The term political economy originally meant the study of the conditions that determined the relative wealth or poverty of polities (e.g. nation-states). The term was first widely used in the 18th Century by philosophers such as the physiocrats and Adam Smith.

In the 19th century liberal theorists argued that the state should not regulate the market; that politics and markets operated according to different principles; and that political economy should be replaced by two separate disciplines, Political science and Economics. Around 1870 neoclassical economists such as Alfred Marshall began using the term economics instead of "political economy."

Notable thinkers have opposed this liberal tradition: Karl Marx (who rejected the conceptual distinction between politics and economics) and John Maynard Keynes (who rejected the institutional separation of politics and economics); their followers often favor "political economy" as a way of bringing politics and economics back together. Use of the term underwent something of a revival during the 1960s when it was used increasingly by the libertarian economists of the Chicago School.

Today, the term political economy is used in various ways. It is most commonly used to refer to interdisciplinary studies that draw on economics, law, and political science in order to understand how political institutions and the political environment influence market behavior. Within political science, the term refers to liberal, realist, and Marxian theories concerning the relationship between economic and political power among states. This is also of concern to students of economic history and institutional economics; nevertheless, within economics the term is more closely associated with Game theory. "International political economy" is a branch of economics that is concerned with international trade and finance, and state policies that affect international trade such as monetary and fiscal policy. Others, especially anthropologists, sociologists, and geographers, use "political economy" to refer to neo-Marxian approaches to development and underdevelopment set forth by Andre Gundar Frank and Immanuel Wallerstein.

See also: Honda Toshiaki

See also "The Political Economy of Very Large Space Projects" at http://www.transhumanist.com/volume4/space.htm