On Polanyi Again and a New Critic

David Ruccio writes in Occasional Links and Commentary (HERE)

What may be a useful contribution to the debate that I am having with Dan Hirschman on Polanyi’s Theories (see also earlier posts).

David writes:

“…Polanyi’s major contributions, which I think are three: (1) the distinction between markets and the market-system; (2) the argument that a market-system was not the outgrowth of a so-called natural propensity to “truck, barter, and exchange” but, instead, of the activity of the state; and (3) the claim that the market-system, if allowed to develop without controls, would more or less inevitably lead to economic and social crises. Clearly, the three contributions place him at odds with Adam Smith and many others who have celebrated the existence of a market system.”

Exchange relations as identified by Smith and practised by feudal/ monarchial/warlord societies, prior to the emergence (‘at last’) of “commerce”, which was 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 undermines Polanyi’s narrow views of Smith’s concept of exchange relationships.

The exchange propensity (Wealth Of Nations) 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 remains a ‘universal’). It is counter-factual to assert that the “market-system was not the outgrowth of a so-called natural propensity to “truck, barter, and exchange”. Polanyi and his disciples focus on their 20th-century notions of “truck, bartering”, confusing these terms with a purely modern commercial role, which swamps the historic role of human “exchange” behaviour.

The earliest Homo sapiens handled exchange transactions even in the daily choice of which direction to set off in their gathering, scavenging, later hunting – they had a 360º multiple-choice decision, for which brutal experience taught teach them that scattering aimlessly in all directions was sometimes dangerous and life-threatening. The decision required mediation through exchange behaviours and eventual agreement.

Smith’s ‘celebration’ of the market system – or the ‘Age of Commerce’ - was conditioned, not by some ideological obsession, but by the simple observation that the meanest of labourers in 18th-century Britain had access domestically to far greater ‘necessities and conveniences’ of life than the most powerful of tribal ‘chiefs’ in Africa and North America. He credited this to the Age of Commerce, rude and crude as it was in his day, and which its subsequent history to the 21st century has magnified those discrepancies in one direction only - upwards.

Now those discrepancies had long historical roots that combined the remarkable fact that the per capita income of the labourers – the majority numerically throughout the millennia remained near subsistence yet population grew slowly, and the rising total “GNP” was appropriated by the elites, who deployed the ‘surplus’ on stone-built civil monuments, churches and palaces, and warfare.

The Age of Commerce developed from the exchange propensity – buying-selling from ‘truck, barter, and exchange – already present from the preceding millennia, first manifested in the evolution of language (agreement on which word sounds meant whatever). See Smith’s 1761 essay on the Origins of Language, part of a major 18th-century debate; and Moral Sentiments (1759) on the mediation amongst early and later humans on acceptable moral conduct. While the exchange propensity was and remains universal, the world produced thousands of different languages and many different moral codes (those since Classical Greek and Roman times were taught by Smith 1751-64). Neither of these phenomenon evolved by human design (the Left's designed 'Esperanto' is dead) .

The ideas of “commodification” have Marxist roots, though that alone does no disqualify them, but they are part of an ideology – no counter-facts can disprove them – as is the myth that exchange behaviours are alien in tribal societies. They are even present in some animal societies (Chimpanzees, for instance) in reciprocation behaviours, and certainly in human societies from the earliest times and to the present. To deny them is ideological. That is why I say Polanyi invented a theory and then sought evidence. Smith observed; he had no plans to change the world. Neither have I. The most dangerous breed on Earth are philosophers who think they can change the world - they only make it worse.

Smith recognized the importance of the Age of Commerce, and noted how it had collapsed after the Fall of Rome, when warlords took over Western Europe, until it re-emerged, slowly and gradually, a thousand years later and it spread and deepened, not because of the State, but despite it. No state invented agriculture 10,000 years ago.

Laissez-faire played no part in Smith’s thinking (he never used such words) – that was a 19th-century invention by propagandists of Mill and Mine owners in Parliament and politics.

I assure David I am an economist who has looked closely at the works of modern anthropologists (and sociologists); I find in them confirmation of Smith’s conjectures, and repudiation of Polanyi’s narrow, political focus. He should have looked beyond Engels and Marx - as should David.

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.

A Debate About Polanyi and Exchange

Dan Hirschman responds to my invitation to post his comments on my Blog Post (below) and his response is posted in full:

Thank you for your comments and your criticism! I will respond in this comment and think more carefully about those issues I don't address.

First, I want to assert (to make sure I am correct) that you are not criticizing Polanyi's reading of the hidden/invisible hand. You and Polanyi agree that this metaphor was "exaggerated out of all proportion". You and Polanyi and Emma Rothchild also all agree that "Adam Smith wished to discourage the idea that the self-interest of the merchant naturally benefited the community." Am I correct in both those assertions?

Second, I am in no position to evaluate Polanyi's claims about primitive and archaic societies. I will note that Polanyi was writing primarily in the 1940s and 1950s, and the text you cited was from the 1990s. So, are you criticizing Polanyi for being wrong now or saying that he should have known even 50 years ago that he was wrong? Perhaps this difference does not matter, but I would like to clarify.

Third, while I am not in a position to evaluate the secondary literature on Polanyi's claims about primitive and archaic economies, I will point to one source that attempts to do just that and comes out much more sympathetic to Polanyi than your quick dismissal here. Gareth Dale has just published a highly-regarded book on Polanyi and his legacy, Karl Polanyi: The Limits of the Market. In Chapter 4, on "Trade, markets and money in archaic societies" (esp. 185-187), Dale tackels this question directly. I have not read the section thoroughly, but the conclusion presents a much more balanced take on Polanyi's insights into archaic societies noting that many of his critics misread his position. For example, you cite the existence of money in ancient Rome as evidence of the existence of markets. Polanyi asserted that markets existed and played a substantial role in archaic (though not tribal, I believe) economies, but they were not the primary form of integration. The mere existence of markets is part of Polanyi's understanding, not a datapoint in counter to it. The question is, what sort of markets were they? Fixed price, or supply-demand-price markets? Markets for land and labor and food or luxuries? Etc. Again, I cannot speak to the recent historical work on ancient civilizations, but I want to note that it is easy to read Polanyi's claims as being more absolute than they are.

Fourth, following from point three, Polanyi asserts that Smith is wrong about "TBE", that most people in most times and places have not engaged in much trucking, bartering and exchanging, and especially not over the most important goods (labor and land). Again, I am no expert in the history of markets and exchange! But, for Polanyi's theoretical claim about human nature (or the lack thereof) to hold, whether or not "TBE" exists in Rome is not entirely crucial. The important thing is that there exist some substantial number of societies in which these activities are not found. I think the case for the absence of truck, barter and exchange is more compelling for "tribal" rather than "archaic" societies (to use Polanyi's terms). For an interesting take on the history of the encounter between economic and anthropological thought, I recommend Heath Pearson's (2000) "Homo Economicus Goes Native" in History of Political Economy. I would be very curious as to your take on whether or not Smith believed that "truck, barter, and exchange" was part of human nature, and if so what that meant for Smith (since you assert, and I am readily willing to accept, that Smith's understanding of exchange was complex).

Fifth, I believe I agree with you that Smith was much more interested in saving the Indians from the horrors of the EIC than Polanyi notes in that brief (and, to reiterate, not intended for publication) passage. Beyond that, I do not have a strong sense of the whole of Smith's take on the EIC, and I very much defer to your reading!

Sixth, and last, I am curious as to your thoughts on Rothschild's work on the invisible hand. Here you suggest that she "still misreads" the role of the metaphor. Which "more striking and interesting" metaphor are you referring to? Overall, what is your take on Rothschild's Economic Sentiments, and her assertions re: how Smith's legacy was perverted into the employer's creed?

Comment
Many thanks Dan for your comments and questions. You address the issues clearly and I shall attempt later today to explain my criticism of Polanyi and where I agree/disagree with Emma Rothschild (her Economic Sentiments is a brilliant book). Meanwhile, I am grading MSc exams at present (a relic of my old day job) and must finish before Christmas. Some hope ...
Best regards, Gavin

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.

All Now Clear on Polany's Error

Arnold Kling responds to our criticism of his apparent endorsement of Karl Polanyi and clears his name decisively: "My Most Incorrect Belief" by Arnold Kling (HERE).

In response, I posted the following as a comment on the EconLib Blog:

"Hi Arnold
I did not mean to 'beat you up'. My target was, and remains, Karl Polanyi.
The 'propensity to truck, barter, and exchange' was embedded in human behaviour (according to Adam Smith) deep within prehistory. It occurs in non-monetised subsistence economies, including 'frontier' economies.

My neighbours in France, selectively exchange their labour and machinery among themselves, especially during the vindage (when the grapes are picked) without cash changing hands and it does not appear in National Income statistics. I assume something similar used to happen among 'Moonshiners' in the Appalachians...

Early British colonies in North America traded between the motherland and themselves in cargo-sized amounts, which percolated inwards over time. The 'second-hand' market in artifacts, capital goods and materials is often neglected by Historians (see Smith's remarks about King James VI's marriage bed ending its days in an Inn in Fife).

Monetised markets evolve over time but are rarely totally absent within a territory.
I know now you agree; hence, I shall withdraw unreservedly and gracefully, and with apologies for indicting you for 'errors' you are not committing, and preserve my ire for Polanyi and Co.”

Karl Polanyi was Wrong: Markets Existed Before 1750

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Gavin Kennedy

I regularly visit an economics Blog, Oxonomics (‘a peer-reviewed, academic journal established by graduate members of the University of Oxford), because it is intelligent and thoughtful. Posts by Mark Koyama are particularly interesting.

A typical example of its quality is accessible in the debate that Mark Koyama is having with Arnold Kling of the well-established Blog, The Library of Economics and Liberty, written with Bryan Caplan at http//:econlog.econlib.org

On this occasion the subject is about the existence of markets in Ancient civilisations, particularly around the Mediterranean. The issue is important for historians of economic thought, not least because arguments that assert that commercial markets did not exist before 1750, as presented by Karl Polanyi in The Great Transformation (1944), directly contradicts Adam Smith’s assertion that the ‘propensity to truck, barter, and exchange’ became endemic in human behaviour was a ‘necessary consequence of the faculties of reason and speech’, placing its ‘very slow and gradual’ social evolution deep into pre-history.

Hence, my interest in Polany’s hypothesis. I mention it briefly in Adam Smith: a moral philosopher and his political economy (Palgrave Macmillan, 2008).

You can read the Oxonomics debate HERE, HERE, HERE and HERE

To which I have appended the following brief comment:

‘Polanyi was quite wrong in his (ideological) assertion that markets did not exist before 1750.

Roman soldiers were paid in silver coins - they spent these on consumables, indicating existence of markets. Ships criss-crossed the Mediterranean for millennia, mainly for trade purposes.

The fall of Rome in the 5th century set back commerce for nearly a thousand years until it began to revive in the 15th century. Trade among eastern Europe, Arabia, India and China was extensive. Where there is trade there is propensity to 'truck, barter, and exchange' (Adam Smith placed this deep into prehistory: ' faculties of 'reason and speech').

The best demolition of Karl Polanyi is by Morris Silver, 1995: Economic Structures in Antiquity, Greenwood Press, Conn.

I recommend the debate both for conduct and for its tone and scholarly manner.