Classical Political Economy

A classical political economy is a term that explains how production, buying, and selling fit with each other and how those aspects of business work within society. It was first described in the 1700s by the English philosopher John Locke. It was further studied by Adam Smith, and, in later years, by Karl Marx.

One of the most important aspects of a political economy is understanding the value of capital and how it translates into economic activity that follows the laws of the land. The way that capital translates into labor is also of particular interest. The result of labor, commodities, are either sold or bartered.

The six essential parts of the classical political economy are as follows: production, capital, transport, exchange, consumption and disposal. The paragraphs that follow will address each part specifically.

Production occurs when capital hires labor to create a good or service. Production is considered the vital part of the classical political economy, which makes labor out to be the limiting factor in economic activity. It is the state's responsibility to supply the economy with labor and a means to pay for it; this fosters production.

Capital takes several forms in the classical political economy--namely physical, intellectual and human capital. Physical capital describes concrete objects that can help produce goods or services. Intellectual capital is a set of know-how that can be manifested in designs, theories, blueprints or concepts (among other things). Human capital is a way of describing how well-trained workers are, their level of education, their relationships with each other, and other aspects of the workforce such as the health of workers.

Transport is the ability to move labor and capital to the same place in order to get production underway, or to move a finished product from, say, a factory to a marketplace where it can be sold or traded. The understanding of this part of the classical political economy led governments to build infrastructure like railroads and highways.

Exchange is where producers and consumers come to terms with each other. In different circumstances, producers of certain things are consumers of other things and vice versa. Exchange usually takes place in some sort of market, whether it be a Walmart, a flea market or over the internet. In the classical political economy, it is vital that the government enforces laws that secure private property rights