Wednesday, October 21, 2015

Karl Polanyi: History of Exchange Prior to the Modern Market

Karl Polanyi, a native of Austria, wrote The Great Transformation: The Political and Economic Origins of Our Time in the Second World War while a refugee from fascist Europe in Britain and the US.

In "Capitalism as a Utopian Movement" we discussed Polanyi's argument that capitalism was an ideological movement.

In "Great Depression Failure of the English System" Polanyi explains why the the "self-regulated market" and the gold standard failed in the years after World War I.

But how did the English ideological system of liberal government, self-regulating markets and the gold standard get started? And why did it achieve astonishing improvements in the "tools of production" while causing "catastrophic dislocation in the lives of the common people?" In other words, was it the "satanic mills... new physical conditions... new economic dependencies" and how did the "old social tissue" get destroyed?

Polanyi answers the question immediately.
Fired by an emotional faith in spontaneity, the common-sense attitude toward change was discarded in favor of a mystical readiness to accept the social consequences of economic improvement, whatever they might be.
So Polanyi sets the stage for understanding the modern economy by looking at markets prior to the modern age. But first he must make the history of the enclosure movement that began in Tudor England look like a walk in the park compared to the grueling forced march of the industrial revoluion

Discovering the profits obtainable from enclosing the common land and converting it to pasture or intensive tillage the owners of land started at the end of the 15th century to run the common people off the land and turn them into thieves and vagabonds.  There were efforts to mitigate the rate or reverse the rate of enclosures, but nothing changed the basic trend, leading many to argue that it was useless to oppose it. But this misses the point. Government has a role to play in "altering the rate of change." But for the policy of "Tudor and early Stuart statesmen, the rate of progress might have been ruinous". Things were different in the Industrial Revolution. Here there was no brake upon change, and the resulting social dislocation was far worse.

The point is that suddenly, in a matter of years, all human activity came under the control of markets, an economy directed by prices, with the consequent "gain and profit [that] never before played an important role in human economy." Viewing the new economy Adam Smith and others proposed that "truck, barter and exchange" was a natural human thing. But Polanyi argues that exchange was a minor factor in human life prior to the industrial revolution. Change, when it came, flowed more through "statecraft, literature, and the arts". Polanyi backs this up with a long disquisition into anthropology and scholarly investigations into hunter-gatherer and agricultural societies. Society was organized on the basis of "reciprocity or redistribution or householding" or some combination. "Custom and law, magic and religion" induced individual cooperation, not "gain."  True, markets became important in the 16th century but there was no "control of markets over society" that came suddenly in the 19th century.

What was this new market culture, and where did it come from? It came, initially, from long-distance, "external" trade that began more in the nature of "adventure, exploration, hunting, piracy, and war than of barter." The local economy was little affected. But still, the purpose and operation of both external and local trade were complementary, the reciprocal exchange of unlike goods. But there is a third type of trade, "internal" trade, and it is different from the other two, because it is competitive, it occurs in markets where "similar goods... are offered in competition with one another." Prior to the modern era governments were pretty careful to separate local and external trade and to limit the scope of internal trade. They wanted to avoid ruinous competition. Under mercantilism, just before the 19th century,
The economic system was submerged in general social relations; markets were merely an accessory feature of an institutional setting controlled and regulated more than ever by social authority.
The stage is now set for the entry of full-blown exchange and the reduction of social relations to commodity relations in the next exciting episode.

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