Monday, December 20, 2010

What's Wrong With Polanyi?

Dan Hirschman writes in his Blog, A Budding Sociologist ()HERE:

“Polanyi Was Right About Adam Smith and the Invisible Hand”

Polanyi argues that Smith was wrong about the nautralness of the motivation to “truck, barter, and exchange” and that for most of human history, trucking, bartering and exchanging are nowhere to be found. Polanyi then memorably says of Smith, “In retrospect it can be said that no misreading of the past ever proved more prophetic of the future.” (GT 45) So, Smith was utterly wrong about the 18th century and before, but prescient about the 19th century. …

Polanyi’s reading of Smith is equally helpful. Writing here in 1947 according to the footnotes, Polanyi is in some sense anticipating the dramatic rise of Paul Samuelson and his famous economics textbooks which claimed that Adam Smith emphasized the power of the invisible hand of the market to produce socially optimal outcomes.


.. Given Gavin Kennedy’s recent work on the history of the invisible hand metaphor, and my own reading of the passage, I couldn’t agree more with Polanyi. In some ways, I’m coming to appreciate more Emma Rothschild’s reading of the invisible hand as a “mildly ironic joke”. In particular, Smith devoted several extensive passages to showing how merchants (and others) often colluded to act in their own interests and against that of the public … And Smith’s hatred of corporations was evident, as noted by Polanyi. In the famous invisible hand passage, Smith notes that some merchants prefer to safeguard their capital and thus invest locally rather than abroad, in spite of the higher possible returns in foreign trade …

So, his point is that most merchants are most of the time out for themselves and do all sorts of terrible things that are not at all in the public interest to get their way. But, some merchants, those that out of fear (and not civic-mindedness) support domestic over foreign industry, end up promoting the interests of society by accident. Hence the irony of the joke.


Comment
Dan Hirschman is a regular reader of Lost Leacy and has contributed to discussions with comments much appreciated by myself.

However, I have some comments that are mainly critical of Polanyi and some that are my suggestions for Dan’s further study of the these important issues.

1. “Polanyi argues that Smith was wrong about the naturalness of the motivation to “truck, barter, and exchange” and that for most of human history, trucking, bartering and exchanging are nowhere to be found.”

This statement by Polanyi is the most irresponsible statement, which denies almost every document on ancient history that has been published by scores of historians working on the available data from earlier civilisations. Simple indicator: Roman soldiers were paid in gold coins – where money circulates on such a scale, the presence of rudimentary markets are indicated (see M. Silver’s considerable research on Greek, biblical and Roman societies).

2. Smith’s statements on ‘truck, barter, and exchange’ are often presented as ‘trade’, not the much broader idea of exchange, is central to Smith’s historical (and pre-historic) methodology in the history and evolution of human societies, including in the origins of varied subjects like language, morals, jurisprudence, political economy. It is not confined to commercial societies. (See my chapter extending Jim Otteson’s ideas in his Market Place of Life (2002). In short, exchange and its associated persuasion, compromise, fusion of commitment and reciprocation was a far richer idea of Smith’s than Polanyi seemed to understand.

Polanyi’s tried to create a new sociological approach to political economy (1944) and an ideological criticism of 20th-century capitalism. He misunderstood exchange.

3. “He demanded, e.g., that the British government should rule India, not the merchants of the East India Company, whose interests, he asserted, were contrary to those of the population.

Smiith’s comments on the EIC were directed at saving the powerless Indians from the rapacity of the merchants and not a declaration of confidence in the British government (not all that separable from the corruption of the EIC). Polanyi presents this to support his critique of merchants and praise his alternative of government.

But, some merchants, those that out of fear (and not civic-mindedness) support domestic over foreign industry, end up promoting the interests of society by accident. Hence the irony of the joke.”

While interesting about Emma Rothschild’s neglected (by neoclassical and rightist economists) phrase of the IH metaphor as Smith’s “ironic joke”, she also still misreads the role of a metaphor by Smith. Those “insecure” merchants were the object of his use of a “more striking and interesting” metaphor.

I could make other comments but the above few are repesentative of the main ones. Naturally, Dan is invited to respond with a full post.

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3 Comments:

Blogger Paul Walker said...

“Polanyi argues that Smith was wrong about the naturalness of the motivation to “truck, barter, and exchange” and that for most of human history, trucking, bartering and exchanging are nowhere to be found.”

Morris Silver's book "Economic Structures of Antiquity", Westport Connecticut: Greenwood Press, 1995, Part II in particular, would be most enlightening here. One would also suggest reading Douglass North's "Structure and Change in Economic History".

5:46 a.m.  
Blogger Gavin Kennedy said...

Paul,
I agree. Polanyi took a very narrow view of exchange behaviour in 1944, from which he developed his sociological theories.

Asking tribes-people about market exchanges,it was no wonder they proclaimed no knowledge of them. His informants should have observed their behaviour instead and noted what they did, not what they articulated only.

Markets, in the modern commercial sense, were well established before they were noted by scholars, except at the margins ('just wage', 'interests', moral status). 'Bride price' behaviour long proceeded the introduction of markets to hunter-gatherers, as did 'reciprocity' relations (in my terminology, 'Quasi-bargains), and barter.
Gavin

10:48 a.m.  
Blogger Michael E. Smith said...

My perspective, as an archaeologist who has worked on comparative ancient economies, is that Polanyi was blind to a whole category of economy: the pre-capitalist commercial economy. The economies of ancient Mesopotamia or the Aztecs had commercial exchange (money, profits, marketplaces, entrepreneurial merchants), but land and labor were not commodities (or only very limited commodities). By ignoring or denying the nature of these economies, Polanyi could argue for the great chasm between primitive economies and capitalism.

I explore this in:

Smith, Michael E. (2004) The Archaeology of Ancient State Economies. Annual Review of Anthropology 33:73-102.

http://www.public.asu.edu/~mesmith9/1-CompleteSet/MES-04-ARA-Econ.pdf

Other recent work by archaeologists includes:

Garraty, Christopher P. and Barbara L. Stark (editors) (2010) Archaeological Approaches to Market Exchange in Ancient Societies. University Press of Colorado, Boulder.

Feinman, Gary M. and Christopher P. Garraty (2010) Preindustrial Markets and Marketing: Archaeological Perspectives. Annual Review of Anthropology 39:167-191.

5:57 p.m.  

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