Economics is a wide field that involves an in-depth study of trade where the resources are limited in terms of availability. The theory of neoclassical economics has been studied in depth (Campus 323). First originating from the ideas of Alfred Marshall, neoclassical economics is based on the sense of continuity of classical economics that was popular in the 19th century (Campus 322). Marshall’s ideas denied the distinction between land and other forms of capital (labour and capital).
Nevertheless, the emergence of political economics created a new topic of interest because both neoclassical economics and political economics are examples of post-classical economics (Aspromourgos 266). Although some scholars argue that there is little difference between the two examples of post-classical economics, there are some actual differences between them and can be presented from a practical perspective by considering the differences between the available labour force in terms of race or gender.
Salient Differences between neoclassical and political economics
According to Aspromourgos (268), neoclassical economics form the basis of microeconomics while political economics represent macroeconomics. Albelda, Drago, and Shulman (54) presented a comprehensive argument on the issues of discrimination and wage inequality in the United States labour market. According to their argument, there are several salient differences between neoclassical economics and political economy in relation to the labour market (Albelda, Drago and Shulman 128).
Neoclassical economists argue that demand and supply forces have an effect on the market price (Aspromourgos 269). According to this concept, society always needs to make gains in terms of profits and optimization of these gains. Neoclassical economics relies on some assumptions. For instance, neoclassical economists assume that individuals have the ability to make rational decisions on preferences during the processes of purchasing and production (Aspromourgos 267).
In contrast, political economics ignores individual needs in optimizing gain. For instance, an intervention by a government determines the price of a commodity and the extent to which individuals may gain from a product in the market (Aspromourgos 271). Government intervention may be expressed as policies that affect the economy such as taxes, tariffs and monetary regulations. Therefore, social activity plays a significant role in economical outcomes. A neoclassical economy is determined by individual desires. Individuals are equipped with necessary information on production and purchase. In contrast, a political economy means that individuals and organizations are subject to the pressures that result from regulations and directives by the government.
In relation to unemployment, the rate of unemployment affects the demand and supply of products in a neoclassical economy. A thriving industry ensures that employees remain unemployed. In this case, a change in customer preferences means a product is no longer purchased and the employees are rendered jobless (Albelda, Drago and Shulman 36). In contrast, governmental forces such as monetary policies significantly influence the rate of inflation in a country.
Inflation has a direct relation to employment in that a rise in the rate of inflation means that more and more people become unemployed. Market forces determine the success rate of individuals that are gaining meaningful employment. In this case, the issue of gender and race is manifested in terms of the competition for the best labour force that can provide the best form and level of production (Albelda, Drago and Shulman 47).
Although both political and neoclassical economies use mathematics in the analysis of economic systems and outcomes, they show a number of significant differences. Primarily, political economists explore the mathematical variable between individuals and their society and the effect of social factors on the economic environment. For instance, if there is a high unemployment rate across the Latin or Hispanic population, a political economist will explore the effect of social factors such as access to education on unemployment rates (Albelda, Drago and Shulman 23). While political economists consider the relationship between these forces, neoclassical economists consider the interaction between several factors to create the entire economic system. Independent factors such as demand and supply influence the economy as a whole.
For example, the sacrifices an individual makes in purchasing a particular product depends on the availability of money (the measure of values of the limited resources). If the individual has insufficient money, then the independent factor determines the success of the wider economy. Similarly, a business will thrive on the influences of demand and supply. Increased demand means that a business continues its operations.
The Hispanic and Latin American immigrants in the US labour market: A practical Example
From a political-economic view, social conditions determine the wage rates for immigrants such as the South American and Hispanic immigrants in the US. Such individuals may still be paid a lower wage as compared to their American counterparts, regardless of the level of their skills (Tomaskovic-Devey 39). Social determinant regulates salary levels despite the workers’ calls for the increment of wages. In contrast, from a neoclassical viewpoint, imperfect market conditions provide employers with an opportunity for determining salaries. The profit margins of a company depend on factors such as wage rates offered to the workforce. In this case, the employers seek to increase their greatest fortunes, maximize production with minimum costs (Tomaskovic-Devey 64). In this case, the racial influence of immigrants acts as a basis.
A political economy is more practical than a neoclassical economy. Cooperation, equity and impartiality, social-political and cultural influences are involved in understanding political economics. Unfortunately, it is indeed difficult to realize objectives such as equity, given the methodological tools that govern the economy (Albelda, Drago and Shulman 21). In contrast, neoclassical economics place an emphasis on the application of rationality and individualism in economics. Here, it is easy to control the factors governing the economy, although they still refer to macroeconomic factors in a given economy (Albelda, Drago and Shulman 21).
Through this comparison, it is arguable that a political economy seeks to improve the life of the population by offering better living standards while a neoclassical economy attempts to increase corporate profitability at the expense of the labour available.
Demand and supply forces have a profound effect on income and income distribution (Albelda, Drago and Shulman 148). The equilibrium of the two forces defines the neoclassical distribution theory. Apart from labour forces, technological changes have a considerable effect on the micro-economy (Albelda, Drago and Shulman 157). A greater labour force means growth in the neoclassical growth model.
Currently, America has a considerably large labour force, which enhances the rate of unemployment to a higher rate as compared to previous years. A neoclassical economist can best describe racial inequality by considering the need for human capital theory (Albelda, Drago and Shulman 21). Even so, it is not logical to assume that competition across businesses can eliminate gender and racial inequality. Competitive pressures determine the need for such differences in gender and race, in the concept of labour market discrimination (Albelda, Drago and Shulman 29).
Conclusion
While the neoclassical economic theory promotes the role of the private sector in the economy, the political economy theory suggests that the government is in charge of the micro-economic and macroeconomic environment. In this context, the concept of neoliberalism, which promotes an open market, privatization and reduction in government spending, is debatable. This is in direct contrast to the political economy that promotes government spending and control of resources such as labour and capital. Market imperfections promote the issue of gender and racial inequality, as each company strives to maintain a competitive edge in the market (Albelda, Drago and Shulman 21).
Works Cited
Albelda, Randy, Robert Drago and Steven Shulman. Unlevel Playing Fields: Understanding Wage Inequality and Discrimination, Second Edition. New York: Dollars & Sense, 2010. Print.
Aspromourgos, Tony. “On the origins of the term’neoclassical”.Cambridge Journal of Economics, 10.3, (2006): 265-270. Print.
Campus, Antonietta. Marginal economics. The New Palgrave: A Dictionary of Economics. New York: Palgrave, 2010. Print.
Tomaskovic-Devey, Donald. Gender & racial inequality at work: The sources and consequences of job segregation. Cornell University Press, 2008. Print.