.3 Spending
6.4 Class conflict and government.
Chapter VII: Finance and the Economy.............................................
7.1 Money and Banking
7.2 Government Reserve
7.3 Inflation
7.4 The rise of finance
7.5 Islamic Finance
7.6 Economic Crisis.
Chapter VIII: Consumption and the Consumers....................................
8.1The role of savings and consumption
8.2 Consumer Demand
8.3 Consumer choice and sovereignty.
Chapter IX: Trade and Globalization....................................................
9.1 What’s new about globalization?
9.2 Free Trade and Comparative advantage
9.3 Political Economy of Oil
I. Introduction: What is Political Economy?
•Course Overview
This course introduces the interrelationship between politics and economics. It explores how political
institutions, laws, and ideologies influence economic systems and decisions, and vice versa. Students will
understand the foundational theories, key thinkers, and current issues that shape political and economic
landscapes globally and in the Philippines.
•What is Politics?
Politics refers to the activities, actions, and policies used to gain and hold power in a government or to
influence the government. It is about making decisions that apply to members of a group or society.
Politics involves debates over policies, leadership, distribution of resources, and rights of citizens.
•Power
Power is the ability to influence or control the behavior of people and outcomes of events. In political
economy, power can be economic (wealth), political (laws and governance), or social (status and
influence). It plays a crucial role in who gets what, when, and how in society.
•Authority
Authority is the legitimate use of power. It is the recognized right to give orders, make decisions, and
enforce obedience. Unlike mere power, authority is accepted by society as rightful, such as the authority
of a president or a judge.
•The Rights of States and Rights of Individuals
States have the right to govern their territory, create laws, and defend sovereignty. Individuals have
rights such as freedom, equality, and protection under the law. Political economy studies the balance
and conflicts between these rights, such as when national security limits personal freedoms.
•Islam and Politics
In Islam, politics is not separate from religion. The Quran and Hadith guide governance, emphasizing
justice, consultation (shura), and the welfare of the community (ummah). Islamic political thought
addresses leadership, law, and the economic responsibilities of rulers.
•The Economy And Economics
The economy refers to the system of production, distribution, and consumption of goods and services in
a society. Economics is the study of how individuals and societies make choices to satisfy their needs and
wants with limited resources.
•What is Political Economy?
Political economy is the interdisciplinary study of how political forces affect economic policies and
outcomes, and how economic systems influence political structures and decisions. It bridges politics,
economics, law, and sociology to analyze power and wealth distribution.
II. Political System
1. The State and the Government
The state is a political entity with a defined territory, permanent population, government, and capacity
to enter into relations with other states. Government is the organization through which state authority
is exercised. The state is permanent, while governments change.
2. Difference between State, Government, and Nation
State is a political unit with sovereignty.
Government is the system used to control the state.
Nation is a group of people with shared identity, language, culture, and history. A nation may or may not
have its own state.
3.Importance of Government
Government ensures order, provides public goods and services, enforces laws, protects rights, and
guides economic development. It stabilizes society and helps resolve conflicts.
4. Difference between Presidential and Parliamentary Forms of Government
Presidential: The president is the head of state and government, elected separately from the legislature.
Parliamentary: The head of government (prime minister) is elected by the legislature and can be
dismissed by a vote of no confidence. The head of state may be ceremonial.
5.Philippine Political System
The Philippines has a democratic republican system with three branches:
The Executive Branch
Headed by the President, who enforces laws, appoints officials, commands the military, and manages
foreign policy.
The Legislative Branch
Consists of the Senate and the House of Representatives. It makes laws, approves the budget, and
oversees the executive.
The Judicial Branch
Composed of the Supreme Court and lower courts, it interprets laws and ensures justice.
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III. Economic System
1. Economic System
An economic system is the way a society organizes production, distribution, and consumption of goods
and services. It determines how resources are allocated.
2. The 3 Basic Economics Problems
What to produce?
How to produce?
For whom to produce?
These are essential questions every economy must answer due to limited resources.
3. Factors of Production
The inputs needed to produce goods and services
Land: natural resources
Labor: human effort
Capital: tools, machinery
Entrepreneurship: risk-taking and innovation
4. Types of Economies
Traditional Economy: Based on customs, traditions, and barter system.
Command (Planned) Economy: Government controls all economic activities.
Market Economy: Decisions made by individuals and businesses with minimal government interference.
Mixed Economy: Combines elements of market and command systems.
5. Scarcity
Scarcity means limited resources are available to meet unlimited wants. It is the fundamental economic
problem that forces people to make choices.
6. Types of Resources
Natural: land, water, minerals
Human: skills and labor
Capital: equipment and buildings
Entrepreneurial: ideas and innovation
IV. Types of Economic Systems and Political Economists
1. The Types of Economic Systems
Capitalism: An economic system where private individuals or businesses own capital goods. Production
and pricing are based on supply and demand in a free market. It promotes competition, innovation, and
consumer choice but may lead to inequality.
Socialism: A system in which the means of production are owned or regulated by the state or the public.
It aims for equal distribution of wealth and focuses on meeting basic needs for all citizens.
Communism: An extreme form of socialism where all property is publicly owned, and each person works
and is paid according to their abilities and needs. The goal is a classless society, but it often leads to
centralized control.
Islamic Economic System: Based on Islamic principles found in the Quran and Hadith. It prohibits
interest (riba), promotes risk-sharing, and encourages charity (zakat). It focuses on ethical investment,
fairness, and the welfare of the community.
2. Political Economists
Adam Smith: Known as the "Father of Modern Economics," he believed in the power of the free market
and introduced the concept of the “invisible hand” in his book The Wealth of Nations.
David Ricardo: Introduced the theory of comparative advantage, explaining why nations benefit from
trade even when one is more efficient at producing everything.
Karl Marx: Critic of capitalism, he argued that the working class is exploited by the capitalist class. He
envisioned a future society without class distinctions and private property.
John Maynard Keynes: Believed that governments should intervene in the economy, especially during
recessions, by increasing spending to stimulate demand.
Neoclassical Economists: Focused on supply and demand as key forces in determining price and output.
They emphasize rational behavior, utility, and efficiency.
3. Economic Schools of Thought
Classical School: Advocates for free markets, minimal government intervention, and the idea that
economies are self-correcting.
Neoclassical School: Builds on classical ideas but incorporates mathematical models and focuses on
consumer behavior and utility maximization.
New Classical School: Introduced rational expectations theory, arguing that people use available
information to make economic decisions and that markets are always in equilibrium.
Keynesian Economics: Emphasizes total spending in the economy (aggregate demand) and supports
government intervention to reduce unemployment and boost growth.
V. The Market System
1. Supply and Demand
These are fundamental concepts in economics:
Supply: The amount of goods producers are willing to sell at a given price.
Demand: The amount of goods consumers are willing to buy at a given price. The interaction between
supply and demand determines the market price.
2. Markets versus “The Market”
Markets refer to specific places or platforms where goods and services are bought and sold (e.g., labor
market, oil market).
“The Market” refers to the overall system of economic exchanges, often used to describe the free-
market economy or financial markets in general.
3. Land, Labor, and Money
These are key components of economic production:
Land: Natural resources used to produce goods.
Labor: Human effort used in production.
Money: A medium of exchange that facilitates trade and measures value.
VI. Government and the Economy
1. Role of Government in the Economy
The government provides public goods (like roads, schools), regulates markets, protects property rights,
and ensures economic stability. It intervenes to correct market failures, reduce inequality, and stimulate
growth.
2. Taxation
Taxes are compulsory contributions collected by the government to fund public services. Types include
income tax, sales tax, and corporate tax. Taxation also helps redistribute wealth and control inflation.
3. Spending
Government spending includes investment in infrastructure, education, defense, health care, and social
programs. It is a major tool of fiscal policy to influence the economy.
4. Class Conflict and Government
Class conflict refers to the struggle between different social classes, such as the rich and the poor.
Governments play a key role in managing these conflicts through policies that promote equality,
welfare, and justice.
VII. Finance
1. Money and Banking
Money is anything that is widely accepted as payment. Banks manage money, offer credit, and play a
key role in economic growth by allocating capital efficiently.
2. Government Reserve
Often managed by the central bank, this includes foreign currencies, gold, and domestic currency
reserves. It supports the stability of the national currency and economy.
3. Inflation
Inflation is the general increase in prices over time. It reduces purchasing power. Moderate inflation is
normal, but high inflation can harm economic stability.
4. The Rise of Finance
Over the years, the financial sector has grown significantly in importance, affecting everything from
investment to employment. While it can drive growth, it also introduces risks, especially if poorly
regulated.
5. Islamic Finance
This system avoids interest and promotes ethical investing. It uses profit-sharing, leasing, and
partnership models that align with Islamic principles.
6. Economic Crisis
These are periods of economic downturn, often marked by a drop in GDP, rising unemployment, and
financial instability. Examples include the Great Depression and the 2008 Global Financial Crisis.
VIII. Consumption
1. The Role of Savings and Consumption
Consumption is the use of goods and services by households. Savings represent the part of income not
spent. Both influence economic growth—more consumption drives demand, while savings provide funds
for investment.
2. Consumer Demand
Refers to the desire and ability of consumers to purchase goods and services. It is influenced by income,
preferences, prices, and expectations.
3. Consumer Choice and Sovereignty
Consumer choice means individuals have the freedom to choose what to buy. Consumer sovereignty
suggests that in a free market, the consumer ultimately determines what goods and services are
produced based on their purchases.
IX. Trade and Globalization
1. What’s New About Globalization?
Modern globalization is driven by technology, communication, and free trade agreements. It has led to
increased interdependence among countries, global supply chains, and the rise of multinational
corporations.
2. Free Trade and Comparative Advantage
Free trade allows countries to trade without restrictions like tariffs. Comparative advantage means a
country should produce what it can make most efficiently and trade for what others produce better. This
leads to greater overall efficiency and gains for all nations involved.
3. Oil: Political Economy of Oil
Oil is a vital global resource. Its production, pricing, and control affect global politics and economies. Oil-
rich countries can have significant influence, but they also face issues like dependence on a single export
and vulnerability to price fluctuations.
