Marshall (1890, 1947, p1 and 43) first equates Political Economy and Economics, and then splits them up again:
“Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing.”
“Economics is thus taken to mean a study of the economic aspects and conditions of man’s political, social and private life; but more especially of his social life. The aims of the study are to gain knowledge for its own sake, and to obtain guidance in the practical conduct of life, and especially of social life. The need for such guidance was never so urgent as now; a later generation may have more abundant leisure than we for researches that throw light on obscure points in abstract speculation, or in the history of past times, but do not afford immediate aid in present difficulties.
But though thus largely directed by practical needs, economics avoids as far as possible the discussion of those exigencies of party organization, and those diplomacies of home and foreign politics of which the statesman is bound to take account in deciding what measures that he can propose will bring him nearest to the end that he desires to secure for his country. It aims indeed at helping him to determine not only what that end should be, but also what are the best methods of a broad policy devoted to that end. But it shuns many political issues, which the practical man cannot ignore: and it is therefore a science, pure and applied, rather than a science and an art. And it is better described by the broad term “Economics” than by the narrower term “Political Economy”.”
Here, ‘economic aspects and conditions’ refer to the provision for food and shelter, the working life etcetera. Nowadays we would tend to include more subjects, and still say that ‘economics’ is involved in it. To us, ‘economics’ sets in (as a sufficient but not necessary condition) as soon when some preference decision is to be made. Marshall’s tools, as for example the scissors of supply and demand, have been applied to this wider area of application too. This indeed may well be the luxury situation that he expected.
By consequence, it is useful to still use the name ‘economics’ for the wider subject areas, even though allowing for more subjects causes less ‘economic content’ than Marshall perceived. Economics thus is characterised by the approach, method and tools used. On the other hand, ‘political economy’ then concentrates on one particular subject: the management of the state. Much of Marshall’s “Principles” will, paradoxically, then be relevant for political economy.
Gambs and Komisar’s 1968 textbook “Economics and man”, chapter 1, gives a nice overview of the various definitions that early economists have provided. A longer quote (of those quotes) usefully enriches our understanding of the definition of ‘political economy’.
“What is economics all about? It is often defined as the science of wealth or as the study of how mankind gets its living. Statements like this are certainly useful, but they are also too general. When we try to take the next step, we get into trouble. We meet difficulties in pinning economics down because its practitioners are in disagreement about the scope and nature of their science, and attempts to particularize lead to protests from opposing schools of thought. The only definitions on which agreement is possible are broad ones like those given above, or humorous ones like “Economics is whatever an economist wants to talk about.”