Polanyi was Wrong on Exchange and Trade
Dan Hirschman's response is well considered, with probing questions that deserve appropriate answers. So here goes, with the covering abvice to think for yourself and accept nothing on mere authority. If students have a patron saint, it surely was ‘doubting Thomas’.
While I would agree with anyone who describes Smith’s use of the metaphor of ‘an invisible hand’ as "exaggerated out of all proportion", if by ‘exaggerated’ is meant its modern interpretations, which are now a cult.
Smith’s use of the metaphor was quite realistic and measured. He said that those merchants who were concerned about the security of their capital if they sent any of it to Continental Europe (or to the colonies) were ‘led by an invisible hand’ to invest it ‘domestically’, and thereby, unintentionally and without forethought, they increased domestic revenue and employment by the amount they invested, which conformed to the modest arithmetical rule that the whole is the sum of its parts - no basis here for the welfare theorem, nor General Equilibrium. I have seen no evidence that Polanyi saw it quite like that. He was more concerned to show that self-interest via an invisible hand did not benefit society as claimed by modern economists.
Polanyi is not excused by his writing in 1944. His was not a researched assertion; it was invented to suit his sociology based on early anthropology, then strongly influenced by Engels and Marxism, not by philosophers such as Smith, nor that of the evidence of historians of classical Greece and Rome who provided much detail to accord with Smith’s conjectures about ‘truck, bargaining and exchange’.
On reading Smith’s Lectures On Jurisprudence partly (LJ(B) available to Polanyi since 1895, edited by Edwin Canaan, or Wealth Of Nations, or Moral Sentiments Smith provided much in support of his thesis. Polanyi developed an alternative ‘theory’ as part of his critique of capitalism and ‘evidence’ was assembled to justify it, I was sceptical of Polanyi’s core assumptions and, later, dismissed them from reading modern anthropology journal literature and some classical works (Maus on The Gift, etc.), plus M. Silver’s work on Classical times.
I mentioned, in passing, the payment of military wages in coinage in Rome as a factor that should have made Polanyi more cautious. There were hundreds of thousands of Roman soldiers all over what became the Empire, many of them stationed among tribal societies, and their money was spent in frontier towns and established cities. It was representative of a fairly developed monetary system, indicative, not decisive. There is much, much more. I only remain surprised when I hear Polanyi’s thesis quoted as an authority of ancient (even tribal societies) today. He has a revered status at some conferences I attend.
Remember, Smith’s remark was about ‘truck, barter, and exchange’ and not about ‘trade’, though the mental skills of the former were easily adapted to later trade behaviour. It followed, claimed Smith, from the faculties of ‘reason and speech’, which unambiguously places it very early in human prehistory – certainly long before the 18th century!
These ‘exchange’ behaviours were evolved from the earliest societies – what James Otteson calls the ‘market place of life’ (think of the evolution of language and all its different forms across the Earth, and the emergence and evolution of local morals).
As for no exchange behaviour in ‘labor and land’, I would point you to the necessary precondition of distributing slaves among a free population – the need for price determination by owners and ‘buyers’ (cash, favours, positions, i.e., ‘prices’) –all several times a year. Or consider the, often prolonged, exchange negotiations, over land in dowries, inheritance, debts, marriages, and alliances, across many generations. Money may not always have come into it, but land, power, and rivalry, even money certainly were definite substitutes .
I can definitely state that for Smith exchange was part of human nature and universal across all known societies in his time and for us in ours.
While I would agree with anyone who describes Smith’s use of the metaphor of ‘an invisible hand’ as "exaggerated out of all proportion", if by ‘exaggerated’ is meant its modern interpretations, which are now a cult.
Smith’s use of the metaphor was quite realistic and measured. He said that those merchants who were concerned about the security of their capital if they sent any of it to Continental Europe (or to the colonies) were ‘led by an invisible hand’ to invest it ‘domestically’, and thereby, unintentionally and without forethought, they increased domestic revenue and employment by the amount they invested, which conformed to the modest arithmetical rule that the whole is the sum of its parts - no basis here for the welfare theorem, nor General Equilibrium. I have seen no evidence that Polanyi saw it quite like that. He was more concerned to show that self-interest via an invisible hand did not benefit society as claimed by modern economists.
Polanyi is not excused by his writing in 1944. His was not a researched assertion; it was invented to suit his sociology based on early anthropology, then strongly influenced by Engels and Marxism, not by philosophers such as Smith, nor that of the evidence of historians of classical Greece and Rome who provided much detail to accord with Smith’s conjectures about ‘truck, bargaining and exchange’.
On reading Smith’s Lectures On Jurisprudence partly (LJ(B) available to Polanyi since 1895, edited by Edwin Canaan, or Wealth Of Nations, or Moral Sentiments Smith provided much in support of his thesis. Polanyi developed an alternative ‘theory’ as part of his critique of capitalism and ‘evidence’ was assembled to justify it, I was sceptical of Polanyi’s core assumptions and, later, dismissed them from reading modern anthropology journal literature and some classical works (Maus on The Gift, etc.), plus M. Silver’s work on Classical times.
I mentioned, in passing, the payment of military wages in coinage in Rome as a factor that should have made Polanyi more cautious. There were hundreds of thousands of Roman soldiers all over what became the Empire, many of them stationed among tribal societies, and their money was spent in frontier towns and established cities. It was representative of a fairly developed monetary system, indicative, not decisive. There is much, much more. I only remain surprised when I hear Polanyi’s thesis quoted as an authority of ancient (even tribal societies) today. He has a revered status at some conferences I attend.
Remember, Smith’s remark was about ‘truck, barter, and exchange’ and not about ‘trade’, though the mental skills of the former were easily adapted to later trade behaviour. It followed, claimed Smith, from the faculties of ‘reason and speech’, which unambiguously places it very early in human prehistory – certainly long before the 18th century!
These ‘exchange’ behaviours were evolved from the earliest societies – what James Otteson calls the ‘market place of life’ (think of the evolution of language and all its different forms across the Earth, and the emergence and evolution of local morals).
As for no exchange behaviour in ‘labor and land’, I would point you to the necessary precondition of distributing slaves among a free population – the need for price determination by owners and ‘buyers’ (cash, favours, positions, i.e., ‘prices’) –all several times a year. Or consider the, often prolonged, exchange negotiations, over land in dowries, inheritance, debts, marriages, and alliances, across many generations. Money may not always have come into it, but land, power, and rivalry, even money certainly were definite substitutes .
I can definitely state that for Smith exchange was part of human nature and universal across all known societies in his time and for us in ours.
2 Comments:
A few quick thoughts in response. I agree that Polanyi equates "truck, barter and exchange" with the then prominent "homo economicus" of mainstream economic analysis, and that (following your work) has little to do with what Smith meant.
That being said, I'm not sure I'm ready to accept your dismissal of Polanyi's criticism of "homo economicus" even if we agree that his connection of that idea to Smith is misplaced. You very readily collapse different forms of status and wealth in pre-19th century societies - "cash, favours, positions" - into "prices". I believe Polanyi would tag this as an example of the "economistic fallacy". The ready equivalence of various forms of status is exactly what he questions. Contemporary sociological research by scholars like Viviana Zelizer would suggest that these distinctions are still meaningful, and still not reducible to one another.
Lastly, your criticism has focused primarily on what Polayni terms "ancient societies" and not as much on "tribal societies". For the purposes of his argument about the universality of "homo economicus" and the economistic fallacy, tribal societies are as or more important. Does the modern anthropological research have as much criticism there as well?
Your hurried thoughts are most welcome, because they highlight where our thinking diverges.
I have no sympathy for Homo economicus constructs – they correspond to single-dimension thinking, much like Smith criticised in the ‘Man of System’ in politics. That Polanyi criticised modern mathematical assertions of Homo economicus, I readily accept and applaud. So do I (as did Smith with his more complex multi-dimensional social man).
“readily collapse different forms of status and wealth in pre-19th century societies - "cash, favours, positions" - into "prices".
Not quite. These are testament to the ‘currencies’, if I may use the expression, of exchange relations as identified by Smith and practiced by feudal/ monarchial/war-lord societies, prior to the emergence (‘at last’) of commercial societies, the ‘Fourth Age’, in Smith’s progression (Lectures on Jurisprudence, [LJ(A) i.32: 16)]. Incidentally, Smith’s Four Ages of Man (1762) show quite clearly, Smith was well aware of the differences among the ages of Hunting, Shepherding, Agriculture and Commerce, and Polanyi’s narrow views of Smith’s oeuvre are profoundly mistaken.
Exchange preceded the commercial Age; it was a consequence of human ‘reason’ and ‘language. It was a facet of tribal societies too (in fact, it was and is a ‘universal’).
Polanyi reported that a researcher (apologies, my copy of Polanyi is in my French library’, 1000 miles south of snowbound Edinburgh) asked some tribesmen if they knew of ‘trade’ and not surprisingly they were bemused, which prompts the thought that ‘anecdote is not data’. Modern anthropology shows much evidence of ‘exchange’ relations – the Gift; reciprocation behaviours (also shown by chimpanzee behaviours) sexual trades and resource related exchanges; bride and cattle ‘prices’, and long-distance transactions in both North America, stone-age Britain and early Greek voyages (the figurines).
The evidence is overwhelming that exchange has a long and rich history. I wrote a ‘Pre-History of the Bargain’ in 2003-5, but was unable to find a publisher – similar and better-written themes began to appear more recently, Company of Strangers, and Ridely’s Rational Optimist. I therefore would not accept that Smith (nor I) rely only on ancient examples to refute Polanyi.
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