Soylent Burgers and Cockroach Milk

“The profitability of production cannot expand indefinitely. Any increase in the quantity of soil, water, minerals, or plants put into a particular production process per unit of time constitutes intensification. It has been the burden of this book to show that intensification inevitably leads to declining efficiencies. That declining efficiencies have adverse effects upon the average standard of living cannot be doubted.’
-MARVIN HARRIS, ‘Cannibals and Kings’

This comment made me chuckle: “The futurology future is starting to look worse than the collapse future.” This was on Reddit in response to an article about cockroaches providing the “milk of the future”:

Scientists think cockroach milk could be the superfood of the future (Science Alert)

This really does seem like The Onion at this point. Someone suggested that Reddit’s collapse and futurology boards should merge at some point. Believe it or not, they aren’t all that far apart.

We’ve already been treated to an endless litany of articles about how insect ranching will provide the protein of the future. Then there’s the meat grown in a petri-dish, and the nutrition shake cheekily named Soylent scarfed down by the Silicon Valley crowd so they can cram in a few more hours of work after popping their Ritalin. Now people are questioning whether the government should step in and force us to eat less meat.

And yet we are still simultaneously told that overpopulation and resource depletion are not a problem, and that more growth is good.

This is progress???

One of the things I’ve written about over the years is this idea that technological innovations are inherently good. But it’s clear what’s really going on: desperately trying to maintain the status quo in the face of increasing population pressure and declining resources. There’s a technical term for this: intensification.

Marvin Harris, whose works serve as a guidepost for this blog, warned us that intensification always leads to lower living standards for the majority of people in the long run, while only benefiting a tiny handful. This is a law of history. Over the years, I’ve tried to point out the difference between true innovation which solves problems or allows us to do things we could not do before, and intensification, which is essentially squeezing blood from a stone. In the former category are things like antibiotics and radio, which solve problems (killer infections) or allow us to do new things (communicate globally). In the latter category are things like electric cars (attempting to keep the unsustainable automobile infrastructure alive) and aquaculture (to make up for stripping the oceans bare of wild fish).

For the majority of people, there is no difference, since both are “growth” and growth is always good, full stop. GDP, the yardstick by which we measure progress in the modern world (which even its creator warned us against) is agnostic as to the source of growth, whether it is producing more food to feed hungry people or asthma inhalers to deal with the lung irritants from air pollution.

People tend to forget we’ve been here before.

Back during the Ice Age (late Pleistocene), we H. sapiens lived primarily off of herds of large fauna, especially reindeer, mammoth and bison. This was supplemented with wild salmon in season. The fattiest parts of the animal were the most prized and sought after. Bones were cracked and boiled to extract the grease. Most calories came from nutrient-dense meat and fat, while plants were consumed for their beneficial vitamins and minerals (plants are less calorie dense).

Then the large fauna started to die off. They died off due to a double-blow of a changing climate and increasing human predation. Scientists debate about which was the primary cause, but it’s pretty clear that whenever humans showed up in a pristine environment, the large animals went extinct shortly thereafter. Many of these animals had survived previous climatic changes, so it’s doubtful that climate change alone was responsible. Skeletons riddled with spear points provide more damning evidence for our species.

In response, we launched a broad spectrum revolution – using our omnivorous diet to exploit a wider variety of foodstuffs, particularly plant foods. This began with acorns and pistachios, but soon moved to grass seeds, sedges and pulses. Meanwhile, the prey animals got smaller and smaller, from reindeer and bison, to gazelles and fallow deer, to hares and waterfowl. Instead of the nutritious and diverse food sources of their ancestors, we became more and more dependent upon eating pulverized grass seeds, obtained at the cost of backbreaking labor for harvesting, threshing and grinding.

The human population became mostly vegetarian by necessity, and remained so for roughly the next 8,000 or so years. The problem is, a vegetarian diet doesn’t provide a lot of necessary vitamins, minerals and nutrients for optimal health. Today’s vegetarians can choose from a plethora of foods year round that simply weren’t available to ancient people. They don’t have to worry about what is in season and have the entire world as their larder. In the past, however, the vast majority of people ended up subsisting on a diet of weak beer and gruel. Regular meat consumption became a privilege restricted to the wealthy upper classes, while everyone else went begging. Hunting, an activity once done by all humans everywhere since time immemorial, became the exclusive provenance of kings and princes – society’s rulers. While it is true that too much meat can be detrimental to health, too little is perhaps even more damaging. Humans are meat-eaters, and a certain level of fat and protein is required for optimal health. The protein in grains and legumes is incomplete (the body needs 22 different types of amino acids to function properly; adults can synthesize 13 of those internally, but the other 9 must be obtained from food), and there are no fats (the human brain is over 60 percent fat). Grains produce an over-abundance of omega-6 fatty acids, poisonous lectins to prevent their consumption, have low nutrient density, and high acidity. They are actually a terrible thing to base a primate diet around. But we had no other choice, thanks to intensification.

And this is dramatically reflected by the skeletons of ancient peoples, who show major signs of malnutrition, disease, and stunted growth. At the same time, arthritis and other signs of wear and tear make their appearance on the bones of people who now have to spend hours a day grinding grain in a saddle quern rather than fishing and chasing after wild animals. This gruel also breaks down into simple sugars in the mouth during digestion, meaning that cavities and premature tooth decay became endemic as well.

As population pressure grew, grains, pulses and sedges, once “unpalatable” dietary supplements cultivated by hunter-gatherers for times of extreme scarcity or fermentation into medicinal beverages, became the chief dietary staple for most people. At the same time, humans found themselves preyed upon by a new class of predator: their own kind, which continues unabated to this day.

In order to keep large herbivores from going totally extinct, we embarked upon what Harris called “the greatest conservation project in history”: animal domestication. Meanwhile, cheap carbohydrates from grain are what kept most of the human population alive from day-to-day for thousands of years, such that “bread” is synonymous in all ancient cultures with “food.”

All this came from attempting to exploit resources more intensively from our environment in the face of increasing population pressure.

This sad tale, memorably spun by Jared Diamond some years ago, reflects Harris’ principle: intensification inevitably leads to benefits for the few; misery and oppression for the many.

During periods of deintensifcation, we actually recovered some of the losses. This was due to either 1.) a reduced population or 2.) new lands and resources opened up for exploitation. For example, signs of health improve after the Black Death in Europe for the survivors, due to the reduced population pressure. There were more resources to go around per head. Also, the opening up of the new lands due to colonization (and the dieoff of the native peoples), brought vast new areas of virgin land under cultivation. This led to more wealth, as well as political freedoms. Serfdom waned after the black death, and the American Revolution put Enlightenment principles of representative democracy and justice into practice. Perhaps the most dramatic result came from the harnessing of millions of years of stored sunlight in fossil fuels, combined with the scientific method. This allowed many more people a higher standard of living, even in the face of increasing population and intensifying resource use. It was during this period that “economics” became the guiding principle of our civilization, and it chalked up all benefits to “institutions”–typically capitalist market institutions–rather than a temporary superabundance of energy and resources.

Thomas Jefferson once noted that the Americans in the room were all a head taller than their European counterparts. That’s what happens when you have plenty for everybody. The first Europeans in North America also noted how much taller the Native Americans were. As this article notes, in the past, Americans ate more meat than today, and were healthier as well:

How Americans Used to Eat (The Atlantic)

Eventually, the Malthusian cycle kicked in again. Population grew, the empty spaces filled up, and the frontier was closed. Increasing competition caused wages and purchasing power to drop. People gradually lost what self-sufficiency they had, allowing the elites to consolidate power. People once again began working longer, harder, for less. Sound familiar?

We intensified again – in order to keep up with the demand for meat, we crowded animals together into feedlots in unsanitary conditions and fed them cheap corn (maize), which they are not adapted to eat. To cope with the inevitable sickness which resulted, we pumped the animals full of antibiotics (which has a side effect of increasing growth). It is these miserable and tortured animals which most of us are forced to eat now, thanks to intensification.

However, domesticated meat is less nutritious than the wild variety. The Omega-3/Omega-6 profile is altered, and there are less antioxidants. Omega-6 fatty acids reduce inflammation, which is increasingly being pinpointed as the root cause of just about every disease you care to name, from autoimmune diseases, to Alzheimer’s, to arthritis, to chronic pain, depression, and cancer. At the same time, it’s been shown that grains actually increase inflammation, and are implicated in a host of metabolic diseases:

This Is Your Brain on Gluten (The Atlantic)

While grass-fed, hormone-free beef is still available, it costs more, meaning it is restricted to those with high incomes, just like in the past. And hunting is still primarily an elite sport for the rich in many places (especially outside North America). Just like in the past, the poor people trapped in “food deserts” feed themselves with cheap carbohydrates, now in the form of processed corn and sugar products made by the industrial food system, while the wealthy can purchase boutique ‘lifestyle” products at Whole Paycheck Foods. Malnutrition now takes the form of obesity as well as starvation, although much of the non-industrialized world still deals with empty bellies, stunted growth and vitamin deficiencies, including many of those who produce export crops for the West. That’s on top of poverty and pollution.

When we scraped the oceans clean of fish and poisoned our air and waterways due to industrial pollutants (e.g. mercury ash is a side effect of coal power generation) we turned to fish farming, (aquaculture) – one of the favorite high-tech “innovations” of the futurist crowd. But farmed fish are nutritionally inferior to wild ones. Wild fish travel widely and get their food from a great variety of sources. This means that they have a much better Omega-3 fatty acid profile (which prevents inflammation and helps brain growth). But farmed fish have to be fed. This means their diet is far more restricted, and hence their meat less nutritious (more Omega-6’s). In fact, salmon needs to be fed a pill in order to turn them pink so that consumers will buy them since their meat does not develop its natural color from their diet. As Spencer Wells notes in Pandora’s Seed, were now doing for fish what we did for ungulates some 8000 years ago: a desperate attempt to preserve what remains. Farmed fish is replacing wild fish in supermarkets. As with grass-fed meat, the wild variety is now sold at a premium affordable only to those with high incomes (sound familiar)?

In each and every case, intensification had led to far more work for ultimately inferior products. This is always the result of intensification in the long run.

We are constantly told we can’t go back to hunting and gathering (even if we wanted to). Why is that? What’s left unsaid is the reason: too many people and too much environmental degradation as the result of 6-8,000 years of intensification, which also brought about disease, governments, wars, taxes, poverty, inequality, and so on. Now we’re told we’ve got to eat less meat (which means more grains), live in small, tightly sealed houses, use less water, take shorter showers, and so forth. In essence, that we will “innovate” our way to success. But all of these are signs of lower living standards. And no wonder: seven billion-plus people, all quarters of the earth occupied and brought under the plow, rain forests being chopped down, the most easily accessible fossil fuels plateauing, toxic pollution of the air, land and water, overpumping of ground water, and the stable climate of the Holocene threatened by carbon levels. Intensification caused all of these things; it is not the solution. The next phase of intensification isn’t going to lead to better living standards any more than the last few rounds. Yet we’ve been tricked into thinking it will, because we don’t realize that fossil fuels are what are ultimately responsible for our current living standards (us Westerners, that is), not intensification. And even then, given the levels of stress, overwork, social dysfunction, health maladies and mental disease in industrialized societies, we might be tempted to wonder if even our living standards are all that great to begin with.

Furthermore, we are told that a healthy diet centered around pastured meat, plants and nuts is just not possible because it’s too damaging to the environment, or too “expensive.” That is, “we” need to “feed the world!” But according to the elites (the ones who benefit from intensification, remember) the answer isn’t less people, or curtailing economic growth. No, instead it’s new “innovations” that are profitable to the parasitical corporate owners of this planet: lab-grown meat, hydroponics, vertical gardens, meal-replacement shakes, protein powder from ground-up crickets, steel-and-glass human anthills. “The futurology future is starting to look worse than the collapse future.” Maybe that’s because the collapse future has more room to grow actual real food, live in a house you built yourself with your friends and family, spend time in nature, work less, play more, and get in touch with what we really are, deep down, instead of what industrial society wants to mold us to be.

Now, for the record, I have no problem with eating bugs. The Permaculturist in me says we should exploit all sources for sustenance in our environment such that they work together in a sustainable, harmonious way in line with the earth’s natural ecosystems. Raising insects, as we now do with bees, makes sense. And, yes, the overconsumption of Americans is grotesque and makes us unhappy, and we’d be better off ditching it (which I already do voluntarily). So to be clear: what I am criticizing is not eating insects or deriving milk from cockroaches per se. Nor am I defending the overconsumption produced by status-driven consumer capitalism. Rather, I am critiquing the idea that these futurology trends are signs of progress rather than collapse. Which is why r/collpase and r/futurology increasingly appear to be turning into the same thing.

P.S This comment nails it.

Karl Polanyi and the Modern World – Part 5

It’s a truism that materials and resources are not scattered uniformly about the earth’s surface. Due to the geological formation of the earth, resources are scattered widely in geographical space. Some places have petroleum, others not; some places have ores, others not; some places have gemstones, others not; some places have quarrying stone, others not; some timber and some not; and so forth.

Similarly, geographical features vary widely. Different places have different climates, soil types, rainfall, native plants and animals, prevailing winds, and so forth. This means that certain crops can only grow in certain locations (wine grapes, for example). Even within small societies, a coastal village will trade products with a forest village which has different resources (one has twine for fishing nets and wood for boats, the other fish, shellfish, and pearls, for example).

Similarly, there exists a division of labor between people. Potters, builders, and metalworkers are just a few examples of people who specialize in one task in complex societies. As society learns to do more, people need to specialize. This means that some sort of exchange must take place, although as we saw previously, that typically took the form of reciprocity, redistribution and householding, rather than buying and selling in “free and open” markets.

We earlier cited Çatalhöyük as an example. Built near a volcano, it was a source of rare and valuable obsidian. It was also the convergence of several different cultures and trade routes. Thus, a proto-city, with a sedentary population, was formed, one of the earliest such places that we know of. Michael Hudson claims that early cities formed in locations where disparate groups came together to conduct trade. Because such places were likely to have permanent occupation, it’s possible that this was the impetus to cultivate and store crops to feed people year round – Catalhoyuk was one of the earliest areas of grain cultivation. Thus, Jane Jacobs’ ideas about intensive agriculture developing as a way to feed cities may not be so far-fetched after all.

Catal Huyuk, located near rivers in a flat, game-filled plain, was an ideal trading site for the obsidian. In “The Time Falling Bodies Take To Light”, W.I. Thompson likens the obsidian to “a dark, cthonic milk which flowed out of the breast of the volcano, Hasan Dag,” and suggests that “Even as far back as the neolithic, religion was good for business…. The relationship between neolithic religion and economics may have been as intimate as the more familiar ‘Protestant Ethic and the Spirit of Capitalism,” Thus, Catal Huyuk was perhaps built on religion and obsidian, and very probably on the “Religion of Obsidian.”

Jericho, which began as a village in about 9,000 B.C.. is also sometimes called the first city. A thousand years before people set foot in Catal HUyak, Jericho was surrounded by walls ten feet thick and fifteen feet tall. But neolithic Jericho at its biggest was substantially less than half the size of Catal Huyuk, and it was clearly only an armed trading post and village, a secular place very different from the unwalled Temple City of Catal Huyuk. Jericho and Catal Huyuk seem to have formed the two ends of a trading network that made possible the spread of agriculture, pottery, durable buildings, and metallurgy (and possibly philosophy, religion. and the crude beginnings of writing, mathematics, and astronomy) throughout the Mediterranean basin, and eventually into Mesopotamia to the east.

The key driver of the expansion of international trade appears to have been the discovery of bronze, which is why the Bronze Age sees the formation of the earliest vast, complex trade routes:

…it was the introduction of metal and the development of metallurgical science that more than anything else made trade essential. The smith had no time for anything outside his own profession, and he was manufacturing things which other people could not make but everybody needed; exchange therefore was a mutual necessity. But the smith’s raw material was seldom to be found close at hand; he had to rely upon large-scale imports, which again had to be paid for, and that meant organization of a far-reaching sort; the retail trade with his neighbors at home was easy enough, but the importation of ore or crude metal from abroad was a business with which he could not cope himself. [1]

All this is to say that trade has been going on since time immemorial. Sometimes that trade has been organized into markets, where large numbers of people come together to buy and to sell. This is not in dispute.

But a common misunderstanding of Polanyi’s ideas is a misunderstanding of what he means by Market*. He does not mean the above, he means the internal self-regulating market as the sole organizing principle of society. Based on his studies of anthropology and history, it was clear to him that this was not a “natural” development emerging out of earlier markets, but something entirely new and different which had to be imposed from above by the power of organized elites. In order to do this, the previous social order had to be broken down and swept away. This could only be accomplished by state violence, direct and indirect.

Also, Polanyi does not argue that people never, ever acted for the rationale of gain, or that they never calculated profit and loss. Rather, only that these were not the primary motivations of most people prior to the early modern period in Western Europe. Where you lived and what you did for a living were not just arbitrary things subject to the impersonal market forces beyond your control; they were determined by ancestry, tribe, nation, guild, custom, tradition, and so forth. Until relatively late in the modern era, economic subsistence rather than pecuniary gain; in his words, “habitation versus improvement,” was the driving force behind economic activity, as Mark Blyth describes:

Until relatively recently then, the economy was not a separate sphere of activity governed by laws of supply and demand. Rather, market forces were “embedded” in a series of social relationships that facilitated subsistence. Reciprocity, householding, and redistribution existed alongside exchange undertaken for gain; and in such an Aristotelian world, trade and profit were the exception rather than the rule. [2]

Embeddedness is a crucial concept for Polanyi and something often difficult to comprehend in our modern market-dominated world. According to Wikipedia“Embeddedness refers to the degree to which economic activity is constrained by non-economic institutions…in non-market societies there are no pure economic institutions to which formal economic models can be applied. In these cases economic activities such as “provisioning” are “embedded” in non-economic kinship, religious and political institutions. In market societies, in contrast, economic activities have been rationalized, and economic action is “disembedded” from society and able to follow its own distinctive logic, captured in economic modeling.”

Alienability is another important concept. In traditional cultures, land, labor and even certain goods were intimately bound up with the people who made them, essentially forever. The Crown Jewels are often used as an example. They are part of the very existence of England; they cannot simply be sold off to a willing buyer. They are not for sale at any price, and even if they were sold, they would always be associated with England no matter who happened to own them. In the past many items were like this–they retained intimate connections to their owners and makers, even after exchange (such as in the Kula Ring). Certainly land was associated with the people who had lived on it for generations, for example (which is why to the Native Americans “selling” land made no conceptual sense to them).

A market society, by contrast, requires everything to be alienable. If I buy a house or a car from you, you have no claim on, nor connection to those things from this point forward. The same can be said for the work you do every day – it is just something to be bought and sold. This is what Marx meant by the “alienation” of labor as one of the defining features of capitalism. The framers of the U.S. Constitution argued that certain rights were inablienable – they cannot be bought and sold at any price but are simply a part of being a human being. Libertarians disagree; to them, everything should be alienable. Many of them argue that you should be able to sell yourself into slavery, for example.

Polanyi additionally distinguishes between two different modes of social relationship: status and contractus. Status is a way of relating to people based upon your relative social position. Contractus is relating to people through some sort of formal legal agreement. Both often co-existed in the past, but the prior one was primary mode for most of human existence.

Those are some of the crucial differences between societies with markets and a market society. In one markets are run as an adjunct to society, in the other, the whole society is run as an adjunct to what Polanyi called the “One Big Market.” This second definition of market necessitated the demolition of all social institutions that had hitherto served as the foundations of society, and this was brought about deliberately by the state power. It was anything but a “natural” outgrowth of previously established markets and trading.

Another common mistake is to see prices and wages in past historical eras and assume that this meant that such societies were also market societies and that markets were central to how they operated. Hence, the thinking goes, the modern world is simply a change of degree, not kind, and people in the past lived much the way we do today; buying and selling for profit and working for wages. This, too, is misunderstanding of Polanyi’s thesis. Mark Blyth responds to criticism of Polanyi by two prominent free-market economists:

…is evidence of prices evidence of either gainseeking, or indeed, of a market society? A thought experiment problematizes this evidence. Imagine that the USA and the USSR had a nuclear exchange and both civilizations were destroyed. Now, 1000 years later, archeologists dig down and find a supermarket. In the supermarket there are thousands of tins and boxes with prices on them. Clearly this shows that markets existed. Or does it? For if this was a Soviet supermarket (yes, they did exist) then does the existence of prices prove that the USSR was a market society? Does it demonstrate that Soviet individuals engaged in gain seeking? Prices are simply signals, and like all signals they are ambiguous at best and do not telegraph how an economy is constructed.

But what of evidence concerning motives? After all… Mayan Obsidian manufacturers exhibited cost sensitivity; Seventeenth century husbanders wrote allegorical verse about financial prudence; and even Roman intellectuals opined that buying a house was a risky proposition. But once again, what does this show us, or rather, what does it allow us to claim? For Obsidian workers, scarcity is an issue. Hence if Obsidian is scarce, price goes up. Price is a rationing device. Yet does this make Mayan society capitalist? Similarly, profit and loss aphorisms…in the seventeenth century are indeed evidence of cost-benefit thinking. Yet such statements are replete throughout the Bible, for example; so are we to conclude that King David et al., were the antecedents of Adam Smith? Likewise, it appears that Cicero was worried about negative equity in his new home. Does this make the Roman Empire was a capitalist market economy? Indeed, what is the point of making such a claim? Hejeebu and McCloskey seem to be saying that if prices and notions of gain have always been around, then QED, markets have always been around; and if markets have always been around, then there cannot have been a great transformation. But this runs into two rather obvious objections.

First of all, regardless of when its dated, the proposition that there was a fundamental transformation in the way the world economy was organized in the nineteenth century is relatively uncontestable. And Polanyi tells us how: the rise of One Big Market where everything is for sale since – the commodification of all factors. This was a qualitatively new development. If this was not, then we have really misunderstood a lot of history. For example, were slavery and feudalism vastly overblown or otherwise restricted to small segments of the population? Were they aberrations of otherwise functioning capitalist labor markets? [Slaves] had prices to be sure, but it is perhaps better to think of a slave society as one of domination than one of capitalism. What Polanyi was suggested was that it is not the presence of markets in goods that matters, but the presence of relatively complete markets in factors that make a market society. All of Obsidian manufacture and Roman house trading in history is simply different in kind.

While gain seeking has indeed existed throughout history, …the historical oddity was that gain-seeking became equated with market transactions only relatively recently. This was a qualitative and not a quantitative change; otherwise Incas, Mayans, Romans, and contemporary Britons were/are all living is societies that were more or less similar in their economic structure, despite the differences in, for example, the presence of slaves. Painting the history of all hitherto existing societies as the history of capitalism in vitro probably obscures more economic history than it illuminates…[3]

This comment gives additional information on what Polanyi meant by markets and embeddedness:

Actually, [Polanyi] does not say that markets are unusual. In fact he says that they are almost universal, just that they were never so important before. They were not socially integrative. If you were to remove them from a given society, it would not fundamentally change it.

In The Economy As An Instituted Process, he identifies three types of exchange: Operational exchange (which is movement in location through trade); Decisional exchange (which is exchange at a fixed price like a local market); and, Integrative exchange (at a bargained rate – in other words what we today call markets). He also draws the distinction between ritualised market bargaining in which participants really know the final price that will be agreed, and actual price-making markets (like a stock exchange).

The important thing is that the other forms or market at not integrative. The prices are fixed by other factors, and those other factors integrate society. And even price-making markets are only integrative if they link up in a system that tends to spread the effects of prices to other markets.

So it is important to understand what he means by markets. He is not concerned with markets that merely facilitate the movement of goods from one place to another. This is very common throughout history, and not what he is concerned about.

He is also arguing that the focus of economics (and psychology) on the individual is wrong, and that to understand economics we need to understand not individual actions themselves, but what motivates them. This is the important thing. And the sources for that action are not individual, but derived from social structure. You cannot share on your own. And you cannot trade on your own. He is not saying that premodern people were all delightful and that modern people are all selfish etc. He is just saying that motivations for action are socially derived, and that the claim that homo economicus is ‘natural’ is clearly disproved by the historical evidence in which communistic action is more common than individualism.

Polanyi on the market (Understanding Society)

Polanyi distinguishes between three different kinds of trade:

  • External (a.k.a export or long-distance) Trade
  • Local Trade
  • Internal (or national) Trade.

The first two he describes as essentially noncompetitive. They were not about maximizing profits or competition, rather they were simply procuring goods which were not available locally, either due to geography or economic specialization (as described above). We’ve already seen them at work a far back as ancient Mesopotamia/Egypt. However, he points that all of these existed external to the societies in which they operated. That is, they did not effect the underlying social relations.

Long-distance trade was primarily conducted in places where traders came together to conduct business, usually on seaports and waterways, or where overland routes converged (as with the Silk Road). Medieval Champagne fairs are one example of this. But strict protections were put in place to prevent this type of trading from affecting the underlying society. This took the form of designating specific trading times and places and enforcing strict rules on commercial behavior. The commercial sphere was kept separate and distinct from the governing sphere. Markets did not affect fundamental social relations. This can be seen, for example, by the many sumptuary laws put in place, which lasted through Elizabethan times.

In fact, early cities seem to have been expressly designed to keep trading at arm’s length, as Sir Leonard Wooley describes of ancient Mesopotamia (emphaisis mine):

Outside of the eastern rampart of the walled native town of Ganeš there stretched a built-up area of rather more than a kilometer’s length which was for the exclusive use of the merchants of Assur. Clearly they were not allowed to live inside the town but were isolated and kept at arm’s length–probably as much by their own wish as by the prejudice of the Anatolians; the Karum, as their quarter was called, might be compared with the ‘factory’ established by the old East India Company outside Calcutta, or…with the town of Naukratis which the Egyptian government assigned to the Greek traders of the seventh century BC…Their main business was the export of copper and as the tablets found in their archives prove they had by their strict application to the business brought their commercial technique, also the legal practices arising from their profession, to a stage even more advanced than that of their colleagues at home.

Kultepe is not the only Anatolian site where a Mesopotamian trading outpost has been discovered; there was one at Bogazköy, and there were probably others conforming more or less to the same pattern. For the pattern has its analogies elsewhere. At Ur itself there was a karum lying outside the walls of the city, and as appears from one of the phrases used, administratively distinct from it; merchants were members of the karum, they settled their accounts there, they could keep their business assets there and if they managed their assets from there they did so as members of the merchants’ guild. It was not a residential area as the Ganeš karum was forced by local conditions to be, but more like what the Royal Exchange was for eighteenth-century London, and a member of it was supposed to act ‘like a gentleman’–mâr awēlim–that is, to observe certain ethical and social standards of conduct; all agreements were made and contracts lodged in the local temple of Shamash the Sun god, so that religious sanction re-enforced the moral code.[4]

Which reinforces Polanyi’s claim that cities and ports were designed as much to protect societies from trade as to encourage it. Japan’s confinement of foreign trade to specific ports during the Sakoku period is another prominent example.

Local trade was the exchange of surplus commodities that took place among specialized producers in shops and market halls on specific days and times. This is the fabled “farmer’s market” of the fair, souk and bazaar. What took place there, however, didn’t much affect your day-to-day life (unless you were a trader, that is). The average person did not need to interact with the market to survive. That is, markets were established to cater to wants, rather than needs. So rather than trade starting out between local villagers and expanding from there to grow into world trade, long-distance trade was primary and slowly seeped down into the daily life of the average person as trade expanded. That is, the history of markets is trickle-down, not percolate-up.

…from the economic point of view external markets are an entirely different matter from either local markets or internal markets. They differ not only in size; they are institutions of different function and origin…

External trade is carrying; the point is the absence of some types of goods in the region; the exchange of English woollens against Portuguese wine was an instance…

Local trade is limited to the goods of the region, which do not bear carrying because they are too heavy, bulky, or perishable.

Thus both external trade and local trade are relative to geographical distance, the one being confined to the goods which cannot overcome it, the other to such only as can. Trade of this type is rightly described as complementary. Local exchange between town and countryside, foreign trade between different climatic zones are based on this principle. Such trade need not involve competition, and if competition would tend to disorganize trade, there is no contradiction in eliminating it…

It might seem natural to assume that, given individual acts of barter, these would in the course of time lead to the development of local markets, and that such markets, once in existence, would just as naturally lead to the establishment of internal or national markets. However, neither the one nor the other is the case. Individual acts of barter or exchange…do not, as a rule, lead to the establishment of markets in societies where other principles of economic behavior prevail. Such acts are common in almost all types of primitive society, but they are considered as incidental since they do not provide for the necessaries of life.

Indeed, on the evidence available it would be rash to assert that local markets ever developed from individual acts of barter…Obscure as the beginnings of local markets are, this much can be asserted: that from the start this institution was surrounded by a number of safeguards designed to protect the prevailing economic organization of society from interference on the part of market practices...Towns, insofar as they sprang from markets, were not only the protectors of those markets, but also the means of preventing them from expanding into the countryside and thus encroaching on the prevailing economic organization of society.

In other words, both these types of trade existed for thousands of years without sacrificing all of society to the Market god. They are not the source of the “Market” as described by economists today. Governments commonly enforced a “wall of separation” between external trade and internal markets. For example, the following description of the port of Whydah on the Guinea coast illustrates the role of markets in a traditional society:

At Whydah, the isolation of places of trade from market place is the basis for the administrative divisions of the town. Each of the European forts, with its surrounding native settlement, constitutes a separate town under administration…All of these separate quarters have their own governors, under the jurisdiction of the Viceroy of Whydah. While the governors of European towns are usually of their respective European nationality, the caboceer of the Market Town is a native official [compare to Mesopotamia, above- CH]

These administrative divisions facilitate the regulation of trade. Access to trade at the European forts is permitted only to those natives authorized to trade. Since exports must be licensed, and an export duty paid by the seller, the royal officials who ‘exercise the refusal of all commerce;’ have the means to control dealings between natives and Europeans. Any indiscriminate traffic with the Europeans..brought immediate reprisal…that is, the cutting off of trade with the fort in question.

This physical separation of trade and market emphasizes the difference in function. Trade in stocks the palace, the army, and the houses of the great. The market caters to the common wants of the population. The great ones of the lands have no needs to resort to the market place for their provisions. Their tables are supplied from their own plantations, and their cloth and military stores from the warehouses of the Europeans in return for slaves.

The market is for common folk and, in the port of trade, also for the foreigner. It is the “working man” taking his breakfast and dinner “in the alley,” or the women selling in the market place, who have need of the piece of firewood or the two-cowrie mouthful of cooked meat. The resident native population of Whydah, belonging to one or the other European forts and subject to labor service for their masters, are “hired out” in menial capacities to the traders and receive “subsistence,” partly in kind and partly in cowries, with which they can feed themselves in the market.

There is also the large floating population of a port town to be supplied with food and neceassaries [sic], men with no hearth or kin to care for them in Whydah; canoemen and carriers from other points on the coast, temporarily beached in Whydah; fishermen from the rivers and lagoons; and, after Britain’s abolition of the slave trade, the liberated slaves dumped in Sierra Leone and finding their way back by stages to their native countries.[5]

We can envisage a similar scene, then, in trading ports in various times and places, from the Mesopotamian entrepôt of Dilmun, to the Roman port of Ostia, to the medieval quays of Antwerp, London, and Genoa. None of these indicated the presence of a market society in the modern sense, however.

Internal markets, however, are a totally different story. These did not “grow out of” the previous two types of markets. It is here where we have multiple sellers and buyers competing against one another for profit. This was not a “natural” outgrowth of either local or long-distance trade. Rather, this was a creation of the state from the very beginning:

These three types of trade which differ sharply in their economic function are also distinct in their origin…even where the towns were founded on the sites of external markets, the local markets often remained separate in respect not only to function but also to organization. Neither the port nor the fair nor the staple was the parent of internal or national markets.

In contrast to both external and local trade, internal trade…is essentially competitive; apart from complementary exchanges it includes a very much larger number of exchanges in which similar goods from different sources are offered in competition with one another. Accordingly, only with the emergence of internal or national trade does competition tend to be accepted as a general principle of trading.

The typical local market on which housewives depend for some of their needs, and growers of grain or vegetables as well as local craftsmen offer their wares for sale…are not only fairly general in primitive societies, but remain almost unchanged right up to the middle of the eighteenth century in the most advanced countries of Western Europe…they nowhere show any sign of reducing the prevailing economic system to their pattern. They are not starting points of internal or national trade…neither long-distance trade nor local trade was the parent of the internal trade of modern times—thus apparently leaving no alternative but to turn for an explanation to the deus ex machina of state intervention…

Internal trade in Western Europe was actually created by the intervention of the state. Right up to the time of the Commercial Revolution what may appear to us as national trade was not national, but municipal…Trade was limited to organized townships which carried it on either locally, as neighborhood trade, or as long-distance trade—the two were strictly separated, and neither was allowed to infiltrate into the countryside indiscriminately…An increasingly strict separation of local trade from export trade was the reaction of urban life to the threat of mobile capital to disintegrate the institutions of the town.

In practice this meant that the towns raised every possible obstacle to the formation of that national or internal market for which the capitalist wholesaler was pressing. By maintaining the principle of a noncompetitive local trade and an equally noncompetitive long-distance trade carried on from town to town, the burgesses hampered by all means at their disposal the inclusion of the countryside into the compass of trade and the opening up of indiscriminate trade between the towns of the country. It was this development which forced the territorial state to the fore as the instrument of the “nationalization” of the market and the creator of internal commerce. Deliberate action of the state in the fifteenth and sixteenth centuries foisted the mercantile system on the fiercely protectionist towns and principalities…

Fundamental to this change was the “great transformation” of land, labor and capital into commodities.

For Polanyi, commodities are things produced expressly to buy, sell, or trade. Land and labor are decidedly not commodities– they are the very foundations of human life itself. Transforming them into chattel to be sold in markets was profoundly unnatural, despite its normalization in our world. Similarly, there is nothing “natural” about capital; it is entirely a creation of state finance, and was brought about by specific decisions and institutional arrangements. For this reason, Polanyi calls these things “fictitious commodities:”

Production is  interaction  of man  and nature;  if this  process  is to be  organized through  a  self-regulating mechanism  of barter  and  exchange, then man and nature must be brought into its orbit; they must  be  subject to supply and demand, that is, be dealt with as commodities, as goods produced for sale.

Such  precisely was the  arrangement under  a market system.  Man under the name of labor, nature under the name  of land, were made available for sale; the use of labor power  could be  universally bought  and sold at a price called wages, and the use of land could be negotiated  for a price  called rent. There was a market in labor as well as in land, and supply and demand in either was regulated by the height of wages  and rents, respectively; the fiction that labor and land were produced  for sale was consistently upheld. Capital invested in the various combinations of labor and land could thus flow from  one  branch of production to another, as was required for an automatic leveling of earnings in the various branches.

But, while production could theoretically be organized in this way, the commodity fiction disregarded the fact that leaving the fate of soil and people to the market would be tantamount to  annihilating them.

Polanyi goes deep into the history and sees that it was a rewriting of society’s rules, primarily to benefit the elites, was the source of the change, not some “natural’ evolutionary process. Concerning land, for example, Polanyi declares:

What we call land is an element of nature inextricably interwoven with man’s institutions. To isolate it and form a market for it was  perhaps the weirdest of all the  undertakings of our ancestors. Traditionally, land and labor are not separated; labor forms part of life, land  remains  part  of nature, life  and  nature  form  an  articulate whole. Land is thus tied up with the organizations of kinship, neighborhood, craft, and creed—with tribe and temple, village, guild, and church.

Economic historian Douglass North describes how land in the Middle Ages was not owned outright, but subject to the needs of a variety of overlapping stakeholders:

Feudal law did not recognize the concept of land ownership. It basic characteristic was that several persons had jurisdiction or held and shared particular rights to the same piece of land. The [kings, the lords and the peasants] each held particular rights to receive income, called incidents, from the land.

There existed two ways to transfer land, by substitution, or by subinfeudation. The former required that the land be surrendered to the lord who would in turn grant the land to another, and the second, that the tenant in turn grant the land to another, the tenant becoming the lord of the person to whom he conveyed the land. The incidents or obligations of the land remained in either case. Sub-infeudation, however, added another tenant to the feudal chain. The lord, in the event of a dispute, could move only against his tenant and not his tenant’s tenant. Should his tenant disappear, the higher lords were apt to lose their incidents since they had no legal recourse against the person actually in possession of the land.

The rising real value of land provided incentives to establish, re-establish and define the claims to land by rival groups in the society. Two key statutes in this regard were: Merton in 1235 and Westminster in 1285. These permitted the manorial lord to enclose wasteland so long as sufficient land was left to the tenants. Thus the lords obtained the exclusive right to substantial areas of the manor’s land formerly belonging to all of the inhabitants.

It is revealing to inquire how the freeholders in England acquired the right to alienate their lands in sum, obtaining a property right approaching fee-simple ownership. The Norman conquest had resulted in a stronger central government in England than existed in the rest of the feudal world. The centralized authority of the king’s court in England had no exact parallel on the continent. During the thirteenth century the King’s Court gradually expanded its jurisdiction relative the the seigneurial courts. One of the key precedents that emerged from this struggle was the recognition that the King’s Court held jurisdiction over free men. A freeman came to be defined as a man whose obligations were strictly defined. As the manorial lords lost jurisdiction over the freeman, they also lost control over his land holdings. [6]

Thus we see once again that is was a strong government, not a weak one, which was required to bring about the state project of capitalism.

Labor, too, became a commodity to be bought and sold, rather than something done for its own sake. This was partly accomplished by the destruction of the guild system, which had put in place very strict safeguards as to both internal and foreign competition, quality control, and best practices. Rather than work on your own behalf, work would be done by contract:

Of the three, one stands out: labor is the technical term used for human beings, insofar as they are not employers but employed; it follows that henceforth the organization of labor would change concurrently with the organization of the market system. But as the organization of labor is only another word for the forms of life of the common people, this means that the development of the market system would be accompanied by a change in the organization of society itself. All along the line, human  society had become an accessory of the economic system.

To  separate  labor from other activities of life and to subject it to the laws of the market was to annihilate all organic forms of existence and to replace them by a different type of organization, an atomistic and individualistic one. Such a scheme of destruction was best served by the application of the principle of freedom  of contract. In  practice  this  meant  that the noncontractual organizations of kinship, neighborhood, profession, and creed were to be liquidated since they claimed the allegiance of the individual and thus restrained his freedom. To represent this principle as one of noninterference, as economic liberals were wont to do, was merely the expression of an ingrained prejudice in favor of a definite kind of interference, namely, such as would  destroy noncontractual relations between  individuals and prevent their spontaneous  reformation.

Lewis Mumford describes the medieval guild system and what replaced it:

The prime agents of this industrial freedom were the craft guilds: independent self-governing bodies, established typically in equally self-governing cities, which provided for the education, the discipline, and the sustenance of their members, from youth to old age, in sickness and health, and cared for the widows and orphans of their brothers in need. Not least, the guilds set for themselves standards of qualitative performance: quantity production, as such, did not play a part except where the guild system itself had broken down.

Even before the mechanization of production, some of this freedom had been whittled away by the mercantile practices that favored the bigger masters in the wholesale trades, who formed a ruling oligarchy and who, after the sixteenth century, farmed out work to unprotected handicraft workers in the rural or even suburban areas outside the jurisdiction of the guild. The legal abolition of the guilds, which followed, opened the way for the dehumanized practices of early machine industry. Thus the new freedom proclaimed by the advocates of ‘laissez-faire,’ like Adam Smith, was freedom to abandon the medieval system of guild protection and social security and to be exploited by those who owned the costly new machinery of production.

By a mental sleight of hand, this accompaniment of mechanical progress was minimized by those committed to the system: in proclaiming the immense economies of mass production, they ignored the fact that the landless and the homeless proletarians, forced into the new factories by the price-undercutting of handicraft labor were worse off, in food, sanitary facilities, water supply, and environmental amenities than the agricutural workers of their own time: a fact established by the English life-insurance tables, which show that farm laborers still have a notably higher expectation of life. The factory system degraded the worker into a wage slave instead of using its power machines to abolish slavery.[7]

The Enclosure movement turned both land and labor into commodities to be bought and sold. As common land became enclosed, and with no other means to support themselves, the deracinated laborers had no other choice but to sell their labor at a rate (wage) to those willing to buy it in order to procure the necessities of life. That is, they must be compelled to work for others by depriving them of self-sufficiency. This catastrophic process was hardly as “natural” as libertarians claim:

Enclosures have appropriately been called a revolution of the rich against the poor. The lords and nobles were upsetting the social order, breaking down ancient law and custom, sometimes by means of violence, often by pressure and intimidation. They were literally robbing the poor of their share in the common, tearing down the houses which, by the hitherto unbreakable force of custom, the poor had long regarded as theirs and their heirs’. The fabric of society was being disrupted; desolate villages and the ruins of human dwellings testified to the fierceness with which the revolution raged, endangering the defences of the country, wasting its towns, decimating its population, turning its overburdened soil into dust, harassing its people and turning them from decent husbandmen into a mob of beggars and thieves.

Though this happened only in patches, the black spots threatened to melt into a uniform catastrophe. The King and his Council, the Chancellors, and the Bishops were defending the welfare of the community and, indeed, the human and natural substance of society against this scourge. With hardly any intermittence, for a century and a half—from the 1490s, at the latest, to the 1640s they struggled against depopulation…

Polanyi sees the same principle at work during Europe’s colonial expansion. In traditional societies, no individual starves; rather the whole society maintains food reserves and tightens their belts. But to get people to work, there needs to be the whip and the lash of hunger and destitution to get them to sell their labor to the highest available bidder, part of the same carrot-and-stick approach that compels us to work today. To accomplish this, traditional social bonds, which made sure no one went hungry, had to be destroyed. The “starving African” cliche is entirely a creation of  Western colonialism:

This effect of the establishment of a labor market is conspicuously apparent in colonial regions today. The natives are to be forced to make a living by selling their labor. To this end their traditional institutions must be destroyed, and prevented from reforming, since, as a rule, the individual in primitive society is not threatened by starvation unless the community as a whole is in a like predicament. Under the kraal-land system of the Kaffirs, for instance, “destitution is impossible: whosoever needs assistance receives it unquestioningly.” No Kwakiutl “ever ran the least risk of going hungry.” “There is no starvation in societies living on the subsistence margin.” The principle of freedom from want was equally acknowledged in the Indian village community and, we might add, under almost every and any type of social organization up to about the beginning of sixteenth-century Europe, when the modern ideas on the poor put forth by the humanist Vives were argued before the Sorbonne…

It is the absence of the threat of individual starvation which makes primitive society, in a sense, more humane than market economy, and at the same time less economic. Ironically, the white man’s initial contribution to the black man’s world mainly consisted in introducing him to the uses of the scourge of hunger. Thus the colonists may decide to cut the breadfruit trees down in order to create an artificial food scarcity or may impose a hut tax on the native to force him to barter away his labor. In either case the effect is similar to that of Tudor enclosures with their wake of vagrant hordes.

A League of Nations report mentioned with due horror the recent  appearance  of that ominous figure of the sixteenth-century European  scene, the  “masterless  man,” in the African bush. During the late Middle Ages he had been found only in the “interstices” of society.” Yet  he  was the forerunner of the nomadic laborer of the nineteenth century…There  is  close  analogy  between  the  colonial  situation  today  and that of Western Europe a century or two ago. But the mobilization of land which in exotic regions may be compressed into a few years or decades may have taken as many centuries in Western Europe.

Internal markets can only exist in a “market society” where everything is for sale. In such a society, land and labor must no longer be “embedded,” but must be separated. They must alienable from their owners.  This leads to the creation of an “economic” sphere totally separate from the social and political spheres.

A self-regulating market demands nothing less than the institutional separation of society into an economic and a political sphere…True, no society can exist without a system of some kind which ensures order in the production and distribution of goods. But that does not imply the existence of separate economic institutions; normally, the economic order is merely a function of the social order. Neither under tribal nor under feudal nor under mercantile conditions was there, as we saw, a separate economic system in society…Such an institutional pattern could not have functioned unless society was somehow subordinated to its requirements.

A market economy can exist only in a market society…A market economy must comprise all elements of industry, including labor, land, and money…But labor and land are no other than the human beings themselves of which every society consists and the natural surroundings in which it exists. To include them in the market mechanism means to subordinate the substance of society itself to the laws of the market.

The crucial point is this: labor, land, and money are essential elements of industry; they also must be organized in markets; in fact, these markets form an absolutely vital part of the economic system…The extension of the market mechanism to the elements of industry labor, land, and money— was the inevitable consequence of the introduction of the factory system in a commercial society. The elements of industry had to be on sale…But labor, land, and money are obviously not commodities; the postulate that anything that is bought and sold must have been produced for sale is emphatically untrue in regard to them…But the fiction of their being so produced became the organizing principle of society.

What was the reason for this fundamental change? There are many answers, but in Polanyi’s view, the primary cause was the application of machines to the production process. This new production process required the creation of universal markets where land, labor, and capital were the necessary inputs:

We submit that an avalanche of social dislocation, surpassing by far that of the enclosure period, came down upon England; that this catastrophe was the accompaniment of a vast movement of economic improvement; that an entirely new institutional mechanism was starting to act on Western society; that its dangers, which cut to the quick when they first appeared, were never really overcome; and that the history of nineteenth-century civilization consisted largely in attempts to protect society against the ravages of such a mechanism. The Industrial Revolution was merely the beginning of a revolution as extreme and radical as ever inflamed the minds of sectarians, but the new creed was utterly materialistic and believed that all human problems could be resolved given an unlimited amount of material commodities.

The story has been told innumerable times: how the expansion of markets, the presence of coal and iron as well as a humid climate favorable to the cotton industry, the multitude of people dispossessed by the new eighteenth-century enclosures, the existence of free institutions, the invention of the machines, and other causes interacted in such a manner as to bring about the Industrial Revolution. It has been shown conclusively that no one single cause deserves to be lifted out of the chain and set apart as the cause of that sudden and unexpected event.

But how shall this revolution itself be defined? What was its basic characteristic? Was it the rise of the factory towns, the emergence of slums, the long working hours of children, the low wages of certain categories of workers, the rise in the rate of population increase, or the concentration of industries? We submit that all these were merely incidental to one basic change, the establishment of market economy, and that the nature of this institution cannot be fully grasped unless the impact of the machine on a commercial society is realized. We do not intend to assert that the machine caused that which happened, but we insist that once elaborate machines and plant were used for production in a commercial society, the idea of a self-regulating market system was bound to take shape.

As for ‘capital’, this was entirely a creation of the state as we saw last time. Money issued by the state and demanded for the extinguishing of tax liability was the driver of internal markets, rather than government “stealing” from the merchants. Governments do not need the taxes in order to operate, rather they require taxes to facilitate market operations. Government financial operations were used to create the “capital.” on which the merchants depended for their enterprise. Chartered corporations such as the Dutch East India company, were entirely the creations of central governments. The creation of these companies gave rise, in turn, to stock markets. One prominent example is the use of money to commercialize labor in Africa. Here markets, unlike the one described above in Dahomey, were entirely creations of the central state:

In his study of colonial Africa, Forstater similarly concludes that by imposing a debt obligation (taxes) on colonial Africans denominated in foreign currency (British Pounds), the British were able to dismantle the pre-existing economic structure in Africa and to monetize its whole economy and population (2005).  In other words, the British government succeeded in creating a new money of account (British Pounds) in colonial Africa by coercively indebting the population and demanding British Pounds as the only means of payment to extinguish the Africans’ liabilities to the colonial government.  This effectively moved the African labor power to production desired by the British colonizer since the only means to acquire British Pounds were to work at British farms or mines (Forstater, 2005).  British Pounds immediately became the new money used by the colonial Africans.  Hence, levying a tax liability denominated in foreign currency was sufficient (though not necessary) not only to compel the population to use new money but also to move labor power to desirable areas.  Note that in this process the British Pounds must first be spent into the hands of the colonial Africans to allow for any tax payment.

Vincent Huang: On the Nature of Money (Naked Capitalism)

But demolishing society and turning it all into One Big market threatened to tear the very fabric of society apart. To cope with this, societies fought back against the social engineering of market liberals. This took the forms of rebellions and social movements, which raged throughout the nineteenth century and beyond. For Polanyi, these “double moments” were the defining events of the previous 150 years of European and world history (also argued by Eric Hobsbawm):

To allow the market mechanism to be sole director of the fate of human beings and their natural environment indeed, even of the amount and use of purchasing power, would result in the demolition of society…While on the one hand markets spread all over the face of the globe and the amount of goods involved grew to unbelievable dimensions, on the other hand a network of measures and policies was integrated into powerful institutions designed to check the action of the market relative to labor, land, and money…Society protected itself against the perils inherent in a self-regulating market system—this was the one comprehensive feature in the history of the age.

Government’s job had been relegated to merely being a hands-off manager for the markets. But as the common people became subject to near-constant booms and busts, leading to poverty, destitution, and even starvation for large swaths of the population (conveniently exorcised from the official history of capitalism), they demanded the authorities step in and rein in the abuses of the Market, preventing the “pure” market of libertarian dreams from ever coming to fruition. This is what Polanyi calls the “double movement” – the closer authorities try to get to the “pure” market economy, the more society pushes back against it, as Fred Block describes: “In this sense one might say that disembedding the market is similar to stretching a giant elastic band. Efforts to bring about greater autonomy of the market increase the tension level. With further stretching, either the band will snap—representing social disintegration—or the economy will revert to a more embedded position.” [8]

As long as the economy is not totally “pure” that is, not free from government “interference,” libertarians can chalk up any sort of market failure to government intervention, exactly as they do today. To them, any role for government whatsoever becomes an all-purpose “get out of jail free” card: “crony capitalism.” Indeed, most “burdensome regulations” are put in place to deal with market failures, and then libertarians turn around blame the regulations for the failure of markets in the first place! But as Polanyi argues, abolishing the government and leaving it all up to the market is impossible:

Modern economics starts by pretending that these fictitious commodities will behave in the same way as real commodities, but Polanyi insists that this sleight of hand has fatal consequences. It means that economic theorizing is based on a lie, and this lie places human society at risk.

Even though the economy is supposed to be self-regulating, the state must play the ongoing role of adjusting the supply of money and credit to avoid the twin dangers of inflation and deflation. Similarly, the state has to manage shifting demand for employees by providing relief in periods of unemployment, by educating and training future workers, and by seeking to influence migration flows. In the case of land, governments have sought to maintain continuity in food production by a variety of devices that insulate farmers from the pressures of fluctuating harvests and volatile prices. In urban areas governments manage the use of the existing land through both environmental and land-use regulations. In short, the role of managing fictitious commodities places the state inside three of the most important markets; it becomes utterly impossible to sustain market liberalism’s view that the state is “outside” of the economy.

The fictitious commodities explain the impossibility of disembedding the economy. Real market societies need the state to play an active role in managing markets, and that role requires political decision making; it cannot be reduced to some kind of technical or administrative function.” When state policies move in the direction of disembedding through placing greater reliance on market self-regulation, ordinary people are forced to bear higher costs. Workers and their families are made more vulnerable to unemployment, farmers are exposed to greater competition from imports, and both groups are required to get by with reduced entitlements to assistance. It often takes greater state efforts to assure that these groups will bear these increased costs without engaging in disruptive political actions. This is part of what Polanyi means by his claim that “laissez-faire was planned”; it requires statecraft and repression to impose the logic of the market and its attendant risks on ordinary people.

Because societies invariably draw back from the brink of full-scale experimentation with market self-regulation, its theorists can always claim that any failures were not the result of the design but of a lack of political will in its implementation. The creed of market self-regulation thus cannot be discredited by historical experiences; its advocates have an airtight excuse for its failures.

As Michael Hudson has said, “all economies are planned, the only question is who does the planning.”

David Harvey in “A Short History of Neoliberalism,” summarizes the many ways in which government action creates the market, both back then, and now more recently under Neoliberalism:

…These include the commodification and privatization of land and the forceful expulsion of peasant populations; conversion of various forms of property rights (common, collective, state, etc.) into exclusive private property rights; suppression of rights to the commons; commodification of labour power and the suppression of alternative (indigenous) forms of production and consumption; colonial, neocolonial, and imperial processes of appropriation of assets (including natural resources); monetization of exchange and taxation, particularly of land; the slave trade (which continues particularly in the sex industry); and usury, the national debt and, most devastating of all, the use of the credit system as a radical means of accumulation by dispossession. The state, with its monopoly of violence and definitions of legality, plays a crucial role in both backing and promoting these processes.

Comments on David Harvey’s “A Brief History of Neoliberalism” (Naked Capitalism)

Which brings us to today. Now the needs of the Markets dominate the world, all of us need to sell our labor to survive as Naked Capitalism points out:

What is remarkable is how we’ve blinded ourselves to the coercive element of our own system. From Robert Heilbroner in Behind the Veil of Economics:

“This negative form of power contrasts sharply with with that of the privileged elites in precapitalist social formations. In these imperial kingdoms or feudal holdings, disciplinary power is exercised by the direct use or display of coercive power. The social power of capital is of a different kind….The capitalist may deny others access to his resources, but he may not force them to work with him. Clearly, such power requires circumstances that make the withholding of access of critical consequence. These circumstances can only arise if the general populace is unable to secure a living unless it can gain access to privately owned resources or wealth…”

“The organization of production is generally regarded as a wholly “economic” activity, ignoring the political function served by the wage-labor relationships in lieu of baliffs and senechals. In a like fashion, the discharge of political authority is regarded as essentially separable from the operation of the economic realm, ignoring the provision of the legal, military, and material contributions without which the private sphere could not function properly or even exist. In this way, the presence of the two realms, each responsible for part of the activities necessary for the maintenance of the social formation, not only gives capitalism a structure entirely different from that of any precapitalist society, but also establishes the basis for a problem that uniquely preoccupies capitalism, namely, the appropriate role of the state vis-a-vis the sphere of production and distribution.’

What struck me about Heilbroner’s discussion, as if he was tip-toeing around the issue, and it was not clear whether because he could not formulate a crisp description of the power relationships, or that it was clear to him but he really didn’t want to come out and say what he saw.

Ian Welsh ventures where Heilbroner hesitated to go:

“The fundamental idea of our current regime is one that most people have forgotten, because it is associated with Marx, and one must not talk about even the things Marx got right, because the USSR went bad. It is that we are wage laborers. We work for other people, we don’t control the means of production. Absent a job, we live in poverty. Sure, there are some exceptions, but they are exceptions. We are impelled, as it were, by Marx’s whip of hunger. It took a lot of work to set up this system, as Polyani notes in his book “the Great Transformation”, but now that it has happened, it is invisible to us.”

We have to sell our labor (or be supported by someone who does that) as a condition of survival. Now that may not seem peculiar since that has been the state of affairs in most advanced economies for generations. The seeming exceptions, like farmers and even fishermen, are now little capitalists; they own equipment and sell their goods to wholesalers of various sorts. This order was imposed after the feudal era. As Yasha Levine explained, citing Michael Perelmen’s The Invention of Capitalism:

“Faced with a peasantry that didn’t feel like playing the role of slave, philosophers, economists, politicians, moralists and leading business figures began advocating for government action. Over time, they enacted a series of laws and measures designed to push peasants out of the old and into the new by destroying their traditional means of self-support.”

“‘The brutal acts associated with the process of stripping the majority of the people of the means of producing for themselves might seem far removed from the laissez-faire reputation of classical political economy,” writes Perelman. “In reality, the dispossession of the majority of small-scale producers and the construction of laissez-faire are closely connected, so much so that Marx, or at least his translators, labeled this expropriation of the masses as ‘‘primitive accumulation.’'”

“Perelman outlines the many different policies through which peasants were forced off the land—from the enactment of so-called Game Laws that prohibited peasants from hunting, to the destruction of the peasant productivity by fencing the commons into smaller lots—but by far the most interesting parts of the book are where you get to read Adam Smith’s proto-capitalist colleagues complaining and whining about how peasants are too independent and comfortable to be properly exploited, and trying to figure out how to force them to accept a life of wage slavery.”

And this might put the “failure of capitalism” theme in context. If you have a system that requires that people sell their labor as a condition of survival, yet fails to provide enough opportunities to sell labor to go around, you have conditions for revolt. Hungry, desperate people having nothing to lose. That, and not charity, is the root of the welfare state, to provide a buffer for when the capitalist system chokes up and presumably on a short-term basis, fails to provide enough jobs (that and to provide for people who are infirm, handicapped, or otherwise cannot work, which communities in England did in the early modern era).

So you can see the obvious tension: the capitalist classes in America, to increase their riches further, have been squeezing workers harder by not hiring as they did in the past. We’ve never had a “recovery” in the post-WWII era with so little of GDP growth going to labor (meaning both hiring and wage increases). In the past, the average was over 60% and the lowest was 55%. I haven’t seen a recent update, but the last figures I saw was that the level for this “recovery” was under 30%. Yet simultaneously, there’s a full-bore effort on to gut the remaining safety nets. If this isn’t a prescription for social and political instability, I don’t know what is.

The Coercive Power of Capitalism (Naked Capitalism)

Which brings us to the crisis of the modern world. We’ll be talking about that next time.

* I often capitalize the word Market to make this distinction. In English, we unfortunately have the same word for these different concepts. Places where goods are bought and sold is a small-m market, like a farmer’s market. The big-M Market is the One Big Market who must be constantly be appeased and whose “demands” we must carry out. That’s the other reason I like to capitalize it – to emphasize the fact that it has become the quasi-deity of the modern world: omniscient, all-powerful, capricious, inscrutable, unfathomable, and never to be questioned, with economists as its high priests. Polanyi points out that the dramatic swings and cycles in the One Big Market are the equivalent to floods and famines in ancient times, except ours are self-inflicted.

[1] Sir Leonard Wooley; The Beginnings of Civilization, p. 321

[2] Mark Blyth; The Great Transformation in Understanding Polanyi: A Reply to Hejeebu and McCloskey, p. 3

[3] ibid. pp. 7-9

[4] Wooley, p. 335-336

[5] Polanyi, K. ed.; Trade and Markets in Early Empires, pp. 182-183

[6] Douglass North, The Rise of the Western World: A New Economic History, pp. 63-64

[7] Lewis Mumford; The Myth of the Machine, Vol. 1, pp. 133-134

[8] From the introduction, see

Karl Polanyi and the Modern World – Part 4

Karl Polanyi does not talk about the origins of money in any detail in TGT, yet it is extremely important to his argument. If social relations were centered around markets, and markets around monetary exchanges as libertarians claim, then we would expect money to be a very early invention. In fact, we would expect money and markets to predate the state, or to emerge even in the absence of a central state.

Yet this is not what we find. Recently, a number of economists, historians and anthropologists have probed deeply into the origins of money. What they find is that money began not to facilitate individuals trading in imaginary markets, but as systems of debits and credits that formed when societies grew too large for the basic institutions of reciprocity and redistribution to function at the community level. The systems of debits and credits facilitated redistributive temple and palace economies using the new invention of writing long before they were represented by the paper and metal tokens we now think of as money.

In contrast, the standard “just-so” story of money proposed by economists from Adam Smith onward is this: Money spontaneously evolved because it facilitated trade in an imaginary stateless society. Money evolved by mutual consent to facilitate trading among primitive proto-capitalists for all the stuff they needed. Precious metals were commonly agreed upon as an “intermediate good” that everybody wanted, eventually evolving into standardized coins with standardized weights. The value of the coins derived solely from the amount of precious metal they contained. To remove metal from coins – “debasing” them – was accomplished by government “interference” in the economy causing trade to falter and empires to collapse. Paper is only a representation of precious metal held in a vault somewhere, which is the only “real” money.

Bolstering Polanyi’s argument is the fact that “money” as we know it is a fairly recent invention. Most “primitive” peoples don’t use it. We’ve seen that societies like Egypt, Mesopotamia, pre-classical Greece, and Peru managed to run fairly complex economies using no “money” whatsoever. The first coins were minted in about 600 B.C., and paper money in the West had to wait until the 1600’s (earlier in China) to be widely circulated. Yet the Bronze Age had trading regimes so complex that it has been termed “the first global economy.”

The Lydian Lion is the one coin I’d personally call “The Coin.” It directly preceded ancient Greek coinage, which through Rome begot all Western coinage, and which through the Seleukids, Parthians, and Sassanians begot all Islamic coinage. Indian coinage has largely been a product of Greek, Roman, and Islamic influences. Chinese coinage, though it probably developed independently, was succeeded by Western-style coinage in the late nineteenth century. Other countries in Asia, in Africa, and elsewhere have adopted the Western approach to coinage as well. It’s not chauvinistic, and it’s only mildly hyperbolic, to suggest that virtually all coinage in use today is the progeny of the Lydian Lion, that it’s the Adam of coins…Even though coinage doesn’t appear to have initially served commerce or trade, it’s likely that the Lydians created coins as we know them because they were the first to recognize their profit-making potential, as will be shown below. It would still be possible of course for later governments to earn seigniorage profits by issuing coins in pure gold and silver, just not as easy…

The first coins – no ‘means of market exchange’ but ‘means of gift exchange’? (Real World Economics Review)

As we’ve seen, the economies of true stateless societies were governed by redistribution, reciprocity, and gift exchange, not by money and markets. The redistributor chiefs gave everything away; they didn’t take everything away from the people and charge them money for its use (where would they get the money to pay for it?). It was more akin to “primitive communism” than anything libertarians envision.

The fetishization of money, markets and trade, along with the stateless theories of the origin of money arising spontaneously out of barter, were all part of the formation of “classical” or “Neoclassical” economics in the late eighteenth century and after. This also informed Hobbes’ (mistaken) theories of state formation as solitary individuals mutually agreeing to form a state by voluntarily coming together and giving up a portion of their freedom to a sovereign.

But these are classic cases of what the authors of Sex at Dawn call the “Flintstonization” of history: the erroneous projection contemporary conditions back onto the distant past. If our entire lives are determined by buying and selling in markets and working at jobs, we think, then surely that must have been how people lived their lives in the past as well, right? Wrong!

…Now for [Adam] Smith, the most important function of money is to serve as a medium of exchange.  Because once this is established his apocryphal story expands. As a medium of exchange money facilitates trade, encourages greater specialization and productivity, reduces transactions costs, and allows for the further flowering of capitalism.  It also serves as the beginning of the banking system.  As metals become the preferred medium of exchange, banks are created to store and manage these wealth holdings.  The coining of metal by state governments facilitates this process by standardizing weights and degrees of alloyed purity. The bankers than issue receipts describing the amount of gold stored or deposited on its premises.

Over time, bankers realize that these gold receipts are circulating as money.  They also realize that only a fraction of their holdings are called for on any given day.  Thus they can make loans at interest and issue gold receipts far in excess of their actual holdings.  This emergence of credit further greases the wheels of capitalist exchange, savings, and investment.  However, in the overall economy, money only affects prices and not the process of actual physical production.

Even peak oil author Richard Heinberg repeats this myth:

While early forms of money consisted of anything from sheep to shells, coins made of gold and silver gradually emerged as the most practical, universally accepted means of exchange, measure of value, and store of value.

Money’s ease of storage enabled industrious individuals to accumulate substantial amounts of wealth. But this concentrated wealth also presented a target for thieves. Thievery was especially a problem for traders: while the portability of money enabled them to travel for long distances to purchase rare fabrics and spices, highwaymen often lurked along the way, ready to snatch a purse at knife-point. These problems led to the invention of banking—a practice in which metal-smiths who routinely dealt with large amounts of gold and silver (and who were accustomed to keeping it in secure, well-guarded vaults) agreed to store other people’s coins, offering storage receipts in return. Storage receipts could then be traded as money, thus making trade easier and safer.

Eventually, goldsmith-bankers realized that they could issue paper receipts for more gold than they had in their vaults, without anyone being the wiser. They did this by making loans of the receipts, for which they charged a fee amounting to a percentage of the loan.

Economic History in 10 Minutes (

This the the “evolutionary origin of money” proposed by Austrian Economist Carl Menger. Menger’s theory is based on the model of thousands of anonymous individuals transacting for their daily needs in “free and open” markets that we have thoroughly debunked over the last few posts:

Karl Menger, an Austrian economist, set out one school of thought as long ago as 1892. In his version of events, the monetisation of an economy starts when agricultural communities move away from subsistence farming and start to specialise. This brings efficiency gains but means that trade with others becomes necessary. The problem is that operating markets on the basis of barter is a pain: you have to scout around looking for the rare person who wants what you have and has what you want.

Money evolves to reduce barter costs, with some things working better than others. The commodity used as money should not lose value when it is bought and sold. So clothing is a bad money, since no one places the same value on second-hand clothes as new ones. Instead, something that is portable, durable (fruit and vegetables are out) and divisible into smaller pieces is needed. Menger called this property “saleableness”. Spices and shells are highly saleable, explaining their use as money.

Government plays no role here. The origin of money is a market-led response to barter costs, in which the best money is that which minimises the costs of trade. Menger’s is a good description of how informal monies, such as those used by prisoners, originate.

On the origin of specie (The Economist)

This is at the core of the libertarian argument. Money and trading does not need the state at all, they say. It is all about individuals making mutually-beneficial trades in free markets with a mutually-agreed upon medium of exchange which evolves spontaneously over time, they say. If the state just “went away” instead of taking from the “makers,” economic life would go on just fine, they argue. Also, in this estimation, a finite stock of precious metals are the only “real” money, and “fiat currency” is an abomination that can only lead to doom.

The problem is that, historically speaking, these ideas are all incorrect. In fact, logic alone uncovers problems with this approach:

In terms of logic, [Adam] Smith’s story is simply not convincing…the barter story that emerged from Smith contradicts both the logic and the historical record… For example, if you grew up in a small town in the western US in the 1970s, you might remember that you could go to the grocery store, pick up groceries, and simply sign a slip a paper acknowledging your receipt of the groceries.  The same could be done in Smith’s hypothetical example.  If the shoe seller or potato seller were trustworthy, the shoe seller could simply create a record of the shoes purchased on credit by the potato seller/shoe buyer and their value in some agreed upon unit of account.  This is not barter and it is not a purchase using a medium of exchange.  Instead it is “the exchange of a commodity for a credit.”  And it is far easier that the use of a medium of exchange.

Was Money Created to Overcome Barter? (Naked Capitalism)

In fact, this actually happened in the real world:

To prove his core point – that money is not currency – [Author Felix] Martin reminds readers of a previous crisis 43 years ago in Ireland. Following an industrial dispute, the nation’s banking system shut down for nearly seven months, with customers unable to withdraw or deposit money. Yet instead of the country grinding to a halt as anticipated, people began accepting cheques or IOUs based on their own assessments of risk. So in a rich and developed economy, albeit one with strong communal links, institutionalised banking was replaced by a personalised credit system – proving, he says, “the official paraphernalia” of banks, credit cards and notes, can disappear “and yet money still remains”.

Money: a Biography by Felix Martin – Review (The Guardian)

So money was not “invented” to overcome barter. Rather, it goes back to the early redistributive economies that we’ve been discussing.

So if there has never been a land of barter, then where did we get money and credit from? A British diplomat named Alfred Mitchell-Innes was one of the first to write about the true origins of money. He published an essay entitled “What is Money” back in 1913:

[Mitchell] Innes (p. 397) argues that systems of credit pre-date coins by over a thousand years.  “The earliest known coins of the western world are those of ancient Greece, the oldest of which, belonging to the settlements on the coast of Asia Minor, date from the sixth or seventh centuries B.C.”  In contrast, the law of debt goes back to at least the Code of Hammurabi in Babylonia 2000 years B.C.  Innes saw that the foundation of society and thereby of credit was that promises or obligations were and are viewed as sacred.  In all societies (p. 391) the breaking of the pledged word, or the refusal to carry out an obligation is held equally disgraceful.”

He goes on to explain how wooden tally sticks and clay shubati tablets were used to track credits/purchases and debits/sales long before the existence of coins.  And that one could repay a debt by returning a credit of the same amount to the lender.  In fact, village fairs were convened so that those holding the debts of others could match credits and debits together and thereby clear their accounts.  Over time others showed up to buy and sell other goods and services or to cater to those in this most basic business of banking.

Was Money Created to Overcome Barter? (Naked Capitalism)

…the earliest uses of money in recorded civilization were not coins, or anything like them. They were tallies of credits and debits (gives and takes), assets and liabilities (rights and responsibilities, ownership and obligations), quantified in numbers. Accounting. (In technical terms: sign-value notation.) Tally sticks go back twenty-five or thirty thousand years. More sophisticated systems emerged six to seven thousand years ago (Sumerian clay tablets and their strings-of-beads predecessors). The first coins weren’t minted until circa 700 BCE — thousands or tens of thousands of years after the invention of “money.”

These tally systems give us our first clue to the nature of this elusive “social construct” called money: it’s an accounting construct. The earliest human recording systems we know of — proto-writing — were all used for accounting. So the need for social accounting may even explain the invention of writing.

This “accounting” invention is a human manifestation of, and mechanism for, reciprocity instincts whose origins long predate humanity. It’s an invented technique to do the counting that is at least somewhat, at least implicitly, necessary to reciprocal, tit-for-tat social relationships.

None of this is to suggest that explicit accounting is necessary for social relationships. That would be silly. Small tribal cultures are mostly dominated by “gift economies” based on unquantified exchanges. And even in modern societies, much or most of the “value” we exchange — among family, friends, and even business associates — is not accounted for explicitly or numerically. But money, by any useful definition, is so accounted for. Money simply doesn’t exist without accounting.

Coins and other pieces of physical currency are, in an important sense, an extra step removed from money itself. They’re conveniently exchangeable physical tokens of accounting relationships, allowing people to shift the tallies of rights and responsibilities without editing tally sheets. But the tally sheets, even if they are only implicit, are where the money resides.

Did money evolve? You might not be surprised (Evonomics)

This comment sums it up succinctly:

Money (a standard unit of account, used to denote debts or assess value) predates coins by millennia, and coins only ever comprised a small fraction of the money in daily use. Most ancient money was in the form of marks on clay tablets or notes on pieces of papyrus, just as it is today (computers replacing clay or papyrus).

A Roman who bought an estate in Italy qualifying him for the equestrian order (one million sesterces) did not haul a cartload of silver around. He arranged for his banker to transfer a sum from his account to that of the vendor, again just as we would today. Ditto mercantile debts. Coins were for spot transactions, untrusted persons and ceremonial gifts (donatives). The real cost of making money was and is in establishing and maintaining the trust needed to support it.

The real costs of making money 2. Where did the silver used to buy Josef come from?

A more recent take on the origins or money is the book Money: A Biography by Felix Martin:

[Felix] Martin sees [money] as based upon a system of credit and clearing from the start. … he says we should view money as a social technology, a set of ideas and practices for organising society. It was created after the collision of Mesopotamian inventions of literacy, numeracy and accounting with Greek notions of equality, and evolved amid struggles for supremacy between sovereigns and their subjects. Ultimately, it was a liberating force for individuals against the state – but also something prone to near-ceaseless speculation and financial crises.

Money: a Biography by Felix Martin – Review (The Guardian)

In fact, the state played a crucial role in the creation of money:

…Take the widespread use of precious metals as money. A Mengerian would say that this happens because metals are durable, divisible and portable: that makes them an ideal medium of exchange. But it is incredibly hard to value raw metals…so the cost of using them in trade is high. It is much easier to assess the value of a bag of salt or a cow than a lump of metal. Raw metals fail Menger’s own saleableness test.

This problem explains why metal money has circulated not in lumps but as coins, with a regulated amount of metal in each coin. But history shows that minting developed not as a private-sector attempt to minimise the costs of trading, but as a government operation. It was state intervention, not the private market, that made metal specie work as money.

That suggests another theory is needed, in which the state plays a bigger role in the origin of money…The fiscal wing of government has a huge incentive to move its economy away from barter. Once money exists, income and expenditure can be measured. That means they can be taxed. And the public purse gets a second boost from seigniorage, the difference between the value of the coins and the cost of producing them. On this account, governments impose taxes payable only in money, creating a demand for money that means it will be widely accepted as payment for goods. The state forces the economy away from barter for its own fiscal purposes.

On the origin of specie (The Economist)

In other words, the use of money created markets, not the other way around! And they were both intentional creations of central states. Charles Goodhart of the London School of Economics published a paper arguing this in 1998:

Mr Goodhart used monetary history to test these competing theories. He examined the overthrow of Rome and a period in the tenth century when the Japanese government stopped minting coins. If the origin of money were purely private, these shocks should have had no monetary effects. But after Rome’s collapse, traders resorted to barter; in Japan they started to use rice instead of coins. There is a clear link between fiscal power and money. The evidence suggests that only “informal” monies can spring up purely privately…

On the origin of specie (The Economist)

Just how much of a state invention is detailed by the book Making Money by Christine Desan; like Felix Martin’s book, a history of money, in this case from late medieval and early modern Europe. This book covers the history of money at the same time as market exchanges were emerging to become central in the social relations of Western Europe:

The central assumption of [the conventional] story is that coins were simply a package in which precious metal traveled. Hence “they had to be assayed and weighed to determine their value in the best of times.” But even that is too optimistic, if the question is whether coins serve as safe assets. Coins did have a metal value, since they could theoretically be converted into bullion, which had its own price, albeit at some cost. But they also had a coin value, which was simply the value dictated by the sovereign, since coins could be used to pay taxes.

The metal value and the coin value were related, but they were related in the sense that the value of a currency today is related to the economic fundamentals of the country that issues it. That is, the relationship between metal value and coin value was managed by the government using a variety of policy instruments. One of those was setting the number of coins that would be minted from a given quantity of metal (and the number of those coins that would be skimmed off the top for the sovereign).

A central principle of late medieval English law..was that the sovereign had the absolute right to dictate the value of money…If Queen Elizabeth said that worn, clipped coins had the same value as brand-new coins from the mint, even if the former had only half the silver content of the latter, then they had the same value. She could say that because the value of pieces of metal depends on what you can use them for, and so long as you (or someone else) can use them to pay debts and taxes, they have value…money was never simply precious metal in another form, but an instrument of commerce artificially created by kings.

Even in the heyday of coins, they were hardly the only form of money. For one thing, most everyday transactions were conducted using debt—what we would call trade credit, although it was used by consumers as well as businesses—because the smallest coin was simply too big to pay a day’s wages, let alone buy a beer, at least in England. For another, as early as the 14th century, carved sticks of wood known as tallies were circulating as money.
Tallies began as records of taxes collected, then became receipts the crown gave to tax collectors for advances of coin (the idea being that, at tax time, the collector could show the tally and say, “I already paid”), and finally evolved into tokens that the government used to pay its suppliers (who could then cash them with tax collectors, who would use them at tax time). In most of the 15th century, a majority of tax receipts came in the form of tallies rather than cash (p. 177). Again, if the government is willing to take take something in payment of taxes, it becomes money.

Similarly, it is true that “problems with coins” led to the development of other forms of money—beginning with trade credit and tallies—but for the most part they were not the transactional problems faced by households and firms, but fiscal and military problems faced by governments.

The Bank of England, which issued the first recognizably modern paper currency, was created because William III needed money to fight wars on the Continent, but there simply wasn’t enough coin in the country to both pay the required taxes and keep the economy functioning. Bank notes were able to function as money because the government was willing to accept them in payment of taxes—which was not true of the notes issued by purely private goldsmith-bankers. In other words, what made Bank notes money, rather than simply paper records of debt, was a political decision necessitated by a fiscal crisis.

Mysteries of Money (The Baseline Scenario)

In fact, metal coins were fiat currency! Both Martin and Desan point to John Locke as the chief culprit in the redefinition of money as a finite stock of precious metals which dominates libertarian thinking today:

…the Bank of England’s formation…coincided with the reconceptualization of money as simply precious metal in another form—a fable told most prominently by John Locke.

In earlier centuries, everyone accepted that kings could reduce the metal content of coins and, indeed, there were good economic reasons to do so. Devaluing coins (raising the nominal price of silver) increased the money supply, a constant concern in the medieval and early modern periods, while revaluing coins (keeping the nominal price of silver but calling in all old coins to be reminted) imposed deflation on the economy. But Locke was the most prominent spokesperson for hard money—maintaining the metal content of coins inviolate. The theory was that money was simply metal by another name, since each could be converted into the other at a constant rate.

The practice, however, was that the vast majority of money—Bank of England notes, bills of exchange issued by London banks, and bank notes issued by country banks—could only function as fiat money. This had to be the case because the very policy of a constant mint price had the effect of driving silver out of coin form, vacuuming up the coin supply. If people actually wanted to convert their paper money into silver or gold, a financial crisis could be prevented only through a debt-financed expansion of the money supply by the Bank of England—or by simply suspending convertibility, as England did in the 1790s.

To paraphrase Desan, at the same time that the English political system invented the modern monetary system, liberal theorists like Locke obscured it behind a simplistic fetishization of gold. The fable that money was simply transmutated gold went hand in hand with the fable that the economy was simply a neutral market populated by households and firms seeking material gain. This primacy of the economic over the political—the idea that government policy should simply set the conditions for the operation of private interests—is, of course, one of the central pillars of the capitalist ethos. Among other things, it justified the practice of allowing private banks to make profits by selling liquidity to individuals (that’s what happens when you deposit money at a low or zero interest rate)—a privilege that once belonged to sovereign governments.

Mysteries of Money (The Baseline Scenario)

Thus we see that money is not “thing” that we can run out of. In our societies, those who control the management and issuing of currency, like the Mesopotamian priests of old, control the society. But this is a social choice as much as anything else. The bankers use their knowledge of the system to enforce an artificial scarcity of money for everyone but themselves.

As David Graeber points out, throughout history, money has circulated between periods where it has been seen primarily as a commodity, and periods where it is seen primarily as a social relationship. These are associated with changes in the underlying society, particularly with periods of either centralized state expansion or collapse. In societies and political regimes with highly centralized and functional bureaucracies which can establish standards, enforce contracts, and adjudicate disputes, money is primarily credit. In circumstances of state breakdown, money once again reverts to commodities, and autarky, rather than market exchanges, prevail. Traveling becomes unsafe, and long-distance trade breaks down. Self-sufficiency becomes paramount. Barter usually becomes prevalent in cases after the breakdown of central states; it’s not the source of markets as we know them:

One of my inspirations for ‘Debt: The First 5,000 Years’ was Keith Hart’s essay ‘Two Sides of the Coin’. In that essay Hart points out that not only do different schools of economics have different theories on the nature of money, but there is also reason to believe that both are right. Money has, for most of its history, been a strange hybrid entity that takes on aspects of both commodity (object) and credit (social relation.) What I think I’ve managed to add to that is the historical realization that while money has always been both, it swings back and forth – there are periods where credit is primary, and everyone adopts more or less Chartalist theories of money and others where cash tends to predominate and commodity theories of money instead come to the fore. We tend to forget that in, say, the Middle Ages, from France to China, Chartalism was just common sense: money was just a social convention; in practice, it was whatever the king was willing to accept in taxes…

As I said Eurasian history, taken in its broadest contours, shifts back and forth between periods dominated by virtual credit money and those dominated by actual coin and bullion. The credit systems of the ancient Near East give way to the great slave-holding empires of the Classical world in Europe, India, and China, which used coinage to pay their troops. In the Middle Ages the empires go and so does the coinage – the gold and silver is mostly locked up in temples and monasteries – and the world reverts to credit. Then after 1492 or so you have the return world empires again; and gold and silver currency together with slavery, for that matter.

What’s been happening since Nixon went off the gold standard in 1971 has just been another turn of the wheel – though of course it never happens the same way twice. However, in one sense, I think we’ve been going about things backwards. In the past, periods dominated by virtual credit money have also been periods where there have been social protections for debtors. Once you recognize that money is just a social construct, a credit, an IOU, then first of all what is to stop people from generating it endlessly? And how do you prevent the poor from falling into debt traps and becoming effectively enslaved to the rich? That’s why you had Mesopotamian clean slates, Biblical Jubilees, Medieval laws against usury in both Christianity and Islam and so on and so forth.

Since antiquity the worst-case scenario that everyone felt would lead to total social breakdown was a major debt crisis; ordinary people would become so indebted to the top one or two percent of the population that they would start selling family members into slavery, or eventually, even themselves.

Well, what happened this time around? Instead of creating some sort of overarching institution to protect debtors, they create these grandiose, world-scale institutions like the IMF or S&P to protect creditors. They essentially declare (in defiance of all traditional economic logic) that no debtor should ever be allowed to default. Needless to say the result is catastrophic. We are experiencing something that to me, at least, looks exactly like what the ancients were most afraid of: a population of debtors skating at the edge of disaster.

And, I might add, if Aristotle were around today, I very much doubt he would think that the distinction between renting yourself or members of your family out to work and selling yourself or members of your family to work was more than a legal nicety. He’d probably conclude that most Americans were, for all intents and purposes, slaves.

Since we looked at the South Seas before for clues to the origin of states, let’s see if they can offer us a clue to the origin of money.

On the Pacific island of Yap, Rai Stones are used in trade and as a from of currency. These are large, circular stone discs carved out of limestone formed from aragonite and calcite crystals. The limestone is not available on Yap itself, only on neighboring islands, so these stones were considered rare and valuable by people. They vary greatly in size: the smallest are measured in centimeters, the largest are several tons. Their value is partly determined by not only their size, but by the difficulty in securing them: “If many people—or no one at all—died when the specific stone was transported, or a famous sailor brought it in, the value of the rai stone increases by reason of its anecdotal heft.”

Rai stones were, and still are, used in rare important social transactions, such as marriage, inheritance, political deals, sign of an alliance, ransom of the battle dead or, rarely, in exchange for food. Many of them are placed in front of meetinghouses or along pathways.

The physical location of the stone may not matter—though the ownership of a particular stone changes, the stone itself is rarely moved due to its weight and risk of damage. The names of previous owners are passed down to the new one. In one instance, a large rai being transported by canoe and outrigger was accidentally dropped and sank to the sea floor. Although it was never seen again, everyone agreed that the rai must still be there, so it continued to be transacted as genuine currency. What is important is that ownership of the rai is clear to everyone, not that the rai is physically transferred or even physically accessible to either party in the transfer.

While the monetary system of Yap appears to use these giant stones as tokens, in fact it relies on an oral history of ownership…As long as the transaction is recorded in the oral history, it will now be owned by the person you passed it on to—no physical movement of the stone is required.

So, we see that the “unit of account” function seems to have been primary, and preceded the “medium of exchange” aspect of money by several millennia at least. Similarly, Yap indicates that the “store of value” function also predates the “medium of exchange” aspect, and that physical transfers of a commodity were less important than social relations. Ownership of stone money was merely transferred from one party to another by collective agreement, without recourse to the actual physical object in question (in this case by oral agreement rather than by writing).

Similarly, precious metals originally seem to have been used primarily to conduct symbolic gift giving (such as in the Kula ring), since they were far too limited and too valuable to be used for day-to-day economic transactions. Both stone money and early coins seem to have been connected to gift-exchange, similar to engagement rings (which were initially dowries – break the engagement and the gold ring is the compensation for going back on your word). Coins grew out of attempts to establish a reliable standard of purity, authenticity and weight by rulers who thereby benefited through segniorage (profits made from issuing money). As we saw, in most early states mining was a “nationalized” industry, meaning coins could only be minted by the authorities. Coins were easier to measure for collecting taxes than paying in commodities. They then began to circulate as money, not before.

In ancient times, precious metals seem to have been used primarily to facilitate long-distance trading, not internal market exchanges. Polanyi argues that long-distance trade, which existed for thousands of years, is what drove markets (not local bartering), and that these markets were kept fundamentally separate from the inner workings of the societies in which they operated. Furthermore, such markets were noncompetitive. Precious metals were not typically used within societies for transactions – reciprocity and credit were. Even when they were, the “value” of what they could purchase was dictated by governments – even gold and silver were fiat currencies whose value came from the need to pay taxes to the central state from the very beginning. As Randall Wray describes:

What we call “money” (coins, tally sticks, paper notes, electronic entries on bank balance sheets) is simply the record of debt, “accounted for” in the money of account. The line between what we want to count as “money” debts or merely as “money denominated” debts is and always has been arbitrary. Most will include a checkable bank deposit in their definition of “money”; most will not include a non-checkable certificate of deposit in that definition.

Typically, people want to apply the term money to those money-denominated liabilities that can be used immediately as a medium of exchange—that is, to buy something, passing hand-to-hand. I am sympathetic. If we look at the modern economy, and focus only on transactions of households, it works pretty well. But going back through time and including transactions of private and public institutions, it gets quite messy.

The argument is not that barter never occurred in ancient times; it certainly did. However, money as we know it did not emerge out of barter, and neither did competitive internal markets as we know them. Capitalism is not just an exchange of goods growing out of barter, but something fundamentally different.

Second, it’s not that there was never any trading or markets in antiquity. There surely were, and they date back to human prehistory. But markets were not the primary focus of social relations, rather they were exclusively mechanisms to procure goods from afar, or to exchange certain goods within societies. “Unplug” markets from society, and they go on much as before, if a bit poorer. Competitive, internal, self-regulating markets did not derive from these types of markets. Inside cultures, the idea of using impersonal market transactions based around money to regulate every aspect of social life would have struck ancient people as offensive and absurd, not to mention inhuman.

So how do we get from that to the market society of today? That’s what we’ll be  taking a look at next time.

Karl Polanyi and the Modern World – Part 3

We have previously shown that ancient economies did not grow primarily out of trading and markets, but rather out of reciprocity, redistribution and householding. Furthermore, redistribution was based on the principles of symmetery, centricity and autarky. Barter and trade formed a minor, tangential portion of these economies. Economies existed for thousands of years prior to money and markets.

All ancient states appear to have grown out of communal feasting in places where agriculture, horticulture, animal husbandry, or fishing (in various combinations) permitted permanent storable surpluses to accumulate. These surpluses were redistributed by various headmen, war chiefs, and tribal leaders or councils. Feasting schedules were determined by religious leaders (shamans) using the lunar and solar cycles going as far back as the Upper Paleolithic (Ice Age). Central repositories were built under the auspices of these leaders to ensure regularity in food and other supplies as climate became more variable and large prey started going extinct. Eventually, the shamans and headmen transformed into the first priest-kings coordinating the collective efforts of early societies under the auspices of religion.

We looked at three early economic models: the Tribute Economy, the Palace Economy, and the Oikos (household) Economy. In each of these, production was done communally. Households typically produced various commodities for their own consumption, and their surpluses were redistributed by various administrators through central repositories. This prosperity caused populations to increase, but at the cost of much more work. Hunting and gathering can support 1 person per square mile; early agriculture can support closer to 100. Population density drove a series of cultural changes and social complexity, unfolding over thousands of years.

The extreme variability of climate strengthened the power of centralized administrations. Populations had become too dense for a return to hunting and gathering for most people. Many of these areas were circumscribed by inhospitable regions that could no longer support dense populations. The 5.9 kiloyear event in about 3200BC seems to be associated with urbanization and the formation of the first proto-states. This was several centuries of cooler and drier weather, not quite as severe as that of the Younger Dryas, but at least as dramatic as the later Little Ice Age. This is associated with the end of the Wet Sahara period and significant desertification.

The Hydraulic Trap

A number of historians and archaeologists have made the case that the need to maintain complex irrigation systems kickstarted the formation of the first complex states.

Both Egypt and Mesopotamia are too arid for rainfall farming and have to rely on irrigation. In Mesopotamia vast irrigation works were constructed in the flat river valley between the Tigris and Euphrates from as far back as 4000 BC. Floods were routed by dams and man-made channels away from cities and farms. The main irrigation canals were lined with burnt brick and sealed with asphalt. Keeping the canals free of silt was a continuous process accomplished by teams of local villagers working together. This led to a high degree of collective action necessary to make a living in this part of the world from an early date.

Egypt has the advantage of the Nile flooding more or less in time with the planting season. This deposits a thin layer of rich, dark humus from further down the river. Nevertheless, early Pharaohs oversaw the construction of vast irrigation works both to control flooding and store and transport river water to distant locations to support growing populations. On the other end of Eurasia, the chaos and unpredictability of the Yellow River, “China’s Sorrow,” led to major flood control works from a nearly date. The legendary Chinese hero Yu the Great is said to have established extensive flood controls back in the third millennium B.C.


Marvin Harris notes that all of these early ancient societies seem to share similar characteristics:

These ancient empires shared one additional feature: each was…a “hydraulic society.” Each developed amid arid or semiarid plains and valleys fed by great rivers. Through dams, canals, flood control, and drainage projects, officials diverted water from these rivers and diverted it to the peasant’s fields. Water constituted the most important factor in production. When it was applied in regular and copious amounts, high yields per acre and per calorie of effort resulted. [1]

Following ideas first articulated by Marx and Wittfogel, he contends that:

…I hold that preindustrial hydraulic agriculture recurrently led to the evolution of extremely despotic agro-managerial bureaucracies because the expansion and intensification of hydraulic agriculture–itself a consequence of reproductive pressures–was uniquely dependent upon massive construction projects which, in the absence of machines, could only be carried out by antlike armies of workers. The larger the river, the greater the flood production potential of the region through which it flowed. But the larger the river, the greater the problems in making use of its potential.

On the one hand, the state undertook the construction of extensive networks of diversionary and feeder canals, ditches, and slice gates to ensure that there would be enough water at the right time; on the other hand, the state undertook the construction of dams, levees, and drainage ditches to avoid the damaging effects of too much water all at once.

The scale of the activities in question literally demanded changing the face of the earth: moving mountains, reshaping riverbanks, digging out whole new riverbeds. Recruiting, coordinating, directing, feeding, and housing the brigades of workers needed for these monumental undertakings could only have been carried out by cadres obedient to a few powerful leaders pursuing a single master plan. Hence, the larger the hydraulic networks and facilities, the greater the overall productivity of the system, the greater the tendency of the agro-managerial hierarchy to become subordinate to one immensely powerful person at its top. [2]

He furthermore contends that these states were particularly despotic, because control of the irrigation works gave these leaders absolute control over whether the farmers could make a living or not. The necessity of submitting to the centralized bureaucracies meant that people had no choice but to submit to despotic systems. This has been referred to as the “Asiatic mode of production,” and “Oriental Despotism”:

Each ancient empire developed its own integrated pattern of social life. From cookery to art styles, each was a universe unto itself. And yet for all their differences, ancient China, India, Mesopotamia, and Egypt possessed fundamentally similar systems of political economy. Each has a highly centralized class of bureaucrats and hereditary despotic overlords who claimed heavenly mandates or were said to be gods in themselves. Excellent networks of government-maintained roadways, rivers, and canals linked every hamlet and village to provincial and national administrative centers. Each village had at least one important person who served as a link between the village and the central administration. Political lines of force ran in one direction only: from top to bottom. While peasants might sometimes own their land, as in China, the bureaucracy tended to regard private property as a gift of the state. Production priorities were set by state tax policies and by regular call-ups of village men and women for work on state-sponsored construction projects. The “state was stronger than society.” Its right to collect taxes, confiscate materials and conscript labor was virtually unlimited. It carried out systematic censuses village by village to determine the available labor power and the tax revenue base. It deployed antlike armies  of workers wheresoever the lords of the realm decreed and undertook the construction of tombs, pyramids, defense works, and palaces whose dimensions are stupendous even by modern industrial standards.

The use of bronze as opposed to iron may have also played a role:

Archaeologists have suggested a theory linking the use of bronze to political centralization. Copper and tin are both scarce and need to be traded, their supplies can be monopolized, and so can trade. This seems to have created both the incentive and the opportunity to concentrate power and develop urban centers, for example in Knossos in Crete which was the core of Minoan Greece. While the Greek Bronze Age cities were destroyed around 1200 BCE and some, like Mycenae, never re-emerged, many, such as Athens re-emerged on the same spot so the early centralization of the Bronze Age may have left a path dependent legacy.

Not every part of the world experienced a Bronze Age, however. Though some parts of Africa, like Benin, are now famous for their bronze work, in general Sub-Saharan Africa jumped right into the Iron Age without ever passing through this intermediate stage.

In contrast to copper and tin, iron is very widely spread as the great archaeologist Gordon Childe put it “cheap iron democratized agriculture and industry and warfare too”. So the jump to Iron Age technology may have impeded the development of states in Africa by making it more difficult for elite to concentrate and monopolize power. Africa never experienced the nascent period of political centralization that Europe did during the Bronze Age, perhaps also with a path dependent legacy.

Why Africa lacked Centralized States – The Role of the Bronze Age (Why Nations Fail)

Robert McNeill, in Plagues and Peoples, suggests that new diseases may have played a role as well:

“Lassitude and chronic malaise…of the kind induced by blood fluke and similar parasitic infections, conduce to successful invasion by the only kind of large-bodied predators human beings have to fear: their own kind, armed and organized for war and conquest…How important parasitic infection of agricultural field workers may have been in facilitating the erection of the social hierarchies of early river civilizations cannot be estimated very plausibly. But it seems reasonable to suspect that the despotic governments characteristic of societies dependent on irrigation agriculture may have owed something to the debilitating diseases that afflicted field workers who kept their feet wet much of the time, as well as to the technical requirements of water management and control which have hitherto been used to explain the phenomenon.” [3]

The Ancient Economy – Historical Examples

Let’s take a look at some ancient economic systems. What we’ll see is that rather than the simplistic and historically ignorant version of events put forth by libertarians, ancient economies employed a wide variety of strategies and organizational techniques with varying levels of effectiveness. Yet they all achieved fairly successful (by the standards of time), functioning societies.

If you like, you can think of the Egyptians as the Soviet Union, the Mesopotamians as Germany or Japan, and the Phoenicians as Singapore.

In different countries the problem was approached in different ways. On the one hand, we have, in Egypt, where ‘Egypt’ and “Pharaoh’ were identified, a system which corresponds to what in the modern world would be called the nationalization of industry. On the other hand, in Mesopotamia, by what we may term a capitalist system, the individual merchant acts on his own initiative but within the limits of the law and subject to the taxation imposed by the state in the general interest. And, lastly, in certain communities such as the Phoenician coast towns, it would seem that the merchants (of whom the ruler would be one) controlled the state in the interests of trade. These differences were not due to ideologies deliberately formatted: man had not then acquired so philosophical an outlook; they resulted mainly from their economic character and resources; but they were very real… [4]

In Egypt the divine Pharaoh was from the outset the Lord of the land and in time, with the suppression of the old feudal nobility, could claim to be its actual owner. In Mesopotamia the entire territory of a city state was the personal property of the city’s god, and the ruler, king or ensi, as the representative of the god–although in the administration he was assisted by the city council–was the real proprietor of that territory. In both countries therefore the government, vested in the person of the ruler, was in theory entitled to the whole produce of the fields; either he could exercise that right literally, taking everything to himself subject only to the costs of production, or he could work the land indirectly, letting the cultivators make what profit they could for themselves, while he received from them a fixed portion of the harvest. [5]

Ancient Egypt:


Egypt’s extreme isolation in the strip along the Nile surrounded by inhospitable deserts meant that it developed as essentially a top-down, state-controlled society. The Pharaoh owned all the land, owned the mines and quarries, built the temples and monuments, organized long-distance trading expeditions, stored and redistributed the grain, supported and patronized artisans and craftsmen, administered the government, ministered the religion, and waged military campaigns. The “commanding heights” of the economy were state-controlled, while the average fellahin or petty merchant went about their daily business.

Markets seem to have played a relatively minor role in the society:

We have no knowledge of any Egyptian laws regulating trade, and this again tends to show that the private trader played no very important part in the land’s economy…this does not mean…that commerce was nonexistent, but it does imply that private merchants, even though they existed and might become wealthy…enjoyed no such social rank as would enable them to build rich tombs for themselves and thereby leave a memorial that would endure to our time…As regards internal trade, it must be remembered that in theory at least the whole land of Egypt was the personal property of Pharaoh…the Pharaohs of the Empire could fairly look upon Egypt as their personal estate…[6]

The Egyptian state was represented by the god-king Pharaoh, and his health and abiding maintenance was connected to the “health” of the state and of the overall health and well-being of the land of Egypt in general: “The building of the colossal tombs of the Egyptian kings was as much an act of faith as was the building of the great cathedrals of medieval Europe, and its object was not simply to minister to the vainglory of the ruler but to take out, as it were, an insurance policy for the culture.” [7]

The god-king owned the gold and copper mines, and the stone quarries. The people who built the massive monuments were state employees, as were the craftsmen who produced the fine metalwork and handicrafts.

Gold was controlled by the state: It was clearly to the country’s advantage that the exploitation of the rich gold-fields in the eastern desert should be reserved to the state and not left to the mercy of private speculators intent on making fortunes for themselves; gold had very early become a weapon far too powerful for the ruler to allow of its source passing into the hands of possible rivals and the embargo upon gold mining was justified both upon public grounds and as a dynastic safeguard…With copper the case was somewhat different. The mines of Sinai lay far off, in a desolate country where the maintenance of mine-workers required elaborate organization for food and transport and where troops were needed to ward off raids from wild nomads…nothing short of a royal authority could have undertaken what were in fact military campaigns on a large scale. [8]

The construction of the tombs and temples meant the state had a monopoly on the stone quarries, as well as construction. Much of this was bound up with the Egyptian state religion:

The monopoly of stone quarrying and that of building construction are complimentary. Only the Pharaoh built temples…from the moment of his ascension to the throne Pharaoh was busy with the preparation of his tomb, and this had to be done with direct labour. There was no question of letting out the work to contractors; the vast numbers of laborers required were called up by the corvee system put into force at the time of the year when agricultural work was slack, and they were in Pharaoh’s own service, organized on military lines (the larger gangs were called aperu, a military term) and supplied with rations from the royal stores. Quarrying, transport, and building were all under Pharaoh’s sole control…Tombs and temples alike required sculptors and goldsmiths and skilled craftsmen of all sorts, and they too were in Pharaoh’s service…Theoretically the craftsmen were free men; but the ablest of them were engaged by the king at a wage for life, and their sons after them…

With the state, in the person of the Pharaoh, exercising such complete control over the natural resources and over the labor forces of the country, there was clearly very little scope left for ‘big business’ by the private merchants. Their place was taken by an elaborate civil service acting with the authority and for the benefit of the crown. Of course there was always plenty of petty retail trade in the village market square and in the town bazaar, though most of the things sold there, grain or oil, animals or manufactured goods, had to pay taxes to the government. But even in the field of direct trade the merchant’s opportunities were very limited; as early as the Third Dynasty we hear of a ‘director of all the King’s flax’ and we may be sure that in all commodities the main stocks were either owned or controlled by the Pharaoh. [9]

Egyptian workers who built the pyramids were supported by the state and given the best care that Bronze Age had on offer:

We might think of state-supported health care as an innovation of the 20th century, but it’s a much older tradition than that. In fact, texts from a village dating back to Egypt’s New Kingdom period, about 3,100 to 3,600 years ago, suggest that in ancient Egypt there was a state-supported health care network designed to ensure that workers making the king’s tomb were productive.

The village of Deir el-Medina was built for the workmen who made the royal tombs during the New Kingdom (1550–1070 B.C.). During this period, kings were buried in the Valley of the Kings in a series of rock-cut tombs, not the enormous pyramids of the past. The village was purposely built close enough to the royal tomb to ensure that workers could hike there on a weekly basis.

These workmen were not what we normally picture when we think about the men who built and decorated ancient Egyptian royal tombs—they were highly skilled craftsmen. The workmen at Deir el-Medina were given a variety of amenities afforded only to those with the craftsmanship and knowledge necessary to work on something as important as the royal tomb.

The village was allotted extra support: The Egyptian state paid them monthly wages in the form of grain and provided them with housing and servants to assist with tasks like washing laundry, grinding grain, and porting water. Their families lived with them in the village, and their wives and children could also benefit from these provisions from the state.

Among these texts are numerous daily records detailing when and why individual workmen were absent from work. Nearly one-third of these absences occur when a workman was too sick to work. Yet monthly ration distributions from Deir el-Medina are consistent enough to indicate that these workmen were paid even if they were out sick for several days.

These texts also identify a workman on the crew designated as the swnw, physician. The physician was given an assistant and both were allotted days off to prepare medicine and take care of colleagues. The Egyptian state even gave the physician extra rations as payment for his services to the community of Deir el-Medina.

Ancient Egyptian Tomb Builders Had State-Supported Health Care (Slate)

It was also recently discovered that the Egyptians had a clever and forward-thinking way of adjusting tax rates based upon the flood levels of the Nile river (i.e. countercyclical fiscal policy):

American and Egyptian archaeologists have discovered a rare structure called a nilometer in the ruins of the ancient city of Thmuis in Egypt’s Delta region. Likely constructed during the third century B.C., the nilometer was used for roughly a thousand years to calculate the water level of the river during the annual flooding of the Nile. Fewer than two dozen of the devices are known to exist. …

Before the completion of the Aswan High Dam in 1970, the Nile flooded the surrounding plains each year in late July or August. As the waters receded in September and October, they left behind a blanket of fertile silt that was essential for growing crops such as barley and wheat.

But the volume of the yearly flood varied widely. If the inundation was inadequate, only a small area of cropland would be covered with the life-giving silt, often resulting in famine. If the water level was too high, it would sweep away houses and structures built on the plain and ruin the crops. …

“During the time of the pharaohs, the nilometer was used to compute the levy of taxes, and this was also likely the case during the Hellenistic period,” says Robert Littman, an archaeologist at the University of Hawaii. “If the water level indicated there would be a strong harvest, taxes would be higher.” …

Ancient Device for Determining Taxes Discovered in Egypt (Economist’s View)

Egypt was mostly a self-sufficient autarky. Markets and trade played a minor role in most people’s lives. Money was nonexistent. Trade was mainly in luxury goods, especially those that were related to the Egyptian religious rituals and mummification. Long-distance foreign trade was carried out under the auspices of the state, either north towards Byblos, or south toward the mysterious land of Punt:

Egypt, as organized by the Pharaohs, was to an unusual degree self-sufficing. The ordinary citizen could be housed, clothed and fed, could furnish himself with the tools of his trade, with the raw material required by his craft and with the ornaments desired by his wife, entirely from the resources of the kingdom; a bountiful nature supplied all the necessities of life.

Egypt’s foreign trade was a trade in luxuries, so far as the individual was concerned, but at least some of those luxuries were really needed for the land’s well-being. The temples could not be built without heavy timbers of hardwood such as did not grow in the Nile valley, and the temple ritual demanded the use of incense which, too, the valley did not produce. Oil–‘the remedy of the body’–was needed both for medicinal and for magico-religious purposes; myrrh, cassia and resin were used for mummification; silver was not found in Egypt… Obviously it was Pharaoh’s duty to arrange for the import of things serving such religious purposes and obviously it was to his interest to keep it in his own hands; foreign trade therefor became a royal monopoly.

The only profitable lines of commerce were two, northwards to the Syrian coast and soutwards to the semi-fabulous Land of Punt; for the first, sea traffic was essential; for Punt, goods could be carried overland by way of the Sudan, or, better, could go by ship from a port on the Red Sea. [10]

Ancient Mesopotamia:


Instead of an all-powerful Pharaoh, Mesopotamia was a network of city-states, and the land of each city-state was owned by the city’s patron god and administered by the temple priests:

According to Sumerian belief the patron god of the city state was the absolute owner of all the state’s territories. Parts of the divine estate would be retained and were still farmed directly by the god’s priests, with serfs as laborers, but the vast proportion was let to individuals; the latter had of course to pay their rent to the temple, in grain or cattle or farm produce, but with what was left to them they could do as they pleased, and their freedom to sell inevitably gave birth to a professional class of wholesale merchants. The temple priests also engaged in trade; the enormous stocks accumulated in the god’s store-chambers were more than sufficient for the needs of the temple and the surplus could be sold, providing funds for the maintenance and adornment of the shrine; and since in the theocratic state of early times the god and the government were synonymous we find the state competing in the market on equal terms with the private merchant. The interesting feature of the Sumerian economy is just this.

Because trade was the life-blood of the community the government was bound to supervise and regulate the activities of the trader; it was obliged to ensure fair dealing between buyer and seller, because fraud destroys credit, and to protect the merchant, because his business is to the state’s advantage; but, as if recognizing that individual initiative is more likely to succeed in commerce than is a bureaucracy undisturbed by competition, it made no attempt whatsoever to replace the private trader by the state…Throughout Mesopotamian history the merchant had, within the limits of the law, a free hand to carry on his business, and it is worth noting how far more effective his purely commercial activities were than those of a government department with its political background. [11]

The Mesopotamian use of third-party merchant middlemen had a series of distinct advantages. Since their trading efforts were not connected with the government, they were free to go wherever they pleased no matter how far from Mesopotamia or little contact between governments there was. Their movements were not dependent on the projection of military power or diplomacy, unlike ancient Egypt where long-distance trade was conducted exclusively by the Pharaoh himself. In Egypt, if there was state breakdown or regime change, foreign trade ground to a halt. In Mesopotamia, by contrast, the traders kept the goods flowing even in periods of state breakdown, which was frequent.

As I have said earlier, the Mesopotamians had very little in the way of natural resources available locally besides grain–no forests, mines or quarries. Thus they became a manufacturing and trading power like Germany or Japan today to procure goods needed from afar:

In Mesopotamia the development of the high civilization of the Sumerians and their successors depended entirely upon foreign trade. The amazingly fertile soil of the river valley gave them an agricultural surplus, which was the essential medium of exchange, and the leisure which could make possible specialization in the arts and crafts as well as the appreciation of the amenities of life; but their country produced no good timber, no good stone, no gold, no silver or copper; all the raw materials for the arts and crafts had to be imported in return either for agricultural produce or for manufactured goods.

Some of the raw materials had to be brought from very far away, and the carriage of bulky goods such as grain over great distances was both difficult and expensive, so that it was better to make payment in something more portable and of greater value in proportion to its size and weight; the need was best met by manufactured goods, but those had to be of a quality that would find them a ready market abroad. If you wanted a good life you had to import, and to import successfully you had to develop taste and technique in industry; local conditions enforced civilization upon Sumer. Thus it is hardly a paradox to say that the Sumerians were, in their day, the world’s best metal workers because they had no metal of their own…[12]

In order to facilitate exchanges, a medium of exchange was established by the temples. Initially, it was the weight of barley, the principal crop of Mesopotamia. Barley being a natural product and highly variable, was soon replaced by weights of metal which are much more consistent as we enter the Bronze Age:

The original medium of exchange, natural in a land pre-eminently agricultural, had been grain–just as the original unit of weight was a barleycorn. With the introduction of metal a second medium was added, copper, the ratio between them being fixed, so that in a written assessment of price both media would be mentioned, or either. Later, as wealth increased, silver and gold came in as standards; gold (in the form of rings) came very seldom into actual use, but silver, weighed in the balance and duly tested for quality (though it might be guaranteed by a stamp such as ‘the seal of Babylon’) was normal currency; thus in Hammurabi’s Code agricultural wages and hiring rates are reckoned in grain, but those of the townsman in silver, while at the same time the concession is made that if a debtor has not money (i.e. silver) or corn to pay but has goods, ‘he shall give to his merchant according to what he has brought, and the merchant shall not object’. [13]

Recently, a “pay stub” was discovered showing that state workers were paid not in money, but in beer:

Ancient Pay Stub Shows Workers Were Paid In Beer (NPR)

Rather than a laissez-faire system, the activities of the private merchants were strictly regulated:

…Foreign trade required heavy financial backing, and it was essential that the merchants should be suitably financed. Moreover, to be successful, trade must be honestly conducted, and therefore commercial dishonesty of any kind, or anything that opened the door to fraud in business, was severely punished. Every transaction in real estate, loans and, in certain conditions, sales had to be put in writing, with the names of the parties recorded; without that, no claim by a professed lender or seller was valid.

To buy, or to receive on deposit, a man’s property from his son or his slave (i.e. from other than the responsible owner) without a written bond duly witnessed, involved the death penalty. The use of false weights or measures annulled any claim made by the creditor, and the prudent merchant therefore employed weights engraved with the guarantee of the state department. The creditor on his side could require a pledge as security for his loan, and this might mean that the debtor, if he had no land or house to his credit, might hand over his wife or his children as slaves; by Hammurabi’s Code such bondage was for three years only, but in later times no limit was put to its duration so long as the debt was unredeemed.

Straight dealing in the town bazaars could be ensured by a competent police force, and petty fraud, easily defined, was a matter for the local courts; the strenuous legistation to which our sources bear witness was drawn up in the interests of foreign trade. It was in the sphere of international commerce that the Sumerian and later the Babylonian people displayed an initiative and a genius for organization which was to affect profoundly the history of man. [14]

The long-distance trade was conducted by family-owned firms who managed a series of long-distance trading outposts. While they are often described as the first private merchants and the beginning of capitalism, Polanyi calls this “marketless trading.” As he describes it, there was no risk, and prices for commodities were essentially fixed by the state. Instead of arbitrage, firms would receive a commission on the amount of turnover passing through their storehouses. That is, the government would rely on these firms to manage the procurement of long-distance commodities, with a stipend paid for performing this valuable service. These were not markets or corporations in any modern capitalist sense of the term.

Economic activities under advanced market conditions may resemble similar activities under premarket conditions while their function is quite different. The distinction between pre- and postmarket should help to avoid that “inverted perspective,” as it might be called, which sometimes induced historians to see strikingly “modern” phenomena in antiquity where in fact they were faced by typically primitive or archaic ones. [15]

The traders of the karum of Kanish were not merchants in the sense of persons making a living out of the profit derived from buying and selling, i.e. price differentials in regard to the transaction in hand. They were traders by status, as a rule by virtue of descent or early apprenticeship, in other cases maybe, by appointment. Unless the appointment was accompanied by a substantial land grant…their revenue derived from the turnover of goods on which a commission was earned. This was the original source of all “profit,” i.e., that pool of goods, including silver, in which eventually the internal members of the firm as well as the external ones, i.e. creditors and partners shared. [16]


While Sir Leonard Wooley seems to be an advocate of the Mesopotamian approach, it should be noted that “free market” society based around usury was extraordinarily unstable, subject to constant regime changes and state collapses. Economic historian Douglass North writes that Mesopotamia in this period was “invaded and overrun by Indo-Europeans (Hittites) and Semites (Amorites); as a result there was a bewildering succession of rulers and empires of varying size.” Michael Hudson argues that debt bondage was major factor in this instability.

Egyptian culture, by contrast, was remarkably stable, with only two major disruptions: one caused by social disintegration due to low Nile floods as a result of the 4.2 kiloyear event (which also ended Sargon’s Akkadian empire and the probably the Indus Valley civilization), and the invasions of the Hyksos as part of the great Bronze Age collapse which afflicted the whole eastern Mediterranean. Jeremy Grantham once pointed out that if all the wealth of Egypt at the beginning of the Old Kingdom was represented by one cubic meter of stuff, by the end of the New Kingdom over 3,000 years later, growing at an average “modern” rate of 4.5 per cent, Egypt’s “wealth” would be larger than our solar system and expanding outward at a nearly infinite rate.

To point to the ludicrous unsustainability of…compound growth I suggested that we imagine the Ancient Egyptians whose gods, pharaohs, language, and general culture lasted for well over 3,000 years. Starting with only a cubic meter of physical possessions (to make calculations easy), I asked how much physical wealth they would have had 3,000 years later at 4.5% compounded growth…And the answers [from econometricians] came back: “Miles deep around the planet,” “No, it’s much bigger than that, from here to the moon.” Big quantities to be sure, but no one came close. In fact, not one of these potential experts came within one billionth of 1% of the actual number, which is approximately 1057, a number so vast that it could not be squeezed into a billion of our Solar Systems.

“Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever” (ThinkProgress)

The Phoenicians

We know that the Phoenicians were the great traders all across the Mediterranean, spreading things such as the alphabet and various exchange techniques, but we know almost nothing of how they did it.  The monuments and clay tablets of Egypt and Mesopotamia are lacking; instead we have mainly weights and measures:

The Phoenician ships did not yet venture across the open sea; theirs was a cabotage trade along the Syrian coast and no farther out than Cyprus, itself in sight from the mainland, but the ramifications of their commerce penetrated far. Excavation on a Phoenician site brings to light a remarkable medley of weights: side by side with the Phoenecian shekel of 224 grammes, itself probably a corruption of the 258-grammes Babylonian shekel and Egyptian sep and deben weights, as well as units of other systems not yet identified; it is clear that the merchants of Tyre and Sidon were dealing with a mixed clientele which included citizens of all the principal countries around them.

This international trade was a very important factor in the progress of man’s civilization that it resulted in an interchange of inventions and ideas between peoples who might never have been brought into contact with Phoenicians and the Cretans, also a commercial people whose sea-going ships had a wider range, acted as the middlemen of a cultural exchange so general in its scope and so fertilizing in its spirit that in the thirteenth century BC we can speak of an ‘Eastern Mediterranean’ civilization.

The effects were indeed profound, but of the machinery by which they were realized we know very little. Texts from Ugarit show that the various states were in accord to protect the interests of their travelling merchants, but no documents survive to explain the organization of the Pheonecian market or the accountancy system employed by Phoenecian financiers. The silence is the more curious in view of the fact that commerce was the sole reason for the existence of these maritime states; everybody was engaged in trade. [17]

The Phoenician economic model in 1100-800 BCE can be described as ‘transnational’: mine Spanish silver, work it in Greece, sell in Levant:

We have scant knowledge of the economy worked in other early cultures outside of Egypt and Mesopotamia at this time:

We have not the evidence to show how far such a system was worked in lands other than Mesopotamia. The presence of Indians at Ur suggests something of the sort, but there are no documents to supplement the witness of the seals, and for China in the Shang period even archeological evidence fails us. [18]

David Graeber sums up the differences between ancient Egypt and ancient Mesopotamia:

One [system] is what you found in Egypt: a strong centralized state and administration extracting taxes from everyone else. For most of Egyptian history they never developed the habit of lending money at interest. Presumably, they didn’t have to.

Mesopotamia was different because the state emerged unevenly and incompletely. At first there were giant bureaucratic temples, then also palace complexes, but they weren’t exactly governments and they didn’t extract direct taxes – these were considered appropriate only for conquered populations. Rather they were huge industrial complexes with their own land, flocks and factories. This is where money begins as a unit of account; it’s used for allocating resources within these complexes.

Interest-bearing loans, in turn, probably originated in deals between the administrators and merchants who carried, say, the woollen goods produced in temple factories (which in the very earliest period were at least partly charitable enterprises, homes for orphans, refugees or disabled people for instance) and traded them to faraway lands for metal, timber, or lapis lazuli. The first markets form on the fringes of these complexes and appear to operate largely on credit, using the temples’ units of account. But this gave the merchants and temple administrators and other well-off types the opportunity to make consumer loans to farmers, and then, if say the harvest was bad, everybody would start falling into debt-traps.

This was the great social evil of antiquity – families would have to start pawning off their flocks, fields and before long, their wives and children would be taken off into debt peonage. Often people would start abandoning the cities entirely, joining semi-nomadic bands, threatening to come back in force and overturn the existing order entirely. Rulers would regularly conclude the only way to prevent complete social breakdown was to declare a clean slate or ‘washing of the tablets,’ they’d cancel all consumer debt and just start over. In fact, the first recorded word for ‘freedom’ in any human language is the Sumerian amargi, a word for debt-freedom, and by extension freedom more generally, which literally means ‘return to mother,’ since when they declared a clean slate, all the debt peons would get to go home.

What is Debt? – An Interview with Economic Anthropologist David Graeber (naked Capitalism)

Ancient Greece.

The precursors to classical Greek civilization were the Minoan and Mycenaean civilizations. The Minoan civilization seems to have come to and end with the volcanic eruption of Thera. Its successor was the Mycenaean civilization, which was tied in to the first great “global economy” of the Bronze Age, which crumbled after 1170 BC in a series of outside invasions and state failures, probably partly as a result of climate change. Both were organized as a palace economy, as we have seen. Economists Daren Acemoglu and James Robinson write (emphasis mine):

How did the economy of the Greek Bronze Age states work? These states were based on a city where the political elite lived. We have a unique record of the activities of these polities because many clay ‘Linear B’ tablets written by state administrators have survived. Fascinatingly, these tablets have only survived from the period right before these states were destroyed in conflicts (think Troy…). The palaces were burned down, we don’t really know by who (the Sea People?), and the fire baked and preserved the clay. The tablets basically are state records of taxation and industrial production. There was no money and apparently no markets…

The state seems to have taxed agricultural output, though we do not know to what extent they directly owned land. They seem to have controlled nearly all industrial production, for instance of textiles, ceramics, tools and weapons. They monopolized trade, and Killen characterizes trade as a type of reciprocal gift-exchange. This was useful probably because Knossos, for example, one of the best studied of the bronze age states, had neither copper nor tin locally and thus had to import them from outside via this type of exchange.

Since there was no money, the state basically moved around all of the goods itself by fiat. It supplied food and inputs to weavers and then took their output. It stored large amounts of food and goods in the palace complex.

As Killen puts it:

“the key role in the movement of goods and the employment of labour was played, not by a market or money, but by a central redistributive agency… in the Mycenaean world, by a central palace.”

Killen concludes:

“this was a redistributive (or command) economy.”

Central Planning in History – The Greek Bronze Age (Why Nations Fail)

In the power vacuum, Dorian invaders came down through the Balkans and colonized Greece, forming the basis for classical Greek culture. The geography of Greece, shot through with mountains, waterways and rocky soil, ensured that, like Mesopotamia, Greece developed as a network of independent, yet culturally affiliated, city states trading among one another. Rather than empires, Greek city states formed Koina – leagues or commonwealths.The basis of economic production was the oikos, or household:

The oikos was the basic unit of society in most Greek city-states. In normal Attic usage the oikos, in the context of families, referred to a line of descent from father to son from generation to generation. Alternatively, as Aristotle used it in his Politics, the term was sometimes used to refer to everybody living in a given house. Thus, the head of the oikos, along with his immediate family and his slaves, would all be encompassed. Large oikoi also had farms that were usually tended by the slaves, which were also the basic agricultural unit of the ancient economy.

Ancient Greece was a slave-based economy, and also like ancient Mesopotamia, people were constantly falling into debt slavery due to the concentration of wealth, thereby threatening the stability of society. The Greek lawmaker Solon, like Hammurabi before him, passed a series of reforms designed to limit debt peonage and free the debt slaves, preserving the Athenian culture. Thus, we see that the complete “hands off” attitude toward the economic laws of society advocated by libertarians leads always to the same effect: a malfunctioning society of debt serfs enslaved by the one percent, social stagnation, and collapse.

Recently, a new book by Josiah Ober of Standford University argues that the ancient Greek economy was more prosperous and dynamic than previously assumed. From a review:

…Among the more interesting findings: the Greek economy as a whole (not just Athens) grew steeply from 1000-300 B.C.E.; the economy continued to grow in the fourth century, a period sometimes thought of as one of decline; the economy was more urbanized, less reliant on subsistence agriculture, and more diversified than previously thought; and wealth appears to have been relatively equitably distributed (Athens’ Gini coefficient is similar to that of 1950s America), with a significant portion of residents enjoying a decent lifestyle above subsistence (he estimates between 42 and 58 percent of the total population, including non-citizens and slaves).

Beyond the numbers and charts, Ober’s qualitative description of the Greek economy is strikingly modern: high levels of specialization and market competition placed “a high premium on innovation and entrepreneurship,” resulting in a dynamic of “creative destruction” (p. 12). This is a far cry from Moses Finley’s classic model of the ancient economy. According to Finley’s Ancient Economy (1973), social norms and desire for status impeded the development of markets, productive investment, and innovation.

Two examples illustrate the distance between Ober’s and Finley’s methods and conclusions. Finley offers two anecdotes, one from a piece of fiction, the other likely an apocryphal story, to help illustrate his thesis (both come from Rome, but Finley was describing what he viewed as a common Greco-Roman mindset). First is the story of Trimalchio, a character in Petronius’ Satyricon: he is a freedman who makes a fortune in the shipping business, but this businessman is, to Finley, the antithesis of an entrepreneur: he gives up the business to buy a landed estate and live the life of an aristocrat. Finley also includes the story of a man who invented unbreakable glass. Rather than attempt to bring this innovation to market, the man brought the invention to the emperor Tiberius in the hopes of a reward. Tiberius executed him, and suppressed any knowledge of the invention for fear that it would affect the value of gold.

Was Finley right? His anecdotes are hard to shake, but in the forty-odd years since the publication of Finley’s Ancient Economy, we have learned from archaeology and epigraphy that there was more specialization and urbanization in Greece than previously thought. Many scholars now believe that Finley put too much faith in aspirational statements of ideology and underestimated the extent of commerce, markets, and market-based behavior. Nevertheless, Ober’s depiction of Greece as a hotbed of innovation and entrepreneurship, with free-flowing movement of labor and ideas between city-states, is on the far modernist end of the spectrum of views of the Greek economy.

Ober argues that Greece’s economic exceptionalism can be explained by distinctive political institutions and a civic culture that promoted relatively open markets, innovation, and rational cooperation. He argues that a commitment to rule egalitarianism, characterized by citizen-centered government, an expectation of fair and equal treatment from officials, and impartial dispute resolution procedures, encouraged investment in social and human capital and lowered transaction costs. Competition in market-like systems drove innovation and rational cooperation, promoting economic growth. Economic growth, in turn, made the cultural achievements that we associate with Greece possible. Ober also provides an account for Greece’s fall from political independence: the innovative Philip of Macedon selectively incorporated some of Greece’s institutional and military innovations into his centralized, authoritarian regime and used them to conquer the Greek states.

The Stanford School of Ancient History (The New Rambler)

The ancient Greek kingdom of Lydia was apparently the first state to introduce coinage in around 800 BC, thousands of years after the first states. We’ll look at that later.

Ancient Peru:

We see a very similar structure in ancient Peru and Ecuador to what we witnessed in the Old World. The leaders of the Andes region were also redistributor chiefs who collected the fruits of labor throughout the kingdom and redistributed. Like all the other ancient kingdoms so far, the Inka (technically a term referring to the leader, like Pharaoh) engaged in massive construction works, with marvelous stonework shaped without the use of metal tools that amazes even us in our modern world. The Andean road system, in some ways, is superior to our road systems today.

Inca Road: The ancient highway that created an empire (BBC)

In his epic 1491: New Revelation of the Americas Before Columbus, Charles Mann details the essential features of the Inka empire (emphasis mine):

In 1491 the Inka ruled the greatest empire on earth. Bigger than Ming Dynasty China, bigger than Ivan the Great’s expanding Russia, bigger than Songhay in the Sahel or powerful Great Zimbabwe in the West Africa table-lands, bigger than the cresting Ottoman Empire, bigger than the Triple Alliance (as the Aztec empire is more precisely known), bigger by far than any European state, the Inka dominion extended over a staggering thirty-two degrees of latitude–as if a single power held sway from St. Petersburg to Cairo. The empire ecompassed every imaginable type of terrain, from the rainforest of upper Amazonia to the deserts of the Peruvian coast and the twenty-thousand-foot peaks of the Andes between. “If imperial potential is judges in terms of environmental adaptability,” wrote the Oxford historian Felipe Fernandez-Armesto, “the Inka were the most impressive empire builders of their day.”

The Inka goal was to knit the scores of different groups in western South America–some as rich as the Inka themselves, some poor and disorganized, all speaking different languages–into a single bureaucratic framework under the direct rule of the emperor. The unity was not merely political: the Inka wanted to meld together the area’s religion, economics, and arts. Their methods were audacious, brutal, and efficient: they removed entire populations from their homelands; shuttled them around the biggest road system on the planet, a mesh of stone-paved thoroughfares totalling as much as 25,000 miles; and forced them to work with other groups, using only Runa Sumi, the Inka language, on massive faraway state farms and construction projects. To monitor this cyclopean enterprise, the Inka developed a form of writing unlike any other, sequences of knots on strings that formed a binary code reminiscent of today’s computer languages. So successful were the Inka at remolding their domain, according to the late John H. Rowe, an eminent archaeologist at the University of California at Berkeley, that Andean history “begins, not with the Wars of [South American] Independence or with the Spanish Conquest, but with the organizing genius of [empire founder] Pachacuti in the fifteenth century.”

Not only did Pachakuti reconfigure the capital, he laid out the institutions that characterized Tawantinsuyu itself. For centuries, villagers had spent part of their time working in teams on community projects. Alternately bullying and cajoling, Pachakuti expanded the service obligation unrecognizably. In Tawantinsuyu, he decreed, all land and property belonged to to the state (indeed, to the Inka himself). Peasants thus had to work periodically for the empire as farmers, herders, weavers, masons, artisans, miners, or soldiers. Often crews spent months away from home.

While they were on the road, the state fed, clothed, and housed them–all from goods supplied by other work crews. conscripts built dams, terraces, and irrigation canals; they grew crops on state land and raised herds on state pastures and made pots in state factories and stocked hundreds of state warehouses; they paved the highways and supplied the runners and llamas carrying the messages and goods along them. Dictatorially extending Andean verticality, the imperium shuttled people and materiel in and out of every Andean crevice.

Not the least surprising feature of this economic system was that it functioned without money. True, the lack of currency did not surprise the Spanish invaders–much of Europe did without money until the eighteenth century. But the Inka did not even have markets. Economists would predict that this nonmarket economy–vertical socialism, it has been called–should produce gross inefficencies. These surely occurred, but the errors were of surplus, not want. The Spanish invaders were stunned to find warehouses overflowing with untouched cloth and supplies. But to the Inka the brimming coffers signified prestige and plenty; it was all part of the plan. Most important, Tawantinsuyu “managed to eradicate hunger,” the Peruvian novelist Mario Vargas Llosa noted. Though no fan of the Inka, he conceded that “only a very small number of empires throughout the whole world have succeeded in achieving this feat.” [19]

So we see that the state participating in “job creation,” anathema to libertarians, actually goes back to very ancient roots of our economies. Only our devotion to the ideology of the “free market” prevents this sort of thing from happening today.

Acemoglu and Robinson add:

In the Inca Empire, all the land was the Inca’s and large parts were allocated to the Temple of the Sun and other religious cults, others to the army, and yet others to the Crown. The rest which the state did not claim was granted to local communities for their subsistence production. The state lands, distributed throughout the empire, were then worked for free by the local people using various forms of corvée labor. Local people also had to weave llama wool given to them for this purpose by the state.

There seems to have been little or no market exchange but instead the state moved people into different areas where different crops could be grown, the so-called archipelago economy, and then distributed the goods by fiat. For example, Inca administrators who supervised the farming of crown lands would arrange for some of the goods to be moved to Cuzco or other regional capitals, while another part would be stored locally in warehouses. This system, vividly described by the anthropologist John Murra in his book The Economic Organization of the Inka State was a vast system of central planning developed without the aid of Das Kapital or indeed Eurasian role models.

It seems that like farming or democracy, central planning was independently invented many times over in world history. As Murra put it (page 121):

“The Inca state functioned like a market: it absorbed the surplus production of a self-sufficient population and “exchanged” it by feeding the royals, the army and those on corvée as well as by issuing a lot of it as grants or benefactions”

Central Planning in History – Tawantinsuyu (Why Nations Fail)
The Inka people apparently had to work only 65 days a year to procure what they needed, and as noted above, there was no extreme poverty or want. That’s something to consider given the extreme hours worked in modern societies alongside poverty and uncertainty.

So we see, there is nothing “universal” about markets or economic systems: there were many different ways of organizing an economy distinguished by practical concerns rather than strict ideologies like communism or libertarianism.

In ancient times, people were plagued by numerous sources of uncertainty: famines, droughts, earthquakes, tsunamis, volcanic eruptions, a changing climate, plagues, disease, invasions, and so forth. Today, in contrast, our recurring crises are wholly artificial creations caused by our devotion to the Market “god,” which seems eerily like the devotion of ancient people to their capricious deities. A professional class of economists acts as our high priests (except ancient diviners were probably more accurate at prediction).

Next: Where did money come from?

[1] Marvin Harris, Cannibals and Kings, p.237

[2] ibid. pp. 237-238

[3] William H. McNeill, quoted in Peter Jay, The Wealth of Man, p. 21

[4] Sir Leonard Woolley, The Beginnings of Civilization, pp. 321-322

[5] ibid. p. 352

[6] ibid. pp. 322-323

[7] ibid. p. 324

[8] ibid. p. 323

[9] ibid. p. 324

[10] ibid. p. 325

[11] ibid. p. 330

[12] ibid. pp. 329-330

[13] ibid. pp. 331-332

[14] ibid. pp. 332-333

[15] Karl Polanyi, Marketless Trading in Hammurabi’s Time; in “Trade and Market in the Early Empires,” Karl Polanyi et. al., editors. p. 15

[16] ibid. pp. 19-20

[17] Sir Leonard Woolley, The Beginnings of Civilization, pp. 341-342

[18] ibid. p. 341

[19] Charles C. Mann, 1491: New Revelations of the Americas Before Columbus, pp. 64-65, 73-74


The Black Country

note: we will return to our regularly scheduled topic next time.

What is there to say about Brexit that hasn’t already been said?

Well, one thing, at least. One fact that I find of significance but haven’t seen pointed out anywhere else so far is that one of the highest proportions of places voting “yes” was the English Midlands:


Why is that significant? Well, mainly for symbolic reasons. You see, the English Midlands was the birthplace of the Industrial Revolution. A revolution that seems to have run its course.

One area of particular significance  to the Industrial Revolution was called the Black Country. The Black Country has a long history in industrialism; it was the site of significant proto-industrialization which laid the groundwork for Britain’s formal Industrial Revolution going as far back as the 1600’s. It is centered around Birmingham and consists of the boroughs of Dudley, Sandwell, and Walsall.

And how did these areas vote in Brexit? All of them went for it, some by significant margins:

  • Dudley

    Leave 67.6%
    Remain 32.4%

  • Sandwell

    Leave 66.7%
    Remain 33.3%

  • Walsall

    Leave 67.9%
    Remain 32.1%

  • Birmingham

    Leave 50.4%
    Remain 49.6%

  • Wolverhampton

    Leave 62.6%
    Remain 37.4%

EU referendum: The result in maps and charts (BBC)

I’ve often remarked at the irony that the very places where civilization first began–Syria and Iraq–are the most dramatic exhibits in civilizational collapse right now. Another irony – Europe’s most collapsing state is the cradle of Western culture – Greece. Well, here’s another irony: the birthplace of the Industrial Revolution may be one of the first areas in putting the elites on notice that deindustrialization has been a colossal failure, and that the globalist paradigm cannot continue.

It is one of the standard tenets of this blog that the deindustrial economy has been a failure, and that furthermore, we have nothing to replace it with. Our leaders can do nothing under the existing paradigm. We have been in a concealed depression since 1972. All our current crop of leaders can do is to lie and obfuscate to cover-up this state of affairs even as society continues to unravel. They’ve been trying to convince us that the hollowing out of entire countries is just the normal state of affairs, and that it was not the effect of very specific political choices.

Economic “science” was deployed in the late nineteenth century to replace what was formerly known as political economics. Its role was to claim that the economy was totally separate from the political sphere, and subject to “natural” laws as pure as the laws of physics and chemistry. Global trade is one of these, they argued. Politics must never “interfere” with these laws, according to the economic priesthood. The messy democratic process can only hinder prosperity, which can only be developed by total freedom of the merchants to do as they please, the argument went. The core aim of the project was to remove all democratic oversight from the economy whatsoever, and to justify that state of affairs.

Once people finally got a voice in the political sphere, they took advantage of it. A protest vote to be sure, but when it’s the only one you’ve got, well…

The incompetence and self-serving mismanagement of the current crop of elites has done nothing but enrich a tiny group of oligarchs at the cost of the hollowing out entire societies for over a generation now. All they are doing is “managing decline” while telling us it will “eventually” get better, even though “eventually” has been absent for decades. Just like a South Sea cargo cult, we’re going through the motions hoping that prosperity will somehow return if we just do what we did before.

Here’s what Wikipedia has to say about the industrial world’s “sacrifice zones”:

The term de-industrialisation crisis has been used to describe the decline of labour-intensive industry in a number of countries and the flight of jobs away from cities. One example is labour-intensive manufacturing. After free-trade agreements were instituted with less developed nations in the 1980s and 1990s, labour-intensive manufacturers relocated production facilities to Third World countries with much lower wages and lower standards. In addition, technological inventions that required less manual labour, such as industrial robots, eliminated many manufacturing jobs.

About those areas, a common theme emerges:

The heavy industry which once dominated the Black Country has now largely gone. The twentieth century saw a decline in coal mining and the industry finally came to an end in 1968 with the closure of Baggeridge Colliery near Sedgley. Clean air legislation has meant that the Black Country is no longer black. The area still maintains some manufacturing, but on a much smaller scale than historically. Chainmaking is still a viable industry in the Cradley Heath area where the majority of the chain for the Ministry of Defence and the Admiralty fleet is made in modern factories.

Much but not all of the area now suffers from high unemployment and parts of it are amongst the most economically deprived communities in the UK. This is particularly true in parts of the boroughs of Sandwell, Walsall and Wolverhampton. According to the Government’s 2007 Index of Deprivation (ID 2007), Sandwell is the third most deprived authority in the West Midlands region, after Birmingham and Stoke-on-Trent, and the 14th most deprived of the UK’s 354 districts. Wolverhampton is the fourth most deprived district in the West Midlands, and the 28th most deprived nationally. Walsall is the fifth most deprived district in the West Midlands region, and the 45th most deprived in the country. Dudley fares better, but still has pockets of deprivation.

As with many urban areas in the UK, there is also a significant ethnic minority population in parts: in Sandwell, 22.6 per cent of the population are from ethnic minorities, and in Wolverhampton the figure is 23.5 per cent…Resistance to mass immigration in the 1950s, 1960s and 1970s led to the slogan “Keep the Black Country white!”.

The Black Country suffered its biggest economic blows in the late 1970s and early 1980s, when unemployment soared largely because of the closure of historic large factories including the Round Oak Steel Works at Brierley Hill and the Patent Shaft steel plant at Wednesbury. Unemployment rose drastically across the country during this period as a result of the Thatcher government’s neo-liberal economic policies…

Unemployment in Brierley Hill peaked at more than 25% – around double the national average at the time – during the first half of the 1980s following the closure of Round Oak Steel Works, giving it one of the worst unemployment rates of any town in Britain.

The sillon industriel was the first fully industrialized area in continental Europe. Its industry brought much wealth to Belgium, and it was the economic core of the country. This continued until after World War II, when the importance of Belgian steel, coal and industry began to diminish. The region’s economy shifted towards extraction of non-metallic raw materials such as glass and soda, which lasted until the 1970s. The days of prosperity were gone, however, and a trend of unemployment and partial economic dependence on the formerly poorer Flemish Region began, and continues to this day.

In the twentieth century local economies in these states specialized in large scale manufacturing of finished medium to heavy industrial and consumer products, as well as the transportation and processing of the raw materials required for heavy industry. The area was referred to as the Manufacturing Belt, Factory Belt, or Steel Belt as opposed to the agricultural Midwestern states forming the so-called Corn Belt, and Great Plains states that are often called the “breadbasket of America”.

The flourishing of industrial manufacturing in the region was caused in part by the close proximity to the Great Lakes waterways, and abundance of paved roads, water canals and railroads. After the transportation infrastructure linked the iron ore found in northern Minnesota, Wisconsin and Upper Michigan with the coal mined from Appalachian Mountains, the Steel Belt was born. Soon it developed into the Factory Belt with its great American manufacturing cities: Chicago, Buffalo, Detroit, Milwaukee, Gary, Cincinnati, Toledo, Cleveland, Akron, Youngstown, St. Louis and Pittsburgh among others. This region for decades served as a magnet for immigrants from Austria-Hungary, Poland and Russia who provided the industrial facilities with the inexpensive labor resources.

Following several “boom” periods from the late-19th to the mid-20th century, cities in this area in the end of the century started to struggle to adapt to a variety of adverse economic and social conditions. They include: the US steel and iron industries’ decline, the movement of manufacturing to the southeastern states with their lower labor costs, the layoffs due to the rise of automation in industrial processes, a decreased need for labor in making steel products, the internationalization of American business, and the liberalization of foreign trade policies due to globalization. Big and small cities that struggled the most with these conditions soon encountered several difficulties in common, namely: population loss and brain drain, depletion of local tax revenues, high unemployment and crime, drugs, swelling welfare rolls, poor municipal credit ratings and deficit spending…

Look, this isn’t esoteric knowledge, this is Wikipedia, for crying out loud! Yet our elites seem to not be aware of any of this, proclaiming with a straight face that we’ve never had it better. Do they seriously not know the above facts? Could they really not see this coming? Did they seriously think that putting their citizens in head-to-head competition with billions of the world’s poorest workers would somehow not have this effect? Could anyone be that stupid?

The voters aren’t stupid. They know this system has been a failure. They can see it with their own eyes! It’s led to:

  •  Low-wage service jobs.
  • “Bullshit” jobs that seem to have no reason to exist.
  • Temporary and precarious employment. Multiple jobs just to make ends meet.
  • Underemployment.
  • Overwork and underwork (too few or too many hours).
  • Absurd and extreme hoop-jumping for even the simplest jobs.
  • Refusal to invest so much as a penny in training new hires.
  • Dumping all the costs of training onto the backs of already strapped workers.
  • Ghettos.
  • Mass layoffs.
  • A rollback of employee benefits. Elimination of guaranteed pensions and retirement.
  • Extreme wealth and income inequality.
  • An exponential rise in consumer debt.
  • Soaring housing costs and gentrification.

We’ve been waiting for the “next big thing” for forty years now. It’s like waiting for Godot. Name one thing that’s gotten better in the social sphere in the past two decades.

IT delivered some relief, but that is clearly gotten to the point where it a net job destroyer. New industries in biological and materials science, engineering and programming require a small fraction of the labor of old. There are far more newly-minted lawyers, doctors, and MBA’s than there are spots available for them.

Just like an ecosystem, if the base of the pyramid – the autotrophs–fail, everything in the food chain is threatened. The removal of manufacturing jobs killed the base of the economy, and we’ve nothing to replace it with. The old, agrarian economy was destroyed, as was the family structure, in the service of industrialism. Now, those who profited want to walk away from the destruction they’ve wrought as though entire societies were no more than an abandoned mine or exhausted coal seam.

We’ve also seen an unprecedented assault on social safety nets all around the world, even as jobs continue to vanish and poverty metastasize. Governments all over are perennially “tightening their belts,” even as the private sector makes record profits and washes its hands of the need for labor. Desperate people have nowhere else to turn. Local governments respond by criminalizing homelessness and jailing and fining large portions of their populations.

What often forgotten is that even the “winners” of this system are having a horrible time of it. Even for the celebrated “college educated professional” or “STEM worker” the following conditions apply:

  • “Always on duty” thanks to the digital tether. “Laptop on the beach” syndrome.
  • Must show “passion” and dedication” just to have a job at all. Arrive early and leave late. Be an eager beaver. Cult-like atmospheres predominate.
  • Escalating education requirements. Master’s degrees and pH.D’s required for jobs which formerly only required a Bachelor’s degree or less.
  • Neverending certifications and “lifetime learning” just to keep your job
  • Staggering student debt burdens.
  • Stakhanovite work ethics; sacrificing one’s physical and mental health and social relationships for the job.
  • Workplace bullying and Machiavellian office politics.
  • Abuse of employees too scared to quit. This is especially bad where healthcare is tied to the job (the U.S.)
  • Impossible work deadlines. Stress.
  • Overspecialization.
  • The constant threat of replacement, and having to train that replacement.
  • Cost cutting measures to boost stock prices (laying off people and expecting the remainder to pick up the slack).
  • Self medication using Ritalin, Adderall, Modafinil, energy drinks, and other stimulants and psychotropic drugs. Widespread antidepressant use. Medication of children as young as five.
  • Extreme pressure on the children of elite professionals to excel from birth or be labelled a failure and an outcast. Intense competition driving many children to suicide.

That doesn’t sound that great to me, how about you? And those are the much-vaunted “winners” who justify the devastation wrought on those who “can’t keep up.” Thus, the idea that the “cognitive elite” are somehow doing great is baffling to me: they are burned out, heavily in debt, and stressed to the breaking point.

The proliferation of low-wage service jobs has made people desperate to get into the few remaining “good” jobs available where they can accumulate some savings and aren’t treated like a drooling meat sack, in a vicious zero-sum game. And those who are already in those positions know that their middle class status is always conditional and can vanish at any time without warning. One stumble and you might find yourself in a debt snowball that will last the rest of your life. A feeling of terror permeates workers in the economy except for those safely ensconced in the one percent or with dynastic wealth.

As colleges became the tollbooth to any job at all thanks to corporate America, they have became predatory institutions (ludicrously blamed on government education spending – why doesn’t Europe have the same problem, then?). Access to education is primarily located in expensive urban areas and costs a small fortune. No wonder there are such stark class divisions. All the post-industrial economy seems to create are “summer jobs.” It creates a number of supervisory positions, but only for the wealthy and well-connected. For the rest of us, there is a lifetime of stress and uncertainty.

The deindustrialization of the West has left a hollowed-out two-tier society that is unraveling. It is a way of life with no future.

There simply aren’t enough jobs for everyone in a post-Fordist system. Period. full Stop.

When we mechanized agriculture, we absorbed the people into the factories. Allegedly, we’d all be in “services” by now. But as services are automated away, no one can offer a reasonable alternative besides just, “wait and see.

Workplace participation has been declining for decades for men as women displaced them in the workplace, and for workers across the board in the last few years.

Low wage service work is not going to sustain an economy.

Unemployment and the tragic waste of human potential is driving everything from crime to drugs to terrorism to reactionary nationalism to racism to Jihad.

As the agrarian/rural way of life continues to be destroyed thanks to industrialized agriculture, millions have no choice but to continue to flee to the overcrowded slums of the world’s megacities, even as such cities are running low on water and being devastated by climate change, with entirely new diseases emerging. Now there will be no jobs for people when they get there. What are they supposed to do besides form gangs and militia movements like the Taliban, Boko Haram, the Islamic State? Maybe it’s time for a rethink.

And the response of our so-called “leaders” has been nothing more than palliative half-measures, distractions, and meaningless platitudes:

  • Calls for more education and worker retraining.
  • School “reform”.
  • “Enterprise zones”.
  • Generous subsidies to big business and the wealthy.
  • Startups.
  • Entrepreneurship.
  • Mass immigration to “grow” the economy.
  • 3D printing, smartphones, electric cars and solar power (i.e. “Elon Musk will save us!!!”).

Come on, does anyone take any of the above things seriously anymore? Eyerolling is the appropriate response.

Globalism and open borders have been forced upon people from above, and the people have had no say in it whatsoever to this point. It is a standard tenet of Neoliberalism to make sure that democratic forces can never have any effect on economic forces. Neoliberalism ensures that “natural” economic forces are free from all government “interference” (such as tariffs, industrial policy and job creation). It ensures that governments are perennially starved of funds and stripped of real decision making power, meaning citizens have no voice (except to buy or sell in the Market). And it demands that labor is appropriately “disciplined” to keep inflation at bay. Did no one see the problems with this concept?

Is it any surprise that people will take any opportunity to reassert the self-determination that has been denied them under the aegis of Neoliberalism? People have had no way to vent their anger and impotence, until now. It’s a minor blow, and perhaps even irrational on some level, but people who are hurting will take any chance to inflict punishment upon those they don’t like, even if they themselves wind up as collateral damage, as the ultimatum game demonstrates. When you have very little, you don’t care if you suffer as long as someone else suffers more.

So, to state another essential premise of this blog: we are long overdue for the next major social change–technocratic fiddling around the edges just won’t cut it anymore. We are living through a civilizational crisis. We are on the cusp of a historical transition, and the flash points are in the places where the old order has been around the longest and has apparently run its course.