PAPER

THE HISTORY OF POLITICAL ECONOMY

Compiled to Fulfill Structured Tasks

Lecturer: Dr. Ahmad Dahlan M.S.I.

Compiled by :

1. Dila Ayunindia Putri R (1917201021)

2. Puput Wulandari (1917201057)
3. Faiz Alfajri (1917201034)
4. Ikhda Muhtada (1917201289)
5. Sofyan Akbar Jaya Herlambang (1917201291)

SHARIA ECONOMY STUDY PROGRAM

FACULTY OF ISLAMIC ECONOMICS AND BUSINESS
INSTITUT AGAMA ISLAM NEGERI
PURWOKERTO
2021

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I. INTRODUCTION
A. Background of The Paper
Political economy is a study that studies the links and relationships
that occur between economics and politics. Political economy is one of the
sciences that must be studied by scholars of international relations because in
it there are issues and actors that are interconnected with each other. Political
economy basically tries to examine the relationship that occurs between the
market and the state on a not only domestic scale but on a wider scale,
namely international. In studying political economy there are three important
elements, namely leadership, hegemony and stability, where these elements
are interrelated with each other and have a role to regulate the course of
political economy activities. This paper will explain the meaning of political
economy, the history of political economy from the international, regional,
and national levels.

II. THEORY AND DISCUSSION

A. Understanding Political Economy
Etymologically, political economy comes from two syllables,
namely economics and politics. Economics comes from the Greek, namely
aikos which means house, and nomos which means rules, so it can be defined
as household management. The politics comes from the word "polis" which
means city/state.[ CITATION Mus18 \l 1057 ].
Economics and political science are indeed different, in the sense
that they have their own analytical tools that even have opposite assumptions.
Even so, economics and politics can be juxtaposed with the consideration that
both have the same process. Definitively, economics always refers to the
following three concepts: calculation, supply of materials, and self-regulation.
Political science also runs with 3 standard concepts, namely politics as a
government, the authority that allocates values, and the public.

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 According to the Coalition of Political And Economic Interest
Theory, policy changes require broad coalition support from various
economic groups. Therefore change is only possible when a winning group of
coalition is stronger to compel the policy makers to adopt a specific policy.
[CITATION Dah18 \p 113 \l 1057 ]

B. The History of Political Economy

In the trajectory of history, the process of formulating political
economy theory is said to have been very long. And is a very old scientific
discipline, because it has been discussed by Ancient Greek philosophers such
as Aristotle. The discussion and application of political economy was more
developed in the 14th and 16th centuries which is usually called the "major
transformation" in Western Europe as an implication of the trading system
which slowly infiltrated the feudal economic system in the Middle Ages. The
growth of a large new market economy creates opportunities for expression of
individual aspirations and strengthens the entrepreneurial spirit previously
suppressed by church, state and community institutions.
Although political economy has existed since the days of Ancient
Greece, political economy only took shape in the mid-18th century, since the
writing of The Wealth of Nations by the Classical Economist Adam Smith in
1776. Besides Smith, the earliest Classical Economist developed political
economy. is David Ricardo. Ricardo wrote the Essay on The Influence of a
Law Price of Corn on the Profit of Stock in 1815. Other classical experts who
also discussed political economy quite intensely were Thomas Malthus and
John Stuart Mill. (Deddy Sumardi,
https://www.google.com/amp/s/dddhouse.wordpress.com/2011/03/02/latar-
ulang-lahirnya-ilmu-politik-politik/amp/ , access 12 September 2021).
In social practice, Political Economy began to develop since the
phenomenon of European industrialization in the 19th century. Along with
the increasing movement of capital factors and global trade activities,
European countries in particular have developed into capitalist industrial

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countries. The increasing flow of trade after industrialization made the market
unable to move by itself but political power, especially from the government,
was needed to help control the market itself. In the 19th century, the
increasing intensity of trade made the demand for goods increase, where in
this century the goods traded were dominated by necessities such as spices,
wheat, and tobacco which were agrarian products. (Hoogvelt, 1997: 55)
Britain as the dominant actor in the practice of Political Economy
in the 19th century was no longer considered efficient because the British
international trade mechanism as a hegemon could not accommodate the
goods interests of European and developing countries. Then the European
government intervened by issuing market regulations to solve the problem so
that the invisible hand theory as proposed by Adam Smith began to be
considered irrelevant (Hobsbawm, 1987: 34)
Therefore, since then, economics and politics are two things that
cannot be separated because they both exercise control over each other in
order to solve problems globally.

C. Politcal Economy in Southeast Asia

At the Southeast Asian regional level, political economy studies can
be used to analyze the development of the ASEAN Economic Community.
The ASEAN Economic Community is an agreement between ASEAN
countries that comes into force from 2015 to 2025 to realize ASEAN
economic integration.
The ASEAN Economic Community (AEC) has four main
characteristics that are contained in the AEC Blue Print which was set at the
38th meeting of the ASEAN Economic Ministers (AEM). The four
characteristics are, a single market and production base, a highly competitive
economic area, a region with equitable economic development, and a region
that is fully integrated with the global economy.
Based on the concept of international political economy, the ASEAN
Economic Community can be analyzed as a form of interaction between

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 various economic and political interests of various ASEAN countries. Then,
by using Gilpin's statement regarding the interaction of actors in the
international political economy, the ASEAN Economic Community is
marked by the many influential actors who have interests in the ASEAN
region, including leaders of ASEAN countries and groups of entrepreneurs
who have transnational companie (Maherul, 2021: 2- 3).

D. History of Political Economy in Indonesia

Since the old order era until the end of the new order, Indonesia has
experienced two different economic policy orientations, namely from a closed
economy with a socialist orientation in the Soekarno regime, to an open
economy with a capitalist orientation in the Suharto regime.

1. Old Order Goverment :

During the 1950s, Indonesia's economic structure was still a relic of the
colonial era, most of which were still export-oriented and dominated by
foreign companies. Priority for the development of the old order:
stabilization and economic growth, industrial development, unification, and
reconstruction. At the end of 1965 there was a coup from the PKI which
also changed the Indonesian economic system from socialist to semi-
capitalist thinking

2. New Order Government

Defects of economic policy during the New Order era, namely high
economic costs and fragile economic fundamentals, as seen from the poor
condition of the national banking sector and Indonesia's growing
dependence on foreign capital, including loans and imports, which caused
the monetary crisis in mid-1997.

3. Transitional Government
October 8, 1997 the government finally asked for financial assistance
from the IMF in the amount of 3 billion US dollars which was expected to

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 stabilize the rupiah exchange rate but in reality the rupiah exchange rate
continued to weaken to Rp. 15,000.00 per US dollar.Borrowing financial
assistance from the IMF for the second time was postponed due to the
Indonesian government not carrying out reforms according to the agreement
with the IMF.

4. Reformed Govermnet

Political and social instability that did not recede when the Gusdur
government raised the level of country risk and coupled with the poor
relationship between the Indonesian government and the IMF made business
people including foreign investors reluctant to do business in Indonesia.
However, during Megawati's era, Indonesia's economic performance also
showed improvement, at least in terms of GDP, export performance also
improved with 5% growth in 2002 compared to -9.3% in 2001.

In the first months of SBY's administration, the Indonesian people,

foreign and domestic business actors as well as institutions such as the IMF,
ADB and the World Bank were optimistic that Indonesia's economic
performance in the next 5 years would be much better than the previous
government since Suharto stepped down. However, in the second half of
2005, the Indonesian economy was hit by two events, namely the increase in
fuel prices on the international market and the weakening of the rupiah
against the US dollar.
(https://spada.uns.ac.id/pluginfile.php/612691/mod_resource/content/1/PDF
-Pert%202%20Sejarah%20Ekonomi%20Indonesia.pdf access 13th

September 2021).
III. CONCLUSION
Etymologically, political economy comes from two syllables, namely
economics and politics. Economy comes from the Greek, namely aikos
which means house, and nomos which means rule, and politics comes from
the word "polis" which means city / state. Thus political economy is the

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 management of economic affairs in a country. Political economy has existed
since the time of Ancient Greece, but political economy only took shape in
the middle of the 18th century, since the writing of The Wealth of Nations
by the Classical Economist Adam Smith. At the Southeast Asian regional
level, political economy studies can be used to analyze the development of
the ASEAN Economic Community. The ASEAN Economic Community is
a trade agreement between ASEAN countries to realize ASEAN economic
integration. In Indonesia itself, since the old order era until the end of the
new order, Indonesia has experienced two different economic policy
orientations, namely from a closed economy with a socialist orientation in
the Soekarno regime, to an open economy with a capitalist orientation in the
Suharto regime.

BILBLIOGRAPHY

Mufti, M. (2018). Ekonomi Politik. Bandung: Pustaka Setia

Dahlan, A. (2018). Political Economy of Islamic Banking Indonesia. Purwokerto

Hobsbawm, Eric. (1987) An Economic Changes Gear, in The Age of Empire 1875-
1914. London: Weidenfield & Nicolson.

Hoogvelt, Ankie. (1997) The History of Capitalist Expansion in Globalization and the
Post-Colonial World: the New Political Economy of Development.

Maherul, Mursal. 2019. Mengenal Ekonomi Politik: Definisi, Posisi Negara, dan Pasar.
https://www.researchgate.net/publication/343917210 (diakses tanggal 14
September 2021).

Deddy Sumardi,
https://www.google.com/amp/s/dddhouse.wordpress.com/2011/03/02/latar-
belakang-lahirnya-ilmu-ekonomi-politik/amp/ , (access 12th September 2021).

Agustina, Dwi. Sejarah Ekonomi Politik.

https://mahasiswa.ung.ac.id/911412063/home/2012/10/11/sejarah_ekonomi_polit
ik.html (access 12th September 2021)

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Triastuti, Rini. Sejarah Ekonomi Indonesia.
https://spada.uns.ac.id/pluginfile.php/612691/mod_resource/content/1/PDF-Pert
%202%20Sejarah%20Ekonomi%20Indonesia.pdf ( access 13th September 2021)