Thursday, February 28, 2013

The Authentic Adam Smith

An anonymous correspondent wrote to Lost Legacy yesterday a comment on a post of mine on the Blog on 17 October 2007.  Reading the post before passing it as ‘moderated’ (introduced after I was informed that Lost Legacy had been invaded by a couple of thousand pornographic adverts in 2009) it struct that today’s readers would appreciate the original post (minus the now deleted pornography!).
The Authentic Adam Smith at the Tuesday Club”
"Last evening I attended a monthly dinner club meeting of the appropriately named ‘Tuesday Club’, the format of which was as ‘speaker’, I spoke for 20 minutes on what was billed by the chairman, Michael Fryer, an historian of credible reputation, as ‘Adam Smith in the 21st Century’.
The unusual format, which worked perfectly well, was for the speaker, during the serving of the first course (‘salmon fish cake with rocket leaves, lemon and paprika mayonnaise), to speak to a theme, and then those present are invited in turn to speak and pose their questions, also during the serving and eating of the rest of the dinner: main course (breast of pheasant with apple and rhubarb stuffing, colcannon potato, sweet (white caramel apple pie upside-down cake with vanilla ice cream)and coffee (and dark chocolate truffle), assisted by generous amounts of red or white wine (and a champagne starter). I stuck to orange juice as I do not partake of alcohol. Initially, I didn’t stick closely to the chairman’s chosen theme, but the questions led me that way.
The members of the Tuesday Club (running its monthly meetings for ten years) are interested in and are contributors to intellectual discourse from many walks of life (academics, professionals, business managers, politicians, authors, journalists, plus, last night, a young PR professional – is that a spin doctor?). The manners of their discourse were impeccable – nobody raised their voice; nobody was emotionally distraught, and nobody did other than listen politely, and the chairman, Michael Fry, conducted the affair with a calm dignity and impressive light touch.
It was fascinating to find a small coven of civilised human discourse in Edinburgh, which I felt as an echo of what was the norm in the Scottish Enlightenment, when Adam Smith attended his many club from the informal Oyster Club, where he, Adam Ferguson and the others adjourned after dinner to a side room for claret, beer, and conversation, while the other diners turned to singing and dancing with lady servers, allegedly of a willing disposition, to the more sedate and bewigged meetings of the Royal Society of Edinburgh to listen and comment to serious papers on science (natural and literary) in that age of great hope and anticipation. The long dining room table of the Stack Polly Restaurant, Grindlay Street, added to the historic atmosphere perfectly.
The Tuesday Club is right-of-centre politically. There were conservatives, libertarians and classical liberals present among the 20 diners (one attendee had given a lift to Murray Rothbard!). In my remarks I concentrated first on the authentic Adam Smith, a subject touched on many times here Lost Legacy.
His backward looking perspective to the revival of commerce from the 15th century, his analysis of the evolution of the propensity to ‘truck, barter, and exchange’, the cradle-to-grave urge to self-betterment, the division of labour, the foundations and extent of markets and the ‘slow and gradual’ growth towards opulence. His Moral Sentiments was about the harmony-producing sympathy of each to others in society, and Wealth Of Nations was a critique of mercantile political economy, and not a text book on economics.
In the long sweep of history, the key number was not the ‘average per capita income’ (Gregory Clark), which remained low and unchanged for millennia, but from the gross income of society (GDP), large enough proportions of which were extracted as surplus over average subsistence by the powerful, from which they built the stone civilisations that came and went cyclically for 10,000 years. Sadly, beyond sentiment, the history of the poor was not decisive. When all are poor, they all remain poor for always. Meanwhile, as a minority grew richer, knowledge accumulated, technology and innovation slowly spread, and capital formed.
The mid-18th century was the time where this underlying trend was visible and understood; meanwhile the rest of humanity across the world (Africa, Australia, the Americas) remained in Smith's Age of Hunting, equal but poor; even the powerful in these societies had fewer artifacts than an employed common labourer in 18th century Scotland.
Britain, a thousand years after the fall of 5th century Rome, re-reached Smith's Age of Commerce, along with other Western European societies, but all of them fell victim to the notions of mercantile fallacies (jealousy of trade, protectionism, wars for trivial ends, colonies and institutional monopolies) all of which distorted natural economic growth and delayed the spread and deepening of commercial societies, which in due course would raise the opulence of the employed poor and draw into commerce the unemployed destitute and abject poor of which those societies abounded.
This thought haunted and sometimes agitated Adam Smith.
Wealth Of Nations addressed these problems; it is not about laissez-faire; 19th-century corporate capitalism; or minimal ‘night watchman’ state activities. Its paradigm is not the ‘invisible hand’ metaphor; it is about letting markets work, within the law, and using funding from taxation, beyond the need for defence (which costs less than fighting unnecessary wars or suffering invasion), and justice (the main pillar of society), for the necessary role of public works and projects to facilitate commerce, including for the education of all children.
During the dinner a most active set of contributions and questions flowed as impressively as the dinner and drink was served with smooth efficiency by the restaurant’s staff. Subjects raised included the role of property, Adam Smith’s politics, his religious affiliation, the labour theory of value, the East India Company, formation of prices, the invisible hand, what Smith might have thought about the current Prime Minister (also from Kirkcaldy), Smith’s attitude to the Guilds, ‘Das Adam Smith Problem’, Eamonn Butler’s recent primer on Adam Smith (an ‘excellent read’), why the rich should pay more tax than the poor, flat tax, the role of self interest, Smith’s ‘different’ account of the division of labour in Books I and V, and his version of laissez faire.
Now I defy anybody to say that they have participated in such a well-informed audience with such a range of subjects related to Adam Smith at a dinner in a restaurant. The time passed swiftly and there was not a moment where the audience flagged in their enthusiasm to keep probing into, what most admitted was completely new territory regarding Adam Smith and his authentic views.
I realised why the Tuesday Club has lasted eleven years and why it is still going strong. I also saw why right-of-centre political philosophy and ideas remain lively and thriving in Edinburgh, but remain perplexed as to why the right-of-centre parties seem to be so marginalised in Scottish political life.”
The Tuesday Club still meets in Edinburgh (now at the Hotel Du Vin, Bistro Street) and I occasionally attend (consistent with my physical mobility).   Its main attention centres on the governance of Scotland and the constitutional question framed for the upcoming Referendum on Scottish Independence in 2014.  The varying attendees divide about 50-50 on that issue – I shall vote ‘YES’.  However, a clear majority favour further devolution.
Apart from those who attended the Oyster Club we do not know what they discussed but we do know from attendees (members of the Scottish Enlightenment) that their discussions were conducted in a civil atmosphere, with nobody dominating their conversations. 
Locally it was also known as ‘Adam Smith’s Club’.  His contributions to the Oyster Club by all accounts are at odds with the popular anecdotal assertions of Smith’s indecisive contributions and his alleged unworldly attention spans. 
These anecdotes seem to have originated from such social poseurs as Alexander Carlyle who preferred to socialise in the polite company of deferential ladies of the Houses he visited and who criticized Smith’s lack of social graces in the company of society folk.
Smith advised his readers in Moral Sentiments to discuss philosophical topics only with “other philosophers” who could be trusted not to broadcast to outsiders their views as they formed.  In the company of other members of the Scottish Enlightenment, Smith was more frank than he was in mixed company – he had seen what befell those who spoke out about religious superstition and had felt the rancour of censorial tutors at Balliol College when found reading David Hume’s Treatise (perhaps informed upon by an unfriendly fellow student?).
The Oyster Club met near Smith’s Panmure House from 1778-90 and many who attended the Club also attended his Sunday suppers at Panmure House. These regular conversations ‘between friends’ fueled their individual groundbreaking scientific speculations that we know now as the Scottish Enlightenment. 
James Hutton discussed with William Robertson and Adam Smith his forthcoming public announcement to the Royal Society of Edinburgh of his ground breaking conclusion from his geological field-work that the Earth was much older than the Biblical creation myth (only 6004 years old according to Bishop Ussher).  Hutton felt confident enough to announce to the Royal Society of Edinburgh in 1785 that the Earth was far older, writing his memorable sentence of the origin of the Earth ‘there was no vestige of a beginning, no prospect of an end’.
Hutton was assisted in his deliberations from such ‘safe’ conversations in the Club.  That is how science progresses and why its faster in situations where friendly conversations proceed without the petty jealousies and repressive censure from dominant social ideologies.
So thanks to ‘anonymous’ for reading a 2007 post and commenting upon it. 

Wednesday, February 27, 2013

Loony Tunes no 75

Bottom line, the invisible hand is fading pessimism (accumulating gold) as the window of opportunity to push price lower closes. HERE 
Timothy Pricket Morgan writes in The Register HERE 
Economic engine to be applied to networks, storage, and public clouds’: “But VMTurbo wants to get humans out of the way and automate the allocation of resources using the "invisible hand" of market economics - pushing the admins out of the loop.”
Smacked by the invisible hand: the wrong debate at the wrong time with the wrong people
Daniel Laitsch in a professional journal  Journal of Curriculum Studies Volume 45, Issue 1, 2013: Special Issue: “The End of Schooling as We Know it? HERE 
Iggy Pop-Barker reports HERE 
“Adam Smith Institute competes against itself
Free market think-tank the Adam Smith Institute has been split into a dozen competing Adam Smith Institutes as a result of a ruling by the Competition Commission which found that the Institute, as the only one with that name, was exercising an anti-competitive monopoly.
A Commission spokesperson said: ‘We believe in giving consumers a wide range of choices when it comes to reports advocating free market solutions to social and political problems. In fact we were disappointed that the Institute had not realised this contradiction itself. We have therefore acted to break it up so that now every researcher is his or her own Adam Smith Institute. They will all be able to produce competing reports and consumers will be able to pick the ones whose conclusions they like best.’
The issue may not yet be over. Peter Forbes, CEO of Adam Smith Institute No.5, has applied to the Competition Commission to rule that it has acted anti-competitively by being the only Competition Commission.”

Visible Prices Make Markets Work

Timothy Prickett Morgan at The Register HERE 
“VMTurbo ‘invisible hand’ control freak grabs more virty servers”
“VMTurbo wants to get humans out of the way and automate the allocation of resources using the “invisible hand” of market economics – pushing the admins out of the loop. And with Operations Manager 3.3, VMTurbo is once again expanding its range of coverage over virtual infrastructure while at the same time adding some projection capabilities to its control freak.
The basic idea behind the economic scheduling engine inside of VMTurbo’s Operations Manager is simple enough: People, departments, divisions, and groups within a company are given virtual “budgets” from which they can consume resources and together they constitute a market for the limited compute resources available in the data center. As demand for particular resources rise, so does its price, in very appropriate Adam Smith fashion, and similarly, as demand falls, so does the price. The economic engine is not just about virtual billing, but about the placement and timing of workloads to achieve the most efficient use of those scarce resources.
What exactly is invisible when you use VISIBLE prices “in a very Adam Smith fashion” to allocate “limited” computer “resources”?
What exactly is the so-called “invisible hand” bringing to the allocation decision?
This is the nonsense of the week!
There is no such thing as “an invisible hand” of the market.  And most important, Adam Smith never said there was such an entity.

Sunday, February 24, 2013

Adam Smith's Sources for Pin-Making

Jean-Louis Peaucelle ( University of Reunion Island, France) and Cameron Guthrie (
University of Toulouse, Toulouse Business School, France)
HOW ADAM SMITH FOUND INSPIRATION IN FRENCH TEXTS ON PIN MAKING IN THE EIGHTEENTH CENTURY”, History of Economic Ideas’, xix/2011/3. [History of Economic Ideas is an international peer-reviewed journal, University of Pisa. Italy].
Adam Smith found inspiration in French texts on pin making to illustrate his theory of the division of labour. He used secondary sources that, we argue influenced his understanding of the strong division of labour and opportunities for productivity improvements in the pin-making industry. The original and secondary texts are examined here to understand how Smith interpreted them to develop his theory. Additional archival sources describing French pin making in the eighteenth century are also studied and are shown to partially contradict Smith’s theory of the division of labour.
In the first part of our paper, we study all the eighteenth-century French pin making texts. These texts are closely linked and copy one an- other. Copying without quoting was common practice for the time.
In the second section, we debate how Adam Smith interpreted the French pin-making texts, the information he selected and the conclusions he drew about the pin making industry. We will see that the original texts do not support Smith’s analysis. The workers were specialized in eight or nine trades, and not eighteen as Smith understood. In a workshop there were many workers for heading but very few for cutting the pins, for example. Attempts to divide this latter operation further were unsuccessful. One of the original texts that Smith did not consult also provides an example of production without specialisation where productivity was a hundred times higher than Adam Smith believed.
In the third section, we examine what local sources reported on pin making at the time. These texts help understand how pin-making was organized. We will see that both specialized and non specialized labourers worked together in workshops. While the different workshops all used the same tools, the organization of work was not standardized. One of these texts was also used by Charles Babbage who argued that wage differentiation was another advantage to specialisation (Babbage 1832). 
… French economists at the time, such as François Quesnay (1694-1774), did not comment the Academy of Sciences technical descriptions or those published in the Encyclopédie. They discerned neither specialization in the workshops nor high productivity. The dominant economic intellectual movement in France at the time, physiocracy, was more interested in agriculture than industry and the crafts that were not
considered to be productive activities. Jean-Claude-Marie-Vincent de Gournay (1712-1759) and Anne-Robert-Jacques Turgot, Baron de Laune (1727-1781) recognized the importance of the industry but did not comment the descriptions of the pin making process as Smith did. To Adam Smith’s credit, he chose to study the pin industry and its mechanization that was more visible in eighteenth-century England than in France. …
… We have demonstrated here that Adam Smith’s description of pin making was over-simplified. We did not evaluate the impact of his economic theory. More work is needed to understand how Adam Smith established the relationship between the division of labor and productivity. The weak probative value of his pin-making example takes nothing away from the reach of his economic ideas.”
Jean-Louis Peaucelle has done a magnificent job with his detailed study of the French sources from the 17th and 18th centuries.  His latest essay (with Cameron Guthrie) follows his earlier publication, Peaucelle J.-L. 2006, ‘Adam Smith’s use of multiple references for his pin making example’, The European Journal of the History of Economic Thought, 13, 4, 489-512.
I read this essay in 2007 and found it excellent in quality.  I was unable to comment on it at the time, other than to refer readers to it in my 2nd edition of “Adam Smith: a moral philosopher and his political economy” p. 54, Palgrave, 2008”. (I also sent a private communication to Jean-Louis congratulating him on his well-researched findings).
Adam Smith’s example from pin-making clearly originated from French sources.  Jean-Loius Peaucelle establishes that fact beyond doubt.  The only acknowledgment that Smith gave for his pin-making sources in Wealth Of Nations (Book 1, Chapter 1) is rather vague: “To take an example, therefore, from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker …”,
But with multiple sources in French, many of them obscure, he probably thought that hi vague acknowledgement was sufficient.   Jean-Lois Peaucelle considers that Smith got the arithmetic wrong and made his asserted relationship between the division of labour and labour productivity suspect.
For the moment, I shall park that conclusion to one side and take my time to digest the arithmetic.  However, regular readers may know that I have long asserted my own view that Adam Smith’s detailed reference to the division of labour as a process was of much more significance than the division of labour in pin-making (there is after all a limit to role splitting in a small workshop).  Smith’s rather neglected example of the manufacture of a labourer’s woolen coat gives a highly significant example of the social benefits of the division of labour in a complex supply chain:
The woollen coat, for example, which covers the day-labourer, as coarse and rough as it may appear, is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production.
How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world! What a variety of labour too is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labour is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brick-maker, the brick-layer, the workmen who attend the furnace, the millwright, the forger, the smith, must all of them join their different arts in order to produce them. Were we to examine, in the same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears next his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen-grate at which he prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afforded a very comfort- able habitation, together with the tools of all the different workmen employed in producing those different conveniencies; if we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co- operation of many thousands, the very meanest person in a civilized country could not be provided, even according to, what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.” (WN I.ii.11)
None of his detracts from Peaucelle’s research into Smith’s sources for pin-making.  
I strongly recommend readers to read Jean-Loius Peaucelle’s latest paper in the current History of Economic Ideas, 2013. vol. xix, no. 3.

Thursday, February 21, 2013

From My Notebook no.8: Karl Polanyi on Adam Smith

Karl Polanyi: The Great Transformation, 1944 Chapter Four: Societies and Economic Systems
Markets are self-regulating directed by market prices and nothing else.  -  “without outside help or interference”
Polanyi, writing in the 1940s, takes ‘economics’ as expressed in the 20th century and its alleged close relationship to Adam Smith, which ignores the wide variation between the ideas of Adam Smith and those classical 19th century and 20th-century modern ‘neoclassical’ miss-presentations of his ideas (see Kennedy, Adam Smith’s Lost Legacy’ 2005).
Polanyi’s summary of Smith’s ideas of markets as “self-regulating directed by market prices” and nothing else -  “without outside help or interference" is to be at variance with Smith’s views.  However, markets operate in historically developed detailed legal systems that “interfere” necessarily in markets, which Smith details in his “Lectures On Jurisprudence” (1763).  These lecture notes by students are followed closely in several extracts in the text of Wealth Of Nations (1776), where they were quoted word-for-word, showing their authenticity.  Smith also insisted the need for regulations to correct the proclivities of “merchants and manufacturers” to introduce monopolistic practices to raise prices and narrow the competition.  He did not think it safe to leave markets to self-regulation and ‘nothing else’ and he gave examples in banking and fire safety (party walls). 
no economy has ever existed” that “was controlled by markets”
No economy before or since has been “controlled” solely by markets.  Polanyi confuses assumptions that modern economists made in their attempts to model their economic theory in the 19th century, especially after 1870 using elementary calculus and algebra.  Smith was not guilty of such mistakes (though he was an accomplished mathematician by 18th-century standards).
gain and profit made on exchange never before played an important part in human economy
Polanyi runs aspects of exchange transactions together.  Mutual gain has played a role in human sociability since human societies evolved from the speciation of hominids from the Common Ancestor.  Co-operation always benefits both sides of any exchange transaction whether the terms are voluntary or involuntary. Otherwise the transaction would not occur, or be stable. It is common among some anthropologists to write of the exchange transaction in its modern forms as being about who gains the most - this is a function of their poor understanding of mutual exchange and not just in modern economies.
Though the institution was fairly common since the latter Stone Age, its role was incidental to economic life”.
This shows a highly limited understanding of Smith’s concept of exchange.  When hominids (along with Homo sapiens) exchanged their contributions to the group, band, or tribe, for their shares of the benefits of their simple societies, they engaged in their society’s ‘economic life’.  This relationship is not ‘incidental’ – it is total.
Polanyi restricts Adam Smith’s “propensity to truck, barter and exchange” to “markets” [!!!].  This role led to the concept of “Economic Man”. (p 45).
Smith did not equate “the propensity to truck, barter, and exchange” to ‘markets’.  He illustrated the  “propensity” by applying it to a specific case related to the theme of his Wealth Of Nations” using 18th-century language that his readers would understand and recognise.  ‘Truck’ meant payment of wages or rewards in the form of goods (think of the ‘16 Tons’ song from the 1970s – “oh, Peter don’t yer call, ‘cos I can’t go/ I owe my soul to the company store’).  The UK Truck acts were made illegal in the 1820s.
‘Barter’ was an exchange of goods for goods; now often used for any haggle over price). “Exchange” means any transaction in which the parties might haggle, 'higgle’, persuade or negotiate; it was not to Smith exclusively about commercial bargaining.  In fact, his entire philosophical approach to exchange was widely applied and very general: see James Otteson’s “Market Place of Life”, 2002 (Cambridge).  
“Whether this propensity be one of those original principles in human nature, of which no further account can be given; or whether, as seems more probable, it be the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to enquire.” WN, Book 1.chapter 2.
Smith was not an “evolutionary psychologist”, nor an “anthropologist” (these specialties did not exist when he was alive).  He was asserting a conjecture he had formed from the knowledge available to him. His claim that the propensity to exchange has existed since humans acquired “the faculties of reason and speech” (man did not conform to the biblical explanation of the Eden Garden). In his essay: “Considerations Concerning The First Formation Of Languages and the Different Genius Of Original And Compounded Language [1761], he attempts an imaginary order in which “two savages” would agree to speak a commonly agreed set of sounds that would develop into a language. Now skipping the realism issues, it clearly shows that Smith considered exchange a behaviour that operated from long before civilization as it was understood in the mid-18th century. Smithian exchange was not connected solely to markets.   Polanyi disagrees and he invented a connection that post-dates Adam Smith. Polanyi pre-rejected Smith before he understood his contributions and attributed to him ideas he never held.
Polanyi “Equates Herbert Spencer and later Ludwig von Mises and Walter Lipman with the “same fallacy”; they followed “in Smith wake – “his established a paradigm of the “bartering savage as a axiom” (as “false as Rousseau’s”).
Set aside the “bartering savage” and focus on the “savage” engaged in exchange relations, which exchanges take on a wide array of forms.  Human relations are based on exchanges, if wrapt in social norms, most of which in their original forms evolved over tens of thousands of years from speciation.  Given that our predecessors among the hominids had complex forms and the observed individual and the social behaviours of our nearest relatives, the chimpanzees all engaged in their groups , and the chimpanzees continue to engage, in complex forms recognisable as exchange. I suggest Adam Smith is closer to the evolutionary science of the longevity of exchange than is Polanyi’s contrived ideological hostility to “markets” in the 1940s.
I have argued this case for many years.  In fact I wrote a long essay (unpublished) on the “Pre-history of Bargaining” necessitating a reading of primate reports and anthropological works.  I often refer to the early origins of reciprocity among chimpanzees related to grooming as a form of exchange, a primitive precursor to bargaining.  In reciprocal grooming exchanges chimps perform grooming services within alpha male-dominated societies.  They also perform discretionary grooming outside alpha male sanctioned behaviour with males and females that continues as exchanges for as long it is reciprocated; when the exchange is not reciprocally undertaken, they cease to groom the offender. (Consult "Grooming, Gossip, and the Evolution of Language", Prof. Robin Dunbar, 1998. Harvard).   Reciprocation preceded bargaining and continues today in complex societies (See Kennedy: Influence 2003, Pearson/Edinburgh Business School). The difference was one of the time between the completion of the exchange of grooming: in reciprocated exchanges there is a longer time delay to that common to bargaining exchanges, when the exchange takes place in the simultaneous bargain.  Polanyi was oblivious to that relationship.
Division of labour” as “old as society” based on “springs from sex, geography, and endowment”.
Yes, of course, that is exactly what Adam Smith said clearly in Wealth Of Nations (WN I.ii).:
This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.”
Polanyi suffers from ideological blindness.  He has a political point of view that denies the very evidence he quotes!  In the forest, the band sticks together to get the subsistence they need. Everybody must contribute to band's subsistence and in exchange they receive their share of the subsistence.  They also share their experience, and natural proclivities for certain actions are shared to the benefit of others. In exchange they benefit from others' skills in tracking game or finding seasonal plant foods.  Some share their imagined explanations for natural phenomena (lightning, floods, fire, and events) and in return they receive their share of the hunting output of  the trackers and fastest chasers, or good skirmishers when a kill attracts rival predators.  Finding water in the dry season is a premium contribution, and so on.  They didn't need a theory of exchange to engage in exchange!
This is shown in the next sentence I have quoted:
“19th century prejudices” underlay “Smith’s hypothesis about primitive man” 
[An astonishing assertion!].  I think Adam Smith was closer to the facts that Polanyi. The “corrective” for such mistakes would have been “linking up economic history with social anthropology “ a course which was consistently avoided”.  Economists “abandoned” interest in “primitive man” as “irrelevant to the “understanding of the problems of our age” [p47].
Yet Smith started from linking deep history to “understand the problems” of his age.  We can do exactly that too, but with incomparably more information and knowledge than was never available to Adam Smith.
man’s economy was submerged in his social relationships”.
I agree completely and Smith addressed these issues in his Theory of Moral Sentiments (1759).
man’s natural endowments reappear with a remarkable consistency in all societies and all times a places” and “the necessary preconditions for survival of human society” are “immutably the same” “code of honour”, “generousity” , “social obligations” are “reciprocal” “fulfillment” of “give-and-take interests best” (p48]
Exactly and its called within the meaning of “exchange”!
Overall my comments on these few pages of The Great Transformation are not encouraging for regarding Polanyi as a major and reliable source for the solutions he gives for the problems he perceives.  He had an agenda.  It is poor history and poor Smithian intellectual biography.