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


3 thoughts on “Karl Polanyi and the Modern World – Part 3

  1. This looks like a good one!

    I have to do some stuff, but will read and savor this latest mini-book, probably more than once. You are really doing good work.

    (Keep in mind my offer always stands, and if you want, email me.)

  2. Hey wait a minute, hunting and gathering might support 5 people per *square mile* under optimum conditions, not per acre!

    1. Yes, this is what I was thinking of:

      “Hunter-gatherers rarely exceed population densities of one per square mile. Farmers on land that is good for their particular version of agricultural technology can easily support many more than a thousand in the same space. The old “forty acres and a mule” for a family of six translates into a population density of roughly 100 per square mile. When those nearby who had become farmers decided that they wanted the hunter-gatherers’ or the herdsmen’s land, they took it: numbers of 100-to-1 or 1000-to-1 are not easy to argue with.”


      Text updated.

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