Relationship between Traditional Economics, Political Economy and Development Economics:
The Traditional Economics deals basically with the efficient, least cost allocation of scarce productive resources and with the optimal growth of these resources overtime so as to produce an ever-expanding range of goods and services. The traditional economics consists of economic theory of classical and neo-classical economists. It is concerned with advanced capitalistic world of perfect markets, consumer sovereignty; free play of forces of demand and supply; utility calculations, and making of economic decisions on the basis of marginal private benefit. Thus, according to traditional economic theory, all the economic decisions are made on the basis of price mechanism and the goods market, resource market and financial markets are cleared on the basis of demand and supply. Hence, the traditional economics or economic theory believes in rationality, materialism, self-interest and individualistic approach in respect of economic decisions. Thus this economics deals the matters subjectively.
The ‘Political Economy’ is also a branch of economics where a relationship is established between politics and economics. Here the role of power in economic decision making is also evaluated. Broadly, the political economy analyses the social and institutional processes through which certain groups of economic and political elites like feudals, businessmen, industrialists, politicians, trade unions and bureaucrats etc., influence the scarce productive resources either for their own vest-interests or perhaps for the interest of the whole economy. This branch of economics portrays the process of economic and political life where from the nations of the world like US, UK and France etc., have passed through, and the existing nations are passing through.
Development Economics is beyond traditional economics and political economy. In addition to efficient allocation and sustained growth of resources, it deals with economic, social, political and institutional mechanism (both public as well as private) which could bring about rapid and large scale improvements in levels of living for the masses who are poverty stricken, malnourished, backward and illiterate peoples of Africa, Asia and Latin America.
Quite against the developed countries (DCs) in the less developed countries (LDCs) the goods and the labor markets are highly imperfect, consumers and producers have limited information regarding commodity and factor markets, the society and economy are experiencing structural changes, and the disequilibrium is often the destiny of the markets. In such poor economies the political decisions overweigh the economic decisions regarding resource allocation. These economies are clutched into tribal and ethnic conflicts, sectarianism, cultural, religious and linguistic problems. More appropriately, development economies deals with poverty alleviation measures, standard of living improvement methods and creating a harmony between the rich and the poor nations of the world, rather just following the principles of profit maximization and self-interest.
Thus, the Development Economies is something more than neo-classical economics and Political Economy. And it is concerned with the economic, cultural and political requirements which are necessary for structural and institutional transformations of entire societies in a manner that the fruits of economic growth could be provided to the largest segment of the society the poor class. For such all, a greater role of government and coordination amongst the decision making unite is required, rather just depending upon the ‘Invisible Hand’ and ‘Market Forces’.
Thus, the Development Economies in the light of traditional economic principles (as well as against them) aims at understanding the third world economies so that the material lives of three-quarters of the global population could be improved.