A Discussion of Bourgeois Equality Chapter 57 “And Many Polanyish Ideas from the Left”
Dr. McCloskey critiques the ideas in Karl Polanyi’s 1944 book, The Great Transformation, that she says have shaped ideas about capitalism primarily for those on the left though she demonstrates how these ideas have permeated across the political spectrum.
In the previous chapter she challenged various economic historians; here, she is focusing on the wide influence of Polanyi’s work.
I found this chapter difficult because I am not familiar with Polanyi or The Great Transformation so I had to do some research into them, which I will share below as I work through McCloskey’s analysis.
Karl Polanyi
Polanyi was born in Hungary in 1886 but thanks to communism and later World War II, he lived in various places in Europe.
He was not an economist by training though some call him an economic historian or an economic anthropologist. His education was in law, but his last job was a visiting professor of economics at Columbia University from 1947 to 1953, which is after his major work , The Great Transformation, was published.
He lived in the tumultuous early twentieth century, and he wrote about the tumultuous rise of capitalism a couple of hundred years earlier, trying to figure out what had gone wrong for people.
Like Karl Marx, he decided that the current system was a failure because you can see so many people struggling. However, Polanyi did not agree with Marxism or its call for revolution and communism.
As McCloskey notes, this perceived failure
…had ‘failed’ only relative to a utopian version of progress that took over the social imaginary of the West after 1848, despite the enormous actual improvement going on at the time. (p. 544)
He looked back to the past, in my opinion with rose colored glasses, seeking a better alternative to the competitiveness of capitalism.
Polanyi gives expression to the nineteenth-century Romantic story on which we all were raised in school and at the movies. When we get beyond what we actually know, we understandably revert to fairy tales, especially when the tales support what we believe to be politically true. It’s human nature, or social psychology, or ideology, or rhetoric. (p. 546)
He wanted to have a grand narrative that explained how we lost some Golden Era when capitalism rose up. Marx did, too, as well as the utopians of the 1800s. It is appealing to come up with The Answer, but it is also beyond most of us to know enough about multiple fields to be able to come up with it without making mistakes.
He relied on an understanding of economic history that does not seem to match reality. McCloskey gives us an explanation by talking about what was known, or what we thought we knew, about economic history of ancient times as of the 1920s, which would have influenced Polanyi.
A German economist, Anna Schneider, wrote The Origin of Cultural Economy: The Sumerian Temple City in 1920. By examining the temple documents, it appeared that the economy was driven by the temple. Things like landholding were decided by the temple, not in a private market. (p. 549)
However, as McCloskey notes, the conclusion of the importance of the temple in the economy is due to only looking at documents from the temple, and that was because those were the documents found.
This is like the old joke about the economist who is looking at night for their lost keys under the street light. When someone stops by to help and asks, “Did you lose your keys here?” the economist says, “No, but the light is much better here.”
Coming to broad conclusions based on limited evidence, that is, looking where the light is much better, is not good science.
Only years later were a large number of legal documents discovered that showed there was landholding independent of the temple and that there was a private market for land.
She says this would be like future archeologists finding the documents of the Chicago Department of Streets, and not the commercial documents of the rest of Chicago, and concluding that Chicago’s economy was mainly about road crews and pothole repairs. (p. 550)
This is not to bash the historians of the 1920s or Polanyi for relying on it, but it is to point out a problem with his model that is based on what is now known to be false historical information.
Polanyi’s Model
Polanyi asserted that there were 3 categories of economic behavior prior to capitalism and markets disrupting the natural way of human interaction. These 3 categories are not independent; all 3 can be present and overlapping when looking at a society. (p. 547)
- Redistribution
- Reciprocity
- Householding
While we think of redistribution today in the terms of welfare, Polanyi was calling back to a more communal society where resources would be reallocated based on customs. (p. 547)
Reciprocity likewise was part of a community system that dictated people’s behavior and helped allocate resources.
Householding was about how resources are allocated at the family level.
McCloskey notes he later grouped householding in with redistribution and made his third category the market. (p. 548)
[Polanyi] rejected the economistic vision of trade and markets governing such things at the large scale, writing in 1944, in advance of scientific work on the matter, that “broadly, the proposition holds that all economic systems known to us up to the end of feudalism in Western Europe were organized either on the principles of reciprocity or redistribution, or householding, or some combination of the three.” (p. 547)
McCloskey objects to the idea that markets did not play a large role in allocating our resources until the rise of capitalism in the the eighteenth and nineteenth century. The mistaken economic history that seemed to show little role for market activity led Polanyi to a rosy vision of communal happiness that was spoiled by this new market dominance.
Yet in fact Egypt, Babylon, China, Greece, Rome, Gaul, Italy, the Arab world, the Ottoman Empire, the Toltecs, Japan, the Viking lands, Germany, Poland, and England, from ancient to early modern times, were entire societies heavily influenced by commercial exchange (which does not mean that other institutions, such as families or kinship or kingship or religion or hierarchy, had no influence on how the society worked, even in economic life, even now). (p. 545)
Conclusion
Polanyi thought that replacing redistribution and reciprocity as the dominant features determining the allocation of our resources with the market was the source of our current problems. In his theory, markets used to be a small feature that were held in check by the community.
Then the rise of capitalism led to the rise of the market as the dominating institution allocating our resources and what he called a belief in self-regulating markets. This seems to be akin to the laissez-faire economics in line with Adam Smith and the invisible hand.
I see those as two separate issues. Markets can be the dominant institution in allocating our resources without being free to regulate themselves.
That is, capitalism works best when there are a variety of institutions in place to hold the markets in check.
You need a government that can enforce laws and private property and manage legal disputes.
You need a civil society that is producing virtuous people who care about others and not just money.
I do not think it is inherently problematic to live in a market-centered society because markets will run amuck. If we keep markets embedded in the system so they are checked by the state and the community, it can be the best system.
We get the great wealth that was unleashed in the Great Enrichment, but it is balanced by a strong state and community.
We need a government that is strong enough to not be taken over by special interests who want to set the rules of the game to favor themselves, and we need people who believe in more than just prudence but also justice, temperance and love.
Reference: McCloskey, Deirdre Nansen, 2016. “And Many Polanyish Ideas from the Left,” Chapter 57 of Bourgeois Equality, The University of Chicago Press.
