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.
